2014(7) ALL MR 544


Home Care Retail Marts Pvt. Ltd. Vs. Harsh Kaushal Developers

Arbitration Petition No. 914 of 2010

10th June, 2013

Petitioner Counsel: Mr. RAJIV KUMAR, Senior Advocate with Ms. KASHMIRA BHARUCHA with Mr. MAYUR KHANDEPARKAR with Mr. NIMAY DAVE i/by Ms. SANGEETA LANJEWAR
Respondent Counsel: Mr. J.J. BHATT, Senior Advocate with Ms. ANJALI CHANDURKAR with Ms. NEELAM PRASAD i/by M/s. PURNANAND & CO

Arbitration and Conciliation Act (1996), S.34 - Arbitral award - Application for setting aside of - Arbitral award passed without deciding preliminary issue of jurisdiction of arbitrator to deal with aspect of leave and license agreement - Nature of clauses and agreement create relationship of "Licensor and Licensee" and fall within ambit of specific law - Arbitral Tribunal has no jurisdiction to pass award without deciding preliminary issue of jurisdiction - Arbitral award liable to be set aside. (Paras 18, 19)

Cases Cited:
Motabhai Paras Pvt. Ltd. Vs. Western Paper & Yarn Pvt. Ltd., MANU/MH/1817/2012 [Para 14]
M/s. Thakker Warehousing Agency Vs. Maharashtra Small Scale Industries Development Corporation Ltd., Arbitration Petition No. 102/2011, Dt.9/4/2013 [Para 15]


JUDGMENT :- Heard finally by consent of the parties. Both the senior counsel read and referred the material/arbitration record/proceedings in detail.

2. The Petitioner has challenged the impugned award passed by the sole Arbitrator dated 4 February 2010, by holding that the payment of outgoing in respect of Hyper Market Store area is as under:-

"68I, therefore, hold and declare that the Claimant is not entitled to get any relief and therefore the Arbitration Matter of the Claimant is dismissed with costs quantified by me hereunder and I also hold and declare that the Respondent is entitled to get from the Claimant, towards its counter claim the net amount of Rs.5,57,22,090/- upto 30.11.2009 and the Claimant is hereby directed to pay to the Respondent this amount under this Award and to pay till it vacates the premises with interest from the date of the Award @ 12% p.a. till payment or realization if the Claimant does not pay this amount within 15 days from the date of this Award. I have adjudicated all the issues in dispute between the parties under this Award.

69 The Claimant is liable to bear its own cost and also to bear the cost of the Respondent of this Arbitration. The Respondent has submitted its bill of cost as under:-

Sr. No. Particulars Amount Nature of payment 1. Arbitral Fees 1090000 Payment for 39 sittings 2. Counsel Charges 371000 Payment for 10 sittings. 3. Purnanand & Co. 975000 Payment for 39 sittings. 2436000

"70 The Claimant has also not paid the Arbitral fees as per my bill dated 14.1.2010 forwarded to the Attorneys of the Claimant. I direct the Claimant to clear its arrears before the Award is handed over to the Claimant, as per my bill. In case the Claimant fails to make the aforesaid payment within one week of date of the intimation to the Attorneys of the Claimant, the Respondent shall pay the same as provided under Section 38(2, first proviso of the Arbitration & Conciliation Act, 1996 and may recover the same from the Claimant as per law."

The learned Arbitrator thereby allowed the counter-claim filed by the Respondent and rejected the case of the Petitioner-Original claimant.

3. The basic facts as per the Petitioner are as under:-

On 16 October 2006, by a Conducting Agreement, Respondent granted to the Petitioner a right to set up, conduct and operate business of Hypermarket Store from the entire third floor (admeasuring 7000 sq.ft.), entire fourth floor (admeasuring 7000 sq.ft.), aggregating to 14000 sq.ft., in the building known as "Crystal Mall", situate at 24th Road, Bandra (W), Mumbai 400 050 with a further right to an internal escalator connecting to the two floors and an exclusive lift from the ground floor upto the fourth floor (collectively called "the Hyper Market Store Area"), for a period of 60 months from 16 October 2006. The agreement provides for the arbitration in accordance with the provisions of Arbitration and Conciliation Act, 1996 (for short, "the Arbitration Act"). Clause 42 of the Business Conducting Agreement reads as under:-

"42. All disputes and differences of whatsoever nature or kind which may arise between the parties at any time hereafter (whether during the subsistence of this Agreement or thereafter) in any manner concerning or relating to or touching this Agreement or the interpretation or meaning of anything therein contained or any of the rights and obligations of the parties thereunder or any act, deed, matter or thing required to be done or any payment to be made or received by any party thereunder or any matter on which the parties have acted in pursuance thereof and/or thereunder, the same shall be referred to the arbitration of a sole arbitrator in accordance with the provisions of the Indian Arbitration & Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. The Arbitrator shall give a reasoned award. It is within the contemplation of the parties that there can be more than one arbitration proceedings under the provisions of this Clause. The place for the Arbitration shall be in Mumbai and the Arbitration shall be conducted in English language. The parties shall promptly implement the award given in such Arbitration. It is clarified that notwithstanding that this Agreement shall come to an end on the expiration of the term thereof by efflux of time or on the sooner termination thereof under any of the terms and provisions herein contained, the agreement to refer all disputes and differences to arbitration contained in this Clause shall continue to apply to and govern all and any disputes and differences referred to above that may arise on account of or consequent/subsequent to the expiration or such sooner termination of this Agreement."

4. "The business conduct agreement" was for 60 months, with the lock-in period of 36 months. There was right to conduct, manage and operate the business of "Hypermarket store" and right to have removable internal renovations, additions and alterations, suitable for the business need. It was agreed that the use of the area incidental to its right to conduct, manage and operate the business of Hypermarket store.

5. The conducting fee and liability clauses are as under:-

"11. In consideration of Harsh Kaushal having under this business arrangement permitted Home Care to conduct, manage and operate the Hypermarket Store business in the Hypermarket Store Area, during the term of this Agreement beginning from the Commencement Date, Home Care shall pay to Harsh Kaushal a Conducting Fee (herein referred to as the "Conducting Fee") to be computed at the rate of 5% (five per cent) on the gross sale upto Rs.3 (three) Crores and for gross sale exceeding Rs.3 (three) Crores, 7% on the difference (i.e. if the sales is Rs.3 crores then the conducting fees at 5% will be Rs.15 Lacs and if the sale is Rs.4 crores then on additional Rs.1 crore sale exceeding Rs.3 Crore additional Rs.7 Lacs will be paid as conducting fee i.e. totally Rs.22 lacs on gross sale of Rs.4 crores will be paid as conducting fees), by Home Care during each English Calendar Month from the said business of Hypermarket Store to be conducted, managed and operated by Home Care in/from the Hypermarket Store Area. However after first 6 months of operations, if the gross sales in any month falls below Rs. 3 (three) Crores then in that event Home Care agrees and confirms to pay a minimum guarantee conducting fees of Rs.11,00,000/- ( Rupees Eleven Lakhs only)."

"12. Home Care will be liable to pay property tax, water charges, electricity charges and all outgoings in respect of said Hyper Market Store Area till the term of the Agreement."

"14. Each payment of Conducting Fee shall be subject to deduction of income tax as source (as may be applicable) under the Income Tax Laws and the requisite TDS Certificates shall be delivered to Harsh Kaushal by Home Care on an annual basis within 45 days from the end of the financial year."

"17. Home Care shall from time to time pay the concerned water supply, electric supply agency the charges for water & electricity in the Hypermarket Store Area as per the bills received by Home Care from time to time. The deposits, if any, paid by Home Care to Harsh Kaushal/concerned agencies shall be returned by Harsh Kaushal to Home Care after removal of fit outs, fixture and belongings by Home Care from the Hypermarket Store Area on the expiration or sooner determination of this Agreement."

6. The no right/title/interest clause is as under:-

"23. Home Care agrees and confirms that they have no right, title and interest in the said Hypermarket Store Area except using it as Hypermarket Store."

7. On 19 November 2006, the Petitioner commenced its Hyper Market Store business from the Hyper Market Store Area. In the month of November 2007, the dispute arose between the parties with respect to the payment of conducting fees, outgoings and property tax. The Respondent started to withholding electric supply, physically restraining the customers of the Petitioner from entering into the Hyper Market Store, obstructing loading and unloading goods etc. Admittedly, the Petitioner had invoked the jurisdiction of the City Civil Court, referring to the agreement which was "Business Conducting Agreement" as per the Respondent, but was a "Leave and License Agreement" as per the Petitioner. No interim relief was granted therefore, an Appeal against the order was preferred in this Court.

8. The Petitioner was ordered to deposit a sum of Rs.60 lacs in the Trial Court with the liberty to the Respondent to withdraw the same on certain terms and conditions. The sum of Rs.60 lacs was paid accordingly.

9. By consent an Arbitrator was appointed. On 28 January 2008, the Arbitration proceedings commenced. The parties filed their respective pleadings and led evidence also. On 4 February 2010, the learned Arbitrator passed the award.

10. The Respondent in the counter-claim prayed as under:-

"c. This Hon'ble Forum be pleased to direct Respondents to remove their fit outs and vacate Hyper Market store area;

e. This Hon'ble Forum be pleased to direct the Respondent to pay property taxes, electricity charges, water charges and all other outgoings in respect of the hyper market store area from 8.1.2008 till they remove the fit outs and vacate the hyper market store area.

f. This Hon'ble Forum be pleased to direct the Respondent to pay to the Claimant herein a sum of Rs.22 lacs per month as and by way of liquidated damages from 8.1.2008 till they remove the fit outs and vacate the premises."

11. The Petitioner in written statement at para 135, averred as under:-

" The Respondents say and submit that the nature of the possession of the Respondent is that of a license to use the said Hyper Market Store Area. The Respondents say and submit that the said issue is by statute to be determined exclusively by the Civil Court and cannot be determined in Arbitral proceedings. The Respondents in the circumstances say and submit that the Counter Claim made by the Claimant is beyond the scope of the Hon'ble Arbitral Tribunal and the Arbitral Tribunal does not have jurisdiction to entertain the Counter Claim and/or to grant any relief therein."

The said paragraph remained uncontroverted.

12. Though there was specific averments raised, the learned Arbitrator held that the Claimant-Petitioner is not entitled to any relief and granted the award by overlooking the specific issue of jurisdiction so raised by accepting the counter-claim of the Respondent, based upon the agreement including the exclusive possession of the premises. The learned Senior counsel appearing for the Petitioner, therefore, submitted to decide the preliminary issue of jurisdiction of learned Arbitrator to deal with the aspect of leave and license agreement and/or related occupation charges based upon the possession of the Petitioner. The issue is also raised about the interpretation of the agreement, whether it is a "leave and license agreement" and/or "business conducting agreement".

13. It is necessary to note that the Full Bench Judgments of this Court have already dealt with the aspects of the power of the Arbitral Tribunal with regard to the "leave and license", "possession" and/or "occupation charges" and/or "relationship between the landlord and the tenant" and/or "licensor and licensee" in such matters.

14. I have dealt with the subject, in following words in Motabhai Paras Private Limited Vs. Western Paper & Yarn Pvt. Ltd., MANU/MH/1817/2012. :-

"15 I have also in Genesis Colors Private Limited Vs. Anil Ramlabhaya Suri & Anr. 2010(1) Mh.L.J. 231, though dealing with Section 9 of the Arbitration Act read with Section 41 of the Small Cause Courts Act, observed that even the Court has no jurisdiction to grant any relief when the dispute arising out of the agreements falls within the ambit of special statutes. If the Court has no jurisdiction, there is no question of permitting the Arbitral Tribunal to deal with such issue in view of specific bar created under those rent control and related statutes.

16 The shop owners put in possession on license various shops and offices by a public local body, by retaining right of exclusive possession, while dealing with the same, the Apex Court, in New Bus-Stand Shop Owners Association Vs. Corporation of Kozhikode & Anr. MANU/SC/1696/2009 = (2009) 10 SCC 455 has observed as under:-

"25. Reference in this connection can also be made to a later judgment of the Court of Appeal in Marchant Vs. Charters, (1977) 1 WLR 1181 : (1977) 3 All ER 918 (CA), where again Lord Denning reiterated these principles in a slightly different form by holding that the true test is the nature and quality of the occupation and not always whether the person has exclusive possession or not. The true test in the language of the learned Judge is as follows: (WLR p. 1185 F-H)

"......It does not depend on whether he or she has exclusive possession or not. It does not depend on whether the room is furnished or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put upon it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room, whether under a contract or not? In which case he is a licensee."

27. In a rather recent judgment of this Court in C. M. Beena V. P. N. Ramchandra Rao, MANU/SC/0254/2004= (2004) 3 SCC 595 the learned Judge relied on the ratio in Associated Hotels of India Ltd. MANU/SC/0168/1959= AIR 1959 SC 1262 : (1960) 1 SCR 368 in deciding the difference between lease and licence. In para 8 of the said judgment, learned Judges held that the difference between lease and licence is to be determined by finding the real intention of the parties from a total reading of the document, if any, between the parties and also considering the surrounding circumstances. The learned Judges made it clear that use of term "lease" or licence", "lessor" or "licensor", "rent" or "licence fee" by themselves are not decisive. The conduct and intention of the parties before and after the creation of relationship is relevant to find out the intention. The learned Judges quoted from the treaties of Evans and Smith on The Laws of Landlord and Tenant and of Hill & Redman on Law of Landlord and Tenant in support of their proposition.

28. Following the aforesaid tests and in view of the discussions made hereinabove, it is clear that the intention of the parties in the case is to create a licence and not a lease and the right of exclusive possession was retained by the Corporation. In that view of the matter, relationship which is created between the Corporation and the shop holders is that of a licensor and licensee and not that of a lessor or a lessee. The stamp duty on licence agreement should be governed by Entry 5(c) of the Kerala Stamp Act, which is a residuary clause in the Schedule and not by Entry 33."

17 Therefore, it is necessary to consider the agreement between the parties and its nature. Admittedly, even as per the Respondent-original Claimant, the nature of contract and the intention referred therein as averred in the reply, are as under:-

" g. .....

It was further agreed that the Petitioner would enjoy the facilities during working days and during working hours only. It was provided in the said Agreement that the Respondent shall close and open entrance to the said Premises at the time and days mentioned in the said Agreement. The possession of the Premises, including the area from which the Petitioner was allowed to conduct its business, continued to be with the Respondent at all times.

h. Since the access was only for the purpose of use of the facilities, it was agreed and understood that access to the premises and the facilities would always be in the exclusive control of the Respondent. Accordingly, the main entrance to the premises was kept under lock and key of the Respondent. After some time, the Petitioner however represented that they sometimes required access to the facilities when the premises were locked and the Respondent's representatives were not available. Without giving the Petitioner any right to the premises or any part thereof, the Respondent gave a duplicate set of main door keys to the Respondent only by way of indulgence and convenience."

24. Therefore, taking overall view of the matter, in view of above findings, I am inclined to quash and set aside the award. The Arbitrator has no jurisdiction and/or authority to pass and to entertain such claim, as it is barred by specific provisions as referred above. The consequential orders/reliefs so passed, therefore, also unsustainable. This itself is not mean that the Respondent is not entitled to take appropriate steps in accordance with law. We are concerned with the eviction order and related orders passed by the Arbitrator. In the present facts and circumstances, therefore, keeping all points open as the remedy is elsewhere, I am inclined to set aside the award. The amount paid and received shall be subject to adjustment. The parties are at liberty to settle the matter.

15. Recently, in M/s. Thakker Warehousing Agency Vs. Maharashtra Small Scale Industries Development Corporation Ltd. Arbitration Petition No. 102 of 2011, dated 9 April 2013, I have observed that:-

"29 Therefore, taking overall view of the matter, including the admitted facts and the orders passed by the Court between the parties and the decisions given by the Supreme Court, as well as, this Court as noted above, I am inclined to hold that the Arbitrator has no jurisdiction to entertain and/or decide the dispute so raised/referred by the parties, based upon the alleged arbitration clause in the agreement between the parties. The dispute so referred itself was not arbitrable. The consent arbitration clause, in view of Full Bench judgments of this Court and other judgments cannot be the ground and/or take away or bring in the jurisdiction of any Court or authority. Therefore, there is no question of invoking the principle of "estoppal" and/or "waiver" by the parties. The Court, under Section 34 of the Arbitration Act, is therefore required to adjudicate and decide this issue as it goes to the root of the matter. The Petitioner has raised those grounds in the petition. Therefore, in view of the reasons so recorded above, I am inclined to observe that the sole Arbitrator has no jurisdiction to try and entertain the reference and as the same was beyond its competence and jurisdiction. Therefore, I am inclined to quash and set aside the award and also the consequential orders/reliefs so granted. This order, in no way, deny the rights of the Respondent to invoke the appropriate proceedings in accordance with law. The amount paid and/or received shall be subject to adjustment, if any. All points are kept open as there is no decision given on merits of the matters, including on limitation. The parties are at liberty to settle the matter."

16. The learned Senior Counsel appearing for the Respondent has strongly relied upon the various Judgments and thereby contended that; the agreement in question is business conducting agreement and the learned Arbitrator, therefore has interpreted the agreement accordingly. The possession of the premises was also not in question as it was handed over, pending the Arbitration proceedings. Even otherwise, in such type of agreement, possession of the room is always consequential thing. It is indivisible part of the contract and therefore, there is no question of dealing the matter referring to Section 41 of the Small Causes Court Act. There is no question of licensor or licensee relationship, including any order of eviction. The scope of interference of Section 34 of the Court, as there was interpretation of the agreement between the parties, is quite limited. Therefore, the interpretation so given, need not be interfered with and so also the award so passed.

17. Admittedly, the Judgment of the Full Bench was not referred, when the issue was raised and not adjudicated by the learned Arbitrator accordingly. In view of clear Judgments and observations made by the Full Bench of this Court, which I have already read and referred and pass the above Judgments, which in the present facts and circumstances, are applicable to the present facts also. The question is always in such matters to consider the facts and circumstances apart from the agreement between the parties. The jurisdiction of the Arbitral Tribunal, in view of above Judgment if excluded, in that case, merely because the Civil Suit was filed by the Petitioner, that itself in no way empowers and/or takes away the right of the Petitioner to raise the preliminary objection about the jurisdiction of the Arbitral Tribunal and get to be decided and/or dealt with the subject of "leave and license" and/or "occupation charges", arising out of such exclusive occupation. The handing over of the possession pending the Arbitration, in no way takes away the specific pleadings so raised and as quoted above by the Petitioner with regard to the jurisdiction of the Arbitral Tribunal.

18. The clauses of permitting the business in the name "Magnet" exclusively subject to provided restrictions for minimum 5 years are not in dispute. Clause 23 as reproduced above, in no way sufficient to overlook the settled principle of law on the fact of "exclusive possession" and the way of determining "the conducting fees". The nature of clauses and the agreement, in my view, create the relationship of "Licensor and Licensee" and fall within the ambit of specific law. The relationship governed by the special statute and the specific provisions, in view of nature and quality of the occupancy. The result is, the Arbitral Tribunal has no jurisdiction to pass such award by deciding against the Petitioner by rejecting the preliminary objection so raised and/or even otherwise in view of clear decisions of this Courts. The nomenclatures "the conducting business agreement" or the "conducting fees" are not decisive. The parties by such agreement cannot take away the jurisdiction of the special Court.

19. It is not the case of taking or giving different views and the interpretation of the clauses. The Court is bound by the clear decisions and the provisions of the law, so also the Arbitral Tribunal. Therefore, the operative order. The submission of Senior Counsel appearing for the Respondents that no such objection and/or plea specifically raised before the Tribunal, therefore, no reason now to accept such contention of the Petitioner, is unacceptable in view of the clear provisions of law and the Judgments. The Court under Section 34 just cannot overlook the issue of law and jurisdiction if case is made out. The party can waive their rights as permissible even under the Arbitration Act, but not the question of law and the jurisdiction based upon admitted and agreed clauses/terms itself. There is no question of "estoppal" or "waiver" in such situation. The authorities cited by the Respondents are distinguishable and distinct on the facts and circumstances. By this Judgment, I am only deciding the preliminary point, which goes to the root of the matter with regard to the power of Arbitral Tribunal to deal with such dispute. The decision to proceed with the matter inspite of objections, itself, was wrong. This in no way conclude the issue/right of the Respondent to get relief or invoke the other available remedies. All points are kept open for both the parties. The amount already recovered if any, shall be subject to adjustment. The parties are at liberty to settle the matter.

20. However, it is made clear that so far as the costs is concerned, the Claimant-Petitioner is under obligation to make the payment as per bill dated 14 January 2010 as mentioned in para 70 of the Award. The amount to be paid to the Respondent as submission is made by the learned senior counsel appearing for the Respondent that they have already made the payment as per the bill. The Petitioner to make the payment therefore directly to the Respondent within four weeks.

21. So far as the costs as awarded in paragraph 69 of the Award to be paid by the Petitioner to the Respondent, I am inclined to observe that in view of the fact that I am setting aside the award though on the ground of jurisdiction without touching the merits of the matter, the fact remains that the award is quashed and set aside and therefore, the Petitioner to bear its own costs and not the costs of the Respondent of this Arbitration, as directed. The award is modified to that extent.

22. I would have remanded the matter back for re-hearing but as the issue of jurisdiction was raised and decided under Sections 16 and 34 and as the aggrieved party still can challenge such interim/interlocutory order, along with the final award, the Court has no option but to decide the same. Therefore, in view of admitted facts and the clauses of the agreement and the decisions so referred, I am inclined to set aside the award itself as it is without jurisdiction.

23. It is made clear that the existence of arbitration clause was not in dispute. The dispute is about such arbitration clause. Such Arbitration clauses, in my view, create more complications than solving the disputes. The clear arbitration rules as contemplated under the Arbitration Act are necessary to be framed under Section 82/84 of the Arbitration Act by the Central Government to be followed by the respective High Courts.

24. Resultantly, the following order-


a) Award dated 4 February 2010 is quashed and set aside, except the award of costs as modified in paragraph No. 21 of this Judgment.

b) All points are kept open.

c) The parties are at liberty to settle the matter.

d) There shall be no order as to costs.

e) The amount paid or received, if any, shall be subject to the adjustment.

f) No costs.

Ordered accordingly.