In CIVIL APPEAL NO.2783 OF 2022-SC- No order can be passed by Arbitral Tribunal by way of interim measure on applications filed u/s 17 of Arbitration Act where dispute pertaining to liability of rental amount is yet to be considered: SC Justices M.R. Shah & B.V. Nagarathna [19-04-2022]

Read Judgment: EVERGREEN LANDMARK PVT. LTD Vs. JOHN TINSON AND COMPANY PVT. LTD. & ANR

Mansimran Kaur 

New Delhi, April 21, 2022: Considering that the liability to pay the rentals with respect to certain premises for the period during lockdown was yet to be adjudicated upon and considered by the Arbitral Tribunal, the Supreme Court has held that no order for deposit by way of an interim measure on applications under Section 17 of the Arbitration Act could have been passed by the Tribunal.

The Apex Court has modified the ruling of an Arbitral Tribunal which was passed as an interim measure directing the appellant to pay the entire rental amount without the application of the force majeure clause. 

A Division Bench comprising of  Justice M.R.Shah and Justice B.V. Nagarathana modified the ruling of the Arbitral Tribunal passed in the form of an interim measure by observing that the force majeure clause shall be considered by the Tribunal at the time of final adjudication. 

The present appeal was preferred by the appellant against the  impugned order dated February 10, 2022 passed by the Delhi High Court under Section 37 (2)(b) of the Arbitration and Conciliation Act, 1996 wherein the High Court dismissed the said appeal filed by the appellant herein in pursuant to the order dated January 5, 2022 passed by the Arbitral Tribunal while pursuing two applications instituted by the first and second respondents under Section 17 of the Act , seeking deposit of rental amount for the period between March, 2020 and December, 2021. 

Brief facts of this case were that the respondents owned two separate premises which were given on lease to the appellant, who was running a restaurant and bar in the said premises. The lease agreement couldnot be terminated by the respondents. The termination of the lease agreement was the subject matter before the Arbitral Tribunal.Pursuant to the same,the respondents filed two separate applications under Section 17 of the Arbitration Act, seeking deposit of the rental amount due and payable for the period between March 2020 to December 2021. 

By way of an interim measure, in exercise of the powers under Section 17 of the Act, the Arbitrator through orders dated January 5, 20200  directed the appellant to deposit 100% of rental amount due and payable for the period between March, 2020 to December, 2021. The appellant invoked clause 29 (Force Majeure) of the lease deed stating that  there was  complete closure/ partial closure at the time of pandemic and for the same the appellant was seeking exemption from the rent liability from the period March, 2020 to December,2021. However, the Arbitral Tribunal directed the appellant to deposit the rent for the said period. 

Then, the appellant approached the High Court under Section 37 (2) (b) of the Act. The High Court through its impugned judgment and order dismissed the appeal of the appellant and confirmed the interim order passed by the Arbitral Tribunal under Section 17 of the Act. It was this impugned judgment of the High Court that was assailed by the appellant by way of the present appeal before the Apex Court.

The Counsel for the appellant strenuously contended the  Arbitral Tribunal had  specifically observed in para 39 of the order that at this stage, the Arbitral Tribunal was not deciding anything on the import and effect of the force majeure clause (No. 29) contained in the lease deed. It was contended that when the liability to pay the rentals during the lockdown period while applying the force majeure clause was seriously disputed by the appellant – lessee, such an order to deposit 100% rental amount by way of an interim measure under Section 17 of the Arbitration Act, ought not to have been passed by the Arbitral Tribunal.

It was also submitted that the Arbitral Tribunal also observed that there was no evidence showing that the appellant was disposing of any part of its property much less removing itself or its assets out of India so as to create a possibility of frustrating the monetary award that may be passed in favour of the claimants upon conclusion of arbitration proceedings within the scope of Order XXXVIII of CPC. It was submitted that therefore, in absence of such evidence the impugned order which could be said to be similar  to Order XXXVIII Rule 5 could not have been passed unless the conditions while invoking powers under Order XXXVIII Rule 5 were satisfied.

The Apex Court was of the view that the Arbitral Tribunal observed in para 39 of its order that it would not have been fair at that stage of the proceedings, where evidence was yet to be adduced by the parties in support their rival contentions on the issues that arose, to record any definitive opinion on the import and effect of the force majeure clause (clause no. 29) contained in the lease deed. Therefore, according to the Bench the same depicted that the applicability of force majeure principle under Clause 29 was yet to be considered by the Tribunal at the time of final adjudication.

Keeping the same into consideration, the Bench opined that no order could have been passed as an interim measure on application instituted under Section 17 of the Arbitration Act when the subject matter was still in serious dispute. 

The Division Bench said, “…no order could have been passed by the Tribunal by way of interim measure on the applications filed under Section 17 of the Arbitration Act in a case where there is a serious dispute with respect to the liability of the rental amounts to be paid, which is yet to be adjudicated upon and/or considered by the Arbitral Tribunal”

It was further observed that the complete lockdown period was in three stages-first from March 22, 2020 to September 9, 2020 then from from April 19, 2021 to 28 June 2021 and the last one from January 11, 2022 to January 27, 2020. In view of the same, the Court observed that the appellant thus needed to deposit the entire rental amount for the period only when there was not complete lockdown. The period wherein in there was complete lockdown fell outside the purview of rent liability, the Court remarked.  As the force majeure clause was yet to be considered for final adjudication, therefore as per the Bench it was not justified on the part of the Tribunal to order the appellant to pay the entire rental amount. 

In view of the reasons cited above, the Apex Court partly allowed the appeal of the appellant. The order passed by the Arbitral Tribunal and confirmed by the High Court  on the applications instituted under Section 17 of the Arbitration Act, directing the appellant to pay the entire rent from March 2020 to December 2021, was modified and the appellant was directed to deposit the complete rental amount for the period other than the complete lockdown period. 

Additionally it was held by the Bench that the Arbitral Tribunal shall decide the question of law concerning the application of the force majeure clause on its merits and the same shall remain uninfluenced by the present order passed only in pursuant to the application instituted under Section 17 of the Act and the interim measure passed by the Tribunal.