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2022 (4) TMI 927 - SC - Indian LawsTermination of lease agreement - Seeking deposit of the rental amount for the period between March 2020 and December 2021 - Section 17 of the Arbitration Act 1996 - HELD THAT - The dispute is with respect to the rental amount for the period between March 2020 to December 2021 for which the Arbitral Tribunal has directed the appellant to deposit while passing the order by way of an interim measure on the applications under Section 17 of the Arbitration Act. The liability to pay the lease rental for the period between March 2020 to December 2021 is seriously disputed by the appellant by invoking the force majeure principle contained in clause 29 of the lease agreement. It is the case on behalf of the appellant that for a substantial period there was a total closure due to lockdown and for the remaining period the appellant was allowed with 50% capacity and therefore the force majeure principle contained in clause 29 shall be applicable. When the same was submitted before the Arbitral Tribunal no opinion even a prima facie opinion on the aforesaid aspect was given by the Arbitral Tribunal. The applicability of the force majeure principle contained in clause 29 is yet to be considered by the Arbitral Tribunal at the time of final adjudication. Hence the liability to pay the rentals for the period during lockdown is yet to be adjudicated upon and considered by the Tribunal. Therefore 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. Thus no such order for deposit by way of an interim measure on applications under Section 17 of the Arbitration Act could have been passed by the Tribunal - 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. 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 i.e. 22.03.2020 to 09.09.2020 and for the period between 19.04.2021 to 28.06.2021. However nondeposit of the rental amount for the aforesaid period during which there was a complete closure/lockdown shall be subject to the ultimate outcome of the Arbitration Proceedings and the Arbitral Tribunal shall have to adjudicate and consider the principle of force majeure contained in clause 29 as contended on behalf of the appellant in accordance with law and on its own merits - The learned Tribunal to adjudicate and consider the aforesaid issue in accordance with law and on its own merits uninfluenced by the present order and observations by this Court in the present order shall be treated to be confined to while deciding the applications under Section 17 of the Arbitration Act and the interim measure order in exercise of powers under Section 17 of the Arbitration Act only and the same shall not have any bearing on the final adjudication on the liability to pay the rentals even for the aforesaid period. Appeal allowed in part.
Issues Involved:
1. Liability to deposit rental amount during the Covid-19 pandemic. 2. Applicability of the force majeure clause in the lease agreement. 3. Validity of the Arbitral Tribunal's interim order under Section 17 of the Arbitration Act. 4. High Court's confirmation of the Arbitral Tribunal's interim order under Section 37(2)(b) of the Arbitration Act. Issue-wise Detailed Analysis: 1. Liability to deposit rental amount during the Covid-19 pandemic: The appellant, a lessee running a Restaurant and Bar, was directed by the Arbitral Tribunal to deposit 100% of the rental amount for the period between March 2020 and December 2021. The appellant contended that due to the Covid-19 pandemic and the resultant lockdowns, there was a complete or partial closure of operations, invoking the force majeure clause (Clause 29) of the lease deed to dispute the liability to pay the rental amount. Despite these submissions, the Arbitral Tribunal ordered the appellant to deposit the rental amount, which was to be kept in fixed deposit accounts. 2. Applicability of the force majeure clause in the lease agreement: The appellant argued that the force majeure clause should apply due to the pandemic-induced lockdowns, which led to a complete closure from 22.03.2020 to 09.09.2020, 19.04.2021 to 28.06.2021, and 11.01.2022 to 27.01.2022, and partial operation with 50% capacity during other periods. The Arbitral Tribunal, however, did not provide a definitive opinion on the applicability of the force majeure clause at this stage, stating that evidence was yet to be adduced by the parties. 3. Validity of the Arbitral Tribunal's interim order under Section 17 of the Arbitration Act: The appellant challenged the Arbitral Tribunal's interim order, arguing that it was akin to an order under Order XXXVIII Rule 5 of CPC, which requires certain conditions to be met. The appellant cited previous Supreme Court cases to support the argument that such interim orders should consider the principles applicable for granting interim injunctions. The Supreme Court observed that the Arbitral Tribunal should not have passed an interim order for the deposit of rental amounts when the liability was seriously disputed and yet to be adjudicated. 4. High Court's confirmation of the Arbitral Tribunal's interim order under Section 37(2)(b) of the Arbitration Act: The High Court dismissed the appeal against the Arbitral Tribunal's interim order, confirming the directive to deposit the rental amount. The Supreme Court, however, modified this order, stating that the appellant should only deposit the rental amount for periods other than the complete lockdown periods. The non-deposit for the lockdown periods would be subject to the final outcome of the arbitration proceedings, where the force majeure clause's applicability would be adjudicated. Conclusion: The Supreme Court partially allowed the appeal, modifying the Arbitral Tribunal's order to exclude the complete lockdown periods from the rental deposit requirement. The Arbitral Tribunal was directed to adjudicate the force majeure clause's applicability during the final arbitration proceedings, uninfluenced by the interim order. The arbitration proceedings were to be concluded within nine months, subject to the parties' cooperation.
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