Supreme Court rules lease dispute arbitrable, appoints Arbitrator to resolve promptly

The Supreme Court held that the dispute over the non-renewal of a lease is arbitrable as per the lease agreement terms. The Court disagreed with the High Court's interpretation of the arbitration clause and appointed an Arbitrator to resolve the disputes promptly, emphasizing the Arbitral Tribunal's authority in determining arbitrability. The Court set aside the High Court's decision and directed the Arbitrator to proceed without influence from the Court's observations on the merits.

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Issues Involved:
1. Whether the dispute regarding the non-renewal of the lease is arbitrable.
2. Interpretation of the arbitration clause in the lease agreement.
3. Validity of the High Court's decision to set aside the Commercial Court's order and dismiss the application for the appointment of an Arbitrator.

Detailed Analysis:

1. Arbitrability of the Dispute:
The Supreme Court examined whether the dispute arising from the non-renewal of the lease could be referred to arbitration. The Court held that the dispute over non-renewal is clearly arbitrable. The lease deed explicitly provided for renewal under specific terms, and any disputes regarding renewal and the quantum of rent should be decided by an Arbitrator.

2. Interpretation of the Arbitration Clause:
The Division Bench of the High Court had interpreted Clause 4(xiii) of the lease agreement to mean that arbitration could only be invoked if the proposal for renewal was accepted by the lessor, but there was a dispute regarding the period of renewal or the rent. The Supreme Court disagreed with this interpretation, stating that the arbitration clause should not be read in isolation but in conjunction with other clauses of the lease deed. The Court emphasized that the expression "shall" in Clause 4(xiii) connotes a command, indicating that if the lessee offered terms for renewal within the stipulated time, it would have to be accepted, and any disagreement on rent or period would be referred to arbitration.

3. Validity of the High Court's Decision:
The Supreme Court found that the High Court erred in setting aside the Commercial Court's order and dismissing the application for the appointment of an Arbitrator. The Court cited the case of Vidya Drolia & Ors. v. Durga Trading Corporation, emphasizing that the Arbitral Tribunal is the preferred first authority to decide on the arbitrability of disputes. The Court concluded that the High Court's decision to reject the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, was incorrect.

Conclusion:
The Supreme Court allowed the appeals, set aside the High Court's judgment, and appointed Justice Bhaskar Bhattacharya as the Arbitrator to adjudicate the disputes between the parties. The Court directed that the arbitration proceedings be completed expeditiously, preferably within three months. The order of status quo was to continue for three months or until further orders of the Arbitral Tribunal. The Arbitrator was instructed not to be influenced by any observations made in the Supreme Court's order regarding the merits or arbitrability of the disputes.

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