In the case of Evergreen Land Mark Pvt. Ltd. v. John Tinson & Company Pvt. Ltd & Anr., Civil Appeal No. 2783 of 2022 dated 19.04.2022 the Supreme Court held that the Arbitral Tribunal cannot pass an Interim Relief order under Section 17 of the Arbitration and Conciliation Act, 1996 (“the Act”) for the deposit of disputed amount, where the obligation to pay is seriously disputed and the Arbitral Tribunal has not determined the liability to pay the disputed amount.
FACTS
The Respondents leased two properties to the Appellant vide a Lease Agreement, who took the premises on lease to run a Restaurant-cum-Bar in the premises. The Respondents thereafter terminated the Lease Agreement. A dispute arose with respect to the termination of the Lease Agreement, which was referred to Arbitration.
During the Arbitral proceedings, the Respondents filed two separate applications under Section 17 of the Act, for the deposit of rental amount due and payable for the period between March 2020 to December 2021. The Arbitral Tribunal, in exercise of its powers under Section 17 of the Act, ordered the Appellant to deposit 100% of the rental amount owed to the Respondents for the leased premises to be held in fixed deposit accounts, vide Interim Relief Orders dated 05.01.2022.
Aggrieved, the Appellant preferred an Appeal before the High Court against the Orders of the Arbitral Tribunal under Section 37(2) of the Act. The High Court subsequently dismissed the Appeal and upheld the Interim Relief Orders of the Arbitral Tribunal. Hence, the Appellant filed the present Appeal before the Supreme Court.
ISSUE BEFORE THE SUPREME COURT
Whether the Arbitral Tribunal committed an error in granting interim measure under Section 17 of the Act, for the payment of amount seriously disputed, which has not yet been decided by the Tribunal?
CONTENTIONS OF THE PARTIES
The Appellant contended that the Arbitral Tribunal and High Court did not consider the Appellant’s submission on Clause 29 of the Lease Agreement and the aspect of force majeure, due to which the Appellant was unable to pay the rental amount during the lockdown period.
The Appellant stated that even in the impugned Order of the Arbitral Tribunal, the Tribunal specifically observed that it did not decide anything on the effect and import of the force majeure clause under Clause 29 of the Lease Agreement.
The Appellant argued that when the liability to pay the rental amount is seriously disputed by the Appellant, the interim measure of depositing 100% of the rental amount ought not to have been allowed by the Tribunal.
The Appellant further submitted that it did not dispose of any part of its property or remove itself or its assets out of India to create a possibility of frustrating the monetary award which may be passed in favour of the Claimant on adjudication of the dispute.
In the absence of such evidence, the Appellant asserted that the interim measure could not have been passed in accordance with Order XXXVIII, Rule 5 of the Code of Civil Procedure, 1908 (“CPC”). The Appellant relied on the decisions in Raman Tech. & Process Engg. Co. & Anr. v. Solanki Traders (2008) 2 SCC 302 and Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd. (2007) 7 SCC 125.
The Appellant further submitted that the premises were completely closed during the periods of lockdown from 2020 to 2022, and during the remaining period the Appellant was able to run his business at half capacity, only from 12 p.m. to 10 p.m. The Appellant informed that the rents for the functional months, i.e. from October 2020 to March 2021 and July 2021 to December 2021, were already paid by the Appellant during the pendency of the Arbitral proceedings.
The Respondents contended that the Arbitral Tribunal committed no error of law in directing the Appellant to deposit the entire rental amount which is admittedly due and payable by the Appellant.
The Respondents argued that the principles under neither Order XXXVIII Rule 5 nor Order XXXIX Rule 1 of the CPC are applicable in case of a direction issued by way of an Interim Measure, as in the instant case.
The Respondents submitted that as the Appellant continued to remain in possession of the leased premises, the principles of force majeure would not be applicable to the present circumstances. The Respondents emphasized on the view taken by the High Court’s in the Appeal, that although the business of the Appellant was impacted due to the COVID-19 outbreak, the Appellant may not be absolved of its contractual obligations to pay the rent.
DECISION AND FINDINGS
At the outset, the Supreme Court noted that while the total rental amount was seriously disputed by the Appellant on the ground of force majeure, no opinion, even a prima facie opinion, was rendered by the Tribunal in this regard.
The Supreme Court observed that the applicability of the force majeure principle is yet to be considered by the Arbitral Tribunal at the time of final adjudication, and resultantly, the liability to pay the rental amount for the period of lockdown is also yet to be adjudicated upon and considered by the Tribunal.
Therefore, the Supreme Court held that the Arbitral Tribunal erred in passing the order of Interim Measure under Section 17 of the Act directing the payment of entire rental amount, when the liability to pay such amount is a serious dispute which is yet to be adjudicated upon and considered by the Arbitral Tribunal. The Supreme Court noted that no such order for deposit by way of an Interim Measure under Section 17 of the Act could have been passed by the Arbitral Tribunal.
At the same time, the Supreme Court observed that the principle of force majeure can only be considered for the period of complete closure due to lockdown. The Supreme Court noted that during the disputed period from 22.03.2020 to 09.09.2020, from 19.04.2021 to 28.06.2021 and from 11.01.2022 to 27.01.2022, there was complete closure due to lockdown and during the remaining period the Appellant was allowed to run its business with 50% capacity.
The Supreme Court therefore held that the Appellant is required to deposit the entire rental amount except for which there was complete closure due to lockdown. The Supreme Court noted that it would not be justified to direct the Appellant to deposit the rental amount for the period of complete closure as an Interim Measure, pending final adjudication by the Tribunal.
In view of the above, the Supreme Court modified the order of the Arbitral Tribunal, confirmed by the High Court, and directed the Appellant to deposit the entire rental amount for the period excluding the period during which there was complete lockdown.
The Supreme Court directed the Arbitral Tribunal to adjudicate and consider the principle of force majeure for the deposit of rental amount for the period during which there was complete lockdown in accordance with law and on merits, uninfluenced by the present order of the Supreme Court without having any bearing on the final adjudication on the liability to pay rentals for the lockdown period.
AMLEGALS REMARKS
Section 17 of the Act provides for the grant of Interim Measures by the Arbitral Tribunal, on an application made by a party to the Arbitration. Certain conditions are prescribed by Section 17 of the Act for the grant of Interim Measures by the Tribunal.
Facilitating a pro-Arbitration approach, Section 17 of the Act extends the judicial power of passing Interim Orders to Arbitral Tribunals, so as to enable the parties to Arbitration to sufficiently protect their rights through Interim Measures.
The Supreme Court, through this decision, laid down a critical precedent to be followed by Arbitral Tribunals while granting Interim Measures under Section 17 of the Act. The Supreme Court restricted the Tribunal’s ambit of granting interim relief, and held that an Interim Relief cannot be granted for an issue which is seriously disputed by the other party, and which has not been considered or adjudicated by the Arbitral Tribunal.
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