The arbitrator is a creation of the arbitration agreement, therefore,. the
arbitrator can determine only the matters which are covered under the said
contract and cannot determine the dispute which does not fall under the
agreement
ANDHRA PRADESH HIGH COURT
CRP.No.3734 of 2011
20-11-2013
Master Pieces Furniture Pvt. Ltd., rep.by its authorized representative Mr.
Santosh Mende... Petitioner/Petitioner/ Defendant
K. Lakshma Reddy, S/o. K.V. Ranga Reddy and
another...Respondents/Respondents/Plaintiffs
Citation; AIR 2014 AP56,2014(1)ALD375, 2014(1)ALT773
THE HON'BLE SRI JUSTICE M.S. RAMACHANDRA RAO
This Revision is filed under Article 227 of the Constitution of India
challenging the order dt.21.07.2011 in IA.No.3542 of 2010 in OS.No.309 of 2010
on the file of III Addl. Chief Judge, City Civil Court, Hyderabad.
2. The petitioner herein is the defendant in the above suit. The respondents
herein filed the above suit on 15.06.2010 against the petitioner alleging that
they are owners of the plaint schedule property; that the petitioner initially
took the above premises on lease under a registered lease deed dt.09.11.2006 for
a period of two years commencing from 01.12.2006; the said lease provided that
after the expiry of the said period of two years, a fresh agreement is to be
executed for every two years up to a maximum period of six years; that the rent
payable to the respondents by the petitioner was to be enhanced by 10% at the
end of every twelve months from the date of commencement of the lease; that
another agreement of lease dt.10.11.2006 was also executed between the parties
in respect of furniture, fixtures and amenities in respect of the property
leased; but after the expiry of first two years covered by the above lease, no
fresh lease deed was executed and the lease was from month to month; that the
petitioner was not paying the rent from December, 2009 to June, 2010 @
Rs.1,79,700/- amounting to Rs.12,57,900/-; he also caused damage to the leased
premises to the tune of Rs.15,00,000/-; that he is also liable to pay municipal
taxes but did not do so and he is entitled to reimburse the respondents an
amount of Rs.2,97,579/- towards municipal taxes; after adjusting the security
deposit of Rs.8,00,000/-, the petitioner is liable to pay Rs.22,55,479/-; that
the respondents by a legal notice dt.11.02.2010 terminated the tenancy of the
petitioner but he did not vacate the leased premises; and therefore, the
following reliefs be granted :
"(a) Eviction of the Defendant from premises bearing No.8-2-684/3/45 and 8-2-
684/3/40, Road No.12, Banjara Hills, Hyderabad, the suit schedule property;
(b) Rs.22,32,679/- with interest @9% from the date of suit till date of full
payment;
(c) Mesne profits for unlawful use and occupation @Rs.1,79,700/- per month
from the date of suit till date of delivery of possession of the scheduled
property;
(d) Costs of the suit;
(e) Such other relief or reliefs as this Hon'ble Court may deem fit and proper
to account."
3. The petitioner herein then filed I.A.No.3542 of 2010 to refer the parties
to arbitration in accordance with Clause 30 of the lease deed dt.09.11.2006 and
Clause 17 of the agreement dt.10.11.2006 (which are identical) contending that
he was granted lease by the respondents for a period of six years commencing
from 01.12.2006; as per the above Clauses in the said lease deeds, any dispute
between the parties with regard to the said agreements or the subject matter
thereof, including existence and validity of the agreements would be settled by
arbitrators as per the Indian Arbitration and Conciliation Act, 1996 (for short,
'the Act'); that the suit was filed without disclosing this fact; and therefore,
the suit be dismissed as not maintainable by referring the parties to
arbitration.
4. A counter-affidavit was filed on behalf of the respondents opposing this
plea. The respondents contended that the lease agreement dt.09.11.2006 and the
agreement dt.10.11.2006 were only for a period of two years and expired on
30.11.2008; subsequently, the tenancy is from month to month terminable by issue
of 15 days notice as per Section 106 of the Transfer of Property Act, 1882; that
the suit does not involve any issue/disputes with regard to the lease deed
dt.09.11.2006 and agreement dt.10.11.2006; and therefore, the arbitration clause
contained therein cannot be invoked by the petitioner. It was contended that
the issues arising in the suit relate to the period after the expiry of the
lease periods; that the petitioner never sought execution of any fresh agreement
pursuant to the lease dt.09.11.2006; that this application is filed only to drag
on the proceedings and delay the suit; and therefore, it may be dismissed.
5. By order dt.21.07.2011, IA.No.3542 of 2010 was dismissed by the trial court
with costs. It held that the period of lease under the lease agreement
dt.09.11.2006 and the agreement dt.10.11.2006 expired on 01.12.2008 and no fresh
agreement was executed after the expiry of the lease period between the parties.
Therefore, it held that the agreements including the arbitration clauses therein
came to an end by 01.12.2008; thereafter, the tenancy was only on a month to
month basis terminable by issue of 15 days' notice as per Section 106 of the
Transfer of Property Act, 1882; with the expiry of the lease period stipulated
in the lease deeds, the agreements came to an end and the arbitration clause
ceased to operate. So the proceedings in the suit cannot be stalled by
petitioner invoking S.8 of the Act.
6. Challenging the same, the present Revision is filed.
7. Heard Sri B. Nalin Kumar, counsel for the petitioner and Sri B.
Vijaysen Reddy counsel for the GPA Holder of respondents.
8. The Counsel for the petitioner contended that the order passed by the Trial
Court is contrary to law and is unsustainable; where arbitration clause exists,
court has a mandatory duty to refer dispute arising between the contracting
parties to arbitrator; it has no jurisdiction to continue the suit once an
application under Section 8 of the Act has been filed; it is not open to the
Court to go into the merits of the claim made by the petitioner and only the
arbitrator can go into the same. He further contended that the lease agreement
dt.09.11.2006 contemplated a lease for a period of six years and although Clause
1 thereof stated that the lease shall be in force for a period of two years from
01.12.2006, even thereafter since it contemplated that a fresh agreement is to
be executed for every two years up to a maximum period of six years, it has to
be accepted that there is a lease for six years. He contended that the tenancy,
after the expiry of two years from 01.12.2006, i.e., from 01.12.2008 is not a
monthly tenancy, but is a tenancy covered by the lease deed dt.09.11.2006. He
placed reliance upon the decisions in Hindustan Petroleum Corpn. Ltd. v.
Pinkcity Midway Petroleums1 and Loyola School, Hyderabad v. Megha Kumar and
another2.
9. The counsel for the respondents however contended that the order passed by
the Court below is valid and correct and did not suffer from any infirmity
warranting interference by this Court under Article 227 of the Constitution of
India.
10. I have noted the submissions of both sides.
11. Section 8 of the Act reads thus:
"8. Power to refer parties to arbitration where there is an arbitration
agreement.-(1) A judicial authority before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a party so
applies not later than when submitting his first statement on the substance of
the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained
unless it is accompanied by the original arbitration agreement or a duly
certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and
that the issue is pending before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made."
12. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd3., the Supreme Court
held :
"19. Where a suit is filed by one of the parties to an arbitration agreement
against the other parties to the arbitration agreement, and if the defendants
file an application under Section 8 stating that the parties should be referred
to arbitration, the court (judicial authority) will have to decide:
(i) whether there is an arbitration agreement among the parties;
(ii) whether all the parties to the suit are parties to the arbitration
agreement;
(iii) whether the disputes which are the subject-matter of the suit fall within
the scope of arbitration agreement;
(iv) whether the defendant had applied under Section 8 of the Act before
submitting his first statement on the substance of the dispute; and
(v) whether the reliefs sought in the suit are those that can be adjudicated and
granted in an arbitration.
... ... ...
32. But where the issue of "arbitrability" arises in the context of an
application under Section 8 of the Act in a pending suit, all aspects of
arbitrability will have to be decided by the court seized of the suit, and
cannot be left to the decision of the arbitrator. Even if there is an
arbitration agreement between the parties, and even if the dispute is covered by
the arbitration agreement, the court where the civil suit is pending, will
refuse an application under Section 8 of the Act, to refer the parties to
arbitration, if the subject-matter of the suit is capable of adjudication only
by a public forum or the relief claimed can only be granted by a special court
or Tribunal."(emphasis supplied)
13. In Magma Leasing & Finance Ltd. v. Potluri Madhavilata4, the Supreme Court
declared :
"An analysis of Section 8 would show that for its applicability, the following
conditions must be satisfied:
(a) that there exists an arbitration agreement;
(b) that action has been brought to the court by one party to the arbitration
agreement against the other party;
(c) that the subject-matter of the suit is same as the subject-matter of the
arbitration agreement;
(d) that the other party before he submits his first statement of the substance
of the dispute, moves the court for referring the parties to arbitration; and
(e) that along with the application the other party tenders the original
arbitration agreement or duly certified copy thereof."(emphasis supplied)
14. From the above two decisions, it is clear that where an application under
Section 8 seeking reference to arbitration is moved by a defendant in a suit,
the Civil Court has to consider whether the disputes which are the subject-
matter of the suit fall within the scope of arbitration agreement and whether
the subject matter of the suit is the subject matter of the arbitration
agreement.
15. In order to decide whether the petitioner can invoke Section 8 of the Act,
this point has to be decided. Clause 1 and Clause 30 of the lease deed states :
"Clause 1. The lease shall commence on and from 1st December 2006 and
shall be in force for a period of two (2) years and after the expiry of said
period of two years a fresh agreement is to be executed for every two years up
to a maximum period of six (6) years."
... ... ...
Clause 30 : This agreement will be governed by Indian Law. Any dispute between
the parties with regard to this agreement or the subject matter thereof,
including existence and validity of the agreement will be settled by arbitrators
under the provision of the Indian Arbitration & Conciliations Act, 1996. The
Arbitration will be conducted in the city of Hyderabad and each party will be
entitled to nominate one Arbitrator each. The two Arbitrators will choose an
umpire for the Arbitration Proceedings. The proceedings shall be conducted in
English. The Arbitration award is final & binding on both the parties."
16. From Clause 1 extracted above, it is clear that the duration of lease under
the lease deed dt.09.11.2006 is for two years from 01.12.2006 i.e., up to
30.11.2008. Although the parties contemplated execution of a fresh lease deed
for every two years up to a maximum of six years, the fact remains that after
30.11.2008, there has been no execution of any such fresh lease deed between the
parties.
17. The counsel for the petitioner contended that it is not necessary to execute
such a lease deed and that the terms and conditions of the lease deed
dt.09.11.2006 would continue for a period of six years from 01.12.2006 as Clause
1 contemplates it. I am unable to agree. The lease in question was only up to
30.11.2008 and unless there is a fresh registered lease agreement executed
between the parties thereafter, the terms of the lease deed dt.09.11.2006 would
not operate after 30.11.2008. This flows from Clause 1 of the lease deed
dt.9.11.2006.
18. Lease deeds sometimes provide for renewal after expiry of the term fixed
thereunder. It has been held that such renewal does not take place automatically
by mere exercise of option by a party to it and a fresh lease deed has got to be
executed. In Hardesh ores (P) Ltd. v. Hede and Company5, the Supreme Court held
:
"31. ... ... ... we must hold that in order to give effect to the renewal of a
lease, a document has to be executed evidencing the renewal of the agreement or
lease, as the case may be, and there is no concept of automatic renewal of lease
by mere exercise of option by the lessee. It is, therefore, not possible to
accept the submission urged on behalf of the appellant-plaintiffs that by mere
exercise of option claiming renewal, the lease stood renewed automatically and
there was no need for executing a document evidencing renewal of the lease."
19. It is not disputed that the petitioner did not file any suit for specific
performance for execution of a fresh lease agreement by the respondents after
30.11.2008. Therefore, in the absence of a fresh agreement as contemplated under
the lease deed dt.09.11.2006, the said deed operates only up to 30.11.2008 and
not thereafter. No doubt, the petitioner continued in possession and enjoyment
of the property thereafter, but such enjoyment would only be as a tenant from
month to month governed by the provisions of the Transfer of Property Act, 1882.
The arbitration clause (clause 30) contained in the lease deed dt.09.11.2006 or
the lease agreement dt.10.11.2006 cannot be applied to the month to month
tenancy which came into effect after 30.11.2008. This is because the said clause
would apply only to disputes in relation to the lease or subject matter of the
lease i.e., leased property, which arose during the subsistence of the lease
agreements dt.9.11.2006 and 10.11.2006. So I am of the opinion that an
arbitration clause in a prior lease deed cannot be used to decide the rights of
the parties after the expiry of the lease tenure. Under the provisions of the
Arbitration and Conciliation Act, 1996, the arbitration clause for the period
after 30.11.2008 is required to be in writing and there is no such clause
because there is no such agreement. An arbitration clause in respect of disputes
between the parties which arose long after the expiry of the agreements
dt.9.11.2006 and 10.11.2006 cannot be implied. [See Section 7(3) of the said
Act].
20. There is no dispute that in March, 2011, the petitioner had delivered
possession of the plaint schedule property to the respondents.
21. The relief in the suit as to eviction of the petitioner is therefore not
necessary. The other reliefs as to rent/damages, municipal taxes are for the
period commencing from December, 2009 long after the expiry of the term of the
lease deed dt.09.11.2006 i.e., long after 30.11.2008. Since the arbitration
clause in the lease deed dt.09.11.2006 and the agreement dt.10.11.2006 would no
longer operate for the above causes of action, it has to be held that the
subject matter of the suit is not covered by the arbitration clause in the above
agreements. This is the view taken by the trial court also.
22. In Hindustan Petroleum Corpn. Ltd. (1 supra), the Supreme Court held :
"14. This Court in the case of P. Anand Gajapathi Raju v. P.V.G. Raju has held
that the language of Section 8 is peremptory in nature. Therefore, in cases
where there is an arbitration clause in the agreement, it is obligatory for the
court to refer the parties to arbitration in terms of their arbitration
agreement and nothing remains to be decided in the original action after such an
application is made except to refer the dispute to an arbitrator. Therefore, it
is clear that if, as contended by a party in an agreement between the parties
before the civil court, there is a clause for arbitration, it is mandatory for
the civil court to refer the dispute to an arbitrator. In the instant case the
existence of an arbitral clause in the Agreement is accepted by both the parties
as also by the courts below but the applicability thereof is disputed by the
respondent and the said dispute is accepted by the courts below. Be that as it
may, at the cost of repetition, we may again state that the existence of the
arbitration clause is admitted. If that be so, in view of the mandatory language
of Section 8 of the Act, the courts below ought to have referred the dispute to
arbitration."
23. While this principle is unexceptionable, it would apply only if the
conditions laid down in Booz Allen and Hamilton (3 supra) and Magma Leasing
Finance Ltd. (4 supra) are satisfied.
24. The counsel for the petitioner also relied upon the decision in Loyola
School, Hyderabad (2 supra). The facts in the said case are somewhat similar to
the case on hand. In this case, the Division Bench of this Court held that the
arbitration clause in a rental agreement dt.27.06.1994 would continue to apply
to the suit in question filed in 2009, even though the duration of the lease
under the above agreement is only for eleven months, extendable by mutual
consent up to five years ending 30.06.1999.
25. In my opinion, the lease agreement in the said case having ended on
31.05.1995 and there being no fresh agreement thereafter, the arbitration clause
contained in it cannot be held to operate as a bar to a suit filed in the year
2009. So the arbitration clause did not cover the subject matter of the suit.
But the Division Bench has not considered at all whether the disputes which are
the subject-matter of the suit fall within the scope of arbitration agreement
i.e., whether the arbitration clause in the lease agreement dt.27.6.1994 would
apply to a suit filed in 2009 when the period of lease covered by the said lease
agreement ended 31.5.1995. So I am of the view that in the light of the
decisions of the apex court in Booz Allen and Hamilton (3 supra) and Magma
Leasing Finance Ltd. (4 supra) that the Court, while dealing with an application
under S.8 has to see whether the subject matter of the suit is covered by the
subject matter of the agreement containing the arbitration clause, the decision
of the Division bench in Loyola School, Hyderabad (2 supra) cannot be taken as
good law.
26. A learned Judge of this Court in Smt. Penumalli Sulochana v. Harish Rawtani6
has also held that the subsistence of a lease under a lease deed would only be
up to the period specified therein and once the lease deed became redundant, any
clause such as an arbitration clause contained in it also ceases to apply and
S.8 cannot be invoked by a defendant in a suit for recovery of possession filed
against a tenant.
27. In a fact situation identical to the present case, Ravinder Nath and Anr. v.
Best Entertainment (P) Ltd.7, the Delhi High Court held:
"7. The Plaintiff in its reply to the present application has submitted that
the clause referred to by the Defendant actually pertains to the lease tenure
from 01.07.2003 to 30.06.2008 and therefore, the said clause has no nexus with
the present suit. An arbitration clause in a prior lease deed cannot be used to
decide the rights of the parties after the expiry of the lease tenure.
8. Admittedly there was neither a fresh lease nor any registered extension of
the earlier lease between the parties, and as per the law of the land, an
arbitration clause has to be in writing, therefore, the said arbitration clause
cannot be relied upon by the Defendant in the circumstances of the present suit.
... ... ...
12. In view of the above said facts and circumstances, this Court is of the
considered view that the arbitration clause referred to by the Defendant in a
prior lease deed, which has already expired on 30.06.2008, cannot be used to
decide the rights of the parties after expiry of the lease tenure and under
these circumstances, the rights being sought to be enforced do not relate to the
said lease deed or tenure but to a period later in time"(emphasis supplied)
28. In Vinton Healthcare Ltd. and ors. v. Balbir Kumar Malhotra and Ors8 ,
another case on similar facts, the Punjab and Haryana High Court held :
"15. With the expiry of the lease period stipulated in the lease deed the
agreement itself came to an end and thus arbitration clause also ceased to
operate and, therefore, learned trial court was fully justified in rejecting the
application. Though it is settled law that it cannot be laid as abstract
proposition that whenever the contract is completed all the rights and
obligation of the parties under the contract ipso facto come to an end and the
arbitration agreement also perishes with the contract. Each case is required to
be considered on its own facts. The settled law, therefore, is that the
arbitrator can decide the matter arising out of the contract even after expiry
thereof, if reference is to be made to the said contract to determine the claim
raised. However, in case no reference is required to be made to the contract
and the plaintiff claims no right under the said contract with the expiry of
lease in the present case arbitration clause also comes to an end and thus there
exists no arbitration agreement between the parties.
... ... ...
23. There is no force in this contention of the learned counsel for the
petitioners. The dispute has to be one, which is covered under the terms of
lease agreement.
24. The arbitrator is a creation of the arbitration agreement, therefore,. the
arbitrator can determine only the matters which are covered under the said
contract and cannot determine the dispute which does not fall under the
agreement
25. In the present case, the suit is for possession after expiry of lease
period and for damages on account of use and occupation, for which lease is not
required to be looked into." (emphasis supplied)
29. These judgments apply on all fours to the present case. In view of the
above, I hold that the dispute in the suit is not covered by the arbitration
clause in the lease agreement dt.9.11.2006 and 10.11.2006 as the lease
agreements themselves did not survive after 30.11.2008.
30. Therefore I hold that there is no error of jurisdiction in the order passed
by the trial court dismissing IA.No.3542 of 2010 in OS.No.309 of 2010.
Consequently, the Civil Revision Petition is dismissed. No costs.
31. Miscellaneous applications pending, if any, shall stand disclosed.
___________________________________
JUSTICE M.S. RAMACHANDRA RAO
Date : 20-11-2013
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