Case Note & Summary
The dispute arose from two lease agreements between Evergreen Land Mark Pvt. Ltd. (appellant-lessee) and John Tinson & Company Pvt. Ltd. & Anr. (respondents-landlords) for premises used as a Restaurant and Bar. The lease agreements were terminated, and the matter was referred to arbitration. During the arbitration, the respondents filed applications under Section 17 of the Arbitration and Conciliation Act, 1996 seeking deposit of rental arrears for the period March 2020 to December 2021. The appellant disputed liability, invoking Clause 29 (force majeure) of the lease deed, arguing that due to COVID-19 lockdowns, there was complete or partial closure of business, and thus rent was not payable for that period. The Arbitral Tribunal, without deciding on the force majeure clause, directed the appellant to deposit 100% of the rental arrears into fixed deposits. The appellant appealed under Section 37(2)(b) of the Act, but the High Court dismissed the appeal. The Supreme Court allowed the appeal, holding that the Arbitral Tribunal and the High Court failed to consider the force majeure clause and the bonafide dispute raised by the appellant. The Court set aside the impugned orders and remanded the matter to the Arbitral Tribunal to reconsider the interim applications, directing the Tribunal to first form a prima facie opinion on the applicability of the force majeure clause and then pass appropriate interim orders. The Court also noted that the appellant had already paid substantial amounts and that there was no evidence of asset dissipation.
Headnote
A) Arbitration Law - Interim Measures under Section 17 - Force Majeure Clause - The Arbitral Tribunal, while directing deposit of rental arrears as an interim measure under Section 17 of the Arbitration and Conciliation Act, 1996, must consider the force majeure clause (Clause 29) of the lease deed and the bonafide dispute raised by the lessee regarding liability to pay rent during the COVID-19 lockdown period. The Tribunal cannot direct deposit of 100% rental amount without prima facie evaluating the applicability of the force majeure clause. (Paras 6-10) B) Arbitration Law - Interim Measures under Section 17 - Principles analogous to Order XXXVIII Rule 5 CPC - While passing interim orders under Section 17 of the Arbitration and Conciliation Act, 1996, the Arbitral Tribunal must bear in mind the principles applicable for exercise of general power to grant interim injunction under Order XXXIX CPC and the conditions for attachment before judgment under Order XXXVIII Rule 5 CPC. In the absence of evidence that the lessee is disposing of assets or removing them out of India, an order akin to attachment before judgment cannot be passed. (Paras 3.1, 6-10) C) Contract Law - Force Majeure - COVID-19 Lockdown - The applicability of a force majeure clause (Clause 29) in a lease deed during the COVID-19 lockdown period, where the lessee was unable to use the premises fully or partially due to government-imposed restrictions, is a bonafide dispute that requires prima facie consideration by the Arbitral Tribunal before passing an interim order for deposit of full rent. (Paras 3.2, 6-10)
Issue of Consideration
Whether the Arbitral Tribunal, while passing an interim order under Section 17 of the Arbitration and Conciliation Act, 1996 directing deposit of rental arrears, ought to have considered the force majeure clause (Clause 29) of the lease deed and the bonafide dispute raised by the lessee regarding liability to pay rent during the COVID-19 lockdown period.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment and order of the High Court dated 10.02.2022 and the order of the Arbitral Tribunal dated 05.01.2022, and remanded the matter to the Arbitral Tribunal to reconsider the applications under Section 17 of the Arbitration and Conciliation Act, 1996 afresh. The Tribunal was directed to first form a prima facie opinion on the applicability of the force majeure clause (Clause 29) and then pass appropriate interim orders, including the quantum of deposit, if any. The Court clarified that the amount already deposited by the appellant shall be kept in fixed deposit and shall abide by the final award.
Law Points
- Interim measures under Section 17 of the Arbitration and Conciliation Act
- 1996 must consider force majeure clauses
- bonafide disputes
- and principles analogous to Order XXXVIII Rule 5 CPC
- Arbitral Tribunal cannot direct deposit of full rental amount without prima facie evaluating force majeure applicability
- High Court's appellate jurisdiction under Section 37(2)(b) must examine such considerations.
