Full Text
HIGH COURT OF DELHI
Date of Decision: 06th May, 2022
P.K. ADVERTISING SERVICES PVT. LTD. ..... Petitioner
Through: Ms. Manmeet Arora, Mr. Tarang Gupta and Ms. Shambhavi Kala, Advocates.
Through: Ms. Mini Pushkarna, Standing Counsel for NDMC, with Ms. Latika Malhotra and Ms. Shikha Baisoya, Advocates with Mr. Rajbir Singh, Chief Advertising Inspector, NDMC.
JUDGMENT
1. Pursuant to the order dated 2nd May, 2022, Ms. Mini Pushkarna, counsel for North Delhi Municipal Corporation [hereinafter, “NDMC”], states on instructions that she is agreeable if the Court were to appoint an Arbitrator in the instant petition. Ms. Manmeet Arora, counsel for the Petitioner, is also agreeable to the same.
2. Although the present petition is under Section 9 of the Arbitration and 2022:DHC:1811 Conciliation Act, 1996 [hereinafter, “the Act”], the Court is inclined to accept the request for appointment of arbitrator since there is a consensus between the parties. That said, existence of arbitration agreement between the parties in terms of Clause 28.[2] of the License Agreement which forms part of the Tender document dated 22nd April, 2016, is not in dispute. Accordingly, parties are referred to arbitration before Hon’ble Mr. Justice (Retd.) Rajiv Sahai Endlaw, former judge of this Court [+91-9717495002] for adjudication of disputes arising from the Tender document and Allotment Letter dated 17th June, 2016.
3. The parties are directed to appear before the Sole Arbitrator as and when notified. This is subject to the Arbitrator making necessary disclosure(s) under Section 12(1) of the Act and not being ineligible under Section 12(5) of the Act.
4. The Arbitrator appointed by the Court shall fix their fee in consultation with counsel for the parties. Both the parties shall be free to raise their claims/ counter-claims before the Arbitrator in accordance with law.
5. In view of the above, since the Arbitral Tribunal is now in place, the only question before the Court is qua interim measures to be granted. In fact, on this aspect, Mr. Arora has stated that the instant petition itself can be treated as one under Section 17 of the Act – which can now be adjudicated by the Arbitral Tribunal. However, she prays for an interim arrangement pending consideration of the application by the Arbitrator, in view of the emergent situation arising from NDMC’s impugned action – threatening to cancel the contract between the parties.
6. Accordingly, it is directed that the instant petition will be decided by the Arbitral Tribunal treating it as one under Section 17 of the Act. NDMC is permitted to file a reply/ response to the said petition within a period of four weeks from today.
7. Pending adjudication by the Arbitral Tribunal, interim measures are necessary since NDMC has issued a Demand Notice dated 26th April, 2022, whereby it has threatened to cancel the contract, forfeit the security deposit and blacklist the Petitioner. On this issue, Ms. Manmeet Arora as well as Ms. Pushkarna have been heard at length.
8. Briefly stated, the Petitioner – P.K. Advertising Services Pvt. Ltd., vide Allotment Letter dated 17th June, 2016, was awarded a contract for allotment of exclusive advertisement rights at various advertisement sites in Civil Line Zone, Cluster No. 1 of NDMC [hereinafter, “the Contract”]. This was subject to payment of a monthly license fees for an initial period of three years – which was extendable for a further period of four years. The contract is subsisting and is valid up to 16th June, 2023.
9. Disputes have arisen on account of Petitioner’s invocation of the provision for force majeure (Clause 18 of the License Agreement). Petitioner claims the period of lockdown imposed by the Government viz. from 16th April, 2021 to 30th June, 2021 to be a force majeure event, owing to which, it should be excused from fulfilling its obligations under the contract – which essentially translates to waiver of the monthly license fee payable to NDMC.
CONTENTIONS ON BEHALF OF THE PETITIONER
10. On this aspect, Ms. Arora has made elaborate submissions by referring to the force majeure clause itself, which reads as under: “18. Force Majeure The Bidder shall not be responsible for failure or delay in performing their obligations under presents due to force majeure, which shall include but not be limited to war (invasion, armed conflict or act of foreign enemy, blockade, revolution, riots, insurrection, civil commotion, act of terrorism, or sabotage), Act of God, epidemic, cyber terrorism/ cyber criminals, lightning, earthquake, cyclone, whirlwind, flood, tempest, storm, drought, lack of water or other unusual or extreme weather or environmental conditions, action of the elements, meteorites, fire or explosion, strike, embargo put by the Government or any Court of Law/ threats from antinational elements/ political protests against the project or extortion from anti-social elements, theft, loot or any other situation not envisaged at the time of formulation of this project/ e-auction, If the circumstances leading to force majeure occur, the affected party shall give notice thereof to the other party. The notice shall include full particulars of the nature of the Force Majeure event, the effect is likely to have on the Affected Party's performance of its obligations and the measures which the Affected Party is taking, or proposes to fake, to alleviate the impact of the Force Majeure Event and restore the performance of its obligations. The obligations of the Affected Party shall be suspended to the extent they are affected by the Force Majeure.”
11. Ms. Arora submits that the above-noted clause uses the expression “epidemic” which would certainly take within its sweep the global pandemic caused due to the spread of the COVID-19 virus. Ms. Arora explains that to curb the spread of the COVID-19 virus, the Government of India had restricted the movement of the general public by imposing a lockdown in NCT of Delhi. The first lockdown period from 22nd March, 2020 to 30th June, 2020 and its resultant adverse effect on the parties was acknowledged, and in order to grant relief to them, NDMC classified the said period as “force majeure” and granted 100% remission on the monthly license fee. She highlights that for the same reason, South Delhi Municipal Corporation [hereinafter, “SDMC”] has also accepted the second lockdown period from 16th June, 2021 as a “force majeure event” under contracts identical to the contract between the parties, which is the subject matter of the present petition.
12. It is further argued that Cluster in question, is located in high-density areas, and therefore, on account of high-volume of traffic on city roads, the Petitioner expected to generate large revenue due to extensive visibility and publicity of the advertisements. This formed the fundamental commercial basis for the Petitioner to enter into the contract. Petitioner had been duly performing its contractual obligations to the satisfaction of NDMC and had been making timely payments of the monthly licence fee. However, due to the unprecedented onset of the COVID-19 pandemic, the Government of India imposed a lockdown in the entire country on 24th March, 2020 and the same remained in operation till 30th June, 2020.
13. She submits that shortly after the first lockdown had gotten over, a far more virulent strain of COVID-19 resulted in a sharp rise in COVID cases and a “second wave” of the Coronavirus, thereby compelling the Government of India to re-impose a lockdown for the period in question. This adversely affected the Petitioner, as it could not generate any income whatsoever during this period. In support of her contentions, Ms. Arora places reliance on the Petitioner’s ledger accounts to indicate a steep fall in the total gross revenue and argues this to be a direct result of the lockdown. She states that where Petitioner was previously generating a revenue of Rs. 1,81,56,987/- (for the period from 1st April, 2019 to 30th June, 2019), following the lockdown, its earnings in the corresponding period in the year 2021, drastically reduced to Rs. 11,96,606/- (from 1st June, 2021).
14. Ms. Arora further submits that NDMC will not be prejudiced as the amount sought under the impugned Demand Notice is secured by way of a security deposit of Rs. 69 lakhs. The impugned Demand Notice of Rs. 1,17,06,050/- includes the principal amount of Rs. 99,30,250/- and interest of Rs. 17,75,800/- levied thereon payable at 24 % p.a. Ms. Arora also states that Petitioner is willing to deposit Rs. 30,30,250/- with the Registrar General of this Court, to secure the balance amount.
CONTENTIONS ON BEHALF OF NDMC
15. Ms. Pushkarna, on the other hand, submits that Petitioner does not deserve any concession as sought in the instant petition. She submits that although the Municipal Corporations are now being unified pursuant to Delhi Municipal Corporation (Amendment) Act, 2022, the said Act is still not in force. She submits that each Municipal Corporation is an independent body competent to take its own decisions as per the circumstances unique to them. She acknowledges that SMDC has allowed a similar concession as claimed by Petitioner and has categorised the period in question as force majeure; however, she argues that NDMC has independently examined and deliberated on this issue, but has come to a different conclusion. She submits that this is primarily because the licensees/ contractors have not submitted any material(s) to substantiate their claim of losses during the period in question.
16. Ms. Pushkarna further argues that the force majeure clause cannot be invoked in cases where no direct nexus is established between the COVID- 19 pandemic and losses qua the advertisement hoardings/ unipoles. She submits that NDMC had ensured that the licensees’ right to display advertisements was neither disturbed or hindered in any manner on their account, nor did the advertisement hoardings/ unipoles sites suffer any destruction due to fire, flood or earthquake-like situations to attract the force majeure clause for the period in question.
17. She further highlights that other similar municipalities/ corporations, such as the Noida Authority and Ghaziabad Municipal Corporation, have also not granted any force majeure claims to any of the advertisement licensees/ contractors. Moreover, NDMC’s geographical location and financial environment is analogous to that of the above-noted municipalities/ corporations, as opposed to SDMC, and thus, no parity should be drawn from the decision taken by SDMC. NDMC examined effect of COVID-19 pandemic on the advertisement business, and since it did not come across a single case of surrender of such work, it does not deem it a fit case to grant the Petitioner any concession.
18. She further highlights that Petitioner cannot unilaterally interpret the period in question to be force majeure, and on that basis, not make payments of demanded amount. Even this question would require further deliberation and evidence to be led by the parties, and therefore, at this interim stage, the Petitioner should not be excused from fulfilling its obligations.
19. Mr. Pushkarna further adds that NDMC has sent numerous demand letters to the Petitioner from 15th February, 2021 onwards, to which, Petitioner did not comply. As regards the contention qua the rate of interest, Ms. Pushkarna states that the same has been levied in terms of the contract in question.
ANALYSIS
20. The Court has considered the contentions of both counsel. As already noted above, the Arbitral Tribunal is now in place and till such time that it comes to a decision only ad interim measure(s) need to be worked out. There cannot be any dispute on the proposition advanced by Ms. Pushkarna that no party can be permitted to unilaterally interpret the force majeure clause, and on that basis, seek to be excused from fulfilling obligations under the contract. Indeed, it is a settled position in law that a force majeure clause has to be interpreted narrowly, and not broadly. The parties should ordinarily be compelled to adhere to the contractual terms and excusing the non-performance/ breach of the same is only permissible under exceptional situations. Having said that, the question as to whether COVID-19 pandemic and the resultant lockdown imposed by the Government of India justified the non-performance and/ or breach of contractual terms has to be examined in light of the facts and circumstances of each case and assessed on the basis of the material presented therein. This, however, would be done in due course before the Arbitral Tribunal, and at this stage, the Court has to only take a prima facie view. The fact that has heavily weighed with this Court is that SDMC has already deliberated and taken a view supporting the contention urged by the Petitioner. It is noted that on 28th December, 2021, SMDC had granted additional reliefs under the force majeure clause and remission in monthly license fee to the licensees on account of COVID-19 pandemic for the duration of the second lockdown. The communication sent by SDMC to all the licensees reads as follows: “Sub:- Additional relief under Force Majeure clause and remission in Monthly License Fee (MLF) sought by the contractors on account of Covid-19. South Delhi Municipal Corporation vide Resolution No. 180 dated 25.11.2021 has approved the following in respect of subject cited matter:
1. 100% MLF for November, 2020 and December, 2020 shall be charged.
2. Complete waiver of MLF for the period 16.04.2021 to 30.06.2021.
3. Interest shall not be charged on the dues accumulated during the period from 16.04.2021 to till 07 working days after issuance of this letter.
4. MLF shall be charged on monthly basis instead of quarterly basis till 31.03.2022.
5. Surrender(s) tendered by the advertising firms during 2020-21 shall be dealt with in accordance with terms & conditions of relevant contract, Clause 7 of letter dated 05.01.2021 issued on the basis of Corporation Resolution No. 164 dated 17. 11.2020 has been revoked.
6. Clause No.8 regarding signing of supplementary agreement as approved vide Resolution No.164 dated 17.11.2020 and communicated vide letter No.CO(Advtt.)/ SDMC/2020-21/D-686 dated 05.01.2021 is revoked.”
21. The supporting resolution which indicates a deliberation on facts and application of mind is also annexed with the petition, the relevant portion whereof, reads as under: “While discussion of the issue following clauses were also referred by the tender committee: Clause No. 35 of Annexure-9 under heading Remission, which says that “The license fees shall be allowed in exceptional circumstances and also in case involving natural calamity/national/state causes which may occur beyond control of any person. The decision of the Commissioner: SDMC in this regard shall be final and binding upon all”. It was brought to the notice of this tender committee with regard to clusters allotted in South Zone, that at the quarterly license fee is to be deposited by 2nd of December, 201 G for the quarter starting from 3rd December, 201 G to 2nd March, 2017 and in respect of cluster of Central Zone, that the quarterly license fee is to be deposited by 16th of January, 2017 for the quarter starting from 16th of January, 2017 to 15-4-2017 and in other two zones the due license also will fall within this financial year. In view of the facts put forth by the contractors & totality of facts and circumstances goes to show that the flow of fund has got reduced beyond the control of contractors. Thus, the principal of natural justice demarids the requests may be considered as a stop gap arrangement to assist them in meeting this crunch of money.”
22. SDMC has uniformly extended the benefit of the force majeure clause to all licensees, yet, NDMC has taken a divergent view. Although there may be merit in Ms. Pushkarna’s contention that the geographical location and financial environment of the Cluster in question would have to be taken into consideration while evaluating the effect of lockdown, yet undoubtedly, lockdown had been imposed across the entire city. Therefore, in the opinion of the Court, the effect of the COVID-19 pandemic and imposition of lockdowns would ordinarily not vary substantially in similar contracts – be it clusters under NDMC or SDMC. In matter such as the present one, Municipal Corporations must speak the same language. They should have uniformity in approach as well as polices – especially since the force majeure event is the same. In fact, it was the lack of uniformity in policies which prompted the re-unification of the city civic bodies. Be that as it may, for the purposes of adjudication in the present case, the precedent set by SDMC is a sufficient indication of a prima facie case in favour of the Petitioner.
23. Further, assessment of the impact due to lockdown would have to be considered on the basis of evidence that the parties would present in arbitration. Nonetheless, it prima facie appears that the lockdown, resulting from COVID-19 pandemic, affected the performance obligations of payment of monthly license fee. The Petitioner’s revenue model is directly linked with visibility of its advertisements on the hoarding/ unipole sites. Owing to the lockdown, since movement of the public and vehicles on the roads was highly restricted, the eyeball contact on the advertisement hoardings/ unipoles is bound to be reduced. The maximum visibility of the advertisements in the clusters, is thus, directly linked to the revenue that Petitioner was to earn from such advertisement hoardings/ unipoles.
24. Further, NDMC’s decision to reject representations of the licensees such as the Petitioner, a copy whereof was shared with the Court, is indicative of the fact that when NDMC had deliberated upon this issue, it found no supporting material furnished by the licensees to substantiate claims for huge losses qua the period in question. To this, Ms. Arora states that Petitioner would have readily submitted the material had it been notified of such a decision or received a request from NDMC. She submits that numerous requests for a copy of the NDMC’s decision to reject representations of the licensees had been turned down, and that in the instant petition as well, a prayer has been made to that effect. Ms. Pushkarna states that the decision taken by NDMC on the representations given by the Petitioner shall be furnished to the Petitioner along with the reply to the present petition.
25. For the forgoing reasons, Petitioner has demonstrated a prima facie case. Further, the balance of convenience also lies in its favour and irreparable harm may be caused in case no interim measures were granted by the Court. Nevertheless to avoid prejudice to NDMC, the scale needs to be balanced, by directing the Petitioner to deposit an amount of Rs. 30,30,250/- with the Registrar General of this Court within a period of ten days from today. Subject to said deposit, the demand of Rs. 1,17,06,050/-, as raised in the impugned Demand Notice, shall not be enforced till such time the Arbitral Tribunal would adjudicate the present application under Section
17.
26. It is made clear that the Arbitral Tribunal would consider the application under Section 17 of the Act on merits and uninfluenced by any observations made by this Court. It is also clarified that the Arbitral Tribunal shall have the power to pass any directions with regards to the amount deposited with the Registrar General of this Court.
27. In terms of the above directions, the present petition is disposed of along with pending application(s). SANJEEV NARULA, J MAY 6, 2022 nk (corrected and released on 10th May, 2022)