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VASTU INVEST AND HOLDINGS PVT.LTD., MUMBAI VERSUS GUJARAT LEASE FINANCING LTD., MUMBAI

    Appeal No. 683 of 2000

    Decided On, 09 November 2000

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE B.N.SRIKRISHNA & THE HONOURABLE MR. JUSTICE RANJANA DESAI

    For the Appearing Parties: -------



Judgment Text

B. N. SRIKRISHNA, J.



( 1 ) APPEALS admitted. Notice made returnable forthwith. Respondents waive service. By consent, appeals called out and heard.


( 2 ) THESE two appeals are inter-connected and can be conveniently heard and disposed of by the same judgment.


( 3 ) APPELLANT company owned certain premises in Mittal court at Nariman Point, Mumbai, called business centre , use of which was made available to the Respondent by the agreement dated 27th June, 1994. One of the clauses of this agreement stipulated that the respondent was to place interest free deposit of Rs. 25,00,000/- with the Appellant for due performance of the agreement by the Respondent. The deposit was to continue in the hands of the appellants till the client performs the terms of the agreement as above , the client being the respondent and the deposit was to bear no interest at any time whatsoever.


( 4 ) THE respondent gave notice of prematurely surrendering its rights under the agreement, return of the facilities, including the premises, which they were allowed to use under the agreement and they also asked for return of the deposit of Rs. 25,00,000/ -.


( 5 ) THERE is dispute between the parties as to whether the premises were returned in June, 1996 or in December, 1996. The appellant claims that the facilities, and the premises in which they were located, were not returned by the respondents, but were held over for which the appellants were entitled to demand compensation for wrongful use of the facilities beyond the term of the agreement. The respondents claim an amount of Rs. 25,00,000/- together with interest till the date of return of the said amount.


( 6 ) A petition under section 11 of the Arbitration and conciliation Act, 1996 being Arbitration Petition No. 132 of 1998, was moved by the respondent for enforcing the arbitration clause contained in the agreement dated June 27, 1994. This Arbitration Petition No. 132 of 1998 was disposed of on Consent Terms by this Court by an Order made on 18th september, 1998. The order said;


By consent the disputes and differences between the petitioners and the respondents, arising out of the agreement dated 27th June, 1994, entered into between the petitioners and the respondents, is referred to the arbitration of Justice S. M. Jhunjhunuwala former judge, High Court, Bombay (Presiding Arbitrator), Mr. B. D. Shah, former Director of General Assurance Company (nominated by the petitioners) and Mr. Hemraj Munot Advocate (nominated by the respondents ).


( 7 ) PURSUANT to the said order, arbitration proceedings were held before the learned arbitrators and the learned arbitrators made an award on 8th September, 1999 holding that the appellant was liable to pay to the respondent a sum of Rs. 25 lakhs with interest thereupon, to be calculated @ 16. 5% per annum from 20th September, 1996 till the date of return thereof and @ 18% per annum from the date of the award till payment or realization. The arbitrators also directed payment of costs quantified at Rs. 1,07,312. 50 p.


( 8 ) THIS arbitration award was challenged under section 34 of the Act by Arbitration Petition No. 121 of 2000. During the pendency of the Arbitration Petition, Chamber summons No. 871 of 2000 was taken out for amendment of the petition by adding certain grounds. This chamber summons came to be dismissed by the order of the learned Single judge dated June 27, 2000. Appeal No. 683 of 2000 is directed against that order. Arbitration Petition itself was thereafter heard and dismissed by the common order of the learned Single Judge dated June 27, 2000. Appeal No. 684 of 2000 is directed against the order dismissing the arbitration petition.


( 9 ) MR. Diwan, learned counsel appearing in both the appeals for appellants urged that he challenged the award by invoking section 34 (2) (a) (ii), section 34 (2) (b) (i) and (ii ). In amplification, he submitted that the agreement containing the arbitration clause was the agreement dated 26th of June, 1994, which though ex facie, purported to be an agreement for rendering business centre services , was in fact and essence an agreement of leave and licence. Hence, the appellant would be a tenant under section 5 (11) of The bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947, as it was a licensor protected either under The Bombay rents, Hotel and Lodging House Rates (Control) Act, 1947. At any rate, proceedings for eviction of the appellant could have been instituted only under section 28 of the aforesaid act or under section 41 of The Presidency Small Causes courts Act, 1882. It is contended that under these two provisions of law, the Small Causes Court is vested with exclusive jurisdiction to entertain a dispute relating to recovery of possession of any immovable property situated in greater Bombay, or relating to the recovery of the licence fee or charge and, therefore, no other Court nor arbitrators had jurisdiction to entertain proceedings relating to recovery of licence fee or charge. Consequently, it is urged that the arbitration itself is unlawful, illegal and the award is liable to be interfered with under section 34 (2) (a) (ii) of the Act.


( 10 ) NEXT Mr. Diwan contends that, in any event, it is the public policy in India that protection in matters of rent Act is given to tenants to prevent exploitation of poor, helpless tenants by exploitative landlords. In this connection, we are shown the judgment of the Supreme Court in Natraj Studios (P) Ltd. vs. Navrang Studios and another, air 1981 SC 537.


( 11 ) AT the outset, we notice that in the petition filed by the appellant, the only ground of public policy was ground (a) which reads the impugned award is in conflict with the public policy and public interest. A perusal of all other grounds does not indicate that this contention was raised in the petition at least. To a query from the Bench, mr. Diwan fairly conceded that the jurisdiction of the arbitrators was not objected to when the order under section 11 was made by this Court, nor was it raised for decision of the arbitrators during the arbitral proceedings as required by section 16 of the Act. Mr. Diwan, however, maintained that the objection raised was one of paramount importance and that such an objection as to jurisdiction could be raised at any time, even at the time of execution of an award. Nonetheless, since it was not very clear from the petition, the appellants had taken out the Chamber Summons to amplify what was meant in the ground (a) in the petition.


( 12 ) THE learned Single Judge also noticed these facts and held against the appellant while dismissing the Chamber summons. The learned Single Judge relied on two circumstances. First that at no point of time was the jurisdictional issue raised by the appellants; Second, that the Chamber Summons was taken out after the period under section 34 (3) for challenging the award had expired. The learned Single Judge felt that allowing the Chamber Summons would amount to permitting an independent ground of challenge after the period of limitation prescribed under section 34 had expired.


( 13 ) IN our view, the Chamber Summons was rightly dismissed. If the point of jurisdiction was an independent ground of attack on the award, then not having been raised within the period prescribed by sub-section (3) of section 34, it could not have been entertained by the Court at all. If it was already contained in the Arbitration petition, then Chamber Summons was wholly redundant. Either way, the chamber Summons was liable to fail.


( 14 ) THE law has been well settled even under the arbitration Act, 1940, that a ground not initially raised in the petition to challenge the award could not be permitted to be subsequently raised by an amendment, if the application for amendment itself was beyond the period of limitation fixed for filing of the petition, challenging the award.


( 15 ) WE may point out that under the 1940 Act, the limitation for bringing a petition to challenge an award was prescribed by the Limitation Act, subject to the provisions of the Limitation Act and the power of condonation of delay contained therein. The 1996 Act has radically altered the situation. We cannot lose sight of the fact that the 1996 act is intended to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law, inter alia, as indicated in the preamble. Consequently, the Act has permitted very limited scope of challenge to an arbitral award. Section 34 (1) provides that an arbitral award may be challenged only by an application for setting aside such award in accordance with sub-sections (2) and (3 ). Sub-sections (2) and (3) of section 34 provide that an arbitral award may be set aside only on the grounds narrated in sub-section (2 ). Finally, sub-section (3) provides that such an application for setting aside an award may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 33, from the date on which the said request had been disposed of by the arbitral tribunal. Thus, there is extremely narrow power of condonation of delay vested in the Court by the proviso. The proviso empowers the Court, if satisfied that the applicant was prevented by sufficient cause from making the application within the period of three months, to entertain the application within a further period of 30 days but not thereafter.


( 16 ) THE implication of this proviso and particularly the last three words in the proviso came up for consideration of this Court. In a judgment to which one of us (B. N. Srikrishna, J.) was a party, the view this Court expressed was that these words indicated that, whatever might have been the position in law earlier, after the coming into force of the 1996 Act, after expiry of the period of three months and 30 days, the Court has no power to condone the delay in the presentation of the petition. We agree with this view and endorse it with approval.


( 17 ) IN these circumstances, we are of the view that the chamber Summons, if it was intended to raise an independent ground of challenge to the arbitral award, could not have been entertained after the period of three months plus the grace period of 30 days as provided in the proviso to sub-section (3) of section 34. If, on the other hand, it was not intended to raise an independent ground, on the basis that the petition itself contained the ground, the chamber summons was wholly unnecessary as necessary amplifications could be put forward during submissions. Looked at either way, the chamber summons was rightly dismissed, in our view. Consequently, we find no substance in Appeal No. 683 of 2000. Hence, this appeal must fail and is hereby dismissed.


( 18 ) TURNING to the facts of Appeal No. 684 of 2000, we find that ground (a) of the petition did contend vaguely that the impugned award is in conflict with the public policy and public interest. We will for a moment assume that the appellant was entitled to elaborate what this ground meant by the powerful submissions of the learned counsel for the appellant before the trial Court. We will even assume that the factual matrix and the legal matrix could have been demonstrated orally. Hence, we permitted Mr. Diwan to demonstrate it to us orally. We are not satisfied that the award which was the subject matter of the writ petition is contrary to and in conflict with the public policy and public interest in India. Now to consider the authorities cited by the learned counsel for the appellant.


( 19 ) MR. Diwan cited the judgment of this Court in Nagin mansukhlal Dagli vs. Haribhai Manibhai Patel, AIR 1980 bombay 123 for the proposition that, however the suit may have been framed, if the substance of the suit was a relief which can fall within the exclusive jurisdiction of the small Cause Court, then no Court was empowered to hear the suit irrespective of the word used in this suit. There cannot be any quarrel with this proposition. This proposition is well settled and will have to be accepted.


( 20 ) MR. Diwan referred to the judgment in Natraj Studios (P) Ltd. vs. Navrang Studios and another, AIR 1981 SC 537, as defining and crystallizing the public policy or public interest. Of relevance are the observations in paragraphs 16, 17 and 18 of the judgment. In paragraph 17, the Supreme court pointed out, the Bombay Rent Act is a welfare legislation aimed at the definite social objective of protection of tenants against harassment by landlords in various ways. It is a matter of public policy. The scheme of the Act shows that the conferment of exclusive jurisdiction on certain Courts is pursuant to the social objective at which the legislation aims. Public policy requires that contracts to the contrary which nullify the rights conferred on tenants by the Act cannot be permitted. Therefore, public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kind of disputes to be settled by special Court constituted by the Act. It follows that arbitration agreements between parties whose rights are regulated by the Bombay Rent Act cannot be recognized by a Court of law.


( 21 ) NO doubt, as a proposition of law, this is very much binding on this Court and we are bound to follow it. We, however, have a niggling doubt in our mind whether the supreme Court was considering an issue similar to the one before us. We, in all consciousness, cannot say that the appellant before us is a hapless tenant subjected to exploitation by a rapacious landlord. It appears to us that the boot, if at all, is on the other foot. The appellant before us is actually the landlord. Even if Mr. Diwan is right in his contention that the appellant is a licensor (landlord) and the Respondent the licensee (tenant), who had entered into an agreement to take the premises on license, as contended by Mr. Diwan, it is ironical that having found that the arbitral award had gone against him, the landlord appellant filed a petition in this Court on the ground that public policy , which was intended for the benefit of oppressed and hapless tenants, had been violated. Nonetheless, we shall examine the contention on its merits.


( 22 ) (A) Mr. Tulzapurkar, learned counsel for the respondent, drew our attention to the judgment of the supreme Court in Renusagar Power Co. Ltd. vs. General electric Co. , AIR 1994 SC 860. No doubt this judgment was concerned with public policy in the matter of enforcement of various awards under the Recognition and Enforcement Act (45 of 1961 ). In the context of the contention that a foreign award could not be executed and enforced in this country unless the foreign award was consistent with the public policy in India, the Supreme Court pointed out that the contention urged before the Court was that the interest awarded under the award under challenge would result in unjust enrichment; that unjust enrichment was contrary to the public policy in India, and, therefore, the award was liable to be interfered with. (b) Assuming that unjust enrichment was contrary to the public policy of India, the Supreme Court pointed out that such unjust enrichment must relate to the enforcement of the award, and not to its merits, in view of the limited scope available to challenge the award before the Court. The supreme Court also pointed out that the challenge on the ground of unjust enrichment raised by the appellant went into the merits of the award. (c) In para 44 of Renusagar (supra) the Supreme Court notes that the expressions public policy , opposed to public policy or contrary to the policy are incapable of precise definition and that public policy connotes some matter that concerns public good and public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. (d) Observes, the Supreme Court in paragraph 48; Since the doctrine of public policy is somewhat open- textured and flexible Judges in England have shown certain degree of reluctance to invoke it in domestic law. There are two conflicting positions which are referred as the narrow view and the broad view. According to the narrow view Courts cannot create new heads of public policy where the broad view countenances judicial law making in this areas. " (e) The Supreme Court referred to its own judgment in gherulal Parakh vs. Mahadeodas Majya, AIR 1959 SC 781, in which the Court had favoured the narrow view;. . . . . . . . . . . . . . . . . . . . though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is admissible in the interest of stability of society not to make any attempt to discover new heads in these days. (f) In paragraph 49 the Supreme Court cited several other of its own earlier judgments in support of the narrow view. In paragraph 51 the Supreme Court drew a distinction, while applying the said rule of public policy, between a matter governed by domestic law and a matter involving conflict of laws and pointed out that the application of the doctrine of public policy in the field of conflict of laws is more limited than that in the domestic law and that the courts are slower to invoke public policy in cases involving a foreign element than when a purely municipal legal issue is involved. (g) In paragraph 54, some of the grounds of public policy on which foreign awards are not enforced in England were enumerated, and they are; (a) Where the fundamental conceptions of English Justice are disregarded; (b) Where the English conceptions of morality are infringed; (c) Where a transaction prejudices the interests of the United Kingdom or its good relations with foreign powers; (d) Where a foreign law or status offends the English conceptions of human liberty and freedom of action. (h) Finally, in paragraph 55, the observation of Lord simon of Glaisdate an English Court will exercise such a jurisdiction with extreme reserve Vervaeke vs. Smith, 1983 (1) AC 145 , was quoted with approval.


( 23 ) IN a matter like this, whether a landlord, who for his convenience, devised an agreement in the name and style of business services agreement and was unsuccessful in the arbitration award should be permitted to challenge the award on the ground of public policy under section 34 (2) (b) (ii), is very much doubtful. Public policy, in our view, is certainly not intended for the benefit of such landlords.


( 24 ) EVEN assuming that the ground of public policy is available to be urged, let us examine the merits of the argument. As rightly pointed out by Mr. Tulzapurkar, section 34 (b) (ii) permits an arbitral award to be set aside by the court only if the Court finds that the arbitral award is in conflict with the public policy of India. What is the arbitral award which is challenged? The arbitral award challenged before the learned Single Judge was the award holding that an amount of Rs. 25 lakhs with interest thereon calculated @ 16. 5% per annum from 20th day of September, 1996, till the date of the award and thereafter @ 18% per annum till the date of payment or realization, together with a direction for payment of cost of arbitration quantified at rs. 1,07,312. 50, is the arbitral award. We find nothing contrary to the declared public policy in India, in this arbitral award.


( 25 ) MR. Diwan contends that looking at this part of direction in the award would not be conclusive; that the court must take an overall view and then look at the argument that what has initially entered into was a leave and licence agreement, a dispute relating to which would be subsumed under section 28 of the Bombay Rent Act or section 41 of The Presidency Small Cause Courts Act, 1882.


( 26 ) EVEN if we accept this, it appears to us that a court is bound to read the document as it stands. If ex facie the document were to be one of leave and licence, as contended, there might have been something arguable. When we turn to the agreement dated 27th of June, 1994, we find that under clause (2) the appellant allowed the use of furniture, office cabins, sittings places, pantry and toilets etc. , reserved a right to have its own office/staff at table No. 1 at entrance to the office, provided that one Telephone No. 202 9994 shall belong and for the use of the appellant only from the said space. In addition, the appellant agreed to render the following services to the client :-


(a) To allow the use of 2 Telephone No. 2833022 and 2832699 entirely by the client and also to use STD/fax facility at actual cost. Bills for the same shall be paid every month made by the Client and handed over to the Centre. (b) To Provide common Peon facility as may be reasonable required to attend to the needs of both the offices. (c) To provide arrangement for the reception of guests and visitors as much as possible. (d) To provide facility for despatch of letters, AFB. (e) Any further facility which the party hitherto at its discretion considers necessary to provide to the member.


( 27 ) THE respondent also undertook not to bring in any other furniture or fittings for the use therein except with the prior written consent of the appellant. Under clause 4, the use of office premises was only from Monday to Saturday between 9. 00 to 7. 00 p. m. The arrangement was to be strictly for 105 weeks lasting/ending on 30th June, 1996, which period was not liable to be extended unless a new agreement was entered into by both the parties. The arrangement was purely temporary and personal and not transferable under any circumstances or to assign or transfer the benefit of the arrangement to any other person/company on any basis whatsoever. Finally, clause (d) declares in terms :


No tenancy, licence or any other protected right whatsoever in the premises or any part thereof is created or intended or sought to be created by these presents and the parties hereto shall not plead any oral variation to the provisions thereof.


( 28 ) THIS is the agreement which Mr. Diwan wants the court to construe. Reading the agreement as a whole, we are not satisfied that this is an agreement of leave and licence as contended by Mr. Diwan. Mr. Diwan urges that notwithstanding what is expressly stated in clause 4 (d), the conduct of the parties, correspondence between them and every contemporaneous circumstance would indicate the true and essential nature of the agreement. We decline to go into the said facets of the matter, for reason which follow.


( 29 ) IF the appellant wanted to show that a document was different than what it was ex facie, the obligation of showing that it was something else always rested on the appellant. The appellant had to show it by leading extrinsic evidence. In order to do so he ought to have pleaded this contention before the arbitral tribunal and led evidence to support this contention. Such efforts, we find none. This is not even pleaded before the arbitral tribunal by the appellant. No contention was urged before the arbitral tribunal that the agreement of 27th June, 1994 was something other than what it purports to be. No such contention having been urged, the arbitral tribunal was not expected to give any such finding. The arbitrators rightly concluded that the agreement was what it purports to be ex facie.


( 30 ) IN these circumstances, particularly in view of the fact that we have held that the Chamber Summons was rightly rejected by the learned Judge, to take any other view of the document was wholly impermissible. The learned Single Judge rightly proceeded to hold that the document was one of business service centre , and that the dispute raised was only one of money deposit not returned. Since the findings of the arbitrators turn purely on the merits of the issue, the learned Single Judge was justified in declining to interfere.


( 31 ) IT was urged that, notwithstanding the failure on the part of the appellant to raise the issue of jurisdiction at the stage when section 11 petition was heard by this court, and at the stage when the objection could have been raised before the Arbitral Tribunal under section 16 (2) or (3) of the 1996 Act, this objection could be raised before this Court for the first time and tried by the learned single Judge.


( 32 ) MR. Diwan referred to the judgment of the Supreme court in Olympus Superstructures Pvt. Ltd. vs. Meena Vijay khetan and others, 1999 (2) RAJ 520 (SC), Mr. Diwan fairly conceded that this judgment expressly did not decide the legal issue as to whether an objection to the jurisdiction of the arbitral tribunal, which was not raised within the meaning of section 16, could be raised under section 34, at a later stage.


( 33 ) IN our view, it is unnecessary for us to go into this issue for the purpose of deciding this appeal. Even if we proceed on the footing that such an objection, which was not raised at the stage of section 16 (2), could have been raised in the petition under section 34, we are not inclined to accept that there is any substance in the objection. Though Mr. Diwan formulated the challenge under section 34 (2) (a) (ii) and section 34 (b) (i) as separate grounds of challenge, in our view, once we hold that the document on which the entire challenge proceeds could not have been read as a leave and licence agreement, the result would be the same. In fact, the ground under section 34 (2) (a) (ii) and section 34 (2) (b) (i) could only arise if the Court were to hold positively that the agreement relied upon was, in fact, essence and spirit an agreement of leave and licence protected under and falling within section 28 of the Bombay rent Act or under section 41 of The Presidency Small Cause courts Act, 1882. We are clearly of the view that it is not one of such nature. Consequently, all these grounds must fail.


( 34 ) MR. Diwan then raised one last question with regard to the interest granted by the arbitrators. He pointed out that under the agreement vide clause (6) it is provided that :


(6) The client further agrees to place the interest free deposit of Rs. 25,00,000/- (Rupees Twenty five lakhs only) for due performance of the said agreement. This shall remain with the Centre till the client performs the terms of the agreement as above and shall bear no interest at anytime whatsoever, the same is paid by Cheque No. 468844 and 478081 dated 26-6-1994, 17-6-1994 and the Centre hereby acknowledges the same.


( 35 ) HE then drew our attention to the findings of the arbitral Tribunal in para 22. He contends that the Arbitral tribunal has held that the provisions of the Interest Act, 1978 are applicable to the facts of the case. Consequently, he contends that the interest awardable under the Interest act alone could have been awarded and nothing more. Section 3 of the Interest Act 1978 is relied upon to contend that either the

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interest agreed upon in the agreement, or at any rate at a rate not exceeding the current rate of interest, was permissible. That the current rate of interest as defined in section 2 (b) would be highest of the maximum rates payable on a deposit with a bank. Since, at no point of time the banks paid interest of 16. 5% or 18%, Mr. Diwan contends that this is an illegal direction. ( 36 ) IN our view, this contention proceeds on a misapprehension. It is true that, prior to the coming into force of the 1996 Act, there was doubt, debate and discussion (inside Courts and outside) as to what was the interest payable during the pre-reference period, during the period of arbitration, and the post-award period. Different judgments, at different times, by different Courts took different views. Fortunately, the 1996 Act, which is a consolidating and amending Act, cuts this Gordian knot by providing in section 31 (7) that, in the situation where the parties have not agreed upon a rate of interest, the arbitral Tribunal when awarding payment of money, may include in the sum for which the award is made interest at such rate as it deems reasonable on the whole or any part of the money, for whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. Thus, under the 1996 Act the matter of interest left entirely to the discretion of the Arbitral tirbunal. True, that the Arbitral Tribunal has referred to the provisions of the Interest Act. A careful perusal of the findings of the tribunal in para 22 would suggest that it has drawn inspiration from the provisions of the Interest act only to ascertain the point of time from which the deposit in the hands of the appellant would fetch interest. In the instant case, though it is provided under clause 6 of the agreement that at no point whatsoever would the deposit of Rs. 25,00,000/- fetch interest, we cannot forget that the deposit was intended for securing the performance of the agreement by the respondent. Once the respondent had handed back the keys of the business centre and declared in no uncertain terms that it did not desire to avail of the facilities any further, the deposit became immediately repayable. That was the intention of the agreement. If, thereafter, on certain grounds, which have been found to be unsustainable by the arbitral award, the deposit was wrongfully withheld by the appellant, we see no reason why the Arbitral Tribunal should not award interest from the date ascertained as the date on which the money was refundable. In our judgment, therefore, the learned Judge was right in declining to interfere with the award. We do not find any substance in the appeal. The appeals fails and is hereby dismissed. ( 37 ) WE quantify the costs of both the appeals together at Rs. 10,000/ -. ( 38 ) SINCE both the appeals are dismissed, Notice of motion No. 2591 of 2000 has become infructuous and is hereby dismissed. ( 39 ) CERTIFIED copy expedited. Appeals dismissed.
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