Dismissed

M/S Ashapura Developers v. Aditya Birla Retail Limited

Bombay HC11 Aug 2014ARBP/738/2013

Case brief

AI extract

What is this about?

This petition challenged an arbitral award regarding a leave and license agreement involving a fire escape passage. The High Court upheld the tribunal's finding that the contract was frustrated or voidable due to misrepresentation. The court dismissed the petition against the petitioner.

What did the court decide?

The petition was dismissed. The counter-claim by the petitioner was rejected. The security deposit and interest granted by the arbitral tribunal were ordered as compensation.

M/S Ashapura Developers Vs Aditya Birla Retail Limited — Arbitration | Bombay HC (2014)

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mnm

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO. 738 OF 2013

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Ashapura Developers ...Petitioner Vs.

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Aditya Birla Retail Ltd. ...Respondent

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Mr. Devitre, Sr. Advocate with Mr. Rohan Cama i/b. Mr. Santosh Pathak, Advocates for the Petitioner Dr. Mr. Birendra Saraf with mr. Mayur Bhojwani and Ms. Ujwala Chitnis i/b. M/s. Manilal Kher Ambalal & Co. Advocates for the respondent

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CORAM : MRS. ROSHAN DALVI, J. DATED : 13^TH AUGUST, 2014

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ORDER :

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The award of the arbitral tribunal dated 30^th April, 2013 consisting of three arbitrators has been challenged in this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the act).

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The parties entered into a leave and license agreement on 5^th July, 2008 under which the parties agreed to refer their disputes to arbitration which came to be referred to arbitration and which has been considered in the aforesaid Court. The dispute relates to a

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fire escape passage running through the length of the licensed premises.

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The respondent herein who licensed the premises contended that the fire escape passage was not considered in the agreement of leave and license and was made known to the respondent thereafter and due to which the respondent could not carry out renovations in the premises and use the premises as it had meant to use it which resulted from misrepresentation practiced by the petitioner herein and resulted in frustration of the contract because if the licensed premises was to be used without such passage it would have been an illegality.

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The learned Arbitrators have considered this three fold aspect of law based upon the facts brought out before them upon oral as also documentary evidence led by the parties.

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The learned Arbitrators have given findings of fact upon a reasoned order with regard to the aspect of misrepresentation, illegality and frustration of contract between the parties. It is this finding that this Court is required to reconsider in the petition filed under Section 34 of the Act.

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It is material to first see the agreement that the parties entered into and some of the relevant correspondence relating to the passage.

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Under the leave and license agreement dated 5^th July, 2009 the demised premises is shown to be admeasuring 16096 sq ft of chargeable area which is described as the super built up area. The demised premises is shown to be 11268 sq. ft of carpet area upon joint measurement of the premises done by the parties on 23^rd June, 2008, a fortnight prior to the execution of the agreement.

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The leave and license agreement provided the following:

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(i) Under clause 1 of the agreement the license was for use and occupation of the premises admeasuring 11268 sq. ft of carpet area.

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(ii) The respondent was to start fit-out work under clause 2.3.

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(iii) Under Clause 2.4 the agreement was for a period of 24 months during which neither party could terminate the agreement subject to clauses 11.2 and 14.

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(iv) Under clause 4.1 the first 60 days was to be rent free period.

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(v) Under clause 8.1(b) the respondent was to use and occupy the premises as his office.

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(vi) Clause 9.1(c ) shows that the Occupation Certificate was obtained and the licensed premises was free and clear of any encumbrances.

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(vii) Clause 9.1(e ) shows that the licensed premises was constructed in accordance with the approved building plan (though the sanctioned plan was not annexed to the agreement).

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(viii) Clause 11.2 was of Force Majeure.

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(ix) Clause 14 showed the events of default.

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(x) Under Clause 14.1(a) the license could be terminated without notice upon a misrepresentation, suppression of material records etc which would constitute a material breach.

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It is the case of the respondent/licensee that there was to be a fire escape passage which was not made known to it. The plan annexed to the license shows no such fire escape passage. The queries of the licensee which are answered in a columnar statement which is also annexed to the license shows no fire escape passage as it was to be in the licensed premises. The query required inter alia a dedicated fire escape route to be demarcated clearly on a plan. The answer to the query shows that the passage/route was near the left hand side of the lift lobby. The sketch plan annexed to the agreement does not show any fire escape passage to the left hand side of the lift lobby.

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The witness of the petitioner herein was asked to demarcate the passage during the trial before the arbitral tribunal. The demarcated passage shows a passage running through the entire

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length of the licensed premises which was to be the respondent’s office from East to West.

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The learned Arbitrators have considered this singular bone of contention between the parties and the various circumstantial evidence that demonstrated the lack of knowledge of the respondent/licensee of the existence of the passage thus:

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The chargeable area of the licensed premises was 16096 sq.ft which was the super built up area.

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The sketch plan annexed to the agreement does not show any passage.

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The demarcated plan shows the passage as also certain other areas like RCC chajja, niche area, and ornamental area for which also there is a similar contention.

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The area statement in an earlier email dated 26^th June, 2008 does not show the passage though it shows various deductions for duct, bund wall, lift wall, columns etc for determining the carpet area.

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The contemporaneous correspondence even after the agreement has been considered which need not be gone into in a petition under Section 34 of the act.

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Upon the aforesaid circumstantial evidence the learned Arbitrators have entered findings of fact in paragraph 19 of the award thus:

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(a). The area of the demised premises is at variance with the sanctioned plan.

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(b) The usable area which was the area for the use and occupation of the licensee implied non-inclusion of the passage chajja, niche and ornamental area etc which aggregated to 1980 sq.ft which were not described in the agreement or shown in the plan.

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The oral evidence of the witnesses of both the parties as also the photographs of respondent have been considered in respect of the status and the description of the licensed premises. The witness of the respondent herein deposed that upon the visit by him as also other officers of the respondent the premises to be licensed was found to be a continuous area without any partition; the passage which had to be kept open as a fire escape route must necessarily require a partition to be left outside the licensed premises so as to be used by all. This impression by a party licensing a premises is most material. This was corroborated by the photographs taken soon after the agreement which showed the continuous open area. The learned Arbitrators have considered the

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correspondence prior to the agreement also which showed furnishing of autocard and EDF which does not mention about the fire escape passage. The plan furnished in a later communication also did not show its demarcation. The area statement made no mention of it. The annexures to the agreement did not show its existence.

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The learned arbitral tribunal came to the conclusion that the licensor did not disclose to the licensee the existence of the passage and the other areas and thus represented to the licensee that the premises shown in the plan (which was a continuous open area) was entirely the usable area because the sanctioned plan was not furnished to the licensee until the execution of the agreement and was not attached thereto.

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Upon such a finding of fact the learned arbitral tribunal came to the conclusion that the demised premises would require to be divided by putting up dividing walls to make the fire escape passage which would result in partitioning the premises and render it unsuitable for the licensee. Besides it is contended that the passage so created had to be left open for use of all persons and hence could not be locked by the respondent.

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It is upon these facts that the question of misrepresentation which is a question of fact, the question of frustration of the contract because the licensee could not get one consolidated

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premises as a whole which was to be licensed to it and the question of illegality if the licensed premises was used as was expected but not as per law was considered.

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The aforesaid evidence, oral and documentary, considered by the learned arbitral tribunal would determine the misrepresentation which cannot be gone into by this Court as a finding of fact. (See Gopal Bhaurao Jape Vs. Jagannath Pandit Vasudeorao Pandit Maharaj 1935 AIR Bombay 326). The question of frustration of contract has been considered on the footing that the licensee failed to get what it expected and what was shown to it as a licensed premises. If the licensed premises turned out to be what was not meant to be and what was not represented to be, the licensee cannot take the premises on license and cannot be forced to keep it under the license.

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It is argued that under Section 56 of the Indian Contract Act, 1872 frustration had to be only by a supervising impossibility which would be an act of neither of the contracting parties. That indeed would be correct if there was a supervening impossibility. (See Nirmal Lifestyle Ltd. Vs. Tulip Hospitality Services Ltd. in Arbitration Petition No. 550 of 2013 of this Court) .

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However it would have to be seen whether the contract would be frustrated even otherwise under Section 56 of the Contract Act which runs thus:

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56. Agreement to do impossible act. – An agreement to do an act impossible in itself is void.

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Contract to do act afterwards becoming impossible or unlawful – A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promiser could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

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Compensation for loss through non-performance of act known to be impossible or unlawful – Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promiser must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise”.

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This is not an agreement to do any impossible acts. It would not fall under the first part of the section.

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It has to be seen whether the contract between the parties would become impossible under the second and third parts of Section 56.

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The licensed premises was meant to be a continuous upon area as reflected in the sketch plan annexed thereto. The object and purport of this sketch plan is to show what the premises contained within this boundaries. The sketch plan would be meaningless if it shows only the 4 walls within which the premises is enclosed. The sketch plan shows none of the passage, chajjas, niche or ornamental place. These have been demarcated in the evidence before the learned tribunal. If the licensee takes the premises as shown in the sketch plan without any demarcation of

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the aforesaid aspects and if the licensee seeks to furnish the premises by making the fit-out to be used as an office expecting it to be a composite whole, it would meet a road block, in the DC rules which it would require to comply with. Under the DC rules a fire escape route as shown in the sanctioned plan would require to be kept free of all encumbrances and unlocked for serving the purpose for which it is meant; escape during fire. It is proposed as to save lives. It would require to be a passage, when fire breaks to lead to a clear exit. It would, therefore, require to be kept clear of all obstacles. If it runs through the premises it would require to be partitioned so that the other part of the premises remained distinct from it. This would take away from the licensed premises the entire area of the passage as also the other less material aspects such as niche, ornamental place chajja. If the licensee sought to use the entire area licensed for its use and occupation it would fall foul of the DC rules requiring a fire passage. Such a user would make the contract illegal. If such a user is not sought or allowed, it would give the licensee a lesser area for its use and occupation. Such area has been seen to be a rather large area of 1980 sq. ft. The licensee had to pay the license fee for the super built up area which was termed as the chargeable area. The licensee agreed to pay license fee for the chargeable area which was 16096 sq. ft though the licensee would have the carpet area of only 11268 sq. ft for its use and occupation. By having the passage etc. the licensee would be paying for 16096 sq. ft. though it would use about 9288 sq. ft of area. The entire agreement showing the use and

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occupation of the demised premises would be taken to be the use and occupation of the premises less the area of the passage as the licensed premises. That is contrary to the written agreement between the parties. Either the agreement between the parties stands frustrated or the licensee would incur an illegality.

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In this case if the licensor who gave the premises on license short of the passage etc which the licensee did not know about (and there is ample evidence as aforesaid which shows its lack of knowledge) and licensor knew that it would be impossible to use the entire premises or that it would be unlawful to use the premises as it was without setting out a passage running through its length, the licensor would become liable to make compensation for the loss suffered by the licensee on account of its non-performance under the third part of Section 56 of the Contract Act by not being able to allow the use and occupation of the premises stated to be the licensed premises.

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Upon such a consideration the learned Arbitrators have concluded that the contract was frustrated; the licensee did not get what was represented or what it knew or had seen or inspected. Upon the fact that the user of the premises could not be used without the passage, the learned Arbitrators considered the illegality of the contract if it would be used without demarcating the passage which would partition the premises which was meant to be used as a whole.

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The user and occupation is implicitly to be in accordance with law. The argument of the petitioner that to be within the parameters of law the respondent must put up the passage as required in the licensed premises is rather impertinent and accordingly unacceptable.

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Hence it is seen that the learned arbitral tribunal has considered all the relevant facts and upon sound reasoning considering the law of contracts come to a very plausible conclusion.

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The reliance upon the judgment in the case of Kotak Securities Limited Vs. Prakash S. Khanolkar in Arbitration Petition No.643 of 2012 which shows complete perversity and which was upon an erroneous premise is misplaced. This is not an award which could be stated to be against public policy or a finding of fact which would shock the Court’s conscience.

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Any which way one looks at the contract between the parties it falls foul of the requirement of the valid contract. It would be a voidable contract upon the misrepresentation. It also runs the risk of being void and illegal. This would be upon its user contrary to the DC rules. The adherence upon the DC rules which is expected to be would put the licensee in a position which it never contemplated whilst entering into the contract.

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It is argued on behalf of the petitioner that whatever be the position at site the respondent herein as the licensee was to pay license fee upon the chargeable area. Hence it would make no difference if the passage falls within the licensed premises. The argument is misconceived. That itself shows the gross difference in the area for use and occupation and the area for which the license fee would be paid. The difference between the super builtup area and the carpet area which was contemplated by the parties would become widened by the incorporation of a passage running the length of the licensed premises admeasuring about 1980 sq. ft.

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It is also argued that the correspondence between the parties would show that the licensee had knowledge that there would be a passage. Whether the contemplated passage was as actually shown in the sanctioned plan or as demarcated before the learned arbitral tribunal on the undemarcated sketch annexed to the license agreement would have to be seen. The annexure showing the columnar statement containing the activities and the remarks is most evasive. Whereas the licensee has required a dedicated fire escape route to be demarcated, the licensor has only stated that it was near left hand side of the lift lobby. The length, breadth, area and extent is neither demarcated, nor shown. The fact that there would be a fire passage could be within the understanding of the licensee. Where it was to be was to be shown in the sanctioned plan before the agreement was entered into and clearly demarcated

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as required. That was not done. The licensee, therefore, would be well within its right to expect and understand that the fire passage would be alongside the wall on only the left hand side of the lift which would have not cause the obstruction that it does by dividing its office premises almost equally lengthwise.

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Even the email dated 11^th June 2008 which is sought to be relied upon by the petitioner shows that the licensor had to provide inter alia designated/dedicated fire escape route with a plan demarcating the same which was not done.

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Reliance is placed upon another email dated 25^th June 2008, a day after the joint inspection of the premises was taken by the parties, the penultimate paragraph of which runs thus:

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“also the site has to be cleared with all the left over debris and passage false ceiling / ducting / electrical conduits / cables is still to be removed”.

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It is difficult to make sense of the grammar. Counsel on behalf of the respondent rightly contended that this should have been put to the witness of the respondent who may have been able to explain that. That having not been done in the trial before the learned tribunal, it cannot be ascertained by the Court under a fresh inquiry.

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Counsel on behalf of the petitioner also showed the letter

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dated 10^th September, 2008 of the respondent licensee addressed to the MMC asking for approval of the fit-out work annexing 11 documents. The approval was not granted. The letter of the BMC dated 8^th October, 2008 shows that the fit-out plan did not tally with the approved plan as the fire escape passage (which was in the approved plan) has been included in the fit-out plan.

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It is contended on behalf of the petitioner that the fact of the fire escape route was known to the respondent long prior to the agreement. The evidence does not bear that out. The evidence showing otherwise has been considered by the learned arbitral tribunal. It is also argued that the termination notice did not make a mention of this breach of the petitioner and only after the two month rent free period, when the first rent was demanded, this contention was taken up by the respondent licensee. Whatever be the initial case, it is seen that with the greatest expedition and as soon as the respondent was called upon to comply with the agreement it sought to terminate it. The respondent is not seen to have used the licensed premises without payment for a long period after which it came out with the explanation that it has. It is the petitioner’s own case that despite the two month period for fit-out, no fit-out was made. This itself would show the inability to perform the contract which the learned tribunal has taken as frustration of the contract under the third part of the aforesaid section.

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Counsel on behalf of the petitioner relied upon the judgment in the case of Govindbhai Gordhanbhai Patel & Ors. Vs. Gulam Abbas Mulla Allibhai 1977 AIR SC 1019 . That was a case where a certain application of the Prant Officer was refused. One of the parties to the contract submitted that the contract became impracticable. It was observed that the order was not of such character as would strike at the very root of the object and purpose of the contract and that the fresh application should have been made because there was no fetter put by the authority to grant the permission after a further application was made. It was held that, therefore, the contract did not become impossible of performance or impracticable. It is argued that if the respondent licensee did not desire the fire escape route running through its office it should have made an application for change of the route. That argument would have held good if the respondent was shown the passage prior to the execution of the contract. The remark of the petitioner was evasive. It does not lie in the mouth of such a party to claim that another party could have some how got through the contract and hence the contract was not impracticable or impossible of performance. Even so such an agreement as in the case of Govindbhai (supra) would fall under the 2^nd part of Section 56 by the contract becoming impossible of performance. It would still not fall within the third part of the section under which the petitioner knew the impossibility of using the premises without the passage and the unlawfulness if it was so used.

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The petitioner would, therefore, become liable to compensate the respondent herein. That compensation would in essence be the cancellation of the very contract to free the respondent of its liabilities and obligations thereunder. Consequently the return of security deposit prayed for by the respondent / licensee herein with interest as granted by the learned arbitral tribunal would be sufficient compensation. As a matter of corollary the counter claim of the petitioner herein would require to stand rejected as the wrongful party to the contract who cannot be compensated in damages.

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Hence the petition is dismissed.

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(ROSHAN DALVI, J.)

M/S Ashapura Developers v. Aditya Birla Retail Limited

Case brief

What is this about?

What did the court decide?

M/S Ashapura Developers v. Aditya Birla Retail Limited

Case brief

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