M/S. BERKELEY LIFESTYLE BRANDS PRIVATE LIMITED v. M/S. RAJ BUILDERS PRIVATE LIMITED

10. Appellant nos. 3 to 5 claimed that they had requested RBPL to take possession of the demised premises on several occasions but RBPL had failed to do so. Thus, they claimed that they were not liable to pay the arrears of lease rent as claimed by RBPL. The appellants also relied upon Clause 24 of the lease deeds and on the strength of the said clause asserted that they were entitled to terminate the lease deeds on account of the force majeure event. They also claimed refund of the security deposit paid by them.

11. Appellant nos.[1] and 2 claimed that they had handed over possession of the basement and the first floor of the demised premises to RBPL on 31.03.2021 along with arrears of rent after adjusting the security deposit(s).

12. The appellants disputed RBPL’s claim for damages equivalent to the rent for the lock-in period. They contended that RBPL’s claim for damages for the lock-in period was not based on any genuine pre-estimate of loss and RBPL was required to establish the loss suffered to substantiate its claim.

13. RBPL claimed that Sh. Tript Singh had approached RBPL for leasing the demised premises. The basement, mezzanine, first, second and third floors of the demised premises were accessible from the rear staircase and thus, RBPL claimed that it was difficult to lease the said floors separately. According to RBPL, Sh. Tript Singh had approached it for taking all five floors on lease but insisted that the lease deeds in respect of the said floors be entered into with separate companies controlled by him for tax purposes. Thus, RBPL claimed that the commercial understanding was for leasing all RAWAL five floors together but separate lease deeds had been entered into with the appellants, respectively, at the insistence of Sh. Tript Singh. This assertion was disputed by the appellants. They claimed that each lease deed was a separate agreement and there was no impediment in leasing the floors separately to different parties.

IMPUGNED AWARD

14. On 31.03.2022, the Arbitral Tribunal framed the points of determination / issues. Paragraph 20 of the impugned award sets out the points of determination. The same are reproduced below: “(i) Whether the claimant is entitled to arrears of rent for the months of February 2020 to March 2021?

(ii) Whether the claimant is entitled for damages towards lock-in period for early termination of the Lease Deeds for the period April 2021 to November 2021?

(iii) Whether force majeure has been rightly invoked by the

(iv) Whether any claim is not maintainable against the Respondent

(v) Whether the claimant is entitled to legal costs incurred in securing possession of the building and prior to the commencement of these arbitration proceedings?

(vi) Whether the claimant is entitled to interest @ 18% on the awarded amount till realization of payment?

(vii) Whether respondent No.1 is liable towards outstanding sums payable to the Claimant?

(viii) Whether the Parties are entitled to costs of arbitration?”

15. The first and third points of determination were interconnected and the Arbitral Tribunal considered the same together. The Arbitral Tribunal considered the evidence led by the parties and the material on record and rejected the contention that the appellants had vacated the demised premises on 01.05.2020 as claimed by them. The Arbitral Tribunal also noted that the letters dated 15.04.2020, which were relied upon by the appellants did not specifically offer possession of the mezzanine, second and third floors of the demised premises.

16. The Arbitral Tribunal also accepted RBPL’s contention that the possession of the demised premises could not be handed over in a piecemeal manner. Accordingly, the Arbitral Tribunal held that the appellants were liable for payment of rent till the actual date of handing over of possession of all floors and thus, were liable to pay arrears of rent till 31.03.2021.

17. The Arbitral Tribunal rejected the appellants claim that they were entitled to invoke Clause 24 of the lease deeds (force majeure clause) on the ground that the force majeure (outbreak of COVID-19) had not rendered the demised premises unfit for use.

18. Insofar as RBPL’s claim for lease rent during the remaining lock-in period with effect from April, 2021 to November, 2021 is concerned, the Arbitral Tribunal accepted that the damages payable were liable to be restricted to reasonable damages. The Arbitral Tribunal proceeded to consider the same. The Arbitral Tribunal accepted that given the nature of the demised premises, six months lease rent would be reasonable period for RBPL to find a new tenant and accordingly, restricted RBPL’s claim for RAWAL damages to six months lease rent. The Arbitral Tribunal referred to the decision of a Division Bench of this Court in Soril Infra Resources Limited. v. M/s. Annapurna Infrastructure Pvt. Ltd. & Ors.: 2017 SCC OnLine Del 9617 for restricting the quantum of damages claimed by RBPL on the said basis. The operative part of the impugned award reads as under: “Award

91. In view of the conclusions drawn in the aforegoing paragraphs, the claimant is entitled to the award on the following terms against the respondents no. 2 to 6: a. The claimant is entitled to rent for the basement and second floor for the months from February, 2020 to March, 2021. b. The claimant is entitled to rent for the mezzanine, first and third floors for the months from March, 2020 to March,

2021. c. The claimant is also entitled to interest on the sums under a. and b. at the rate of 18% from the respective due dates till the date of the award. d. The claimant is entitled to damages to the tune of Rs.44,10,000/-. e. The claimant is entitled to the costs of the present proceedings quantified at Rs.16,75,000/f. The present award is printed on stamp paper of Rs.100/-, the claimant is directed to pay the relevant stamp duty on the present award, which shall also form part of the costs to be paid by the respondents no.2 to 6. g. The claimant is entitled to adjust the security deposits and payment received pursuant to the order of the High Court, i.e. Rs.23,24,200/- against its receivables under this award. h. The claimant is also entitled to the post award interest on the sums awarded under a., b., c., d. and e. at the rate of 18% per RAWAL annum [see Hyder Consulting (UK) Limited v. Governor, State of Orissa, (2015) 2 SCC 189 and Indian Oil Corpn. Ltd. v. U.B. Engineering Ltd., CA 2921/2022 dated 12.04.2022 (Supreme Court)].” SECTION 34 OF THE A&C ACT

19. The appellants assailed the impugned award by filing an application under Section 34 of the A&C Act [OMP (COMM) No.328/2023] before the learned Single Judge, which was dismissed by the impugned judgement. The learned Single Judge rejected the appellants contention that the Arbitral Tribunal’s interpretation of Clause 24 of the lease deeds was erroneous. The learned Single Judge held that the said interpretation was plausible as well as possible. Therefore, the impugned award did not warrant any interference under Section 34 of the A&C Act. Aggrieved by the impugned judgement, the appellants have filed the present appeal.

SUBMISSIONS

20. The learned counsel appearing for the appellants sought to assail the impugned award on several fronts. First, he contended that the Arbitral Tribunal had grossly erred in interpreting Clause 24 of the lease deed. He submitted that it was the appellants contention that the outbreak of COVID- 19 was a force majeure event, which entitled the appellants to invoke Clause 24 of the lease deed. RBPL had contested the same. It was RBPL’s case that Clause 24 of the lease deeds could not be invoked on account of outbreak of COVID-19. He submitted that, the controversy was thus, confined only to whether COVID-19 was a force majeure event. He submitted that the Arbitral Tribunal had accepted the appellants’ contention RAWAL that COVID-19 was a force majeure event and it was outside the control of the appellants. He submitted that notwithstanding the aforesaid finding, the Arbitral Tribunal had proceeded to hold that the appellants were not entitled to invoke Clause 24 of the lease deeds as the demised premises had not been rendered unfit for any use. He submitted that the Arbitral Tribunal had proceeded to hold that the demised premises could be used for storage, even though, this was not the case set up by RBPL. He contended that the Arbitral Tribunal had thus, travelled outside the scope of controversy and the same vitiated the impugned award on the ground of patent illegality.

21. Second, he submitted that the decision of the Arbitral Tribunal to accept RBPL’s contention that lease of all five flours was part of a single transaction and the possession of the floors could not be handed over in piecemeal, was patently illegal. He submitted that it was conceded on behalf of RBPL that each of the floors had a separate entrance and therefore, there was no impediment in leasing out all the floors of the demised premises. He also stated that prior to leasing out the demised premises to the appellants, all the floors of the demised premises were leased to separate entities. He contended that the finding of the Arbitral Tribunal in the impugned award was perverse and vitiated the impugned award on the ground of patent illegality.

22. Third, he submitted that the Arbitral Tribunal had accepted the appellants’ contention that RBPL was not entitled to the lease rentals of the lock-in period as damages. The Arbitral Tribunal also accepted that the damages were required to be established under Sections 72 and 73 of the Indian Contract Act, 1872. However, even though there was no evidence on RAWAL record to establish the loss suffered by RBPL, the Arbitral Tribunal had suo motu concluded that the period of six months was reasonable for RBPL to find a new tenant and had accordingly, awarded six months lease rent as damages to RBPL. He submitted that the award of damages, without any evidence or material, was ex facie erroneous and the impugned award is vitiated by patent illegality.

23. Lastly, he submitted that the Arbitral Tribunal had erred in awarding the costs, damages and interests.

REASONS & CONCLUSION

24. The learned Single Judge had specifically noted in the impugned judgment that the counsel for the appellants had confined his contentions to the interpretation of Clause 24 of the lease deeds and thus, proceeded to examine the said challenge. Paragraph 7 of the impugned judgement notes the contentions advanced on behalf of the appellants and the same is set out below:

25. However, before this Court, the learned counsel for the appellants advanced extensive arguments on various other grounds as noted above, RAWAL which were not urged before the learned Single Judge.

26. We are of the view that it was not permissible for the learned counsel for the appellants to extend the scope of challenge after having expressly restricted the challenge before the learned Single Judge. Notwithstanding the same, we consider it apposite to briefly examine the same.

27. The contention of the learned counsel for the appellants that the Arbitral Tribunal’s interpretation of Clause 24 of the lease deeds was beyond the scope of controversy, is wholly unmerited. The contention that disputes between the parties were confined as to whether the outbreak of COVID-19 was a force majeure event is incorrect. A plain reading of the Statement of Claim clearly indicates that RBPL had claimed that Clause 24 of the lease deeds was not applicable as the demised premises had not been destroyed or rendered unfit for any use. Paragraphs 11 and 12 of the statement of claim are relevant and are set out below:

28. The opening sentence of paragraph 12 of the Statement of Claims makes it clear that it was RBPL’s defence that recourse to Clause 24 of the lease deeds was not available as the demised premises were not rendered unfit for any use.

29. The Arbitral Tribunal had accepted the contention that Clause 24 of the lease deeds would be applicable only if the two conditions were satisfied. First, that a force majeure event had occurred, and second, that the said event ought to have destroyed or rendered the demised premises unfit for any use[1].

30. Whilst, the Arbitral Tribunal accepted that COVID-19 was a force majeure event, the Arbitral Tribunal did not accept that the same had rendered the demised premises unfit “for any use”.

31. The Arbitral Tribunal also held that the word “any” would include not only the use of demised premises for business / office purpose but for any other purposes as well. Illustratively, the Arbitral Tribunal noted view that the demised premises could be used for storage of goods. The Arbitral Tribunal had also noted that the basement and first floor of the demised premises were sought to be retained, which indicated that the demised premises were of some use. We find no infirmity with this view of the Arbitral Tribunal. The fact that lockdown had been imposed on account of outbreak of COVID-19, did not render the buildings and premises in the city See paragraph 54 of the impugned award.

RAWAL unfit for any use. The fact that for a temporary period, the business activities could not be carried on as usual, does not mean that the commercial buildings were rendered unfit for any use.

32. The Arbitral Tribunal’s conclusion that Clause 24 of the lease deeds was unavailable to the appellants also did not rest on the said interpretation alone. The Arbitral Tribunal also noted that in terms of Clause 24 of the lease deeds, the lessee(s) had the option to surrender the lease and handover the same to the lessor. The Arbitral Tribunal on examination of the evidence rejected the contention that the appellants had made any effort to handover the possession of the mezzanine, second and third floors of the demised premises to RBPL at the material time. Thus, the appellants could not avail the benefit of Clause 24 of the lease deeds.

33. The appellants contention that the Arbitral Tribunal had erred in accepting RBPL’s contention that the floors of the demised premises could not be leased separately and the said conclusion vitiated the impugned award is also without merit. RBPL’s witness (CW-1) had clarified that the floors had access from the rear entrance leading to a narrow staircase, thus, making it difficult to lease the floors in a piecemeal manner. There was no dispute that the access to the floors of the demised premises was through a rear entrance. The appellants had not controverted that the access to the floors of the demised premises were through a rear entrance leading to a narrow staircase. Thus, RBPL’s contention that it was difficult to lease the floors in a piecemeal manner was accepted. This conclusion was based on appreciation of evidence and is thus, unimpeachable under Section 34 of the A&C Act. We are unable to accept that the said view is not a plausible view RAWAL and Section 34 of the A&C Act does not entail a merits review.

34. The contention that the impugned award is vitiated on the ground that the Arbitral Tribunal had held that the period of six months was sufficient for RBPL to find a new tenant, is also unmerited. As noted above, it was earnestly contended that the decision to award six months rentals as damages on aforesaid basis is contrary to law and is not supported by pleadings.

35. It is material to note that RBPL had claimed rental for the entire lockin period as damages. According to RBPL, the appellants were not entitled to terminate the lease prior to the expiry of the lock-in period. In terms of Clause 2 of the lease deeds, the said clause was breached and therefore, the appellants were liable to pay rent for the remaining lock-in period. The Arbitral Tribunal had not accepted the same and restricted the award of damages to rental for a reasonable period. According to RBPL, it was entitled to rental for the lock-in period as the appellants could not have terminated the lease deeds prior to the expiry of the said period. The appellants had breached the terms of the lease deeds and had terminated the lease deeds in violation of the lease deeds as embodied in Clause 2 of the lease deeds. Thus, RBPL was entitled to be compensated for the said breach. According to RBPL, it would be entitled to damages equivalent to lease rental for the remaining lock-in period. Undeniably, this would place RBPL in the same position if the appellants had not breached the lease deeds. However, the Arbitral Tribunal had restricted the claim of damages to a reasonable period. We are unable to accept that it is impermissible for the Arbitral Tribunal to restrict the claim of damages to what it considered RAWAL reasonable in its assessment. The Arbitral Tribunal had referred to the decision of the Division Bench of this Court in Soril Infra Resources Limited. v. M/s. Annapurna Infrastructure Pvt. Ltd. & Ors. (supra) where this Court had examined a similar award. The relevant extract of the said decision is set out below:

36. The assessment of loss made by the Arbitral Tribunal cannot be stated to be without any basis. It is open for the Arbitral Tribunal to assess reasonable damages on the basis of the facts as obtaining in the case. In the present case, the nature of the demised premises and the rental that the said premises could fetch were evident from the record. The Arbitral Tribunal restricted RBPL’s claim to the amount of reasonable damages as assessed on the said basis after considering the reasonable period that would be required for renovation and to find a new tenant. The Arbitral Tribunal is not precluded from drawing an assessment, which can otherwise be drawn from common knowledge. The decision in Soril Infra Resources Limited. v. M/s. Annapurna Infrastructure Pvt. Ltd. & Ors. (supra) clearly covers the issue and therefore, the impugned decision of the Arbitral Tribunal cannot be faulted.

37. For the above reasons, the appeal stands dismissed with cost quantified at ₹50,000/- to be deposited with Delhi High Court Legal Services Committee, New Delhi within a period of four weeks. Pending application also stands dismissed.

VIBHU BAKHRU, J TARA VITASTA GANJU, J FEBRUARY 01, 2024 ‘gsr’ RAWAL