Karnataka High Court
Cinepolis India Private Limited vs Hilite Realtors (India ) Llp on 25 October, 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF OCTOBER, 2024
PRESENT
THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR. JUSTICE G BASAVARAJA
COMMERCIAL APPEAL NO. 208 OF 2024
c/w
COMMERCIAL APPEAL NO. 166 OF 2024
IN COMMERCIAL APPEAL NO.208 OF 2024:
BETWEEN:
CINEPOLIS INDIA PRIVATE LIMITED
A COMPANY WITHIN THE MEANING OF
THE COMPANIES ACT, 2013,
HAVING ITS REGISTERED OFFICE AT:
14TH FLOOR, IREO GRAND VIEW TOWER
GOLF COURSE ROAD, SECTOR-58
GURUGRAM-122 011
HARYANA
REP. BY ITS AUTHORIZED SIGNATORY
HARSHA RATHORE
...APPELLANT
(BY SRI. MANU PRABHAKAR KULKARNI A/W.
SRI. MANOJ RAIKAR, ADVOCATES
SRI. SHRIKARA CHAKRAVARTHY, ADVOCATE
SMT. SHRISTI WIDGE, ADVOCATE)
AND:
1 . HILITE REALTORS (INDIA) LLP
HAVING ITS OFFICE AT:
G-1003, T1, BUSINESS PARK
HILITE CITY, THONDAYAD BYPASS
G.A. COLLEGE
P.O. CALICUT-673 014
REP. BY ITS AUTHORIZED SIGNATORY
Mr. MUHAMMED FAWAZ
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2 . SRI. JUSTICE AJIT J GUNJAL
PRESIDING ARBITRATOR
FORMER JUDGE,
HON'BLE HIGH COURT OF KARNATAKA
NO.95, 'LAXMI KUNJ', 7TH MAIN
MCR LAYOUT, VIJAYANAGAR
BENGALURU-560 040
3 . SRI. JUSTICE SUBASH B ADI
MEMBER ARBITRATOR
FORMER JUDGE
HON'BLE HIGH COURT OF KARNATAKA
NO.81, 60 FT. ROAD, NGEF LAYOUT
NAGASHETTY HALLI, SANJAY NAGAR
BENGALURU-560 090
4 . SRI. JUSTICE R GURURAJAN
MEMBER ARBITRATOR
FORMER JUDGE
HON'BLE HIGH COURT OF KARNATAKA
NO.504, CHITRAPUR APARTMENT
15TH CROSS, MALLESHWARAM
BENGALURU-560 055
...RESPONDENTS
(BY SRI. SOMIRAN SHARMA, ADVOCATE A/W.
SRI. ASHWIN R. ANEPPANAVAR, ADVOCATE FOR R1)
THIS COMAP/COMMERCIAL APPEAL IS FILED UNDER
SECTION 13(1A) OF THE COMMERCIAL COURTS ACT, 2015,
PRAYING TO (a) CALL FOR RECORDS OF THE ARBITRAL
PROCEEDINGS IN ASG/AC No.10 OF 2020 AND COM.
A.P.No.52/2023 ON THE FILE OF THE LXXXV ADDL. CITY CIVIL
AND SESSIONS JUDGE, CCH-86, COMMERCIAL COURT AT
BENGALURU. (b) SET ASIDE THE JUDGMENT DATED 15.03.2024
PASSED BY THE LXXXV ADDL. CITY CIVIL AND SESSIONS JUDGE,
CCH-86, COMMERCIAL COURT AT BENGALURU IN
COM.A.P.No.52/2023 AND ETC.
IN COMMERCIAL APPEAL NO. 166 OF 2024
BETWEEN:
HILITE REALTORS (INDIA) LLP
A PARTNERSHIP COMPANY INCORPORATED
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UNDER THE LIMITED LIABILITY
PARTNERSHIP ACT, 2008
HAVING ITS OFFICE AT: G-1003
T1, BUSINESS PARK, HI-LITE CITY
THONDAYAD BYPASS, G.A. COLLEGE
P.O. CALICUT-673 014
REPRESENTED BY ITS AUTHORIZED SIGNATORY
Mr. MUHAMED FAWAZ
...APPELLANT
(BY SRI. SRI. SOMIRAN SHARMA, ADVOCATE A/W.
SRI. ASHWIN R. ANEPPANAVAR, ADVOCATE)
AND:
1. CINEPOLIS INDIA PRIVATE LIMITED
HAVING ITS REGISTERED OFFICE AT:
IREO GRAND VIEW TOWER
14TH FLOOR, GOLF COURSE ROAD EXTENSION
SECTOR-58, GURGAON-122 011
INDIA
2. SRI. JUSTICE AJIT J GUNJAL
PRESIDING ARBITRATOR
FORMER JUDGE
HIGH COURT OF KARNATAKA
NO.95, 'LAXMI KUNJ'
7TH MAIN, MCR LAYOUT
VIJAYANAGAR
BENGALURU-560 040
3. SRI. JUSTICE SUBASH B ADI
MEMBER ARBITRATOR
FORMER JUDGE
HIGH COURT OF KARNATAKA
NO.81, 60 FEET ROAD
NGEF LAYOUT
NAGASHETTY HALLI
SANJAY NAGAR
BENGALURU-560 090
4. SRI. JUSTICE R GURURAJAN
MEMBER ARBITRATOR
FORMER JUDGE
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HIGH COURT OF KARNATAKA
NO.504, CHITRAPUR APARTMENT
15TH CROSS, MALLESWARAM
BENGALURU-560 055
...RESPONDENTS
(BY SRI. MANU PRABHAKAR KULKARNI A/W.
SRI. MANOJ RAIKAR, ADVOCATE
SRI. SHRIKARA CHAKRAVARTHY, ADVOCATE
SMT. SHRISTI WIDGE, ADVOCATE FOR R1)
THIS COMAP/COMMERCIAL APPEAL IS FILED UNDER
SECTION 13(1A) OF COMMERCIAL COURTS ACT R/W SECTION
37(1)(C) OF THE ARBITRATION AND CONCILIATION ACT, 1996
R/W ORDER XLIII RULE 1 OF CPC, PRAYING TO (a) CALL FOR
THE RECORDS OF THE COM A.P.No.41/2023 ON THE FILE OF THE
LXXXV ADDL. CITY CIVIL AND SESSIONS JUDGE (COMMERCIAL
COURT) (CCH-86) BENGALURU, (b) SET ASIDE THE JUDGMENT
DATED 15.03.2024 (ANNEXURE-A) PASSED BY THE COURT OF
LXXXV ADDL. CITY CIVIL AND SESSIONS JUDGE (COMMERCIAL
COURT) (CCH-86) BENGALURU IN COM A.P.NO.41/2023 AND
CONSEQUENTLY SET ASIDE PARTLY THE AWARD DATED
21.12.2022 (ANNEXURE-B) INSOFAR AS COST AWARDED TO THE
RESPONDENT No.1 HEREIN TO THE EXTENT THAT RESPONDENT
No.1 HAD DEPOSITED THE ARBITRAL FEES, QUANTIFIED AND
Rs.42 LAKHS MADE TO ALL THE MEMBERS OF THE ARBITRAL
TRIBUNAL ON BEHALF OF THE APPELLANT HEREIN AS HELD IN
PARA 195 Sl.No.(b) OF THE AWARD PASSED BY THE ARBITRAL
TRIBUNAL IN ARBITRATION PROCEEDINGS No.ASG/AC No.10 OF
2020 AND ETC.
THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 09.09.2024 AND COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN
J., PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN
and
HON'BLE MR. JUSTICE G BASAVARAJA
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CAV JUDGMENT
(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN) These commercial appeals are directed against the orders dated 15.03.2024 in COM.A.P.No.52/2023 and COM.A.P.No.41/2023, respectively, passed by LXXXV Additional City Civil and Sessions Judge, Bengaluru (CCH-
86) (hereinafter referred to as "Commercial Court" for short).
2. The parties are referred to in this judgment as arrayed in COMAP No.208/2024 for the sake of convenience unless otherwise specifically mentioned.
3. We have heard Shri. P.P. Manu Prabhakar Kulkarni, learned counsel along with Shri. Manoj Raikar, Shri. Shrikara Chakravarthy and Smt. Shristi Widge, learned counsel for the appellant in COMAP No.208/2024 and for the first respondent in COMAP No.166/2024 and Shri. Somiran Sharma, learned counsel along with Shri. Ashwin R. Aneppanavar, learned counsel for the first respondent in COMAP No.208/2024 and for the appellant in COMAP No.166/2024.
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4. It is submitted that the first respondent in COMAP No.208/2024 was developing a land into a "MALL". The land is about 4.22 acres at HiLite City, NH 17 By-pass Road, Guruvayoorapan College, Calicut - 673014. The appellant and the first respondent in COMAP No.208/2024 executed "a Binding Term Sheet" (for short "BTS") on 27.09.2011, according to which the first respondent agreed to provide premises for appellant to run and operate a Multiplex at Mall with approximate 1700 seats. The agreement states the "Terms and Conditions" on whom the appellant will operate the Multiplex.
5. It is submitted that the appellant paid first tranche of interest free security deposit of Rs.5,00,000/- on 28.11.2012. The appellant and the first respondent entered into discussions and exchanged emails between November 2015 and December 2016 regarding the design and development of a Multiplex. Based on the first respondent's assurances, the appellant made significant investments in time, money and professional expertise. The appellant also shared proprietary technical designs and know-how with the
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7 first respondent and invested in branding and promotional activities. Despite ongoing discussions, the first respondent had not secured the necessary permits for the Multiplex. The project was part of phase II of an existing development, which began in 2015. The first respondent only obtained essential approvals, such as the fire safety clearance in June 2016, pollution control clearance in March 2017, and environmental impact clearance in April 2015. The final approval for constructing the Multiplex was granted on 05.06.2018.
6. It is further submitted between March and May 2018 that the appellant and the first respondent discussed modifications to the original terms of the BTS agreement due to the delay. The appellant, despite suffering commercial losses for over seven years, chose not to terminate the agreement, as it believed the first respondent would eventually honour its commitments under the BTS agreement. On 23.07.2019, the first respondent issued a letter proposing a revision of the BTS terms as the construction of the Mall was nearing completion. The
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8 appellant responded by email on 18.09.2019, stating that the delay was solely due to the first respondent and that the BTS terms could not be revisited. The appellant urged the first respondent to adhere to the original agreement. On 23.09.2019, the first respondent sent a Demand Draft of Rs.5,00,000/- to the appellant, returning the security deposit.
7. It is submitted that the appellant rejected the Demand Draft and returned it to the first respondent on 20.10.2019, insisting on the execution of the original agreement. Concerned that the first respondent might transfer the space intended for the Multiplex to a third party, the appellant approached the District Court in Calicut, Kerala, under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act of 1996" for short). The Court granted a temporary injunction on 09.10.2019, preventing the first respondent from leasing or transferring possession of the Multiplex space to any other party.
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8. The first respondent filed a counter-statement in the District Court, revealing a Letter of Intent and a Leave and License Agreement with Carnival Films Pvt. Ltd. for the Multiplex space. This agreement, dated 23.07.2019, directly conflicted with the BTS agreement between the appellant and the first respondent. The first respondent's execution of the Letter of Intent with Carnival Films on the same day, on which they proposed revisiting the BTS terms with the appellant, was seen as a violation of the BTS. The appellant had always been ready and willing to fulfil its obligations under the contract. The first respondent's failure to mutually terminate the BTS and its actions in dealing with a third party were considered a breach.
9. It is further submitted that on 22.10.2019, the appellant invoked the arbitration clause under the BTS and nominated an arbitrator. After the formation of the Arbitral Tribunal, the appellant filed a claim on 04.09.2020, seeking specific performance of the BTS or, alternatively, Rs.50,00,00,000/- as compensation for losses suffered due to the first respondent's breach of contract. The first
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10 respondent contested the claims by filing its defence and raising objections under Section 16 of the Act of 1996 arguing that the BTS was not a concluded contract. The Arbitral Tribunal, after hearing both parties, directed them to maintain the status quo during the proceedings.
10. The Arbitral Tribunal framed key issues, including whether the BTS was a concluded contract and whether the appellant was entitled to specific performance or damages. Both parties presented their witnesses and documentary evidence. On 21.12.2022, the Arbitral Tribunal by a majority, rejected the appellant's claims for specific performance and damages but awarded costs of Rs.42,00,000/- to the appellant for arbitration fees paid on behalf of the first respondent.
11. Both parties challenged the Arbitral Award. The first respondent sought to overturn the cost award, while the appellant filed an application under Section 34 of the Act of 1996 seeking to set aside the majority award and obtain the reliefs initially as sought. The Commercial Court dismissed the appellant's application on 15.03.2024, and confirmed the
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11 Arbitral Award. The Court found that the BTS was not a concluded contract, and the arbitration clause could be enforced independently of the underlying agreement.
12. The learned counsel for the appellant submits that the Commercial Court did not fully review the oral and documentary evidence presented by the appellant in Arbitral Proceedings. The Court overlooked that the Arbitral Tribunal's finding on the binding arbitration agreement in the BTS, despite no concluded contract, required a full de novo review of the entire record. The Court also failed to apply the correct standard of review under Section 34(2)(a)(ii) of the Act of 1996 which mandates a comprehensive review of the entire record before the Arbitral Tribunal. However, the impugned judgment in Com.A.P.No.52/2023 dismissed the application, stating that the Arbitral Award could only be set aside if it was arbitrary, capricious, perverse, or shocked the Court's conscience.
13. It is contended that the impugned judgment and the Arbitral Award failed to consider vital evidence regarding the first respondent's failure to execute the MoU/ATL and
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12 fulfil its obligations under the BTS, which entitled the appellant to specific performance or damages. The BTS stipulates that the first respondent was to construct and hand over the Multiplex to the appellant according to specified designs, which is supported by several conditions. The BTS was stamped for Rs.100/- in Kerala and included recitals confirming the first respondent's agreement to provide the Multiplex as per the appellant's specifications. Clause 1.1 of the BTS mandates the first respondent to construct the Multiplex according to the appellant's requirements, while Clause 1.2 requires the appellant to operate it as per Annexure-1 and Clause 3 prohibits the first respondent from entertaining proposals from other parties without mutually acceptable termination of the BTS.
14. It is further contended that the Commercial Court partially re-appreciated evidence by considering whether the person who executed the BTS had the authority to do so, which led to the erroneous conclusion that the BTS was not a concluded contract. The Court failed to consider all evidence holistically, including clauses and recitals in the
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13 BTS that constituted a promise, consideration and acceptance, forming a legally binding contract. The Commercial Court failed to recognize that the Arbitral Tribunal had no jurisdiction to consider the existence of a separate arbitration agreement, as this was not contested by either party or supported by evidence. The Arbitral Award contains contradictions, stating that a binding BTS agreement exists, but it erroneously claims that the agreement loses legal status without Board approval. The finding that the BTS was inconclusive due to lack of Board resolution is ignorance of vital evidence. The Arbitral Award and impugned judgment failed to consider that Section 16 of the Act of 1996 and the doctrine of separability cannot be used to conclude that the arbitration agreement was binding while the BTS was not, as the validity of both would "stand or fall together". Although, the appellant's submission was recorded, it was not considered. Since the Arbitral Award deemed the arbitration agreement conclusive, the BTS should also have been considered conclusive.
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15. The learned counsel for the appellant submits that the impugned judgment and Arbitral Award failed to consider that email communications in Exhibit C-7 and Exhibit C-12 Series showed the first respondent and appellant acted on the BTS and discussed the Multiplex design as per the BTS to conclude that the BTS is not a concluded contract, ignoring vital evidence. The first respondent's failure to obtain necessary licenses on time meant, the BTS continued to govern the parties regarding premises handover and fit-out periods. The Arbitral Award erroneously concluded that the payment of Rs.5,00,000/- could not be considered as performance under the BTS due to the absence of an ATL/MoU, without recognizing that Clause 3 of the BTS stipulated that the ATL execution was contingent upon the commencement of commercial operations at the Multiplex.
16. It is further contended that the appellant could not commence operations because the first respondent failed to hand over possession and complete the necessary work, meaning the obligation to execute ATL/MoU and make
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15 further payments had not yet arisen. Consequently, the payment of Rs.5,00,000/- under the BTS should not be deemed gratuitous or contingent on the execution of ATL/MoU. The impugned judgment also neglected these considerations, leading to appellant's rightful claim for the entire arbitral fees and costs, as no justification was provided for awarding only part of the costs. Furthermore, the Arbitral Tribunal failed to account for the first respondent's conduct, which included not handing over the Multiplex after eight years and allegedly entering into a leave and license agreement with another party during the term of the BTS, resulting in significant loss and hardship for the appellant. Therefore, the learned counsel for the appellant submits that the impugned judgment and Arbitral Award should be set aside as it failed to consider vital evidence, contradicted Hon'ble Apex Court judgments, and opposed public policy.
17. In support of his contentions, he has relied upon the following judgments:
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i. SsangyongEngg. & Construction Co. Ltd. v.
NHAI, reported in (2019) 15 SCC 131; is relied on to contend that an award which is against the basic motions of justice or morality or which are patently illegal are liable to be set aside.
ii. Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., reported in (2019) 20 SCC 1;
iii. South East Asia Marine Engineering & Construction Ltd. (SEAMEC Limited) v. Oil India Ltd., reported in (2020) 5 SCC 164;
iv. Dresser Rand S.A. v. Bindal Agro Chem Ltd., and another reported in (2006) 1 SCC 751;
v. HarichandMancharam v. Govind Luxman Gokhale, reported in 1922 SCC Online PC 74;
vi. Jindal Thermal Power Company Ltd. v.
KPTCL, reported in ILR 2004 KAR 3463;
vii. Bangalore Electricity Supply Co. Ltd. v. E.S. Solar Power (P) Ltd., reported in (2021) 6 SCC 718;
viii. Pankaj Bhargava &Anr v. Mohinder Nath &Anr., reported in (1991) 1 SCC 556;
ix. Kollipara Sriramulu V. T. Ashwatha Narayana, reported in (1968) 3 SCR 387;
x. Bharat Petroleum Corpn. Ltd. v. Great Eastern Shipping Co. Ltd., reported in (2008) 1 SCC 503;
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xi. BCY v. BCZ, [2016] SGHC 249, High Court
239-287 of Singapore (Decided on
09.11.2016);
xii. COT v. COU, [2023] SGCA 31, Court of Appeal of the Republic of Singapore (Decided on 11.10.2023);
xiii. DHL Project & Chartering Ltd. v. Gemini Ocean Shipping Co. Ltd. [2023] Bus LR, Court of Appeal, Republic of Singapore; xiv. RTS Flexible Systems Ltd. v. Molkerein Alois Muller GmBH& Co KG (UK Production) [2010] 1 WLR 753, Supreme Court, United Kingdom;
xv. Associate Builders v. DDA, reported in (2015) 3 SCC 49;
xvi. Chandnee Widya Vati Madden v. Dr. C.L. Katial, reported in 1963 SCC OnLine SC 183; xvii. State of Maharashtra v. Atur India (P) Ltd., reported in (1994) 2 SCC 497;
xviii. Dakshin Haryana Bijli Vitran Nigam Ltd. v.
Navigant Technologies (P) Ltd., reported in (2021) 7 SCC 657;
xix. Rajasthan State Industrial Development & Investment Corpn. v. Diamond & Gem Development Corpn. Ltd., reported in (2013) 5 SCC 470 and
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18 xx. ONGC Ltd. v. Saw Pipes Ltd., reported in (2003) 5 SCC 1.
18. The decisions relied on by the learned counsel for the appellant or authority on the point that:
(1) an arbitral award which is against the basic notions of justice or morality or which is patently illegal can be set aside in exercise of the powers under Section 34.
(2) Further, an award is required to be supported by proper, intelligible and adequate reasoning and an award which is vitiated by absence of reasoning or by impropriety or perversity in reasoning would also be liable to be set aside.
(3) South East Asia Marine Engineering & Construction Ltd's case (supra), is relied on to contend that a document forming a written contract should be read as a whole. It is also urged that intentions of the parties are to be understood from the language of the contract considered in the light of the surrounding circumstances and the object of the contract.
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19 (4) The decision in Pankaj Bhargava's case (supra), is relied on to contend that mere reference to a future formal contract will not detract from the binding nature of a bargain between the parties.
(5) Several decisions of the Singapore Courts are relied on to contend that where the agreement contains an arbitration clause, the contract and the arbitration agreement should "stand or fall together". (6) The learned counsel would also contend that the first respondent could not have been allowed to approbate and reprobate at the same time.
(7) It is contended that the award is patently illegal as it considered irrelevant evidence and comes to conclusions, which are not supported by any evidence. It is contended that the minority opinion considers vital evidence and therefore arrives at the correct conclusion that the BTS was a concluded contract.
19. The learned counsel for the first respondent submits that, the appellant has failed to make out any ground for interference with the Award under Sections 34
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20 and 37 of the Act of 1996. The first respondent specifically denied that the BTS is a concluded contract for lack of Board's approval in terms of Clause 3 of the BTS. The first respondent further had contended that the BTS is only an agreement to enter into agreements in future (MOU/ATL and definitive agreement) and therefore is unenforceable in law.
20. It is further contended by the learned counsel appearing for the first respondent that the Tribunal, by majority, accepted the first respondent's plea and held that BTS is not a concluded contract as the claimant has failed to show that the BTS has the approval of the Board in terms of Clause 3 of the BTS. The Tribunal, by a majority, further held that BTS can only be an agreement between the parties, which does not give any executable right in favour of the claimant and parties cannot be directed to execute a lease deed in the light of non-compliance with the pre-requisites of clause 3 of the BTS. The Tribunal further held that the payment of adjustable Rs.5,00,000/- cannot be a ground for accepting the argument of concluded contract raised by the claimant. It is submitted that the Tribunal's view cannot be
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21 said to be in conflict with the public policy of India or suffering from any patent illegality.
21. It is further contended that the appellant has failed to show how the Arbitral Award suffers from "patent illegality" under Section 34(2-A) of the Act of 1996. It is well established law that "Patent illegality" should be an illegality which goes to the root of the matter. The scope of appeal under Section 37 of the Act of 1996 is narrower, particularly when dealing with the concurrent findings (of the arbitrator and then of the Court). Under Section 37 of the Act of 1996, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision.
22. In support of his contentions, he has relied on the following judgments:
i. Mayawatnti V/s Kaushalya Devi reported in (1990) 3 SCC 1;
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22 ii. M.V. Shankar Bhat and Anr V/s Claude Pinto since (deceased) by LRs and Anr reported in (2003) 4 SCC 86;
iii. Ganesh Seth V/s Dr. C.S.G.K Setty and Ors reported in (1998)5 SCC 381;
iv. Rickmers Verwaltumng GMBH V/s Indian Oil Corporation Ltd reported in (1999) 1 SCC 381;
v. Reliance Infrastructure Ltd V/s State of Goa reported in (2023) SCC Online SC 604;
vi. Sangyong Engineering and Construction Company Ltd V/s NHAI reported in (2019) 15 SCC 131;
vii. NHAI V/s P. Nagaraju @ Cheluvaiah and Anr reported in (2022) SCC Online SC 864; and viii. Oil And Natural Gas Corporation Limited V/s Afcons Gunanusa JV reported in (2024) 4 SCC 481.
23. The learned counsel for the first respondent has also placed on record the report of the Law Commission as regards amendments to the Arbitration and Conciliation Act,
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23 1996, insofar as it relates to apportionment of costs in support of his contentions. It is contended that without there being a specific enforceable contract between the parties, an action for specific relief or for damages would not be maintainable.
24. Relying on the decision of the Hon'ble Apex Court in M.V.Shankar Bhat's case (supra), it is contended that a condition in a contract must be strictly construed and where a condition precedent is not met, there would be no concluded contract at all. The power of the Courts to grant specific relief is also referred to in Ganesh Shet's case (supra), and Rickmers Verwaltumng GMBH's case (supra).
25. The Hon'ble Apex Court in Reliance Infrastructure Limited's case (supra), has held that the scope of interference under Section 37 of Act of 1996 cannot travel beyond the restrictions laid down in Section 34. It is therefore clear that this Court cannot undertake an independent assessment of the merits of the award and must only ascertain that the exercise of power by the Court
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24 under Section 34 has not exceeded the scope of that provision, it is contended.
26. COMAP No.166/2024 is filed by the first respondent being aggrieved by the order with regard to payment of Arbitral fees. It is contended that having found that there was no concluded contract; the Tribunal erred in requiring payment of costs by the first respondent. It is contended that the stand of the first respondent was always that there was no concluded contract and the appellant, who asserted otherwise was solely responsible for the expenses and costs of the arbitration proceedings.
27. It is further contended that the interim status quo order dated 27.01.2021 passed by the Arbitral Tribunal caused significant financial loss by halting the construction of the appellant's Multiplex project, resulting in a loss of business and increased costs. The appellant estimates a financial loss of Rs.5-6 crores due to this delay, which, coupled with imposition of Arbitral fees amounts to a gross injustice.
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28. It is contended by the learned counsel appearing for the first respondent in COMAP No.166/2024 that, by the arbitral award dated 21.12.2022, the appellant was directed to bear 50% of the total arbitral costs, amounting to Rs.42,00,000/- of the overall cost of Rs.84,00,000/-. The appellant seeks to set aside this portion of the award, which is impermissible as it amounts to modification of the arbitral award. Under Sections 34 and 37 of the Act of 1996, no provision exists for the modification of an arbitral award, whether severable or not. This principle is well-established in precedents such as McDermott International Inc. v. Burn Standard Co. Ltd. reported in (2006) 11 SCC 181 NHAI v. M. Hakeem reported in (2021) 9 SCC 1, and S.V. Samudram v. State of Karnataka reported in (2024) 3 SCC 623.
29. It is further contended that the question of whether a Court has the power to modify an arbitral award under Section 34 is currently pending before a larger bench of the Hon'ble Apex Court in the case of Gayatri Balasamy v. ISG Novasoft Technologies Ltd. reported in 2024 SCC
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26 OnLine SC 1681. Until such a decision is rendered, the law as laid down in McDermott's supra remains binding, as reaffirmed in the cases of Union Territory of Ladakh v. Jammu & Kashmir National Conference reported in 2023 SCC OnLine SC 1140 and National Insurance Company Ltd., v. Pranay Sethi and others reported in (2017) 16 SCC 680. Furthermore, the appellant's reliance on J.G. Engineers Pvt. Ltd. v. Union of India reported in (2011) 5 SCC 758 is misplaced as it does not overrule McDermott's supra nor does it refer to it.
30. It is also contended that the arbitral Tribunal recorded the parties' agreement to equally share the costs during the preliminary sittings on 27.08.2020, subsequently modified on 19.09.2020. This agreement, made under Section 31-A (5) of the Act of 1996, binds the Appellant, and the appellant's attempts to resile from this agreement through communications dated 19.11.2020 and 04.12.2020 do not negate its binding effect. Moreover, the reasons outlined in paragraph 135 of the Arbitral Award comply with Sections 31-A(3) of the Act of 1996, as they are sufficient,
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27 intelligible, and proper, as affirmed in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. reported in (2019) 20 SCC 1.
31. On the basis of the pleadings in the appeals and the contentions raised, the sole issue which arises for our consideration in these appeals is:-
"Whether the Commercial Court erred in upholding the Award?"
32. We have considered the contentions advanced, perused the pleadings, the Award - both majority and minority views, the order of the Commercial Court as well as the precedents relied on by either side. It needs no reiteration that the powers of this Court exercising the jurisdiction under Section 37 of the Act of 1996 are indeed limited to the examination of the question whether there was an error committed by the Commercial Court in refusing to set aside the Award. The Award, obviously could have been set aside only on the ground of being opposed to public policy of India or being vitiated by patent illegality which shocks the conscience of the Court. This Court cannot, by
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28 any stretch of imagination, be required to attempt a review of the merits of the dispute between the parties. The question therefore would be whether the arbitral award which has been upheld by the Commercial Court is either opposed to the fundamental policy of Indian law or so patently illegal so as to shock the conscience of the Court. All other arguments raised are on the merits of the matter.
33. No procedural irregularities are urged in the conduct of the Arbitration by the Tribunal. In COMAP No.208/2024, the essential contention is to the effect that the Arbitral Tribunal having found that there was an agreement between the parties to refer any disputes arising out of the agreement between them to arbitration, erred in finding that there was no concluded contract between the parties. Conversely, it is also contended that the contract should stand or fall as a whole and if the arbitration clause contained in the same agreement was found valid, then the contract should be found to subsist. Further, it is contended that the award is patently illegal as it refuses to consider the relevant material i.e., the communication between the
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29 parties prior to and subsequent to the date of agreement and considers irrelevant material to come to its conclusion. It is contended that the findings entered into without considering the body of evidence as a whole in juxtaposition to the commercial realities of the situation is opposed to the fundamental policy of Indian Law and is clearly illegal.
34. It is the common case of the parties that the 'Binding Term Sheet' entered into on 27.09.2011 is the agreement entered into between the parties and that there were no other written and signed documents between them.
Clause 3 of the 'Binding Term Sheet' reads as follows:-
"3. INTENT OF THE PARTIES:
This BTS records the commercial understanding between the parties, which shall be subject to Board approval of Cinepolis, confirmed within 30 days from the date hereof. The following documentation will be executed at appropriate times:
The parties will enter into a Memorandum of Understanding (MOU) or an Agreement to Lease (ATL), which shall elaborate the terms and conditions of this BTS, after the following updates:
The Developer attains duly approved Sanctioned Plans based on the designs appended in Annexure 3;
Cinepolis completes its legal due diligence of the property, to conduct which the Developer shall
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offer all cooperation with the legal counsel of Cinepolis;
Definitive Agreement, elaborating the detailed terms and conditions, shall be executed and registered at the commencement of commercial operation of the multiplex.
Owner/Developer shall not solicit or entertain any proposals for the Multiplex set up or operations from any other party/entity without a mutually accepted termination of this BTS.
This BTS is signed in duplicate, resulting in two identical documents that shall be construed as originals. Each of the parties shall be entitled to one of the documents."
35. The specifications spoken of in Clause 1 formed a part of the agreement. The first respondent was to handover the premises on or before 01.11.2013 for a rent free period of 180 days for the fit out with all permissions and certifications in place. The rent commencement date was to be the date of commercial operation of the multiplex, end of the fit out period or after 15 days from the date of receiving Cinema Operating License, whichever is earlier.
36. The Termination Clause provides as follows:-
"Lock-in, Termination, and Notice Period Cinepolis can terminate the agreement after the initial Lock-In Period, by giving a prior written notice of 3 months.
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The Developer can terminate the agreement only if Cinepolis defaults on payment of rental for 3 consecutive months."
37. The Dispute Resolution Clause is as under:-
"In case of dispute, the parties at the first instance shall settle it amicably. If it is not settled amicably, then panel of three arbitrators shall be appointed in accordance with Indian Arbitration and Conciliation Act, 1996. The Cost of such arbitration proceedings shall be borne equally. The award shall be in writing and in English language. The place of Arbitration shall be at Bangalore."
38. It is therefore clear that the parties did sign an agreement with an arbitration clause. The terms of the agreement clearly records the Commercial understanding between the parties subject to Board approval to be confirmed within 30 days. The Tribunal, by majority, found that the Board approval was not obtained and conveyed within 30 days and that the contract, which required such approval and confirmation, was therefore not concluded. However, it was found that there was a meeting of minds as regards Arbitration being the form of resolution of disputes, if any. The fact that the contract was not concluded was found not to detract from the binding nature of the Arbitration Clause.
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39. Sections 16(1)(a) and (b) of the Arbitration and Conciliation Act, 1996 reads as follows:-
"16. Competence of arbitral tribunal to rule on its jurisdiction.- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections, with respect to the existence or validity of the arbitration agreement, and for that purpose,-
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."
40. The Arbitral Tribunal considered the statutory provisions and precedents and held, by majority, that the Arbitration Agreement is separable from the contract and that in view of the meeting of minds as to arbitration being the preferred form of dispute resolution, such clause is clearly enforceable. The decisions of the Singapore Courts are not applicable to the facts of the instant case as governed by the provisions of the Act of 1996.
41. Thereafter, the Tribunal went as to consider the question whether there was a concluded contract between the parties which would justify the claims raised by the
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33 appellant. After considering Clause 3 of the contract, the entire body of e-mail communications which preceded and followed the BTS and the extensive arguments and the case law relied on, the Tribunal came to the conclusion that there was no concluded contract and therefore, the claims for damages or compensation is also not maintainable. On these findings, the claims were rejected and the claimant was held entitled to the costs of proceedings to the extent of the Arbitral fees deposited on behalf of the first respondent. Though a minority award was also rendered holding that there was a concluded contract and that the first respondent had committed breach thereof and that the claimant would be entitled to reasonable compensation, it is urged by the first respondent that the said award heavily relied on "design provided by the claimant as Annexure - 3". It is contended that no such design as "Annexure - 3" was ever appended to the agreement or ever handed over to the first respondent and that there were no clear pleadings or claims as to the nature of any damages suffered by the claimant. It is further contended that apart from claiming a huge sum
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34 as compensation, no details of loss suffered by the claimant, were forthcoming.
42. Having considered the contentions advanced in detail, we find that the finding of the Tribunal that there existed a meeting of minds between the parties with regard to making arbitration the preferred method of dispute resolution is perfectly legal and valid. The Arbitration Clause, being a separate agreement, the said conclusion cannot be faulted. Though the learned counsel for the appellant contends that the requirement for Board approval was only a formality intended for the benefit of the appellant and that the first respondent had not raised such an issue for eight long years, we find that the language of the agreement was clear and unequivocal. The finding of the Arbitral Tribunal, by a majority, therefore, cannot be held to be patently illegal or perverse.
43. The scope of interference in an arbitral award by the Commercial Court under Section 34 of the Act of 1996 is indeed quite limited. The clear language of Section 34 makes it clear that it is only on the limited grounds as
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35 provided therein, thus interference is warranted. The Hon'ble Apex Court in the case of OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited and another reported in 2024 SCC OnLine SC 2600, considering the provisions of Section 34 as amended has clearly held that no interference is warranted if the specific grounds as provided are not available. It was held that while exercising power under Section 34 of the Act of 1996, the Commercial Court does not sit in appeal over the arbitral award. Interference by the Commercial Court can only be on the limited grounds set out in Act of 1996. The Hon'ble Apex Court has also clarified that no interference is called for unless the Award is patently illegal or is clearly opposed to the fundamental policy of Indian Law. The endeavor therefore would be to uphold the Award unless these grounds are made out.
44. In the instant case, we are unable to find any patent illegality vitiating the Award which warrants interference within the limited scope of examination. The Commercial Court has considered the contentions advanced
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36 and has upheld the Award after such consideration. It is clear that the scope of examination by this Court under Section 37 of the Act of 1996 also cannot travel beyond the restrictions as provided in Section 34. Though, the learned counsel appearing for the appellant has raised several contentions with regard to appreciation of the evidence on record by the arbitral Tribunal and by the Commercial Court, we are of the opinion that any re-examination touching upon the merits of the dispute between the parties is to be confined only to the question whether the award was liable to be set aside on the limited grounds available on a conjoint reading of Section 34 and Section 37. Having given our anxious consideration to the contentions raised, we find no grounds to differ from the finding of the Commercial Court as to the absence of perversity or patent illegality vitiating the award.
45. With regard to sharing of the arbitral fees, we find that the first respondent had specifically agreed to arbitration as a form of dispute resolution and had participated in the arbitral proceedings. It had only
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37 expressed inability to deposit its share of the fees on the grounds of financial difficulties etc. From consideration of the contentions advanced and the order sheets of the Tribunal and the materials on record, we find no merit in the contentions raised.
46. In view of the discussions made above, the issue raised is answered in "the negative".
The appeals fail and are accordingly dismissed. There will be no order as to costs.
Pending I.As., if any, stand disposed of.
Sd/-
(ANU SIVARAMAN) JUDGE Sd/-
(G BASAVARAJA) JUDGE cp*