2018 (5) TMI 2184 - HC - Indian Laws

Delhi HC rejects Section 34 challenge to arbitral award on hospitality district license fees and development costs

Delhi HC dismissed petitioner's Section 34 application challenging arbitral award regarding hospitality district agreements. Court held petitioner's ... Seeking quashing of the impugned arbitral tribunal award - seeking to restrain the respondent to create any third party interest in respect of the Asset Area 3 in the Hospitality District which are subject matter of the agreements between the parties - Section 34 of the Arbitration and Conciliation Act, 1996 - Validity of the termination of the agreements - HELD THAT:- A bare perusal of the award would reveal the annual license fee only till 16.07.2015 is allowed by the learned arbitral tribunal and the argument of the petitioner is against the record. Qua the annual development cost of ₹ 20.00 Crores, admittedly, the said cost was payable in a particular manner as set out by the terms of the contract. Further a letter dated 25.05.2015 written by the petitioner to the respondent admits the petitioner would pay the annual license fee for the year 2014-15 and 2015-16 along with pending advance development cost of ₹ 20,07,50,000/- by 25.02.2017. Hence, at this stage it would be out of place for the petitioner to challenge the award on advance development cost. The arguments of the petitioner is totally misconceived since in the instant case the award both majority and minority were made on 27.06.2017 in the presence of all the parties after due notice to them. It was prior to the expiry of extended period of 06 months which rather came to end on 30.06.2017. Since the fee of learned tribunal was outstanding so vide order dated 27.06.2017 it exercised a lien on the award. Hence only the delivery of the award was withheld per Section 39(1) of the Act. In its order dated 08.09.2017, the learned tribunal did not adjudicate the interse rights of the parties in relation to the project agreements which were subject matter of the arbitration but merely vacated the lien on the award. Hence the petitioner cannot be allowed to take advantage of its own wrong since the fee of learned tribunal was merely paid by the respondent. A bare perusal of award would reveal the arbitral tribunal has examined all the documents placed on record, appreciated the evidence led by the parties and made a reasoned award. The jurisdiction of this Court is limited to see if the learned tribunal has transgressed beyond the contract or has not acted in accordance with law or if has applied wrong principles of law. The Court under Section 34 of the Act does not sit in appeal over the award and there is no scope of re-appreciation of the evidence or re-evaluation on merits or reinterpreting the terms of the contract. The position has been clarified by the Amending Act 2015 to the Act wherein Section 34(2A) has been inserted which provide an award shall not be set aside merely on the ground of erroneous application of law or by the re-appreciation of the evidence. The objections under Section 34 of the Act, thus, are dismissed - application dismissed. Issues Involved:1. Validity of the termination of the agreements.2. Adjustment of the annual license fee against the security deposit.3. Grant of balance development cost to the respondent.4. Award of interest on the refund of the security deposit.5. Award of annual license fee beyond the period of termination.6. Timeliness of the arbitral award.Detailed Analysis:1. Validity of the Termination of the Agreements:The petitioner challenged the termination of the agreements on the grounds that the respondent was holding an excess amount as a security deposit, which should have been adjusted against the annual license fee and development cost. The court noted that the petitioner had defaulted on payments and failed to commence commercial operations within the stipulated time. The tribunal found that the termination was legal due to consistent defaults by the petitioner. The court upheld this finding, stating that the termination was justified and in accordance with the terms of the agreements.2. Adjustment of the Annual License Fee Against the Security Deposit:The petitioner argued that the annual license fee should have been adjusted against the excess security deposit. The court observed that there was no provision in the agreements allowing such an adjustment. The tribunal had noted that the security deposit was taken as per the settled terms and that the petitioner never requested an adjustment during the agreement's tenure. The court agreed with the tribunal's finding that the annual license fee was an independent obligation and could not be adjusted against the security deposit.3. Grant of Balance Development Cost to the Respondent:The petitioner contended that the tribunal erred in granting the balance development cost without the respondent proving the expenses incurred. The court referred to the relevant articles of the Infrastructure Development Service Agreement, which stipulated that the advance development charges were payable in three tranches. The tribunal found that the petitioner was liable to pay the balance development cost based on the terms of the agreement and the petitioner's admission in its letter dated 25.05.2015. The court upheld this finding, stating that the tribunal's decision was based on the terms of the agreement and the petitioner's admissions.4. Award of Interest on the Refund of the Security Deposit:The petitioner argued that the tribunal should have awarded interest on the security deposit, which was held to be illegally retained by the respondent. The court noted that the grant of interest is discretionary and that the petitioner had failed to claim such relief or issue any notice demanding interest. The tribunal had exercised its discretion and decided not to award interest. The court found no reason to interfere with this decision, citing Section 31(7)(a) of the Arbitration and Conciliation Act, which makes the grant of interest discretionary.5. Award of Annual License Fee Beyond the Period of Termination:The petitioner argued that the tribunal had awarded the annual license fee beyond the period of termination. The court clarified that the tribunal had only awarded the annual license fee till 16.07.2015, the date of termination. The court found that the tribunal's decision was consistent with the terms of the agreement and the petitioner's admissions regarding the payment of the annual license fee and advance development cost.6. Timeliness of the Arbitral Award:The petitioner contended that the award was beyond the statutory period. The court noted that the award was made on 27.06.2017, within the extended period of six months, which ended on 30.06.2017. The tribunal had exercised a lien on the award due to outstanding fees, which was vacated on 08.09.2017. The court found that the award was made within the statutory period and that the petitioner's argument was misconceived.Conclusion:The court dismissed the objections under Section 34 of the Arbitration and Conciliation Act, upholding the arbitral award. The court found that the tribunal had acted within the terms of the agreements and the law, and there was no scope for re-appreciation of evidence or re-evaluation of the merits of the case. The pending applications were also dismissed, with no order as to costs.