BRIJ RAJ OBEROI Vs THE SECRETARY, TOURISM AND CIVIL AVIATION DEPARTMENT & ANR

BRIJ RAJ OBEROI Versus THE SECRETARY, TOURISM AND CIVIL AVIATION DEPARTMENT & ANR

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. OF 2022

[Arising out of S.L.P. (C) Nos. 19520-19521 of 2021]

BRIJ RAJ OBEROI …Appellant (s)

Versus

THE SECRETARY, TOURISM AND

CIVIL AVIATION DEPARTMENT & ANR. ...Respondent (s)

 J U D G M E N T

Indira Banerjee, J.

Leave granted.

2. These appeals are against a common judgment and final order

dated 18th November 2021 passed by the High Court of Sikkim at Gangtok

allowing Arbitration Appeal No.02 of 2021 filed by the Respondents,

setting aside the impugned order dated 31st May 2021 passed by the

Commercial Court on an application of the Appellant under Section 9 of

the Arbitration and Conciliation Act, 1996, hereinafter referred to as “the

1996 Act”, and also dismissing Arbitration Petition No. 02 of 2021 filed by

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the Appellant under Section 11 of the 1996 Act for appointment of an

Arbitrator.

3. The State of Sikkim, impleaded as Respondent No.2 in this appeal,

is the absolute owner of the property bearing Plot No.309, Paljor Stadium

Road, Gangtok, East Sikkim, known as Norkhill Hotel, hereinafter referred

to as the ‘said property’ along with its land, buildings, annexe, servants

quarters and garages.

4. By a registered deed of lease dated 9th December 1997, the

Respondent State leased out the said property to the Appellant on terms

and conditions stipulated in the said deed of lease. Some of the terms

and conditions of the Deed of Lease are set out hereinbelow for

convenience:-

“ ***

2. The consideration of the lease of the premises fully described

in the schedule I below, the lessee undertakes to pay to the

lessor the sum of Rs. 30.00 lakhs (Rupees Thirty lakhs) only per

annum with a 10% (ten percent) increase compounded every

three years in quarterly installments of Rs. 7,50,000/- (Rupees

Seven Lakhs Fifty Thousand only) payable by the 7

th

 April, 7

th

 July,

7

th

 October and 7

th

 December of each year and the first

installment shall be payable on the date of the execution of this

deed.

3. That the initial terms of the lease under this deed shall be a

period of twenty four years from 01.06.1997 to 31.05.2021 (First

day of June one thousand nine hundred and ninety seven to the

thirty first day of May two thousand and twenty one) and shall be

renewable for such acceptance of the lessee’s offer in terms of

clause 4(xiii) hereinafter.

4. The lessee covenants with the Lessor as follows:

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i) The lessee shall pay the lease amounts on the dates

aforesaid in clause 2 hereinabove.

ii) The lessee shall pay the increased lease amounts at the

rate of 10% (ten percentage) to be compounded every three

years as follows:

a) from 01.06.2000 to 31.05.2003 Rs. 33,30,000.00 per

annum.

b) from 01.06.2003 to 31.05.2006 Rs. 36,30,000.00 per

annum.

c) from 01.06.2006 to 31.05.2009 Rs. 39,93,000.00 per

annum.

d) from 01.06.2009 to 31.05.2012 Rs. 43,92,300.00 per

annum.

e) from 01.06.2012 to 31.05.2015 Rs. 48,31,530.00 per

annum.

f) from 01.06.2015 to 31.05.2018 Rs. 53,14,683.00 per

annum.

g) from 01.06.2018 to 31.05.2021 Rs. 58,46,151.30 per

annum.

...

v) The lessee shall keep the leased premises in good order

and condition and in the same condition in which it was

handed over the lessee with a reasonable wear and tear for

which he shall not be entitled to make any claim

subsequently.

vi) The lessee shall comply with all the provisions of the

relevant enactments and regulations thereunder and with

any other obligations imposed by the local laws in regard to

the lease premises.

...

x) The lessee shall upon termination and/or expiry of the

lease quit and vacate the leased premises.

xi) The lessee shall give three months notice in writing of

his intention to terminate this agreement if he wants to

vacate the premises before the expiry of the lease period. If

such notice is given the lessee shall be entitled to vacate

the leased premises on expiry of the term of notice.

xii) The lessee if he fails and neglects to pay two

consecutive quarterly lease amounts within the period

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situated in clause 2 the lessee shall become a defaulter in

payment of the lease amount and on and from the eight day

of such second and consecutive defaulting month, the

lessee shall be deemed to be a trespasser in the demised

premises.

xiii) The lessee shall in the last year of the lease tenure and

not later than six months prior to the expiry of the present

lease, communicate in writing to the lessor his terms and

conditions for the renewal of the present lease and if the

same is accepted by the lessor, then the present lease may

be renewed for such further period and on such rent as may

be mutually agreed upon between the parties thereto,

failing which the matter shall be referred to arbitration by an

arbitrator to be appointed by the Chief Justice of the Sikkim

High Court.

...

xvii) The lessee shall after the expiry of the tenure of this

lease or sooner determination thereof, shall peacefully and

quietly surrender to the lessor, the possession of the

demised premises in the condition in which the same has

been delivered to the lessee.

5. The lessor covenants with the lessee as follows:

...

ii) The lessee upon paying the lease amount and observing

and performing the other covenants and conditions and

agreements to be observed and performed, shall peaceably

hold and enjoy the leased premises during the tenure of this

lease without any interruption or disturbance.

6. In the event of any breach of the terms and conditions of the

agreement by the lessee, the agreement/terminated by the

lessor, at his option, after giving one months notice in writing of

its intention to do so and the lessor shall be entitled to exercise

its right of reentry, into the leased premises without prejudice to

its right to recover all arrears of rent and other claims for

damages caused by such breach of the terms and conditions

hereinbefore covenanted.”

5. The lease was due to expire by efflux of time on 31st May 2021. By

a letter dated 12th November 2020 addressed to the Respondent State,

through the Secretary, Tourism Department, the Appellant offered its

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terms and conditions for renewal of the lease of the said property, for a

further period of 30 years, at an annual rent of Rs.64,30,766.43 per year,

that is, 10% more than annual rent being paid then, with escalation of

10% every three years.

6. By a letter dated 17th May 2021 written in response to the

Appellant’s letter dated 12th November 2020, Dr. K. Jayakumar, IAS,

Additional Chief Secretary, Department of Tourism and Civil Aviation,

Gangtok rejected the offer of the Appellant for renewal of lease of the

property in question. The said letter is extracted hereinbelow for

convenience:-

“...This has reference to your request for renewal of lease

ownership of Norkhill hotel period for a further period of 30 years

vide your letter dated 12 Nov. 2020.

2. In the context of the above, this is to inform you that

the State Government has approved a policy as part of executing

the vision for bringing about transformative changes in the

tourism sector, which interalia envisages professional methods of

managing tourism infrastructure, assets and facilities in the

State.

3. Efforts are being made for mobilization of revenues for

the government with effective mechanisms, with effective

mechanisms, with associated enforcement of policies for their

professional regulation, processes for deciding on lease

ownership, and for monitoring and enforcement of regulations.

Assessment and revenue collections are to be realistic, with

focus on quality assurance and standards, in keeping with the

image and branding efforts, to make Sikkim a preferred

destination for tourism.

4. The State Government has considered the fact that

Norkhill property being a heritage hotel located at a most

commanding place near the Palzor Stadium has considerable

significance and would need to be treated as a premium

property with a potential to generate better revenues for the

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State exchequer, in order that much needed funds to operate

and manage the state machinery< especially in the context of

the current pandemic is ensured.

5. Furthermore, in the present context, energetic

enthusiastic qualified younger generation hoteliers having the

experience of having served in the hotel industry in Sikkim and

outside the State are available. It would only be fair for the State

to provide an opportunity for them to also make their offers for

lease ownership, in terms of providing augmented quality of

value added services and spelling out their capability to generate

and offer more revenues for the state.

6. Hence, the State has decided that it would be in public

interest to adopt a process with stringent qualifications and bid

participating criteria, and determine appropriate lease owner

through a selection process. This approach would ensure that

capacities of emerging, capable, professional hoteliers who

provide more value added services and revenues can be given

the opportunity to participate for lease ownership selection.

7. Hence, the Government has after crateful

consideration and application of mind, has decided in public

interest that, your request for consideration of renewal of lease

ownership and extension of tenure of lease in respect of Nikhill

hotel would not be accepted. The decision is also in keeping with

the principles laid down by the Hon’ble Supreme Court for letting

out Government properties, in a number of cases, which lays

down that Public property partakes the character of a trust and

that, public purpose would be served only by getting the best

price for government property, so that larger revenue coming

into the coffers of the State administration can be utilized for

beneficent activities to subserve public purpose namely, the

welfare State...”

7. By a letter dated 21st May 2021, the Appellant requested the

Respondents to refrain from taking steps to hand over the hotel to a third

party until the disputes and differences were decided through arbitration.

7

8. The Appellant filed an application under Section 9 of the 1996 Act,

being Arbitration Suit No.05 of 2021 in the Commercial Court, being the

Court of the District Judge, East Sikkim at Gangtok.

9. On or about 28th May 2021, the Respondent State filed its Response

to the application under Section 9 of the 1996 Act, contending that the

Appellant had misconstrued Clause 4(xiii) of the Lease Agreement. It was

contended that as the Respondent State had not accepted the offer made

by the Appellant, there was no case for arbitration. Read properly, clause

4(xiii) would permit reference of disputes with regard to the quantum of

rent and the period of renewal, to arbitration. Furthermore, under clause

4(xvii), upon termination and/or expiry of the lease, the Appellant was

required to quit and vacate the said property.

10. By an order dated 31st May 2021, the learned Judge, Commercial

Court restrained the Respondent State from disturbing the Appellant’s

possession of the property in question, until the commencement of the

arbitral proceedings.

11. The Respondent State filed an appeal from the said order dated 31st

May 2021 under Section 37 of the 1996 Act read with Section 13 of the

Commercial Courts Act, 2015 and Article 227 of the Constitution of India

being Arbitration Appeal No. 02 of 2021. The Appellant, on the other

hand, filed an application under Section 11 of the 1996 Act, read with

Section 10 of the Commercial Courts Act, 2015 being Arbitration Petition

No.02 of 2021 for appointment of an Arbitrator.

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12. By the impugned judgment and order, the Division Bench of the

High Court allowed Arbitration Appeal No. 02 of 2021, set aside the order

dated 31st May 2021 passed by the Commercial Court and also dismissed

Arbitration Petition No.02 of 2021 filed by the Appellant under Section 11

of the 1996 Act, for appointment of an Arbitrator.

13. The Division Bench, inter alia, held:-

“9. As stated hereinbefore, the arbitration clause is set out

under clause 4 (xiii). A plain reading of this clause reveals that it

can be invoked only if the following two situations arise, once the

proposal for renewal of the present lease - communicated in

writing by the lessee to the lessor within the stipulated time

frame is accepted by the lessor:-

i. If there is a dispute with regard to the further period of

renewal of the present lease, as proposed; and

ii. If there is a dispute with regard to the quantum of rent

proposed to be paid by the lessee to the lessor for the

extended period of lease.

10. In the instant case, the State expressed its inability to renew

the lease through its letter dated 17

th

 May, 2021. It may have

been written belatedly, however, it was before expiry of the lease

period. As a consequence, the result of this letter dated 17

th

 May,

2021, tantamount to a final decision on the part of the State not

to renew the present lease in favour of Brij Raj Oberoi.

11. In such circumstances, none of the disputes - which can be

termed as arbitrable dispute - as specified hereinbefore, are

present in the facts of the instant case. In absence of any

arbitrable dispute, an order could not have been passed by the

Learned Commercial Court under section 9 of the Arbitration Act.

12 . Consequently, Arbitration Appeal No. 02 of 2021, is allowed

and the impugned judgment and order dated 31.05.2021, passed

by the learned Commercial Court on the application filed by Brij

Raj Oberoi under section 9 of the Arbitration and Conciliation Act,

1996 is set aside. The Arbitration Petition No. 02 of 2021 seeking

appointment of Arbitrator under section 11 of the Arbitration and

Conciliation Act, 1996 read with section 10 of the Commercial

Courts Act, 2015 is also dismissed. The parties to bear their own

costs.”

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14. In our considered opinion, the Division Bench fell in error in arriving

at the finding that the arbitration clause could only be invoked if the

proposal for renewal was accepted by the lessor, but there was dispute

with regard to the period of renewal or there was dispute with regard to

the quantum of rent proposed to be paid by the lessee to the lessor.

15. It is well settled that clauses in a lease deed cannot be read and

construed in isolation. The lease deed is to be construed as a whole.

Clause 4(xiii) has to be read with Clause 3 which clearly provides that the

initial term of the lease under the deed shall be a period of 24 years from

1

st June 1997 to 31st May 2021 and shall be renewable for such acceptance

of the lessee’s offer in terms of Clause 4(xiii). Clause 4(xiii) has wrongly

been printed as Clause 4(xii). It is not in dispute that it is to be read as

Clause 4(xiii) and all concerned have proceeded on the basis that the offer

is to be in terms of Clause 4(xiii).

16. Prima facie, the parties to the lease deed have used the expression

“shall” which connotes a command. If the lessee offered its terms for

renewal or extension of the lease within the time stipulated in the lease,

prima facie the same would have to be accepted. However, if the

quantum of rent or the period of lease could not be mutually agreed upon,

the same would necessarily have to be referred to arbitration by an

Arbitrator to be appointed by the Chief Justice of the Sikkim High Court.

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17. In Vidya Drolia & Ors. v. Durga Trading Corporation

1

, a threeJudge Bench of this Court held :-

“151. ....Broad or narrow interpretations of an arbitration

agreement can, to a great extent, effect coverage of a

retroactive arbitration agreement. Pro-arbitration broad

interpretation, normally applied to international instruments, and

commercial transactions is based upon the approach that the

arbitration clause should be considered as per the true

contractual language and what it says, but in case of doubt as to

whether related or close disputes in the course of parties'

business relationship is covered by the clause, the assumption is

that such disputes are encompassed by the agreement. The

restrictive interpretation approach on the other hand states that

in case of doubt the disputes shall not be treated as covered by

the clause. Narrow approach is based on the reason that the

arbitration should be viewed as an exception to the court or

judicial system. The third approach is to avoid either broad or

restrictive interpretation and instead the intention of the parties

as to scope of the clause is understood by considering the strict

language and circumstance of the case in hand. Terms like “all”,

“any”, “in respect of”, “arising out of”, etc. can expand the scope

and ambit of the arbitration clause. Connected and incidental

matters, unless the arbitration clause suggests to the contrary,

would normally be covered.

152. Which approach as to interpretation of an arbitration

agreement should be adopted in a particular case would depend

upon various factors including the language, the parties, nature

of relationship, the factual background in which the arbitration

agreement was entered, etc. In case of pure commercial

disputes, more appropriate principle of interpretation would be

the one of liberal construction as there is a presumption in favour

of one-stop adjudication.

153. Accordingly, we hold that the expression “existence of an

arbitration agreement” in Section 11 of the Arbitration Act,

would include aspect of validity of an arbitration agreement,

albeit the court at the referral stage would apply the prima facie

test on the basis of principles set out in this judgment. In cases

of debatable and disputable facts, and good reasonable arguable

case, etc., the court would force the parties to abide by the

arbitration agreement as the Arbitral Tribunal has primary

jurisdiction and authority to decide the disputes including the

question of jurisdiction and non-arbitrability.

1 (2021) 2 SCC 1

11

xxx xxx xxx

154.3.The general rule and principle, in view of the legislative

mandate clear from Act 3 of 2016 and Act 33 of 2019, and the

principle of severability and competence-competence, is that the

Arbitral Tribunal is the preferred first authority to determine and

decide all questions of non-arbitrability. The court has been

conferred power of “second look” on aspects of non-arbitrability

post the award in terms of sub-clauses (i), (ii) or (iv) of Section

34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration

Act.

154.4.Rarely as a demurrer the court may interfere at Section 8

or 11 stage when it is manifestly and ex facie certain that the

arbitration agreement is non-existent, invalid or the disputes are

non-arbitrable, though the nature and facet of non-arbitrability

would, to some extent, determine the level and nature of judicial

scrutiny. The restricted and limited review is to check and protect

parties from being forced to arbitrate when the matter is

demonstrably “non-arbitrable” and to cut off the deadwood. The

court by default would refer the matter when contentions relating

to non-arbitrability are plainly arguable; when consideration in

summary proceedings would be insufficient and inconclusive;

when facts are contested; when the party opposing arbitration

adopts delaying tactics or impairs conduct of arbitration

proceedings. This is not the stage for the court to enter into a

mini trial or elaborate review so as to usurp the jurisdiction of the

Arbitral Tribunal but to affirm and uphold integrity and efficacy of

arbitration as an alternative dispute resolution mechanism.”

18. In the considered opinion of this Court, the Division Bench fell in

error in rejecting the application of the Appellant under Section 11(6) of

the 1996 Act for appointment of an Arbitrator. The dispute arising out of

non-renewal of the lease is clearly arbitrable. As observed above, the

deed of lease provided “That the initial terms of the lease under this deed

shall be a period of twenty four years from 01.06.1997 to 31.05.2021

(First day of June one thousand nine hundred and ninety seven to thirty

first day of May two thousand and twenty one) and shall be renewable for

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such acceptance of the lessee’s offer in terms of clause 4(xiii)

hereinafter”.

19. Clause 4(xiii) provides that the Appellant-lessee shall, in the last

year of the lease tenure and not later than six months prior to the expiry

of the present lease, communicate in writing to the lessor, his terms and

conditions for the renewal of the present lease and if the same is accepted

by the lessor, then the present lease may be renewed for such further

period and on such rent as may be mutually agreed. The arbitration

clause cannot be rendered otiose by refusal of the Respondent State to

renew the lease. The Respondent State may have formulated a policy for

encouraging self-employment of local youth who are duly qualified and

competent to run the hotel. Such policy decision cannot impact an

existing agreement with a renewal clause. All disputes between the

parties to the lease with regard to renewal and/or non-renewal, the period

of renewal and the quantum of rent would have be decided by the

Arbitrator, as observed above. The issue of arbitrability of the dipsute

over non-renewal of the lease is within the realm of the Arbitral

Tribunal/Arbitrator.

20. The appeals are allowed. The impugned judgment and order is set

aside. Justice Bhaskar Bhattacharya, Former Chief Justice of Gujrat High

Court and Former Chairman of the Sikkim Law Commission is appointed

Arbitrator to adjudicate the disputes between the parties. The Arbitrator is

requested to complete the proceedings as early as possible preferably

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within three months from the date of communication of this order.

Needless to mention that the learned Arbitrator will not be influenced by

any observations made in this order on the merits and/or arbitrability of

the disputes.

21. The order of status quo passed by this Court shall continue for a

period of three months from today or until further orders of the Arbitral

Tribunal, whichever is earlier.

.………………………………….J.

 [ INDIRA BANERJEE ]

…………………………………..J.

 [ C. T. RAVIKUMAR ]

NEW DELHI;

AUGUST 18, 2022