The arbitral tribunal cannot order the provisional deposit of the amount in dispute when the obligation to pay is seriously disputed: Supreme Court

The Supreme Court on Tuesday ruled that the arbitral tribunal cannot make an interim relief order under section 17 of the Arbitration and Conciliation Act 1996 to deposit the amount in dispute in the litigation, in a case where liability to pay such an amount is seriously disputed and has not yet been determined by the Court.

A bench comprising Judges MR Shah and BV Nagarathna partly upheld an appeal against the order of the Delhi High Court, which upheld the order made by the Arbitral Tribunal under Article 17 ordering the appellant to deposit the full rental amount even when the responsibility for the said amount had not yet been examined by him.

Factual background

Two premises were leased by the respondents to the appellant for the operation of a restaurant and a bar. The leases were terminated by the respondents. The dispute was submitted to arbitration. Applications under section 17 of the Arbitration and Conciliation Act 1996 have been made by the respondents seeking deposit of the amount of rent due for the period between March 2020 and December 2021. The arbitral tribunal (“Court”) ordered the Appellant to deposit 100% of the amount payable to the Respondents, which would be held in fixed deposit accounts. The Section 37(2)(b) appeal to the High Court was dismissed and the Tribunal’s order was upheld.

Grounds raised by the appellant

Lawyer, Ms. Aastha Mehtaappearing on behalf of the appellant, argued that the Tribunal and High Court did not appreciate the argument that, in view of the lockdown, the premises were full/partially closed and therefore the appellant invoked the force majeure Clause, i.e. clause 29 of the lease agreement to dispute the obligation to pay rent for the relevant period. It was argued that the order adopted by the Tribunal was akin to Order XXXVIII, Rule 5, and that it could not have been adopted without satisfying the conditions listed therein. Mrs. Mehta maintained that the period between 22.03.2020 and 09.09.2020 then between 19.04.2021 and 28.06.2021 and finally between 11.01.2022 and 27.01.2022 the premises were completely closed due to of the confinement and during the remaining period the caller was allowed to run his business with only 50% capacity, that too from 12 p.m. to 10 p.m. The Court was informed that during the pendency of the proceedings before the Tribunal, the Appellant paid rent for the period October 2020 to March 2021 and July 2021 to December 2021.

Conflicts raised by the respondents

Lawyer, Ms. Shyel Trehan, representing the appellant, supported the Tribunal’s order in view of the fact that as long as the appellant continued to be in possession of the premises, it refused to pay the rent. It was found that neither Order XXXVIII Rule 5 nor Order XXXIX Rule 1 applies to the present case. Emphasis was placed on the High Court’s finding that the outbreak of the pandemic could have had a negative impact on the appellant’s business, but given that he was in possession of the premises he was contractually required to pay rent.

Analysis by the Supreme Court

The Court noted that although the argument of force majeure was raised before the Tribunal, no opinion in this regard was provided by the Tribunal. She considered that, since the applicability of force majeurewhich is the common thread of the dispute, had not yet been examined by the Court, the latter could not have issued an order for the deposit of the amount of the rent on a provisional basis.

“Therefore, no order could have been made by the Court in summary proceedings on motions filed under section 17 of the Arbitration Act in a case where there is a serious dispute as to liability for rents to be paid, which has not yet been decided and/or considered by the Arbitral Tribunal.Thus, no order for filing as an interim measure on claims under Article 17 of the Arbitration Law shall not could have been rendered by the Tribunal.”

But, the Court said the appellant was required to deposit rent for the period other than when the premises were completely closed due to the lockdown. The rental deposit for the period when there was complete closure would be subject to the result of the final adjudication.

“…the appellant is ordered to deposit the full amount of the rental for the period other than the period in which there was a full lockdown, i.e. from 22.03.2020 on 09.09.2020 and for the period between 19.04.2021 and 28.06.2021.”

The appellant was asked to deposit the balance and the Tribunal was asked to conclude the proceedings within nine months, subject to the cooperation of the parties.

Business Name: Evergreen Land Mark Pvt. ltd. vs. John Tinson And Company Pvt. Ltd and Anr.

Reference: 2022 LiveLaw (SC) 389

Case No. and Date: Civil Appeal No. 2783 of 2022 | April 19, 2022

Corum: Judges MR Shah and BV Nagarathna

Summaries

Arbitration and Conciliation Act, 1996 – Section 17 – Therefore the liability to pay rent for the period during the lockdown is yet to be tried and considered by the Tribunal. Therefore, no order could have been made by the Tribunal as an interim measure on claims filed under Section 17 of the Arbitration Act in a case where there is a serious dispute as to liability. rents to be paid, which must still be judged and/or examined by the Arbitral Tribunal. Thus, no order for filing as an interim measure on claims under Section 17 of the Arbitration Act could have been issued by the Tribunal. [Para 6]

The caller will therefore have to deposit the full amount of the rental except for the period for which there was complete closure due to confinement. As the applicability of the principle of force majeure (clause 29) has not yet been examined at least, for the period during the complete closure, it would not be justified to order the appellant to deposit the amount of the rent for said complete closure period by way of an interim measure, pending the final decision. [Para 6]

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