2022 (8) TMI 822 - SC - Indian Laws

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 ... Rejection of application for appointment of an Arbitrator - non-renewal of the lease - Section 11(6) of the 1996 Act - HELD THAT:- The Division Bench fell in error in arriving at the finding that the arbitration clause could only be invoked if the proposal for renewal was accepted by the lessor, but there was dispute with regard to the period of renewal or there was dispute with regard to the quantum of rent proposed to be paid by the lessee to the lessor. It is well settled that clauses in a lease deed cannot be read and construed in isolation. The lease deed is to be construed as a whole. Clause 4(xiii) has to be read with Clause 3 which clearly provides that the initial term of the lease under the deed shall be a period of 24 years from 1st June 1997 to 31st May 2021 and shall be renewable for such acceptance of the lessee’s offer in terms of Clause 4(xiii). Clause 4(xiii) has wrongly been printed as Clause 4(xii). It is not in dispute that it is to be read as Clause 4(xiii) and all concerned have proceeded on the basis that the offer is to be in terms of Clause 4(xiii) - Prima facie, the parties to the lease deed have used the expression “shall” which connotes a command. If the lessee offered its terms for renewal or extension of the lease within the time stipulated in the lease, prima facie the same would have to be accepted. However, if the quantum of rent or the period of lease could not be mutually agreed upon, the same would necessarily have to be referred to arbitration by an Arbitrator to be appointed by the Chief Justice of the Sikkim High Court. The Division Bench fell in error in rejecting the application of the Appellant under Section 11(6) of the 1996 Act for appointment of an Arbitrator. The dispute arising out of non-renewal of the lease is clearly arbitrable - All disputes between the parties to the lease with regard to renewal and/or non-renewal, the period of renewal and the quantum of rent would have be decided by the Arbitrator. The issue of arbitrability of the dipsute over non-renewal of the lease is within the realm of the Arbitral Tribunal/Arbitrator. Justice Bhaskar Bhattacharya, Former Chief Justice of Gujrat High Court and Former Chairman of the Sikkim Law Commission is appointed Arbitrator to adjudicate the disputes between the parties - appeal allowed. 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.