Arbitral Tribunal Can't Direct Interim Deposit Of Amount In Dispute When Liability To Pay Is Seriously Disputed : Supreme Court

A Bench comprising Justices M.R. Shah and B.V. Nagarathna partly allowed an appeal assailing the order of the Delhi High Court, which affirmed the order passed by the Arbitral Tribunal under Section 17 directing the appellant to deposit the entire rental amount even when the liability of the said amount was yet to be considered by it.

Factual Background

Two premises were leased out by the respondents to the appellant for running a Restaurant and Bar. The lease agreements were terminated by the respondents. The dispute was referred to arbitration. Applications under Section 17 of the Arbitration and Conciliation Act, 1996 were filed by the respondents seeking deposit of the rental amount due for the period between March, 2020 and December, 2021. The Arbitral Tribunal ("Tribunal") directed the appellant to deposit 100% of the amount payable to the respondents, which would be kept in fixed deposit accounts. The appeal under Section 37(2)(b), before the High Court was dismissed and the order of the Tribunal was affirmed.

Contentions raised by the appellant

Advocate, Ms. Aastha Mehta, appearing on behalf of the appellant had argued both the Tribunal and the High Court failed to appreciate the submission that in view of the lockdown, the premises were complete/partially closed and therefore, the appellant invoked the Force Majeure Clause, i.e., Clause 29 of the lease agreement to dispute the liability to pay the rent for the concerned period of time. It was contended that order passed by the Tribunal was akin to Order XXXVIII Rule 5 and the same could not have been passed without satisfying the conditions enumerated therein. Ms. Mehta submitted that the period between 22.03.2020 to 09.09.2020 then between 19.04.2021 and 28.06.2021 and finally between 11.01.2022 to 27.01.2022, the premises was completely closed due to lockdown and during the remaining period the appellant was permitted to run its business with only 50% capacity, that too from 12 noon to 10PM. The Court was informed that during the pendency of the proceedings before the Tribunal, the appellant had paid rent for the period from October, 2020 to March, 2021 and July 2021 to December, 2021.

Contentions raised by the respondents

Advocate, Ms. Shyel Trehan, appearing for the appellant, supported the order of the Tribunal in view of the fact that while the appellant continued to be in possession of the premises, it refused to pay rent. It was averred that neither Order XXXVIII Rule 5 nor Order XXXIX Rule 1 is applicable to the present case. Emphasis was laid on the finding of the High Court that outbreak of the pandemic might have adversely impacted appellant's business, but considering it was in possession of the premises, it was contractually obligated to pay rent.

Analysis by the Supreme Court

The Court noted that though the argument of Force Majeure was raised before the Tribunal, no opinion in this regard was provided by it. It opined that since the applicability of Force Majeure, which is the sheet anchor of the dispute, was yet to be considered by the Tribunal, it could not have passed an order to deposit the rent amount by way of an interim arrangement.

"Therefore, no order could have been passed by the Tribunal by way of interim measure on the applications filed under Section 17 of the Arbitration Act in a case where there is a serious dispute with respect to the liability of the rental amounts to be paid, which is yet to be adjudicated upon and/or considered by the Arbitral Tribunal. Thus, no such order for deposit by way of an interim measure on applications under Section 17 of the Arbitration Act could have been passed by the Tribunal."

But, the Court stated that the appellant was required to deposit the rental for the period other than when the premises was completely closed due to lockdown. The deposit of the rental for the period when there was complete closure would be subject to the outcome of the final adjudication.

"…it is directed that the appellant to deposit the entire rental amount for the period other than the period during which there was complete lockdown i.e., 22.03.2020 to 09.09.2020 and for the period between 19.04.2021 to 28.06.2021."

The appellant was directed to deposit the balance amount and the Tribunal was directed to conclude the proceedings within a period of nine months, subject to co-operation of the parties.

Case Name: Evergreen Land Mark Pvt. Ltd. v. John Tinson And Company Pvt. Ltd. And Anr.

Citation: 2022 LiveLaw (SC) 389

Case No. and Date: Civil Appeal No. 2783 of 2022 | 19 April 2022

Corum: Justices M.R. Shah and B.V. Nagarathna

Headnotes

Arbitration and Conciliation Act, 1996- Section 17 - Hence, the liability to pay the rentals for the period during lockdown is yet to be adjudicated upon and considered by the Tribunal. Therefore, no order could have been passed by the Tribunal by way of interim measure on the applications filed under Section 17 of the Arbitration Act in a case where there is a serious dispute with respect to the liability of the rental amounts to be paid, which is yet to be adjudicated upon and/or considered by the Arbitral Tribunal. Thus, no such order for deposit by way of an interim measure on applications under Section 17 of the Arbitration Act could have been passed by the Tribunal. [Para 6]

The appellant will therefore have to deposit the entire rental amount except the period for which there was complete closure due to lockdown. As the applicability of force majeure principle (clause 29) is yet to be considered at least, for the period during the complete closure, it would not be justified to direct the appellant to deposit the rental amount for the said period of complete closure by way of an interim measure, pending final adjudication. [Para 6]

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