2013 (1) TMI 240 - HC - Indian Laws

Dispute referred to arbitration - Agri Horticultural Society maintaining a huge garden with a florist shop appointment of person to look after the shop on commission basis - agreement entered initially for 13 years with option for renewal for the identical period - on December 13, 2006 the society did not renew the agreement & appellant did not vacate that resulted in a dispute - Held that - As per Clause 3 of the agreement the society would remain in possession of the flower unit being legal, physical and symbolic and the appellant would have to deposit the duplicate key of the doors with the society that would remain with them. It was agreed further that the appellant would deposit the key to the security or any authorised representative after the close of the day and collect the key on the next day. Interpreting Clause 3 it could not be said, the appellant was in exclusive possession. If the appellant were not in exclusive possession neither he would be entitled to claim protection under the tenancy law as a tenant or property law as permissive occupant with exclusive possession. The agreement admittedly expired on December 13, 2006. He remained in permissive possession up to May 2007 when the society asked him to vacate. As per Clause 24, he would attract penalty of Rs.5,000/- (Rupees five thousand) per day as liquidated damage. Thus once the Arbitrator held that by virtue of the agreement the society did not part with possession of the flower unit and the appellant was only entrusted to run the unit on the terms and conditions stipulated therein including the one that he would have to collect the key every morning and deposit the same at the end of the day after close of the unit the Arbitrator was well within his right to direct delivery of possession. The Arbitrator came to conclusion that the agreement would denote the society would get back possession on the termination of the agreement by afflux of time or otherwise. From the case made out by the appellant, the breach under the agreement was a foregone conclusion, as the appellant s claim for exclusive possession through tenancy was held to be not correct in view of well-settled principle of law. There could not be any further scope to adduce evidence. Arbitrator is the master of his own procedure. It is not expected, he would rigidly follow the procedural law that was available in a regular civil action. Resolution of a dispute through domestic forum would not attract such procedure to be rigidly followed. Once we are satisfied, ample opportunity was given by the Arbitrator to the appellant to defend the action brought against him the Award would pass through the test of audi alteram partem . The learned Single Judge very rightly declined to interfere with the Award, so do we.

Summary

Issues Involved:
1. Nature of the agreement (tenancy vs. management contract).
2. Authority of the Arbitrator.
3. Principle of natural justice.
4. Arbitrability of the dispute.
5. Claim for liquidated damages.
6. Public policy considerations.

Detailed Analysis:

1. Nature of the Agreement:
The appellant argued that the agreement was essentially a tenancy agreement, granting him protection under tenancy laws and thus outside the scope of arbitration. However, the court found that the agreement was for managing the flower unit, not a tenancy, as the appellant did not have exclusive possession. The society retained "legal, physical, and symbolic" possession, with the appellant required to collect and return the key daily. The payment structure also indicated a commission-based relationship rather than a fixed rent, further supporting the management contract interpretation.

2. Authority of the Arbitrator:
The appellant questioned the Arbitrator's authority to decide on possession issues, arguing that the dispute should be resolved under tenancy laws. The court upheld the Arbitrator's authority, noting that the agreement included an arbitration clause for dispute resolution. The Arbitrator's jurisdiction was supported by the terms of the contract and the conduct of the parties. The court referenced the Supreme Court's decision in McDermott International Inc. Vs. Burn Standard Co. Ltd., emphasizing that the Arbitrator's interpretation of the contract was within his jurisdiction.

3. Principle of Natural Justice:
The appellant claimed that the Arbitrator violated natural justice principles by not providing adequate opportunity to defend the claim. The court found this claim unjustified, noting that multiple adjournments were granted, and the arbitration continued for about one and a half years. The court cited the Delhi High Court and Supreme Court decisions emphasizing that natural justice requires adequate opportunity to present one's case, which was provided in this instance.

4. Arbitrability of the Dispute:
The appellant contended that the dispute was not arbitrable as it involved tenancy matters. The court disagreed, finding that the agreement did not create a tenancy but a management contract. The court referenced the Supreme Court decision in Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd., which outlined that disputes involving rights in rem, such as tenancy, are generally not arbitrable. However, since the agreement did not grant exclusive possession, the matter was suitable for arbitration.

5. Claim for Liquidated Damages:
The appellant argued that the claim for liquidated damages was unfounded as he was entitled to possession. The court upheld the Arbitrator's award of liquidated damages based on Clause 24 of the agreement, which stipulated a penalty of Rs.5,000 per day for wrongful retention of the premises. The court referenced the Supreme Court decision in Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., which allows for liquidated damages if they are a genuine pre-estimate of loss agreed upon by the parties.

6. Public Policy Considerations:
The appellant argued that the award was contrary to public policy. The court found no merit in this argument, noting that the Arbitrator provided ample opportunity for both parties to present their cases and made a reasoned decision based on the agreement's terms. The court referenced the Supreme Court's explanation of public policy in Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., concluding that the award did not violate public policy.

Conclusion:
The court dismissed the appeal, affirming the Arbitrator's award and the learned Single Judge's decision. The agreement was interpreted as a management contract, not a tenancy, and the Arbitrator's authority and adherence to natural justice principles were upheld. The claim for liquidated damages was found to be justified, and the award was not contrary to public policy. The appellant's arguments were rejected, and the society was entitled to possession and damages as per the agreement terms.