2020 (12) TMI 1256 - HC - Companies Law

Landlord awarded interim lease arrears payment in arbitration dispute

Brace Iron and Steel Private Limited Versus Tata Steel BSL Limited

Brace Iron and Steel Private Limited Versus Tata Steel BSL Limited - TMI Issues Involved:1. Non-payment of lease rentals by the respondent.2. Maintenance obligations and costs of the leased equipment.3. Adjustments and set-offs claimed by the respondent.4. Interim relief sought by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996.5. Jurisdiction and scope of the court under Section 9 of the Act.6. Admissibility of claims and counterclaims in arbitration.Detailed Analysis:1. Non-payment of Lease Rentals:The petitioner sought to restrain the respondent from using the leased equipment without paying the lease rentals as per the Lease Agreement dated February 26, 2015. The petitioner claimed that the respondent had defaulted on payments since March 2020, amounting to Rs. 49.54 crores plus interest. Clause 5.1 and 5.2 of the Lease Agreement mandated the respondent to pay monthly rent of Rs. 15 crores until March 31, 2020, and Rs. 18 crores thereafter. The court noted that the respondent had paid the lease rent until February 29, 2020, and deposited GST with the public authority. The court found a prima facie liability on the respondent to pay the lease rent as per the Lease Agreement.2. Maintenance Obligations and Costs:The respondent claimed that the petitioner failed to maintain the Oxygen Plants as required under Clause 6.1(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement. The respondent stated it incurred expenses of Rs. 41.79 crores for maintenance. The petitioner contested this, stating the respondent was responsible for routine maintenance and operation costs, and any major repairs could be covered under the insurance policy. The court noted a dispute regarding maintenance obligations and costs, which needed adjudication by the arbitrator.3. Adjustments and Set-offs:The respondent claimed adjustments for maintenance costs and an outstanding amount of Rs. 10.19 crores from a previous transaction. The petitioner disputed these claims, stating they were unadjudicated and could not be set off against the lease rent. The court found that the claim of Rs. 10.19 crores was not unequivocally admitted by the petitioner and required trial. The court held that the respondent's claim for maintenance costs and adjustments needed to be decided by the arbitrator.4. Interim Relief under Section 9:The petitioner sought interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, for immediate payment of lease rentals. The respondent argued that the relief sought was final in nature and not permissible under Section 9. The court, relying on precedents like Supertrack Hotels Pvt. Ltd. and Value Source Mercantile Ltd., held that the court could direct payment of admitted amounts as an interim measure. The court found that the lease rent of Rs. 18 crores per month was prima facie payable by the respondent and directed the respondent to pay the arrears to the lead Lender Bank within six weeks, subject to the outcome of arbitration proceedings.5. Jurisdiction and Scope of Section 9:The respondent contended that the court's power under Section 9 was limited and could not grant final relief. The court, however, noted that Section 9 allowed for interim measures of protection, including directing payment of admitted amounts. The court emphasized that the relief granted was tentative and subject to the final adjudication by the arbitrator.6. Admissibility of Claims and Counterclaims:The court addressed the admissibility of the respondent's counterclaims for maintenance costs and outstanding amounts. It held that these claims needed to be adjudicated in arbitration and could not be set off against the lease rent in the interim. The court directed the respondent to pay the lease arrears while allowing the claims to be resolved through arbitration.Conclusion:The court allowed the petition to the extent of directing the respondent to pay the lease arrears, subject to the outcome of arbitration proceedings. The court emphasized that its decision was tentative and limited to the interim relief sought under Section 9 of the Arbitration and Conciliation Act, 1996. The petition was allowed with no costs.