This order dismisses a petition challenging an arbitral award. The Court affirmed the Arbitrator's finding that a Letter of Intent (LoI) was non-binding and that the token amount was refundable upon failure to execute a lease deed.
Petition dismissed; Respondent to be paid costs of Rs. 30,000.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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SONI DAVE & ANR. ..... Petitioners
Through: Mr. Saurabh Prakash, Mr. Parth Kaushik and Mr. Utsav Jain, Advocates.
versus
GODREJ BOYCE MFG PVT LTD ..... Respondent Through: Ms. Surekha Raman, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA O R D E R % 14.08.2019
I.A. 11109/2019 (Exemption)
O.M.P. (COMM) 321/2019, I.As. 11108/2019 & 11110/2019
Brief Facts
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O.M.P. (COMM) 321/2019
The Parties were in discussions for leasing out the aforesaid premises. Consequent thereto, a LoI dated 7th August 2017 was executed whereby it was proposed that the aforesaid property would be leased out to the Respondent. The LoI sets out broad terms and conditions for letting out the premises on lease basis. In terms of Clause 17 of the LoI, a sum of Rs. 5 lacs was deposited by the Respondent with the Petitioners as a token amount that was agreed to be adjusted against security deposit in the event lease was signed and to be refunded in case the lease deed was not executed.
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on other hand contested the claims and raised counter claims to the following effect:
“(a) a sum of Rs.1,56,58,875=00 for the period starting November 2017 (or starting 8th September 2017) till end of July 2018 (or till 7th July 2018) as per Annexure A ;
(b) a sum of Rs.16,58,750=00 per month for the period August 2018 onwards and until July 2019 (or for the period 8th July 2018 onwards and until 7th June 2019);
(c) interest pendent lite @12% per annum;
(d) costs of this petition;
(e) pass such other order as this Hon'ble Tribunal may deem fit in the matter.”
“a. Directing the respondents jointly and severally to pay the claimant the sum of Rs. 5 lakhs with interest at the rate of 12 % p.a. from 12.05.2018 i.e. the, date of filing SoC till the date of realization.
b. Directing the respondents to pay the claimant the sum of Rs. 39,867/- towards the interest at the rate of 15 % p.a. on the said sum of Rs. 5 lakhs from 30.10.2017 to 11.05.2018.
c. Directing the respondents to pay claimant Rs. 1,93,235/towards costs with interest at the rate of 12 % p.a. from the date of the Award till payment.
d. Rejecting the counter claims of the respondents.
e. Directing the respondents to bear their costs.”
Submissions of the parties
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Prakash learned counsel for Petitioners impugns the Award primarily on three grounds. Firstly, he submits that learned Arbitrator has not examined Petitioners’ contention that the words in Clause 17 to the effect “ In case parties do not sign a agreement for any reason whatsoever, the above mentioned amount will be refunded to the Lessee forthwith ” have been inserted unilaterally and clandestinely. He submits that the aforesaid insertion/clause was never agreed to between the parties and could not be relied upon by the Respondent. He submits that the draft of proposed LoI forwarded to the Respondent, on or about 18th July 2017, did not contain the aforesaid clause. Even in subsequent exchange of correspondence, the said clause was not suggested by either party and the last draft of LoI exchanged also did not contain the said Clause. Thus, Petitioners had presumed that apart from agreed changes, the document remained the same as before. The aforementioned changes in LoI were not pointed out by the Respondent’s Officer at the time of signing the same. The same was signed in good faith and execution does not amount to agreeing to clauses that have been introduced surreptitiously. Elaborating this contention, Mr. Saurabh Prakash also refers to the cross examination of Mr. Atul Natu who inter alia, deposed as under:
“Q17 Can you show me any communication whereby either party had suggested this clause?
A The para “we are forwarding this letter ..... for our records” is there in page No. 50 (RW1/3) and 58-59 (RW1/4) of Part-A Vol.II of the Respondent's documents. Rest of the paras were verbally understood.
Q18 What do you mean by saying that the remaining paras were verbally understood?
Page 4 of 11
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A These were discussed during calls with the Respondent.
Q19 I put it to you that the calls with the Respondent were with Mr. Rajat Mathur and not with you and therefore, whatever you are saying is not to your personal knowledge. What do you say?
A The calls with the Respondent were with Mr. Rajat Mathur. and the interactions were then discussed internally.”
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conditions of the proposed lease. It was to be followed by a formal binding document i.e. a lease deed. The terms and conditions provide for refund of the token amount in the event, for any reason whatsoever, parties do not sign the final agreement. The LoI does not contain any condition for forfeiture of the token amount and therefore the learned Arbitrator has rightly rejected all contentions of the Petitioners. The plea raised by the Petitioners that the clause was interpolated and introduced without the consent of Petitioners is completely misleading, frivolous and untenable. When the Respondent insisted upon the refund of the token amount, the Petitioners did not raise such a plea and only contended that the clause cannot be invoked by the Respondent. Later, when the Respondent filed a claim before the Arbitrator, the Petitioner improvised his stand and raised this plea which is completely meritless.
Analysis and Findings
“This Letter of Intent ("LOI") outlines the broad terms and conditions of a proposed letting of said premises on Lease basis and based on which the subsequent definitive legal documentation is to be entered into. This LOI is being executed for the purpose of setting out the broad terms and conditions agreed between the parties on which the Leased Premises (as defined herein after) shall he given by the Lessor to the Lessee. The present LOI is an expression of interest only and is binding
Page 6 of 11
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on both the parties only upon the execution of definitive transaction documents.”
“7. Term
a) Term of the agreement will be for a period of 9 years from the date of execution of the agreement and handover of the possession of the premises (Whichever is later). Out of this period a period of 18 months shall be a lock-in period during which it shall not be permissible the Lessor to terminate the lease.
b) The Lessee shall be liable to make payment towards consumption of water and electricity charges from the elate of physical occupation of the premises on actual consumption basis. Separate meters for the premises to be provided for water and power by the Lessor.
10. Possession of the Leased Premises
The possession of the Leased Premises shall be handed over
Page 7 of 11
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by the Lessor to the Lessee on execution and registration of the Lease agreement between the parties. If required for making measurements and inspection or any other review, before the handover of the premises Lessor shall provide access to the premises to Lessees representatives.
17 Token Amount
A token amount of Rs. Five Lakhs is being paid alongwith the signing of this LoI.
Details of the payment-
1- In favour of –Ms. Soni Dave Amount – Two Lakhs and Fifty Thousand Only DD no- 880628 Date- 4/08/2017 Drawn on bank – Citibank
2- In favour of – G.S Berar & Co. Pvt. Ltd Amount – Two Lakhs and Fifty Thousand Only DD no- 880629 Date- 4/08/2017 Drawn on bank – Citibank
The letter of intent attains validity only with the presence of signatures of both parties and payment of the abovementioned token amount.
The above mentioned amounts will be considered as part of the security deposit and adjusted against the security deposit to be paid to the Lessor.
In case the parties do not sign a agreement for any reason whatsoever, the abovementioned amount will be refunded to the Lessee forthwith.
We are forwarding this letter (in duplicate) duly signed at our end and shall request you to sign both the copies in confirmation of the acceptance by you of its contents. You may retain one copy of the letter for your record and return the other copy to us for our records.”
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meaning which is evident by a plain reading. In this regard, reference can be made to the judgment of the Supreme Court in Novartis Vaccines and Diagnostics Inc. vs. Aventis Pharma Limited [2010 (2) BomCR 317] citing the Supreme Court in M.O.H. Uduman and Ors. v. M.O.H. Aslum (AIR 1991 SC 1020), relating to the construction of the Commercial Contracts wherein it has been held as under:
“It is settled canon of construction that a contract of partnership must be read as a whole and the intention of the parties must be gathered from the language used in the contract by adopting harmonious construction of all the clauses contained therein. The cardinal principle is to ascertain the intention of the parties to the contract through the words they have used, which are key to open the mind of the makers. It is seldom that any technical or pedantic rule of construction can be brought to bear on their construction. The guiding rule really is to ascertain the natural and ordinary sensible meaning to the language through which the parties have expressed themselves, unless the meaning leads to absurdity.”
In the present case, on reading the clauses of the LoI, there can be no doubt that the parties never intended the same to be binding. It only sets out broad terms and conditions which were subject to further negotiations and accordingly the view taken by the learned Arbitrator cannot be faulted with. The grounds of challenge certainly do not come within the purview of amended Section 34 of the Arbitration and Conciliation Act. The other contention raised by Mr. Prakash that the terms and conditions were incorporated clandestinely is ex facie misconceived. Section 91 of the Evidence Act deals with the exclusion of oral evidence by documentary evidence. It provides that when the terms of contract have been reduced in
Page 9 of 11
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the form of a document, no evidence shall be given in proof of the terms of the contract except the document itself. There are certain exclusions provided under Section 92 regarding the evidence of oral agreement. However in the present case, the evidence which has been brought on record, does not in any way suggest that there was any understanding between the parties that is contrary to the intention expressed in the LoI. Therefore, this contention of the Petitioners is also rejected. I find no reason to interfere with the findings of the Arbitrator on the ground that he has not examined the disputes pertaining to clauses that Respondent was seeking to introduce in the lease deed. The Arbitrator could not have decided such disputes. After the execution of the LoI, if the parties engaged in correspondence and suggested certain terms which were never finally agreed to or reduced in writing, the same would certainly not form part of arbitral disputes. There was no occasion for the Arbitrator to go into this aspect, being beyond the terms of the Arbitration agreement. The counter claims raised by the Petitioners were in the nature of loss of rent for the alleged lock-in period provided in the LoI. The contention that in case the lease deed had been executed as agreed in the LoI, Petitioners would have earned rental income is frivolous. The counter claims as noted in paragraph 5 above are bifurcated into two claims, one being the loss of rental income for the period ending July 2018 (the date of filing of the counter claim) and the remaining amount is for the unexpired period of lock-in period. The claims are untenable as there is no lock-in period envisaged in the LoI. The LoI only contains a stipulation that in case the party were to execute a lease deed, the same would have a lock-in clause. Since the lease deed was never executed, the proposed clause in the LoI cannot be read as a lock-in clause. The contention
Page 10 of 11
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is frivolous, misconceived and legally untenable.
SANJEEV NARULA, J
AUGUST 14, 2019 nk
Page 11 of 11
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3 issues framed by the court
Whether the High Court should interfere with the Arbitrator's award on the grounds that the LoI was not the subject matter of the arbitration agreement.
Whether the Petitioners' claim that a clause regarding the refund of the token amount was inserted unilaterally and without consent is legally tenable.
Whether the Petitioners' counter-claims for alleged loss of rent based on a non-existent lock-in period in the executed contract are maintainable.
Colour shows how this judgement treated each authority
Novartis Vaccines and Diagnostics Inc. vs. Aventis Pharma LimitedReferred¶77
Novartis Vaccines and Diagnostics Inc. vs. Aventis Pharma Limited [2010 (2) BomCR 317] · Who else cites this
M.O.H. Uduman and Ors. v. M.O.H. AslumReferred¶79
M.O.H. Uduman and Ors. v. M.O.H. Aslum (AIR 1991 SC 1020) · Who else cites this
3 provisions across 2 enactments
SONI DAVE & ANR.
GODREJ BOYCE MFG PVT LTD
SANJEEV NARULA
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
