Contract Law; Airports Authority of India Vs Hotel Leelaventure Ltd. [Delhi High Court, 15-07-2016]

Transfer of Property Act, 1882  – Sections 4 & 108(e) – Penal Code, 1860 – Section 209 – Arbitration and Conciliation Act, 1996 – Section 16 – Contract Act, 1872 – Section 56 – doctrine of frustration – not applicable to leases – false claim before Court – Royalty of Minimum Guaranteed Amount (MGA) – Held, the award is patently illegal as respondent’s liability to pay the Royalty (MGA) to the petitioner under the Transfer of Property Act is absolute and unconditional; and the Arbitrator had no power to discharge the respondent from paying the Royalty to the petitioner – the award is also contrary to the well settled law that the Arbitrator is bound by the terms of the contract and cannot go beyond the terms of the contract – however, the Arbitrator has re-written the terms of the contract by discharging the respondent from the liability to pay the Royalty (MGA) and directed the parties to renegotiate the terms of the contract – the award is against the justice as well as morality – the obligation of the respondent to pay the Royalty (MGA) is absolute and the respondent is not entitled to plead impossibility as an excuse for non-payment of the Royalty (MGA). If the payment of the Royalty (MGA) had become onerous/unviable, the lessee had the option to determine the lease under clause 26 of the lease deed by 180 days’ notice. However, the lessee cannot seek discharge from the liability to pay the Royalty to the petitioner – even assuming, there was recession in the hotel industry in 2008, it cannot be said that the recession was permanent and would continue for the rest of the period of lease. Frustration cannot be used as a device to avoid a bad bargain – the respondent has made a false claim before this Court which amounts to an offence under Section 209 IPC – However, before initiating the action against the respondent, two weeks’ time is granted to enable the respondent to introspect and file an undertaking to pay the arrears of Royalty (MGA) to the petitioner and not to resort to any frivolous proceedings/action in future. In the event of failure of the respondent to file such an undertaking within two weeks, the petitioner is at liberty to file an application under Section 340 Cr.P.C. – this case warrants imposition of costs on the respondent – the petition is allowed and the impugned award is set aside with costs of Rs.2,00,000/- (Rupees Two Lakh Only) to be paid by the respondent to the petitioner within a period of two months from today.


IN THE HIGH COURT OF DELHI AT NEW DELHI

CORAM : HON’BLE MR. JUSTICE J.R. MIDHA

O.M.P. 1206/2012

Date of Decision : 15th July, 2016

AIRPORTS AUTHORITY OF INDIA ….. Petitioner Through: Mr. Sandeep Sethi, Senior Advocate with Mr.Vaibhav Kalra and Ms. Jasbeer Bidhuri, Advocates. versus HOTEL LEELAVENTURE LTD. ….. Respondent Through: Mr. Abhimanyu Mahajan, Mr. Milan Deep Singh and Ms. Ambha Goel, Advocates.

JUDGMENT

1. The greatest challenge before the judiciary today is the frivolous litigation. The judicial system in the country is choked with false claims and such litigants are consuming Courts’ time for a wrong cause. False claims are a huge strain on the judicial system. In

Subrata Roy Sahara v. Union of India, (2014) 8 SCC 470

J.S. Khehar, J. observed that the Indian judicial system is grossly afflicted with frivolous litigation and ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. Relevant portion of the said judgment is as under:

“191. The Indian judicial system is grossly afflicted, with frivolous litigation. Ways and means need to be evolved, to deter litigants from their compulsive obsession, towards senseless and ill-considered claims.

(Emphasis supplied)

2. In the present case, the respondent is a lessee in respect of 11,000 sq. mtrs. land near Mumbai International Airport for a period of 30 years from 1st April, 1994 to 30th March, 2024. On 13th August, 2008, i.e., after about 14 years of the commencement of the lease, the respondent invoked the arbitration and raised a claim to seek discharge from the liability to pay Royalty of Minimum Guaranteed Amount [hereinafter referred to as “Royalty (MGA)”] under the lease on the ground that it has become commercially unviable to construct the Hotel due to recession in the hotel industry and therefore, the clause with respect to payment of Royalty (MGA) has frustrated under Section 56 of the Contract Act.

3. The learned Arbitrator allowed the respondent’s claim and declared that the payment of Royalty (MGA) by the respondent has become impossible under Section 56 of the Contract Act w.e.f. 01st June, 2008 and, therefore, the parties may enter into a new contract. As a result, the respondent is continuing the possession but is discharged from the liability of paying Royalty (MGA). According to the petitioner, the respondent’s liability as on 31st May, 2016 along with interest thereon has crossed Rs.258 crores.

4. The petitioner has challenged the award dated 29th August, 2012 under Section 34 of the Arbitration and Conciliation Act on various grounds inter alia:

4.1. The award is against the well settled law that the lessee’s liability to pay the amounts under the lease to the lessor is absolute and unconditional; and the learned Arbitrator had no power ofabsolving the respondent from making the payment of the Royalty (MGA).

4.2. The impugned award is also against the well settled law that Section 56 of the Contract Act is not applicable to leases. If the payment of Royalty (MGA) had became unviable, the respondent had the option to surrender the lease but the respondent could not claim that the clause requiring the payment of Royalty (MGA) has frustrated.

4.3. The learned Arbitrator has re-written the contract which is not permissible in law. The learned Arbitrator was bound by the terms of the contract, but he has gone beyond the contract by discharging the respondent from the liability to pay the Royalty (MGA) and directing the parties to re-negotiate the contract.

4.4. The statement of claim instituted by respondent is gross abuse and misuse of process of law. The statement of claim was not even maintainable in law and the learned Arbitrator ought to have rejected the same at the outset.