Arbitration and Conciliation Act, 1996: s. 11(6) – Appointment of an arbitrator – On facts, issue as regards reference of dispute pertaining to lease deed between the parties, to the arbitrator – Held: Clauses in a lease deed cannot be read and construed in isolation – Lease deed is to be construed as a whole – All disputes between the parties to the lease with regard to renewal and/or nonrenewal, the period of renewal and the quantum of rent would have be decided by the Arbitrator – Issue of arbitrability of the dipsute over non-renewal of the lease is within the realm of the arbitral tribunal/arbitrator – Thus, the Division Bench erred in rejecting the application of the appellant u/s. 11(6) for appointment of an arbitrator – Arbitration clause cannot be rendered otiose by refusal of the respondent State to renew the lease – Thus, the impugned judgment and order is set aside – Appointment of an arbitrator to adjudicate the disputes between the parties.
Allowing the appeals, the Court
HELD: 1.1 The Division Bench erred in arriving at the finding that the arbitration clause could only be invoked if the proposal for renewal was accepted by the lessor, but there was dispute with regard to the period of renewal or there was dispute with regard to the quantum of rent proposed to be paid by the lessee to the lessor. [Para 14][87-D-E]
1.2 Clauses in a lease deed cannot be read and construed in isolation. The lease deed is to be construed as a whole. Clause 4(xiii) has to be read with Clause 3 which clearly provides that the initial term of the lease under the deed shall be a period of 24 years from 1st June 1997 to 31st May 2021 and shall be renewable for such acceptance of the lessee’s offer in terms of Clause 4(xiii). Prima facie, the parties to the lease deed have used the expression “shall” which connotes a command. If the lessee offered its terms for renewal or extension of the lease within the time stipulated in the lease, prima facie the same would have to be accepted. However, if the quantum of rent or the period of lease could not be mutually agreed upon, the same would necessarily have to be referred to arbitration by an Arbitrator to be appointed by the Chief Justice of the Sikkim High Court. [Paras 15, 16][87-C-F, G-H]
1.3 The Division Bench erred in rejecting the application of the appellant under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator. The dispute arising out of non-renewal of the lease is clearly arbitrable. The deed of lease provided “that the initial terms of the lease under this deed shall be a period of twenty four years from 01.06.1997 to 31.05.2021 and shall be renewable for such acceptance of the lessee’s offer in terms of clause 4(xiii) hereinafter”. Clause 4(xiii) provides that the appellant-lessee shall, in the last year of the lease tenure and not later than six months prior to the expiry of the present lease, communicate in writing to the lessor, his terms and conditions for the renewal of the present lease and if the same is accepted by the lessor, then the present lease may be renewed for such further period and on such rent as may be mutually agreed. The arbitration clause cannot be rendered otiose by refusal of the respondent State to renew the lease. The respondent State may have formulated a policy for encouraging self-employment of local youth who are duly qualified and competent to run the hotel. Such policy decision cannot impact an existing agreement with a renewal clause. All disputes between the parties to the lease with regard to renewal and/or non-renewal, the period of renewal and the quantum of rent would have be decided by the Arbitrator. The issue of arbitrability of the dipsute over non-renewal of the lease is within the realm of the Arbitral Tribunal/Arbitrator. [Paras 18, 19][89H; 90-A-E]
1.4 The impugned judgment and order is set aside. An arbitrator is appointed to adjudicate the disputes between the parties. The Arbitrator is requested to complete the proceedings as early as possible preferably within the stipulated period. [Para 20][90-F-G]
Vidya Drolia & Ors. v. Durga Trading Corporation (2021) 2 SCC 1 - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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