No Order Can Be Passed U/s. 17 Of Arbitration Act By Way Of Interim Measure When Issue Is Seriously Disputed - SC
A Supreme Court Bench of Justice M.R. Shah and Justice B.V. Nagarathna allowed an appeal against an order of dismissal passed by the Delhi High Court under Section 37(2)(b) of the Arbitration & Conciliation Act, 1996 and has held that, " ..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."
Ms. Aastha Mehta appeared on behalf of the Appellant and Ms. Shyel Trehan appeared on behalf of the Respondents.
In this case, the dispute was with respect to two separate premises owned by the Respondents, which were given on lease to the Appellant. The lease agreement came to be terminated by the owners. The dispute with respect to the termination of lease agreement was a subject matter before the Arbitral Tribunal. Before the Tribunal, the Respondents filed applications under Section 17 of the Arbitration Act, seeking deposit of the rental amount due and payable. The Appellant contended that owing to the COVID-19 lockdown, he was invoking the Force Majeure clause of the lease deed, thereby disputing the liability to pay the rental amount for the lockdown period. The Arbitrator proceeded to direct the Appellant to deposit 100% of the rental amount due.
Dissatisfied with the order passed by the Tribunal, the Appellant preferred an appeal before the High Court under Section 37(2)(b) of the Arbitration Act. By way of the impugned order, the High Court dismissed the appeal, after which the Appellant approached the Supreme Court.
The Counsel appearing on behalf of the Appellant vehemently contended that the Tribunal as well as the High Court have not at all taken into consideration the submissions regarding the aspect of Force Majeure. The Counsel contended that even after the lockdown was lifted, the Appellant ran his business at only 50% capacity, and therefore, Force Majure clause must be applied. The Counsel further argued that while passing an order under Section 9 of the Arbitration Act, the Court must consider the principles applicable for exercise of general power to grant an interim injunction under Order XXXIX of CPC. Further, it was contended that the Appellant did not wish to defraud the Respondents and that the dispute raised was a bonafide one.
The Counsel appearing on behalf of the Respondents argued that since the Appellant has continued to remain in possession of the leased properties, he should be paying the rental amount. Further, it was argued that the principles applicable under Order XXXIX of CPC will not be applicable to the case. The Counsel contended that since the Appellant continued to remain in possession of the premises, the principles of Force Majeure would not apply. The Counsel submitted that it was rightly observed by the High Court that the business of the appellant may have been impacted due to the outbreak of Covid19 pandemic but that will not absolve the Appellant from its contractual obligations to pay the lease rent.
The Bench held that since the Appellant was allowed to run his business at 50% capacity after the lockdown was lifted, he will have to deposit the entire rental amount except the period for which there was complete closure due to lockdown.
With regard to the applicability of the Force Majeure principle, the Court opined that "As the applicability of force majeure principle (clause 29) is yet to be considered at least, for the period during the complete closure, it would not be justified to direct the appellant to deposit the rental amount for the said period of complete closure by way of an interim measure, pending final adjudication".
Therefore, the Bench held that the Appeal would succeed in part. To that end, the Court ordered that "The order passed by the Arbitral Tribunal passed in applications under Section 17 of the Arbitration Act, directing the appellant to deposit the entire rental amount for the period between March, 2020 to December, 2021, confirmed by the High Court by the impugned judgment and order, is modified and it is directed that the appellant to deposit the entire rental amount for the period other than the period during which there was complete lockdown", while upholding the legality of the Force Majeure close contended by the Appellant.