21 August 2024 Arbitration Law >> Business & Commercial Law   |   Lease >> Property & Real Estate  

In the realm of arbitration, the scope of what constitutes an arbitrable issue often becomes a subject of intricate legal scrutiny. This article delves into a recent case concerning the arbitrability of a counter-claim within the context of a lease agreement and related disputes, highlighting the judicial perspectives on such matters.

Background:

The dispute arises from a lease deed executed on March 26, 2021, between M/s AKN Developers Private Limited (hereinafter referred to as the "claimant") and M/s Premsons Southend (referred to as the "counter-claimant"). The lease deed concerned the first floor of Property No. F-39, South Extension Part-1, New Delhi, with a fixed term of three years. The lease stipulated monthly rents of Rs. 3 lakhs for the initial eighteen months and Rs. 3.50 lakhs for the subsequent eighteen months.

The Arbitration Clause:

Clause 6 of the lease deed detailed the procedure for dispute resolution:

1. The parties were to attempt resolving any disputes through mutual discussion.
2. If unresolved within 30 days of a written notice, either party could refer the dispute to a sole arbitrator mutually appointed by the parties.
3. The arbitration was to be conducted in accordance with Indian law and the place of arbitration was New Delhi.

Dispute and Proceedings:

In November 2021, the claimant issued a legal notice alleging that the counter-claimant, who had been running a shop on the ground floor, had defaulted on rent payments for the first floor, which led to a breach of the lease agreement. Following this, a notice for arbitration was issued on December 29, 2021. An arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) was filed by the claimant, which led to the appointment of a sole arbitrator on May 2, 2022.

Counter-Claim and Legal Controversy:

Subsequent to the filing of the statement of claim and statement of defense, the counter-claimant filed a counter-claim on August 3, 2022. The counter-claim was based on allegations of a prior agreement to sell the first floor, asserting that the payments made were towards the purchase and not merely rent. The counter-claimant argued that the lease deed was a device to collect the remaining sale consideration. The claimant challenged the counter-claim under Section 16 of the A&C Act, arguing that the counter-claim was not arbitrable as it involved issues outside the scope of the arbitration clause. The claimant contended that the arbitration clause in the lease deed did not cover disputes arising from an alleged agreement to sell, which was outside the scope of the lease agreement.

Tribunal’s Decision and Judicial Review:

The sole arbitrator, after reviewing the arguments, held that the counter-claim fell within the jurisdiction of the arbitration clause. The arbitrator’s decision to entertain the counter-claim was challenged by the claimant, leading to a review under Article 227 of the Constitution of India.

The challenge was based on several arguments:

1. The arbitration clause was only applicable to disputes directly arising from the lease agreement, not an external agreement to sell.
2. The counter-claim was based on an oral agreement, which was allegedly unenforceable under relevant laws, including the Registration Act and the Evidence Act.
3. Prior judicial precedents indicated that such claims were outside the purview of arbitration.

In contrast, the counter-claimant argued that:

1. The counter-claim was inherently linked to the primary dispute concerning the first floor.
2. The arbitration clause's broad language encompassed any disputes or claims arising from or related to the agreement.
3. Requiring the counter-claimant to seek redress in civil court would lead to unnecessary multiplicity of proceedings.

Court’s Analysis and Conclusion:

The court emphasized that while arbitration clauses must be interpreted to ensure that disputes related to the agreement are resolved efficiently, the scope of what is arbitrable can be broad. In this case, the interconnection between the lease agreement and the alleged prior agreement to sell meant that the counter-claim was integrally related to the primary dispute. The court found that the counter-claim was sufficiently connected to the original dispute. The arbitration clause’s provision for resolving “any disputes/differences or claim arising out of or in relation to this Agreement” was deemed broad enough to include the counter-claim. The court highlighted that any determination of the validity of the alleged agreement to sell and related claims should occur within the arbitral process, not through a separate civil suit. The goal was to avoid multiplicity of proceedings and ensure a comprehensive resolution of all disputes arising from the same set of facts.

Conclusion:

The court concluded that the counter-claim was indeed arbitrable under the existing arbitration clause, dismissing the petition challenging its jurisdiction. This decision underscores the principle that arbitration should address all disputes arising from or related to the agreements in question, ensuring an efficient and consolidated resolution process.

Arbitration and Conciliation Act, 1996