Case Note & Summary
The petitioner, a banking company, entered into two agreements with the respondent for business centre facilities and support services at premises in Mumbai. The agreements provided for payment of monthly fees and a refundable security deposit. After termination of the agreement, the petitioner sought refund of the security deposits and liquidated damages for delayed refund. The dispute was referred to arbitration by a former High Court judge. The respondent raised a jurisdictional objection under Section 16 of the Arbitration and Conciliation Act, 1996, contending that the claims fell within the exclusive jurisdiction of the Small Causes Court under Section 41 of the Presidency Town Small Causes Court Act, 1882, which covers disputes relating to recovery of possession, licence fee, charges or rent. The arbitrator, relying on Genesis Colors Private Limited v. Anil Ramlabhaya Suri, held that the security deposit refund claim amounted to 'charges' and was therefore not arbitrable. The petitioner challenged this order under Section 37 of the Arbitration Act before the Bombay High Court. The court found that the arbitrator had not analysed how the claim could be considered 'charges' and that the Genesis Colors case did not actually hold that refund of security deposit is a charge. Referring to several precedents, the court noted that the expression 'charges' in Section 41 must be read with the associated terms 'licence fee' and 'rent', indicating periodic payments for use and occupation. A one-time refundable deposit does not share this character. Consequently, the court set aside the arbitrator’s order, holding the dispute to be arbitrable, and directed the arbitrator to proceed on merits.
Headnote
A) Arbitration - Arbitrability of Disputes - Scope of Section 41 - Presidency Town Small Causes Court Act, 1882, Section 41(1) - The claim for refund of security deposit and liquidated damages under a leave and licence agreement does not constitute 'charges' for the purpose of exclusive Small Causes Court jurisdiction; the term 'charges' refers to periodic payments for use and occupation, not a one-time deposit refund - Held that the arbitrator's order declining jurisdiction was erroneous and the dispute is arbitrable (Paras 9-13).
Issue of Consideration
Whether the arbitrator correctly held that the dispute over refund of security deposit and liquidated damages was not arbitrable because it fell within the exclusive jurisdiction of the Small Causes Court under Section 41 of the Presidency Town Small Causes Court Act, 1882?
Final Decision
The High Court set aside the arbitrator's order dated 14 May 2012, holding that the claim for refund of security deposit does not fall within the expression 'charges' in Section 41(1) of the Presidency Town Small Causes Court Act, 1882. The arbitrator's reliance on Genesis Colors was misplaced as that case did not hold that refund of security deposit is a charge. The dispute was held to be arbitrable and the matter was remitted to the arbitrator to proceed on merits.
Law Points
- security deposit not a charge under Section 41 of Presidency Town Small Causes Court Act
- expression 'charges' refers to periodic payments for use and occupation
- disputes over refund of security deposit are arbitrable
Case Details
2017 LawText (BOM) (09) 84
ARBITRATION PETITION NO. 1000 OF 2012
Ms. Sowmya Srikrishna a/w. Mr. Darmesh Jain and Tejas Mahumani i/b. Anil T. Agarwal, Mr. Chetan Kapadia i/b. Deepa Pohuja
The Royal Bank of Scotland N.V. (formerly known as ABN AMRO Bank N.V.)
Earnest Business Services Private Limited
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Nature of Litigation
Arbitration petition under Section 37 of the Arbitration and Conciliation Act, 1996 challenging the arbitrator's order dated 14 May 2012, where the arbitrator accepted the respondent's application under Section 16 that the dispute was not arbitrable because it fell within the exclusive jurisdiction of the Small Causes Court under Section 41 of the Presidency Town Small Causes Court Act, 1882.
Remedy Sought
Petitioner sought setting aside of the arbitrator's order dated 14 May 2012 and a declaration that the dispute regarding refund of security deposit and liquidated damages is arbitrable.
Filing Reason
The arbitrator had held that the claims for refund of security deposit and liquidated damages were 'charges' under Section 41 of the Presidency Town Small Causes Court Act, 1882, and were therefore not arbitrable.
Previous Decisions
The arbitrator's order dated 14 May 2012 held that the tribunal had no jurisdiction; earlier, a petition under Section 9 of the Arbitration Act (Arbitration Petition No. 1002 of 2009) was filed and by consent the dispute was referred to arbitration.
Issues
Whether the claims for refund of security deposit and liquidated damages arising out of a licence agreement fall within the expression 'charges' under Section 41(1) of the Presidency Town Small Causes Court Act, 1882?
Whether the dispute was arbitrable or fell within the exclusive jurisdiction of the Small Causes Court?
Submissions/Arguments
Petitioner argued that the agreements were not licence agreements, and even if they were, refund of security deposit and liquidated damages do not constitute 'charges'; the term 'charges' denotes periodic payments for use and occupation.
Respondent contended that the agreements were effectively licence agreements and that the security deposit falls within the definition of 'charges', thus the dispute was not arbitrable and solely triable by the Small Causes Court.
Ratio Decidendi
A claim for refund of security deposit made in connection with a leave and licence agreement does not constitute 'charges' within the meaning of Section 41(1) of the Presidency Town Small Causes Court Act, 1882. The expression 'charges' must be interpreted in context with the associated terms 'licence fee' and 'rent', indicating periodic payments for use and occupation, and not a one-time refundable deposit. Therefore, such disputes are arbitrable and not within the exclusive jurisdiction of the Small Causes Court.
Judgment Excerpts
The Arbitrator, it has to be noted, first of all has not analyzed as to how the claim of petitioner which are for refund of security deposit and liquidated damages would come under the category of 'charges' used in Section 41(1) of Small Causes Court Act. (Para 9)
In Brainvisa Technologies (supra), the Court has held that the expression 'charges' must receive meaning from the term with which it occurs in context. The Court held that licence fees, charges and rent are periodical payments made for use. (Para 13)
Procedural History
Petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Petition No. 1002 of 2009) for interim reliefs. By consent, the dispute was referred to arbitration of Mrs. Justice K.K. Baam, a former Judge of the Bombay High Court. The arbitrator entered reference on 17 June 2011. Petitioner filed statement of claim seeking refund of security deposits and damages. Respondent filed an application under Section 16 of the Act challenging jurisdiction. The arbitrator, by order dated 14 May 2012, accepted the application and held that the disputes were not arbitrable, falling under Section 41 of the Presidency Town Small Causes Court Act, 1882. Petitioner filed the present arbitration petition under Section 37 of the Act challenging that order.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 9, 16, 37
- Presidency Town Small Causes Court Act, 1882: 41
