Facts of the Case

M/s. Golden Falcon Industries Ltd. instituted a civil suit against M/s. India Infoline Insurance Brokers and another defendant concerning premises bearing No. 71/3, First Floor, Najafgarh Industrial Area, Rama Road, Moti Nagar, New Delhi-110015, governed by a lease agreement dated 28 August 2015.

The plaintiff sought a decree directing Defendant No. 1 to hand over peaceful and vacant possession of the suit premises in terms of the lease agreement. It also sought a decree of mandatory injunction directing the defendants to rectify and restore the alleged damage caused to the premises due to numerous alterations and to restore the premises to their original condition before handing over possession.

In the alternative, the plaintiff sought payment of the cost required to restore the premises to their original condition, with such cost to be ascertained after inspection of the property.

The plaintiff further claimed arrears of use and occupation charges amounting to, but not limited to, ₹8,64,05,500 inclusive of GST, together with interest at 18% per annum from 1 August 2018 to 1 December 2020. It additionally sought continuing use and occupation charges at ₹29,79,500 per month from January 2021 until handing over possession, along with interest at 18% per annum.

Although pleadings in the suit had been completed, both defendants filed applications under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of the disputes to arbitration.

Issues Involved

The principal issues arising before the Delhi High Court were:

  • Whether the disputes between the plaintiff and both defendants should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
  • Whether the reference to arbitration should encompass disputes involving both defendants.
  • Whether Defendant No. 2 could preserve all factual and legal pleas despite its contention concerning an earlier arbitral award in which claims against it had allegedly been given up.
  • Whether disputes and objections concerning the Local Commissioner’s final report pursuant to the commission executed on 21 May 2022 should remain open for determination by the Arbitrator.
  • Whether the plaintiff was entitled to refund of court fee after the parties were relegated to arbitration before framing of issues.

Plaintiff’s Arguments

The plaintiff, through learned counsel, stated that it had no objection to the parties being relegated to arbitration, provided that the arbitration reference operated against and included both defendants.

Thus, while the suit originally sought substantive civil reliefs relating to possession, restoration of the premises, damages, arrears of use and occupation charges, continuing occupation charges and interest, the plaintiff accepted resolution through arbitration on the condition that the disputes against both defendants formed part of the arbitral process.

The plaintiff also requested refund of the court fee, particularly because the matter was being referred to arbitration and issues in the civil suit had not yet been framed.

Respondents’ / Defendants’ Arguments

Both defendants had independently filed applications under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of the disputes to arbitration.

Defendant No. 2 specifically contended that, under an award rendered in a previous dispute adjudicated by an Arbitrator, the claims against Defendant No. 2 had been given up.

Nevertheless, counsel for Defendant No. 2 stated that there was no objection to Defendant No. 2 also being relegated to arbitration, provided that all its pleas, both on facts and in law, remained open.

Accordingly, Defendant No. 2 sought preservation of its legal and factual objections for consideration by the newly appointed Arbitrator.

Court Order / Findings

The Delhi High Court noted that applications had been filed by both defendants seeking reference to arbitration and that the plaintiff had no objection to the arbitral process, subject to inclusion of both defendants.

In view of this position, the Court considered it appropriate to refer the disputes between the parties to arbitration.

The Court appointed Justice Rajiv Sahai Endlaw, a retired Judge of the Delhi High Court, as the Sole Arbitrator to adjudicate the disputes between the parties through claims and counterclaims.

The Court further directed that:

  • the Arbitrator’s fee would be regulated under the Fourth Schedule to the Arbitration and Conciliation Act, 1996;
  • the learned Arbitrator would make the requisite disclosure under Section 12 of the Act;
  • all pleas of the parties, both on facts and in law, would remain open;
  • objections concerning the final report submitted by the Local Commissioner pursuant to the commission executed on 21 May 2022 would also remain open for consideration and decision by the Sole Arbitrator.

Consequently, the suit and connected applications were disposed of.

The High Court additionally noted that the parties had been relegated to arbitration and that issues had not even been framed in the suit. In these circumstances, the plaintiff’s request for refund of court fee was accepted, with a direction that the court fee be refunded in accordance with law.

Important Clarification

This order is significant because the Delhi High Court did not adjudicate the substantive merits of the plaintiff’s claims relating to possession, restoration of the leased premises, alleged damages, arrears of use and occupation charges, continuing monthly occupation charges or interest.

Those disputes were referred to arbitration for adjudication through claims and counterclaims.

The Court also did not finally determine Defendant No. 2’s contention that claims against it had allegedly been given up in an earlier arbitral proceeding. Instead, all factual and legal pleas were expressly left open for determination by the Sole Arbitrator.

Similarly, the Court did not finally decide objections relating to the Local Commissioner’s final report. Such objections were expressly preserved for consideration by the Arbitrator.

A further important procedural aspect is that the Court allowed refund of court fee because the parties were referred to arbitration at a stage when issues had not yet been framed.

Sections / Provisions Involved

Section 8 of the Arbitration and Conciliation Act, 1996 – Relied upon by both defendants through separate applications seeking reference of disputes to arbitration.

Section 12 of the Arbitration and Conciliation Act, 1996 – The Sole Arbitrator was directed to provide the statutory disclosure contemplated under this provision.

Fourth Schedule to the Arbitration and Conciliation Act, 1996 – The Arbitrator’s fees were directed to be regulated in accordance with the statutory fee framework.

Lease Agreement dated 28 August 2015 – The underlying contractual instrument governing the suit premises and forming the factual basis of the possession and occupation-related disputes.

Link to download the order -https://mytaxexpert.co.in/uploads/1783494505_1516compressed.pdf

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