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
2
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:
3
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
4
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
5
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
6
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.
8
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.”
9
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.
10
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
12
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
13
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 

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