Case Note & Summary
The case involves a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, to an arbitral award passed by a sole arbitrator in a dispute arising from a leave and licence agreement dated 17 February 2006. The respondent (licensor) was developing a commercial building in Kandivali West, Mumbai, and granted a licence to the petitioner (licensee) for premises in portion 'B2' with a total built-up area of 62,040 sq. ft., comprising various floors and terrace rights. The licence was for 36 months, with construction to be completed within 15 months from the agreement date. The agreement provided for interest at 12% per annum on the security deposit for delay in handing over possession beyond 15 months, and a rent-free fit-out period of two months after handover, after which the licence period would commence. The petitioner paid a security deposit of Rs. 5,14,08,000. The respondent failed to complete construction and hand over possession within 15 months, leading to disputes. The arbitrator awarded interest on the security deposit for the delay period at 12% per annum, and directed refund of the security deposit with interest at 12% from the date of demand until payment. The petitioner challenged the award under Section 34, arguing that the award on interest for delay was contrary to the agreement and that the refund with interest from date of demand was not justified. The court held that the award on interest for delay was in accordance with the agreement, as the agreement itself provided for such interest. However, the court modified the award on refund, holding that interest on the refunded amount should run from the date of the award, not from the date of demand, as the agreement did not provide for interest on refund. The court partially allowed the petition, modifying the award accordingly.
Headnote
A) Arbitration - Challenge to Arbitral Award - Section 34 of the Arbitration and Conciliation Act, 1996 - Public Policy - The court considered whether the award granting interest on security deposit for the delay period and ordering refund with interest from date of demand was contrary to the terms of the agreement and public policy. Held that the award on interest for delay period was in accordance with the agreement, but the direction for refund with interest from date of demand was modified to interest from the date of the award (Paras 1-10).
Issue of Consideration
Whether the arbitral award granting interest on security deposit for the delay period and ordering refund of security deposit with interest from the date of demand is contrary to the terms of the agreement and public policy under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partially allowed the petition. It upheld the award of interest on security deposit for the delay period at 12% per annum as per the agreement. However, it modified the award on refund of security deposit, directing that interest on the refunded amount shall run from the date of the award, not from the date of demand. The rest of the award was confirmed.
Law Points
- Section 34 of the Arbitration and Conciliation Act
- 1996
- Public Policy
- Interest on Security Deposit
- Leave and Licence Agreement
- Delay in Handover
- Refund of Security Deposit
Case Details
2019 LawText (BOM) (03) 65
Arbitration Petition No.715 of 2014
Mr. Rajiv Kumar, Senior Advocate, a/w. Mr. K.G. Munshi, Ms. Ferzana Behramkamdin, Ms. Shivani Khanna and Ms. Rabab Ghugharia, i/b. FZB & Associates, for the Petitioner. Mr. Joaquim Reis, Senior Advocate, a/w. Mr. Yadunath Chaudhari, Mr. Omkar Kulkarni and Mr. Susmit Phatale, i/b. Ms. Kejal Kamdar, for the Respondent.
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Nature of Litigation
Challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
The petitioner sought to set aside the arbitral award or modify it to the extent that interest on security deposit for delay period and interest on refund from date of demand were not in accordance with the agreement.
Filing Reason
The petitioner challenged the arbitral award on the ground that the arbitrator erred in granting interest on security deposit for the delay period and in ordering refund of security deposit with interest from the date of demand, which was contrary to the terms of the leave and licence agreement and public policy.
Previous Decisions
The sole arbitrator passed an award granting interest on security deposit for the delay period at 12% per annum and directing refund of security deposit with interest at 12% from the date of demand until payment.
Issues
Whether the arbitral award granting interest on security deposit for the delay period is in accordance with the terms of the leave and licence agreement?
Whether the direction for refund of security deposit with interest from the date of demand is sustainable under the agreement and public policy?
Submissions/Arguments
The petitioner argued that the agreement did not provide for interest on security deposit for the delay period, and the award on this aspect was contrary to the terms.
The petitioner also argued that the direction for refund with interest from date of demand was not justified as the agreement did not provide for such interest.
The respondent supported the award, contending that the interest on delay was expressly provided in the agreement and the refund with interest from demand was fair and equitable.
Ratio Decidendi
The court held that the arbitral award granting interest on security deposit for the delay period was in accordance with the express terms of the leave and licence agreement, which provided for such interest. However, the direction for refund of security deposit with interest from the date of demand was not supported by the agreement; interest on refund should run from the date of the award, as the agreement did not provide for interest on refund. The court's interference was limited to correcting an error apparent on the face of the award that was contrary to the terms of the contract, falling within the scope of Section 34 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
This arbitration petition, filed under Section 34 of the Arbitration and Conciliation Act, 1996 ('Act'), challenges an award passed by a sole arbitrator in a reference arising out of a leave and licence agreement.
The leave and licence agreement provided for interest at the rate of 12% per annum on the amount of the security deposit paid by the Petitioner to the Respondent for the period of delay in handing over possession of the licensed premises beyond the aforesaid period of 15 months.
Procedural History
The respondent (licensor) and petitioner (licensee) entered into a leave and licence agreement on 17 February 2006. Disputes arose due to delay in construction and handover. The matter was referred to a sole arbitrator who passed an award. The petitioner filed Arbitration Petition No.715 of 2014 under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the award. The High Court heard the petition and delivered judgment on 11 February 2019.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
