TaxTMI 
TaxTMI 
2018 (5) TMI 2184
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....of the agreements between the parties. 2. The subject land in question viz Asset Area 3 belong to the Government of India which has been leased to the Air India, who in turn had licensed the same to the respondent for development, who in turn had given it to the petitioner for construction of Five Star Hotel. The term of the license was initially for 26 years and it was renewable for further period of 30 years. The petitioner and the respondent had entered into two agreements namely a) Agreement for Development and b) Infrastructure Development Service Agreement (in short IDSA), both dated 26.02.2010. 3. The learned senior counsel for the petitioner submitted both these agreements were terminated by the respondent on 16.07.2015 on the ground the petitioner had defaulted for three years in payment of the license fee and has also failed to pay the advance development cost amount. 4. Mr. Sandeep Sethi, the learned senior counsel appearing on behalf of the petitioner has primarily raised four grounds to challenge the impugned majority award passed by the learned arbitral tribunal as follows:- a) The termination is not valid in view of the express finding of the learne....
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.... payment of the annual license fee was an independent obligation despite there being a security deposit placed with the respondent for securing the payment of the annual license fee and the said finding is contrary to the terms of article 3.2 of the Development Agreement and hence the impugned award is patently illegal as is in contravention of the express provisions of the contract and is liable to the set aside. 9. To substantiate his arguments, the learned senior counsel for the petitioner has taken me to the relevant provisions of the contract, pleadings as well as the impugned award. It would be apposite to set out the express terms of the contract in regard to the payment of the annual license fee and the security deposit. The said articles are as follows: "DEVELOPMENT AGREEMENT' 2.1 Grant: of Development Rights 2.1.1 DIAL hereby grants to the Developer the exclusive right and authority during the Term to undertake and implement the Project upon Asset Area 3 and in furtherance of the same grants a license to the Developer in respect of the Asset Area 3, as per this Article 2, for the sole purpose of undertaking the Project and Developer hereby accepts ....
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.... to pay the License Fee in advance within Fifteen (15) days of commencement of each Contract Year. Provided however, that for the first Contract Year, the License Fee shall be calculated from the date of issue of the letter of award to the successful Bidder. The License Fee shall be exclusive of all taxes (including service tax.), cesses, fees and other charges, which shall all be borne by the Developer, except income tax deductions at source if any, in accordance with Applicable Law. In addition to this License fee and in order to secure the payment of the annual License Fee in accordance with this Agreement, and the performance of all other obligations under the Development Agreement. The Developer hereby agrees to pay to DIAL a sum equal to three times the average aggregate annual License fees for the Term (including the Extended Term) as a security deposit (the "Security Deposit'). The parties agree that for the purposes of as set forth in Annexure B and for the Extended Term the year on year escalation of the License fee shall be assumed to be 5.5%. The Security Deposit shall be paid by the Developer to DIAL in the manner set out hereunder. 6.1.10 The Develop....
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....n-defaulting Party shall have the right to terminate this Agreement by issuance of a termination notice ('Termination Notice'), provided however that DIAL's right to terminate shall be subject to the exercise of rights of substitution by the Developer's Lenders in accordance with the Substitution Agreement provided however the Developer shall not be entitled to any Cure Period for a breach under Article 12.1(xvi) hereof. Provided, that if the default is of the nature specified in Article 13.1 (i) and is cured within the Cure Period, then the payments to be made by the Developer to cure the said default shall attract interest at a rate per annum of 5% above prime lending rate of State Bank of India (or in the absence of State Bank of India's prime lending rate, the highest lending rate applicable to term lending).The default shall not be considered cured unless such interest is also paid within the Cure Period. Provided further, upon the occurrence of any default after the second default, under Article 13.1(i), DIAL shall have the right to issue a Notice of Intent to Terminate. Upon the issuance of Notice of Intention to Terminate, the Developer shall have ....
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....6.4 Consequences of Termination 6.4.1 xxx xxx 6.4.2 In the event of termination of this Agreement for a Developer event of default- (whether under this Agreement or under the Development Agreement), the unspent Advance Development Cost shall only be repaid on the earlier of the 30th anniversary of the Effective Date of the OMDA or the termination of the OMDA in accordance with the terms thereof or earlier at the option of DIAL No interest shall be payable by DIAL to Developer in respect of the said unspent Advance Development Cost. In the event of termination of this Agreement due to the termination of the Development Agreement for a DIAL Event of Default (as defined in the Development Agreement) or the OMDA for a DIAL event of default or an AAI event of default (as defined in the OMDA) the unspent Advance Development Cost (as on the date of termination) shall be returned to the Developer, free of any interest, on the Transfer Date simultaneously with transfer of Assets by the Developer to DAIL.' 10. After going through the relevant articles, let me refer to the conduct of the petitioner herein. The annual license fee per Article 3.1 (supra) was payabl....
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....ment of license fee, so the respondent issued the first cure notice in terms of Article 13.3 of the Development Agreement directing the petitioner to remedied the default, failing which the respondent was constrained to terminate the project agreement. The petitioner vide letter dated 13.08.2012 admitted its default and requested for some more time to clear its dues. Since the petitioner was in continuous default, the respondent issued yet another cure notice dated 26.03.2015 in terms of Article 13.3 of the Development Agreement requesting the petitioner to remedy the default but yet again the petitioner vide its letter dated 15.07.2015 though admitted its default but did not pay and requested for some more time. 14. The petitioner instead filed a petition under Section 9 of the Act wherein it was permitted to deposit Rs. 60 Crores towards the outstanding dues without prejudice to its rights and contentions but yet again the petitioner deposited only Rs. 5.5 Crores. The said amount was later released to the petitioner herein. The application under Section 17 of the Act filed by the petitioner was also dismissed vide order dated 24.07.2016 wherein the learned arbitral tribunal re....
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..... So far as the Respondent's right to obtain Advance Development Cost is concerned, the same is covered by Articles 3.1.1 and 3.1.2. 142. Advance Development Cost is a part of the Project Agreements and is payable to the Respondent up front. In this view of the matter the question of the Respondent proving its entitlement thereto does not arise. 156. The Tribunal has noticed hereto before that payment of Annual License Fees provides for a distinct obligation on the part of the Claimant Non-payment of such Annual License Fees from 2012 till the issuance of notice of termination must be held to be fundamental in nature. By reason of such breaches, the Respondent has been deprived of the principal benefits under the Contract. It cannot be characterized with a mere default in performance of Contract by a party thereto. 157. This Tribunal has furthermore noticed hereto before that the Respondent has served upon the Claimant a Cure Notice in 2012 and only on the request of the Claimant not to act thereupon as it would arrange finances from the financial investors, the said cure notice was not given effect to and the second cure notice was issued only in 201....
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....rst cure notice was issued in the year 2012. 182. In its application filed before the Hon'ble Delhi High Court, also not only the Claimant raised no such plea, it even agreed to deposit the entire arrears of ALF and other dues with interest. 185. The Tribunal noticed that Annual License Fees was payable. Clause 11.2.1 of the OMDA provides that the Respondent was under a corresponding obligation to make timely payment of Annual License Fees to AAI from its revenues and thus the Respondent was obligated to comply with the terms of OMDA irrespective of the fact as to whether the Claimant and/or other Developers have been paying the Annual License Fees or not. 186. It is beyond any doubt or dispute that the Claimant did not pay ALF from 2012 onwards resulting in termination of the Contract. 187. No such case was made out at any point of time even after issuance of its letter 29.03.2013. Despite issuance of such a notice the Claimant did not repudiate the Contract nor did it issue any 'cure notice' against the Respondent. The Claimant did not invoke the 'dispute resolution clause' contained in the Contract. This aspect of the matte....
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....and Rs. 20.07 Crores on or before the expiry of one year from 26.02.2010. The first installment of Rs. 40.15 Crores was paid in time, but the second was paid after the expiry of six months of the time stipulated and the third was never paid. 22. The advance development charges were to be utilized over the entire life/extended duration of the project agreements. Per Articles 3.1.4 and 6.4.2 of ISDA the petitioner was to pay such advance development charges and the refund was only in an event of the advance development cost being unused and that too on 30th anniversary of the Operation, Management and Development Agreement (ODMA) dated 04.04.2006 i.e. in the year 2036 (which event had not occurred.) 23. Hence, the findings of learned tribunal viz. the petitioner is liable to pay the balance of the advance development cost of Rs. 20 Crores is strictly based upon the terms of the agreement as also upon admission of the petitioner that it is liable to pay the same per its own letter dated 25.05.2015. Further no relief in respect of advance development cost or its refund was ever claimed prior to termination of agreement or before the learned tribunal. It is duly recorded by learne....
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....cogent reasoning was given for not awarding the interest upon the security amount which was held to be illegally retained by the respondent and yet the learned arbitral tribunal simply remarked "As far as security deposit amount is concerned, since the claimant has already paid in to the respondent a sum of Rs. 1,92,88,00,000/-as a security deposit, the same needs to be reimbursed in full and no interest thereon is awarded. (The claimant has not even issued any notice claiming interest under the Interest Act)'. 27. The learned senior counsel for the petitioner relied upon South Eastern Coalfields Limited vs State of MP and Others (2003) 8 SCC 648, which notes:- "29. Once the doctrine of restitution is attracted, the interest is often a normal relief given in restitution. Such interest is not controlled by the provisions of the Interest Act of 1839 or 1978.' 28. And Union of India vs Tata Chemicals Limited (2014) 6 SCC 335, where the Supreme Court observed:- "38. ....... The obligation to refund money received and retained without right implies and carries with it the right to interest. Whever money has been received by a party which ex ae quo et bono ought t....
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....e arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.' 32. In Hyder Consulting (UK) Limited vs State of Orissa (2015) 2 SCC 189 the Court held:- 26. Furthermore, I take note of the fact that the aforementioned principle was applied by this Court in the S.L. Arora case (supra). It was explicitly stated that since the ONGC case (supra) and Three Circles case (supra) related to awards under the Arbitration Act, 1940, they can be of no assistance in interpreting subsection (7) of section 31 of the Act, 1996. I concur with the above reasoning to show the inapplicability of the ONGC case (supra) and the Three Circles case (supra) to the present case. 33. I may here also refer to Article III clause 3.24 of the agreement and it read as under : Article III 3.2.1 xxx xxx. 3.2.2 xxx xxx. 3.2.3 xxx xxx 3.2.4 The Parties further agree that DIAL shall not be liable to pay any interest on the Security Deposit.' ....
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.... Tribunal that after the termination of the Contract, ADC was not payable.' 36. Hence, it was argued that though in the main body of the impugned award, the learned arbitral tribunal did not accept the payment of annual license fee post termination, but yet awarded the same. Hence the reasoning given is against the findings. 37. 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 Rs. 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 Rs. 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. 38. Even the learned arbitral allowed interest only till July, 2016 (i.e., the date of order under Section 7 of the Act) because of the inability of the r....
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....03.20l3, never denied or disputed its liability to pay the Annual License Fees. On the other hand, it repeatedly requested for extension of time for payment of ALF. It is pertinent to mention that the Claimant even in its original* statement of claim did not raise the aforementioned contention only in the amended statement of claim. These pleas have been raised only in the amended statement of claim. For the reasons aforementioned it is held that the Claimant defaulted in payment of ALF and ADC' 39. Lastly, it was argued by the learned senior counsel for the petitioner the award was initially given on 21.06.2017, but yet again the tribunal gave another award on 08.09.2017 wherein it awarded the costs of Rs. 84.72 Lac and stated that this order shall form part of the earlier award and as such it was argued that since the award is beyond the statutory period, it needs to be set aside. 40. 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 ....