Bombay High Court
Satish Bansal vs Herbs Nutri Products Pvt. Ltd on 16 December, 2022
Author: Bharati Dangre
Bench: Bharati Dangre
1/16 carbap 66-22.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO.66 OF 2022
Satish Bansal .. Applicant
Versus
Herbs Nutri Products Pvt.Ltd .. Respondent
...
Mr.Sheelang Shah i/b Ashwin Poojari for the applicant.
Mr.Sumanth Anchan with Mr.Amod Eklaspur for the respondent.
CORAM: BHARATI DANGRE, J.
DATED : 16th DECEMBER, 2022 P.C:-
1 By the present application, the applicant a lawful owner and licensor of the property situated at 404, Arcadia, Nariman Point, Mumbai, in form of a flat admeasuring 1087 sq.ft along with its furniture and fixtures, seek appointment of a Sole Arbitrator to adjudicate the disputes that have arisen, out of the leave and licence agreement dated 31/10/2018 entered with the respondent. The respondent is a Company incorporated under the provisions of the Companies Act and involved inter alia in the business of Health care and Nutrition products.
Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 2/16 carbap 66-22.doc 2 Heard learned counsel for the respective parties.
The learned counsel for the respondent raised an issue about the arbitrability of the dispute, which is sought to be referred for arbitration by submitting, that it is not an arbitrable one, whereas the counsel for the applicant assertively submits that the dispute has arisen because the respondent has committed breach of several of it's obligations under the agreement which include delayed payment of licence fee as well as non-payment of TDS and damage to the furniture and fixtures placed in the licensed premises belonging to the applicant, and this has resulted into it's termination due to the defaults of the respondents within the lock-in period and therefore, his claim is precisely for post lock-in period damages and this definitely can be looked into by the Arbitrator.
The learned counsel for the applicant, by relying upon the decision of the Supreme Court in case of Duro Felguera S.A Vs. Gangavaram Port Limited, 2017 9 SCC 729, would focus on the scope of this Court while making a reference and his submission is, the Court shall only look into, whether an arbitration agreement exist and nothing more - nothing less.
As against this, the learned counsel for the respondent would rely upon the decision of the Apex Court in case of Mahadev P. Kambekar (dead) thru Legal representatives Vs. Shree Krishna Woolen Mills Pvt.Ltd, (2020) SCC 505 , as well as Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 3/16 carbap 66-22.doc the decision of this Court in case of Bafna Motors Pvt.Ltd vs. Amanulla Khan, 2022 SCC Online Bom 994.
3 Before I turn to the legal submissions advanced on behalf of the parties, I must make reference to the leave and licence agreement which is the root cause for the dispute.
The leave and licence agreement executed on 30 th day of October 2018, is entered between the applicant, the Licensor on one part, and the respondent through it's authorized signatory, referred to as 'Licensee' of the other part.
The agreement stipulate that the licensor is the lawful owner of the Demised premises, described in the agreement and the licensee is desirous of availing leave and licence for the purpose of its office and pursuant to the licensor accepting and agreeing to allow the licensee to use and occupy the demised premises for the office purpose, the agreement came to be executed.
The agreement permitted use of the demised premises for period of five years i.e. 60 months commencing from 1/11/2018. It contemplated a lock-in period of three years from 1/11/2018 to 31/10/2021, during which the parties are restrained from terminating the agreement unless a breach of the contract gave rise to a cause of action for the other party to terminate the same. It also contemplated that in the event the licensee terminates the license under the Deed, during the lock-in period, it shall be duty bound to pay the license fee for the remaining Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 4/16 carbap 66-22.doc period of unutilized months for the lock-in period, payable under the deed. The licensor is also cast with an obligation to refund the licensee, the balance security deposit after deducting the licence fee, for the unexpired term of the agreement.
The above agreement contemplate an arbitration clause in form of clause 31.
"31 In the event of any dispute arising between the parties, hereto relating to or concerning this Agreement of the interpretation thereof, the same shall be referred to the Arbitration which shall be governed by the provisions of the Indian Arbitration and Conciliation Act, 1996 or any statutory modification thereof. The Arbitration proceedings shall be held in Mumbai and should be in English language only"
4 According to the applicant, the respondent committed material breaches of the agreement by failing to deposit the post dates cheques and making payment of licence fee for the month of March 2021 till July 2021 and he also failed to deposit appropriate amounts deducted towards TDS. Apart from this, the respondent decided to vacate the licensed premises on 31/7/2021 i.e. prior to the lock-in period which was to continue upto 31/12/2021, and therefore, the respondent was liable to indemnify the applicant for any damages to the licensed premises and to the furniture and fixtures which has been caused by the respondent, in it's occupation and use. The applicant claim that the respondent thus became liable for the amounts as licensed Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 5/16 carbap 66-22.doc fees for the balance lock-in period, short fall in TDS payment and damages to furniture and fixtures.
5 Upon the default having occurred, the applicant vide his Advocate forwarded a legal notice dated 6/7/2021 to the respondent informing about the material breaches and asking it to pay an outstanding licence fee of Rs.14,48,382/- (including TDS differential amount of Rs.34,242/-) and to hand over three post dates cheques of Rs.2,82,828/- for the month of August, September and October 2021, in terms of the agreement.
The legal notice contemplated that on failure to comply with the notice, it shall be treated as notice of termination of the agreement with effect from 31/7/2021. The respondent is alleged to have vacated the premises on 31/7/2021, three months prior to the lock-in period, but applicant noticed that there was lot of damage caused to the furniture and fixtures in the licensed premises.
The respondent responded to the notice, denying the liability and clamped the termination of the agreement as illegal, being an unilateral termination, but it was clarified that without prejudice to the rights and contentions, the premises are vacated on 31/7/2021.
6 The applicant once again issued a notice to the respondent on 21/9/2021, alleging breaches and staked it's entitlement for the following amounts :-
Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 6/16 carbap 66-22.doc PARTICULARS AMOUNT Shortfall of Outstanding rent till 31st July 2021 Rs.78,065/- (being the Shortfall in TDS deducted but not paid License fee for the balance Lock-in period months of Rs.8,48,484/- August, September and October 2021 at Rs.2,82,828/- per month.
Interest on account of delay in making payment of Rs.39,826/- license fees for the period from 10.04.2020 to July 2020 at the rate of 12% per annum Repair charges for the damages caused to the Rs.3,25,000/- licensed premises (including repair charges for damages walls and charges for cutting electrical computer, telephone cables as the same have become unusable) TOTAL Rs.12,91,375/-
In addition, interest on the aforesaid amount @ 12% p.a. from 31/7/2021 till payment and/or realization was also claimed. The photographs were also appended to demonstrate the damage caused.
7 The applicant invoked the arbitration vide notice dated 24/11/2021 and the breaches were specifically pointed out with the claim being projected in the following manner :
"Therefore, you are liable for the amounts due as rent for the balance lock-in period, shortfall in TDS payment and damages to furniture and fixtures."
The respondent was warned that if the payment due and payable is not received, Clause 31 of the leave and licence Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 7/16 carbap 66-22.doc agreement dated 30/11/2008 shall be invoked, and the name of the Sole Arbitrator was also conveyed, seeking it's confirmation.
Arbitration notice was responded to, by relying upon the earlier reply as well as expressing disinclination to the name of the Arbitrator.
8 The moot question that arises for consideration before me is, whether the dispute that has arisen, and for which the arbitration is invoked by the applicant is 'Arbitrable'.
Learned counsel for the respondent would invoke Section 41 of the Act of Presidency Small Causes Courts Act, 1882, and the submission is since a special law provides a mechanism for resolution of the dispute exclusively by a machinery created thereunder, such disputes are not amenable to arbitration (Part 1 of the Act of 1996). Section 41 of the Act reads thus:
41(1) Notwithstanding anything contained elsewhere in this Act but subject to the provisions of sub-section (2), the Court of Small Causes shall have jurisdiction to entertain and try all suits and proceedings between the licensor and licensee, or a landlord and tenant, relating to the recovery of possession of any immovable property situated in Greater Bombay, or relating to the recovery of the licence fee or charges or rent therefor, irrespective of the value of the subject matter of such suits or proceedings.
(2) Nothing contained in sub-section (1) shall apply to suits or proceedings for the recovery of possession of any immovable property, or of licence fee or Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 8/16 carbap 66-22.doc charges or rent thereof, to which the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the Bombay Government Premises (Eviction) Act, 1955, the Bombay Municipal Corporation Act (the Maharashtra Housing and Area Development Act, 1976 or any other law for the time beign in force, apply) From the reading of the aforesaid provision, it can be clearly discerned that the Presidency Small Causes Courts Act has created a machinery for adjudication of the disputes that would arise between the licensor and licensee, or landlord and tenant, and which would relate to recovery of possession of immovable property situated in Greater Mumbai or relating to recovery of licence fee or charges or rent therefor, indicating that exclusive jurisdiction is conferred on the Court of Small causes to entertain and try all suits between licensor and licensee, landlord and tenant, or relating to recovery of license fee or charges or rent therefor, irrespective of the value of the subject matter of such suits or proceedings.
9 The learned counsel make a feeble attempt to submit that what he seeks through Arbitration is merely damages, which can be determined through the Arbitration procedure, but I am unable to accept the submission, since what is claimed by the applicant through his notices, including the invocation notice, is the licence fee for the balance lock-in period and the interest of delayed payment of licence fee. By no stretch of imagination, it Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 9/16 carbap 66-22.doc can be said that this claim shall be accounted as 'Damages', solely. 10 No doubt, it is settled position of law that while exercising the power u/s.11, the Court can only look into one aspect, that is existence of arbitration agreement. Equally settled is the position of law that the issue of arbitrability can be raised at three stages, first, before the Court at reference stage; second, before the Arbitral Tribunal during the course of arbitration proceedings; and third before the Court at the stage of challenge to the award or its enforcement.
The Court, at the stage of reference, i.e. exercising the power u/s.8 or Section 11 of the Act, will satisfy itself about prima facie existence of the Arbitration Agreement between the parties, but it can also prima facie rule upon the existence of an arbitration agreement, which necessarily would contemplate exclusion of non-arbitrability of the dispute. Prima faice, the case is definitely not to be confused with the merits to be raised before the Arbitrator, but it can be restricted to the subject matter of the claim being arbitrable, capable of being referred for arbitration under the Arbitration Agreement. It is expected that the Courts shall lean in favour of Arbitration and encourage the use of the alternate Dispute Resolution Mechanism than ruling against it. 11 In Duro Felguera (supra), the effect of Section 11(6-A) came up for consideration and in unequivocal terms, it has been held that the power of the Court has now been restricted only to see whether there exists an arbitration agreement. In a Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 10/16 carbap 66-22.doc subsequent decision in Mayawati Trading Pvt.Ltd vs. Pradyuat Deb Burman (2019) 8 SCC 714, the era post deletion of Section 11(6-A) by effectuation of Section 3 of 2019 was once again considered by three Judges Bench and the position of law was once again clarified that while considering an Application under Section 11(4) to 11(6), the Court shall confine itself to examination of existence of arbitration agreement, nothing more, nothing less, and leave all other preliminary issues decided by the Arbitrator.
What would be meant by the term 'existence of an arbitration agreement' was explained in Duro Felgeure (supra), to mean that "all that needs to be done" is to see if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties.
The further enunciation of law is to be found in the two Judge decision of the Supreme Court in case of Uttarakhand Purv Sainik Kalyan Nigam Limited vs. Northern Coal Field Limited, (2020) 2 SCC 455.
12 The learned counsel for the applicant has relied upon the decision in case of Globsport India Pvt. Ltd vs. Mayfair Housing Pvt.Ltd, (2015) 4 BCR, 304, and on perusal of its facts, it can be clearly discerned that the petitioner terminated the leave and licence agreement before expiry of lock-in period. The respondent denied the allegations made by the petitioner in the letter of appointment and informed the petitioner of their Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 11/16 carbap 66-22.doc intention to recover liquidated damages from the petitioner for termination of the said agreement before expiry of the lock-in period. The petitioner refused to pay the amount to the respondent as demanded and hence, the respondent invoked arbitration agreement.
The observations in the said Law Report will have to be thus read in reference to the claim that was staked and in particular, the observations contained in para-17 which reads thus:-
"17. Be that as it may, a perusal of the statement of claim filed by the respondent before the arbitral tribunal clearly indicates that the respondent had prayed for recovery of the damages/compensation arising out of the wrongful termination of leave and licence and amenities agreement during the lock in period. In my view the claim for recovery of compensation/damages would not fall under section 41 of the Presidency Small Cause Courts Act, 1882 and thus Small Causes Court will have no jurisdiction to entertain such claim. There is no dispute that the arbitration clause existed in the leave and licence agreement between the parties as well as in amenities agreement. The arbitral tribunal has thus rightly rejected the plea of jurisdiction by holding that the claims were not relating to possession of the licence premises and would not fall under section 41 of the Presidency Small Cause Courts Act, 1882. In my view even otherwise the view taken by the arbitral tribunal on the issue of jurisdiction is in accordance with law and is in accordance with Section 41 of Presidency Small Cause Courts Act, 1882".
Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 12/16 carbap 66-22.doc 13 What could have been claimed is not to be the issue for consideration, but while invoking the arbitration, what is the claim, is a necessary criteria. The submission of the applicant what he is claiming is nothing, but damages stand belied from his own notices issued to the respondent, including the invocation notice. Ultimately, what is claimed by the applicant, is the license fee for the balance lock-in period and merely clothing it with the use of word 'Damages' would be of no consequences as the agreement contemplated that if the licensee terminates the license during the lock-in period, the licensee shall be duty bound to pay the license fee for the remaining period of under-utilized months for the lock-in period.
14 A clear case made out by the applicant is for payment of license fee and would prominently fall within the jurisdiction of Presidency Small Causes Court, in view of Section 41 of the Act, which is competent to deal with Suits not only relating to possession of immovable property, but also the Suits relating to recovery of the license fee or charges or rent therefor. 15 The Full bench of this Court in case of Central Warehousing Corporation, Mumbai Vs. Fortpoint Automotive Pvt.Ltd, Mumbai, 2010(1) Mh.L.J 658, has clearly ruled that Small Causes Court has exclusive jurisdiction to try and decide the cases covered by Section 41(1), which is a law for the time being in force and by necessary implication, the dispute cannot be Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 13/16 carbap 66-22.doc submitted for arbitration, despite existence of arbitration agreement between the parties in view of the non-obstante clause in Section 5 of the Act of 1996 and the exclusive jurisdiction of the Small Causes Court to try and decide the disputes specified in Section 41 of the Act of 1882 is not ousted.
16 In the decision of the Apex Court in case of Mahadev P. Kambekar (dead) thru Legal representatives (supra), the issue was once again considered in the wake of the Presidency Small Causes Court Act, and in paragraph nos.24 to 26, the position of law has been paraphrased in the following manner :-
"24 This factual distinction, in our view, is of no significance for deciding the issue in question against the appellants by placing reliance on the law laid down in Mansukhlal because both the category of cases i.e. the one arising between the licensor and the licensee and the other arising between the landlord and the tenant in relation to the land are governed by Section 41 of the Small Cause Courts Act.
25 In other words, whether it is a suit between licensor and licensee or between the landlord and the tenant, such types of suits fall under Section 41 of the Small Causes Courts Act and are, therefore, cognizable by the Courts of Small Causes, Bombay.
26 This takes us to deal with the next argument of Mr.Naphade, learned Senior counsel for the appellants that once the tenancy is determined such suits would not come within the purview of Section 41 of the Small Causes Courts Act. This argument was rejected by the Division Bench and, in our view, rightly by placing reliance on the law laid down by the Bombay High Court Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 14/16 carbap 66-22.doc in Nagin Mansukhlal Dogli vs. Haribhai Manibhai Patel (SCC Online para 16 : AIR pp.127-29, para 8) of the said decision quoted in the impugned order). We approve the law laid down by the Bombay High Court in Nagin Mansukhlal Dogli as laying down the correct principle of law. We, therefore, do not consider if necessary to elaborate our reasoning more than what we have said".
17 The elaborate discussion on this aspect is to be found in Vidya Drolia Vs. Durga Trading Corporation, (2021) 2 SCC 1, where a four fold test for determining when the subject matter of dispute in an Arbitration Agreement is not arbitrable, has been clearly set out in paragraph no.76, which I gainfully reproduced:-
"76 In view of the above discussion, we would like to propound a fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:
76.1 (1) When cause of action and subject-matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.
76.2 (2) When cause of action and subject matter of the dispute affects third party rights: have erga omnes effect;
require centralised adjudication, and mutual adjudication would not be appropriate and enforceable.
76.3 (3) When cause of action and subject matter of the dispute related to alienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable.
76.4 (4) When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).
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76.5 (5) These tests are not watertight compartments; they dovetail and overlap, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject matter is non-artbitrable. Only when the answer is affirmative that the subject matter of the dispute would be non-arbitrable"
The exception being made in case of landlord disputes governed by the Transfer of Property Act, para 79 and 80 read as under :
"79 Landlord-tenant disputes governed by the Transfer of Property Act are arbitrable as they are not actions in rem but pertain to subordinate rights in personam that arise from rights in rem. Such actions normally would not affect third party rights or have erga omnes effect or require centralised adjudication. An award passed deciding landlord-tenant disputes can be executed and enforced like a decree of the civil court. Landlord-tenant disputes do not relate to inalienable and sovereign functions of the State. The provisions of the Transfer of Property Act do not expressly or by necessary implication bar arbitration. The Transfer of Property Act, like all other Acts, has a public purpose, that is, to regulate landlord-tenant relationships and the arbitrator would be bound by the provisions, including provisions which ensure and protect the tenants.
80 In view of the aforesaid, we overrule the ration laid down in Himangni Enterprises Vs. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706, and hold that landlord- tenant disputes are arbitrable as the Transfer of Property Act does not forbid or foreclose arbitration. However, landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 ::: 16/16 carbap 66-22.doc court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. Such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not though arbitration"
18 With the clear cut ratio flowing from Vidya Drolia (supra), to the above effect, the application is not liable to be entertained and hence, I decline to exercise the power conferred under sub-section (6) of Section 11 to appoint an arbitrator in the wake of the arbitration clause contained in a leave licence agreement entered between the parties.
Arbitration Application is dismissed.
( SMT. BHARATI DANGRE, J.) Tilak ::: Uploaded on - 21/12/2022 ::: Downloaded on - 09/01/2023 15:17:13 :::