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M/s. Pacifica (India) Projects Pvt Ltd., Ahmedabad v/s M/s. Oriental Cuisines (P) Ltd,Chennai

    O.S.A. No. 112 of 2018
    Decided On, 07 June 2022
    At, High Court of Judicature at Madras
    For the Appellant: Ravikumar Paul, Senior Counsel, M/s. Paul & Paul, Advocates. For the Respondent: Prahalad Bhat, R. Prathasarathy, Advocates.

Judgment Text
(Prayer: Appeal filed under Section 36 of Arbitration and Conciliation Act, 1996 read with Clause 15 of the Letters Patent Act, to set aside the fair and dccreetal order dated 21.11.2017 passed by this Court in O.P.No.253 of 2017.)

T.V. Thamilselvi

1. Challenging the fair and decreetal order passed in O.P.No.253 of 2017 dated 21.11.2017, the appellant has filed the above Original Side Appeal.

2. The Brief facts of the case are as follows:-

(i) The appellant filed the original petition under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award dated 11.11.2016 passed by the Sole Arbitrator.

(ii) According to the respondent/claimant company, they are well reputed operator in South India, operating hotels, restaurants, eateries and also operating several 'food courts' at 'I.T. Parks' in and around Chennai. The respondent/claimant and the appellant entered into a Term Sheet dated 23.10.2007 and as per the Term Sheet, the respondent/claimant would establish the food courts at I.T Park proposed to be established by the appellant at Navaloor Village, Chengalpet, Kancheepuram District.

(iii) After entering into the Term Sheet dated 23.10.2007 (Ex.C1), both the parties entered into a lease deed on 18.01.2008, for the lease of the area to be operated as a food court by the appellant and the lease commenced from 15.04.2008, which expressly provided that the monthly rent was payable only after certain conditions were met. The appellant did not hand over the premises as per the time agreed between the parties. Therefore, the respondent issued a notice on 30.07.2008, terminating the Term Sheet dated 23.10.2007 as the IT park was not functional and therefore, called upon the appellant to refund the security deposit of Rs.1,00,00,000/-(Rupees One Crore only) along with an interest at the rate of 18% from the date of payment. Representatives of the appellant/ company approached the respondent/claimant and there was discussion between the parties pursuant to the termination notice dated 30.07.2008 (Ex.C3). The appellant had represented that after completing various works at the site, there will be more than 4000 employees would be employed at the IT Park and a short time may be given to them to complete the works. Based on the representations and in the light of the revised terms agreed between the parties, the respondent company withdrew its termination of the Term Sheet dated 23.10.2007 by way of its letter dated 30.07.2008. The key terms promised and represented by the appellant were recorded in the letter dated 13.08.2008 (Ex.C4) and sent by the respondent to the appellant. The modified arrangement between the parties in the letter dated 13.08.2008 (Ex.C4) are as follows

'a) The claimant would not have to pay and rent and maintenance until the claimant actually started the operations of the food court;

b) As the food court operations depended on the number of employees, the Claimant would be required to start operating the food court only after the confirmation was received from the Respondent that there were 4000 employees permanently working at the premises of the I.T Park.

(c) After the confirmation of the fact that 4000 employees were permanently working at the IT Park, then, the Claimant would have 4 months time to carry out all the fitouts and establish the food court and that such 4 months period would be a rent free period.

(iv) Thus, Ex.C4 has reference to the assurance said to have been given by the appellant. Even after the receipt of the Ex.C4 letter, the appellant failed to comply with the assurance given by them and also the terms and conditions mentioned in Ex.C4. Hence, the respondent/claimant issued a legal notice dated 18.07.2009 (Ex.C5), calling upon them to refund the security deposit amount of Rs.1,00,00,000/-(Rupees One Crore only) with interest. The appellant did not return the security deposit amount and therefore, the respondent/claimant has initiated arbitration proceedings. As there was no reply from the appellant, the respondent had approached this Court and this Court had referred the matter to Arbitration.

3. According to the appellant, since the respondent/claimant did not pay the rent and maintenance charges and that there is a lock-in period of three years, the appellant deducted the rent for 3 years from the security deposit amount. The respondent did not come forward to pay the same. They further submitted that the respondent/claimant is not entitled for refund of any amount from the appellant, as it was the respondent, who had breached the terms of the agreement. Further, they submitted that suitable reply was issued to Ex.C4 letter, wherein they have not accepted the conditions mentioned in Ex.C4. On considering the submissions made by the parties, the learned Arbitrator had drawn adverse inference against the appellant concluding that Ex.C4 letter is reliable and acceptable. It was further contended that Ex.C4 letter was not controverted at any point of time by the appellant, even though, a suitable reply was sent to Ex.C4. When the respondent categorically asserts that Ex.C4 is final, which was issued by them on the basis of the assurance given by the appellant, it is for the appellant to produce the reply, which is said to have been given denying and reputing Ex.C4. Since the reply was neither produced before the Tribunal nor sent to the respondent, an adverse inference was drawn against this appellant. Therefore, The Tribunal held that as per the revised arrangement, Ex. C4 is absolutely valid and the three clauses contained in Ex.C4 are binding on the parties, which has changed the clauses contained in Ex.C1 Term Sheet dated 23.10.2007. The Tribunal also held that the respondent/claimant was not liable for non-payment of rents and maintenance. As Ex.C4 was relied upon and proved, the counter claim made by the appellant was rejected.

4. Aggrieved over the findings of the Arbitrator, the appellant filed O.P.No.253 of 2017 under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the Award dated 11.11.2016 passed by the Sole Arbitrator on the following grounds:-

(i) The award passed by the Hon'ble Arbitrator on the one hand holding that Ex.C1 (Term Sheet dated 23.10.2007) is binding on the parties, and on the other that Ex.C-1 had been modified by Ex.C4, (the respondent's letter dated 13.08.2008) even though the same is clearly neither an agreement nor signed by the parties as Ex.C1 contains clause 25 therein which prohibits any modification/alteration or amendments of its terms in any manner except by an agreement in writing execution by both parties is a petent illegality on the face of the record.

(ii) The Hon'ble Arbitrator ought not to have seen that the alleged novation of the terms of Ex.C1 by the letter dated 13.08.2008, Ex.C-4 is not in any event permissible in law in view of clause 25 in Ex.C4 clearly prevents the same particularly since the contents of the same is not admitted by the respondent.

(iii) The Hon'ble Arbitrator acted with patent illegality in awarding interest pendent lite contrary to Sec 31(7) of the Arbitration and Conciliation Act, 1996 in spite of the specific bar of payment of interest in respect of the interest from deposit found in Clause 8 of C-1.

5. Considering the submissions made by the learned counsel on either side, the learned single Judge found that the terms and conditions in Ex.C4 to be correct and binding on the petitioner and hence, there is no question of considering the counter claim, which is based upon the Term Sheet. Further, the learned single Judge held that when Ex.C4 is not in dispute, the petitioner has to adduce sufficient evidence and an issue which has never been put to the Tribunal, the same cannot be taken up for the first time in exercise of power under Section 34 of the Arbitration and Conciliation Act and dismissed the Original Petition.

6. Aggrieved over the same, the petitioner/appellant has preferred this appeal.

7.1 Mr.Ravikumar Paul, learned senior counsel appearing for the appellant submitted that Ex.C4 supersedes the Term Sheet Ex.C1, for the reason that as per the Clause 25 of the Term Sheet, if there is any modification, amendments and subsequent modification between the parties, it should be in written agreement, but no such agreement was subsequently entered between the parties. The learned senior counsel further submitted that Ex.C4 is contrary to Clause 25 of the Term Sheet.

7.2. The learned counsel appearing for the appellant, in support of his contention, has relied upon a judgment reported in CDJ 2015 BHC 1421 [Kuoni Travels (india) Pvt. Ltd. v. Pharmaco Flavours and Fragrances Pvt. Ltd. wherein the Division Bench of Bombay High Court held as follows:-

“.......... 5. Clause 7.3 of the said franchise agreement provided for termination of the said agreement on the happening of any of the events mentioned therein. Clauses 14.1 and 14.5 of the said agreement which are relevant for the purpose of deciding this petition are extracted as under:-

"14.1 This Agreement contains the entire agreement and understanding between the parties relating to the subject matter ppn 4 arbp-743.12 (j).doc hereof and cancles and supersedes all and any other prior arrangements, agreements and understanding between the parties and no other term or promise or condition or obligation, oral or in writing shall be pleaded as agreed upon between the parties relating to this Agreement unless evidenced in writing and signed on behalf of each party.

14.5 Any modification or amendment of any of the terms of this Agreement shall be valid and binding only if done by a written document signed by or on behalf of the parties. ..........."

8. Countering the submissions made by the learned counsel for the appellant, Mr.Prahalad Bhat, learned counsel appearing for the respondent/claimant submitted that award could be set aside if it were so unfair or with any illegality or opposed to public policy. The learned counsel further submitted that based on the materials and evidence, the Arbitrator has rightly concluded with regard to the liability and there is no error in the application of law contrary to the public policy. The learned counsel further submitted that considering all the facts, the learned single Judge has rightly dismissed the original petition filed by the appellant.

9. On a careful consideration of the materials available on record it could be seen that a lease deed was executed between the appellant and the respondent on 18.01.2008, which was preceded by the Term Sheet dated 23.10.2007. Hence it is useful to extract Clause 25 of the Term Sheet, which reads as follows:-

''This Term Sheet including the attached Annexure, along with the Lease Deed, constitutes the entire agreement between the intending Lessor and the intending Lessee with respect to the Demised Premises and supersedes any of other prior oral or written communication, representations of statements with respect to the transaction contemplated in this Term Sheet. This Term Sheet may not be modified, altered or amended in any manner except by an agreement in writing executed by both parties. If a court finds any prvision of this Term Sheet to be invalid, the remainder of the Term Sheet will be valid, enforceable and effective.''

10.1 In the judgment reported in (2015) 3 Supreme Court Cases 49, Associate Builders vs. Delhi Development Authority, it has been held as follows:-

“............. 51. Mr. Verma argued correctly that there is nothing on record to show that the contractor is a petty contractor and that the only expenses incurred are at the site. He has shown us that the contract itself required execution of the work by a Class-I contractor and has further shown us that Class-I contractors require to have certain stipulated numbers of works worth large amounts before they can apply for the tender and that their financial soundness has to be attested too by banker's certificate showing that their worth is over 10 crores of rupees. Further, he has pointed out from the statement of claims before the Arbitrator that there was evidence for claims 9, 10 and 11 laid before the Arbitrator which the Arbitrator has in fact accepted. Also establishment expenses were set out in great detail before the Arbitrator and it is only on this evidence that the Arbitrator ultimately has awarded these claims. Mr. Verma is also right in saying that the Division Bench was completely wrong in stating that the establishment expenses pertained to payments for a site at Mayur Vihar as opposed to Trilok Puri which were where the aforesaid houses were to be constructed. He pointed out that in the completion certificate dated 30th May, 1997 given by the DDA to the appellant, it is clear that the houses that were, in fact, to be constructed were in Mayur Vihar, Phase-II, which is part of the Trilok Puri trans-Yamuna area.

52. It is most unfortunate that the Division Bench did not advert to this crucial document at all. This document shows not only that the Division Bench was wholly incorrect in its conclusion that the contractor has tried to pull the wool over the eyes over the DDA but it should also have realized that the DDA itself has stated that the work has been carried out generally to its satisfaction barring some extremely minor defects which are capable of rectification. It is clear, therefore, that the Division Bench obviously exceeded its jurisdiction in interfering with a pure finding of fact forgetting that the Arbitrator is the sole Judge of the quantity and quality of evidence before him and unnecessarily bringing in facts which were neither pleaded nor proved and ignoring the vital completion certificate granted by the DDA itself. The Division Bench also went wrong in stating that as the work completed was only to the extent of Rs. 62,84,845/-, Hudson's formula should have been applied taking this figure into account and not the entire contract value of Rs.87,66,678/- into account.

53. Here again, the Division Bench has committed a grave error. Hudson's formula as is quoted in McDermott's case is as follows:

"(a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson Formula is stated in the following terms:

contract head office x contract sum x period of delay

overhead and profit x contract period


In the Hudson Formula, the head office overhead percentage is taken from the contract. Although the Hudson Formula has received judicial support in many cases, it has been criticised principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor."

54. I t is clear that to apply this formula one has to take into account the contract value that is awarded and not the work completed. On this score again, the Division Bench is to be faulted. ...........”

10.2 In the judgment reported in (2019) 15 Supreme Court Cases 131, Ssangyong Engineering And Construction Company Limited vs. National Highways Authority of India (NHAI) it has been held as follows:-

''.......... 23. Given, this interpretation of the law, insofar as Section 34 was concerned, this Court , in DDA v. R.S.Sharma and Co. 21, summarised the law as it stood at that point of time, as follows; (SCC pp, 91- 92 para 21)

''21. From the above decisions, the following principles emerge ;

(a) An award , which is

(i) contrary to substantive provisions of law; or

(ii) the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties; is open to interference by the court under Section 34(2) of the Act,

(b) The award could be set aside if it is contrary to;

(a) fundamental policy of Indian law; or

(b) the interest of India; or

( c ) justice or morality,

(c ) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.

(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India. ........”

11. Though there is no dispute with regard to the ratio laid down in the Judgment of the Hon'ble Supreme court relied upon by the learned counsel appearing for the appellant, since the facts and circumstances of the case differs from the case on hand, the sai

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d Judgment is not not applicable to the present case. 12. Subsequent to the Term Sheet, there was a lease deed executed between the parties, but the terms were not complied with by the appellant within the stipulated time. Therefore, the respondent/claimant issued a termination notice as per the Term Sheet (Ex.C1). Thereafter, the representatives of the appellant and the respondent/claimant had negotiated and pursuant to the same, Ex.C4 letter was sent by the respondent. Even thereafter, the appellant had not complied with the terms of the negotiations arrived at between the parties. Though the appellant contended that they gave suitable reply to Ex.C4, no reply was produced before the Arbitrator. Accordingly, adverse inference was drawn against them. Even before the learned single Judge, the appellant contended that Ex.C4 letter, is not binding on them for the reason that there was no written agreement between the parties as per Clause 25 of the Term Sheet. For the first time, the said plea was raised and it was not raised before the learned Arbitrator. The learned single Judge rightly held that if really the appellant had not accepted the terms in Ex.C4 they ought to have given a suitable reply. Though the respondent contended that they have given a reply, no such reply notice was produced either before the Arbitrator or before the learned single Judge. Hence, the learned Arbitrator had drawn adverse inference against them. The learned single Judge also observed that Ex.C4 supersedes the Term Sheet Ex.C1. Further, scope of Section 34 is very limited. Since there is no patent illegality in the Arbitrator's award, the application under Section 34 of Act was rightly dismissed by the learned single Judge. We do not find any error or irregularity in the order passed by the learned single Judge. Accordingly, the Original Side Appeal is dismissed. No costs.