IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.8.2010 CORAM THE HON'BLE MR. JUSTICE P.JYOTHIMANI Application No.3633 of 2009 ORDER This application is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for brevity, "the Act") for a direction against the respondent to furnish security for a sum of ` 1 Crore, failing which to attach the property described in the schedule. 2.1. The respondent company, which has proposed the development of a property situated at Navaloor Village into an IT Park in the name of Pacifica Tech Park with office and commercial spaces, and the applicant, on negotiation, have entered into a lease deed dated 18.1.2008, by which the applicant agreed for taking on lease a super built up area of approximately 24513 sq.ft. in the ground floor of the building bearing No.GF-1 for nine years to run a Food Court named "Planet Yumm". The said lease deed was entered based on a Term Sheet dated 23.10.2007. The portion of the lease, as stated above, also included 5 car parks in the basement/stilts and the initial period of lease was three years. It is stated that the commencement of lease is based on the completion of construction by the respondent and obtaining Completion Certificate and to meet the condition of a minimum 5000 number of employees in the IT Park. 2.2. Even though lease was to commence on 15.4.2008 and subsist till 15.4.2011, there is no actual commencement of lease due to the reason that the respondent company has not performed its part of the obligation. According to the applicant, the applicant was not given possession of the portion. It is the case of the applicant that the applicant is entitled to take possession only after the Completion Certificate is obtained by the respondent from the competent authority and such completion certificate has not been obtained by the respondent and there is no intimation about the same. It is the case of the applicant that the obligation of the applicant to pay rent has also not come into effect due to the above said reason and in view of the fact that minimum 5000 number of employees guaranteed by the respondent are not available, according to the applicant, there is a violation of the terms agreed in that regard. 2.3. It is stated that the applicant company has deposited ` 1 Crore towards the Interest Free Security Deposit in the following manner: (a) a sum of ` 25 Lakhs on 27.10.2007, and (b) a sum of ` 75 Lakhs on 13.2.2008, both by cheques. It is the case of the applicant that since the respondent has failed to perform its part of the obligation, the respondent is under an obligation to return the deposit amount and the respondent is deliberately not giving effect to the lease. According to the applicant, there is a violation of express and implied terms of contract and for more than two years possession has not been handed over, while the respondent is enjoying the deposit amount. It is stated that the respondent has refused to return the advance amount. 2.4. It is stated that the respondent has claimed rent from 15.7.2008 to 14.8.2008 vide invoice dated 31.7.2008, which was replied by the applicant on 31.7.2008 stating that the IT Park is not functional and there are only meagre 300 people working, while the agreed minimum number of persons is 4000, and therefore, according to the applicant, the lease only remains in paper and has not been given effect to and the respondent has flouted the spirit of the contract by frustrating the object in not providing facility of reaching minimum 5000 numbers to run the Food Court. 2.5. It is stated that as per Clause 37 of the lease deed, when a dispute arise, the parties have agreed to refer the dispute to a Sole Arbitrator to be appointed by the applicant and the respondent and according to the applicant, the applicant is taking steps to initiate arbitration proceedings for recovery of the amount. 2.6. It is stated that the lease deed was entered at Chennai, the deposit amount was made at Chennai and the applicant has issued a notice on 18.7.2009 calling upon the respondent to refund the Interest Free Security Deposit and since the same has not been complied with, the present application is filed for a direction as stated above. 3.1. In the counter affidavit filed by the respondent, it is stated that while the respondent was developing the IT Part at Navaloor Village, the applicant had approached for grant of lease for Food Court area in the ground floor measuring 24513 sq.ft. to carry on the business of the Food Court in the name of "Planet Yumm" and that was reduced into a Term Sheet dated 23.10.2007 and as per the clause in the Term Sheet, the lease was for a period of three years with effect from 15.4.2008 and pursuant to that, the lease deed was entered on 2.1.2008. Therefore, the Term Sheet along with the lease deed form part of the documents between the parties. 3.2. It is stated that as per the Term Sheet, the lease commences on 15.4.2008 and even prior to the execution of the lease deed, the respondent has obtained the Completion Certificate on 2.3.2007 and therefore, according to the respondent, the applicant is liable to pay rent with effect from 15.4.2008. It is stated that the Term Sheet is clear that the lease charge is to be paid from 15.4.2008 irrespective of whether the permission for carrying out interiors and/or whether the interior fit outs/works are completed or not. 3.3. It is stated that the applicant is liable to pay monthly rent at ` 24/- per sq.ft. for 24513 sq.ft. and as a matter of concession, the respondent has allowed the applicant to pay at the rate of ` 13/- per sq.ft. for 24513 sq.ft. till the headcount in the respondent's IT Park reaches 5000. Therefore, according to the respondent, the applicant is liable to pay rent at the rate of ` 13/- per sq.ft. from 15.4.2008 and it is stated that the payment of rent is not subject to the precondition of facility to have headcount of 5000 in the respondent's IT Park. 3.4. It is stated that the refund of interest free security deposit by the respondent is possible only when the applicant surrenders possession on expiry of the term of lease or on earlier termination of lease as per the terms of the lease. It is stated that as per the Term Sheet and Clause 33(f) of the Lease Deed, the parties have agreed not to terminate the lease for three years with effect from 15.4.2008 and in the event of such termination before the expiry of the lock-in period by the applicant, the respondent is entitled to deduct from the Interest Free Security Deposit, the sum payable on account of the Term Sheet and the Lease Deed for the unexpired portion of the lock-in period. 3.5. It is stated that the lease has been in operation from 15.4.2008 and the applicant has failed to pay rent as per the terms of the Lease Deed and therefore, the applicant is liable to pay interest at the rate of 18% for the first 90 days and at the rate of 22% for the period after 90 days. 3.6. According to the respondent, in spite of the respondent having completed its part of the obligation, the applicant has defaulted in not registering the lease deed. It is also stated that apart from the liability of rent to be paid by the applicant from 15.4.2008, the applicant is liable to pay Interest Free Maintenance Security Deposit of ` 5,44,102/- and there is a total amount of ` 1,35,39,862/- payable by the applicant to the respondent. It is stated that the applicant has not taken any step to commence arbitration proceedings since July, 2009. 4. The applicant has chosen to file a reply affidavit controverting the contents of the counter affidavit, especially reiterating that the respondent is in possession and enjoyment of the premises and therefore, the respondent is not entitled to claim rental charges. 5.1. It is the contention of the learned counsel for the applicant that the condition precedent for commencement of lease is the Completion Certificate, which has not been obtained by the respondent and furnished to the applicant, and therefore, the lease has never commenced and it is the duty on the part of the respondent to return the Interest Free Security Deposit of ` 1 Crore, for which a notice was given on 18.7.2009. 5.2. It is the contention of the learned counsel for the applicant, by referring to various provisions of the agreements, that as there was no actual commencement of the lease, the applicant has terminated the agreement on 30.7.2008, since by the conduct of the respondent, the contract has been frustrated. 6.1. On the other hand, it is the contention of the learned counsel for the respondent that the production of the Completion Certificate was not a condition precedent for the lease, since the Completion Certificate was obtained on 2.3.2007 itself, even before the Term Sheet was entered between the parties. It is his contention that the clause in the agreement stipulating an obligation on the part of the respondent to obtain Completion Certificate is only a formal clause and in fact, in respect of providing of 5000 employees, the agreement also contains a clause stating that till 5000 employees are provided, a lesser amount of ` 13/- per sq.ft. has to be paid by the applicant as lease charge and after providing 5000 employees, the lease charge should be paid at the rate of ` 24/- per sq.ft. 6.2. It is also his contention that as per the Term Sheet and Lease Deed, there is no termination of lease for three years with effect from 15.4.2008 and in the event of such termination before the expiry of the lock-in period by the applicant, the respondent is entitled to deduct from the Interest Free Security Deposit, the sum payable on account of the Term Sheet and the Lease Deed for the unexpired portion of the lock-in period. It is submitted that while the lease has commenced in January, 2008, the applicant has chosen to terminate the lease only in July, 2009 and if really no business of the applicant was started, the applicant would have terminated the lease even much before. 6.3. It is his contention that for the reasons best known the applicant was unable to carry on his business and therefore, having committed breach by himself, the applicant has filed the present application for refund and the applicant has not taken any effective steps for commencement of arbitration proceedings. 6.4. It is his submission that even for an attachment order as per Order 38 Rule 5 of the Code of Civil Procedure (for brevity, "the CPC"), there must be an averment that the respondent is trying to go away from the jurisdiction or there is any misappropriation and in the absence of any such pleading, the applicant is not entitled to refund. It is submitted that the respondent is financially sound and therefore, the question of furnishing security does not arise. He would rely upon the decisions in Cholamandalam DBS Finance Limited v. Sudheesh Kumar, [2010] 2 MLJ 448 and HMA Data Systems Private Limited v. SSI Limited, [2009] 5 MLJ 1174 and submit that there is no dispute in existence as on date. 7. The present application has been filed for an interim measure under Section 9(ii) of the Act for a direction to furnish security. Under Section 9(ii)(b) of the Act, a party to an arbitration agreement, either before or during the arbitral proceedings or after the arbitral award but before enforcement, can apply to a Court towards interim measure for "securing the amount in dispute in the arbitration" or for such other interim measure of protection as may appear to the Court to be just and convenient. 8. On the facts of the present case, it is seen that for the purpose of running a Food Court in the IT Park created by the respondent, based on a resolution passed by the applicant company resolving to take on lease approximately an extent of 24513 sq.ft. in the ground floor of the premises at Navaloor Village belonging to the respondent for operating a Food Court, a Term Sheet was entered as a preliminary contract between the parties on 23.10.2007. 9. The Interest Free Security Deposit of ` 1 Crore, as per the Term Sheet dated 23.10.2007, was agreed to be paid in the following manner, viz., ` 25 Lakhs to be paid on the date of signing of the Term Sheet, which has been admittedly paid, and another ` 75 Lakhs within one month from signing of the Term Sheet and admittedly, the said amount has also been paid. The payment schedule as per the Term Sheet contemplates that within 120 days from the date of signing of lease, the applicable stamp duty, registration charges and Interest Free Maintenance Security deposit of ` 5,44,012/- is to be paid by the applicant and in case of such delay in payment, the Term Sheet contemplates the payment of interest at the rate of 18% for the first 90 days after the due date and for the period exceeding 90 days, an additional penal interest at the rate of 4% over and above 18% was agreed. 10. Clause 22 of the Term Sheet provides for lock-in period and termination to the effect that both the applicant and respondent, being lessee and lessor respectively, have agreed not to terminate the lease and vacate the demised premises until expiry of the first three years of the Lease Deed. The following is the operative portion of the said clause: "22. Lock-in-period and Termination: The intending Lessee and Lessor hereby agrees not to terminate the Lease and vacate the Demised Premises until expiry of first three years of the lease Deed from the date of execution of Lease Deed (hereinafter referred to as the "Lock-in-Period"). In case, the intending Lessee terminates the lease of the Demised Premises prior to the expiry of Lock-in Period, then the intending Lessee agrees to be liable and hereby authorizes the intending Lessor to deduct from the deposits lying with the intending Lessor the entire rent and other sums due and payable under the Term Sheet/Lease Deed for the unexpired portion of the Lock-in period...." 11. The Term Sheet also contains arbitration clause in Clause 23 to the effect that the disputes shall be settled by a Sole Arbitrator appointed by the intending Lessor, namely the respondent, for which the applicant, viz., intending Lessee, shall not have any objection. 12. It is not in dispute that subsequently Lease Deed was entered on 18.1.2008 and it is also a common ground that even as on date, the registration of lease deed has not been effected and it is not even the case of the applicant that as per the Term Sheet the Interest Free Maintenance Security Deposit of ` 5,44,012/- has been paid. 13. In the Lease Deed dated 18.1.2008, the contents of which are admitted to include the terms of the Term Sheet, it is specifically stated as follows: "The Lessee (applicant) further confirms that it has obtained all pre-requisite sanctions, approvals, licenses, from all the Statutory/competent Authorities which may be necessary for start- up/commencement of its business in the Demised Premises. Upon assurances of the Lessee (applicant) that it shall strictly abide by the stipulations contained in this Deed, the Lessor (respondent) has agreed to give on lease to the Lessee (applicant) the Demised Premises on the terms and conditions recorded herein." 14. Clauses 1 to 4 of the Lease Deed, which speak about lease tenure and lease rent, are as follows: "Lease Tenure and Lease Rent: 1.That the Lessor hereby grants lease to the Lessee and the Lessee takes on lease for a period of three years for an Super Area of 24,513 sq.feet approximately located on Ground Floor in the said Building as more particularly described and as per the plan enclosed and marked as Annexure-II along with 5 car parks in the basement/stilts to carry on the business of Food Court under the Branch Name/Trade Name of Oriental Cuisines together with the right only to use the common areas in the said Building/said Plot among with other Lessees/occupants in the said Building. The Lessee shall, however, have the option to renew the lease for two further terms of three years each on the same terms and conditions, but subject to an increase in rent, as provided in Clause-4 hereunder. At the time of each renewal, fresh lease deed or deeds, as the case may be, shall be stamped, executed and registered between the parties hereto. 2.That, the Lessee shall take possession of the Demised Premises on its own or through its authorized representative after the Lessor obtains the completion certificate from competent authorities failing which the Lessor shall forfeit the entire deposit amount as mentioned hereunder and paid by the Lessee to the Lessor and in that event, the Lessee shall be left with no right or interest in the Demised Premises. 3.That the Lessor shall charge and the Lessee shall pay a monthly rent and charges on account of electromechanical equipments installed in the building calculated at the rate of Rs.588,312 per sq.ft. per month of the super area of the Demised Premises of 24,513 sq.ft. (Rate/sqft/month=Rs.24) with effect from the date of grant of the Completion Certificate. The Super Area is described in Annexure- III. The monthly rent & electro-mechanical charges exclude the service tax extra, payable by Lessee. 4.The rate per sqft as per clause no.3 would be applicable only when the personal strength of the Lessor's facility (Pacifica IT Park) reaches 5000 in number until which the rental rate per sqft alone would be at Rs.13/sqft/month on the chargeable area of 24,513 sqft. 15. It is no doubt true that as per Clause 2, the Lessee should take possession of the demised portion after the Lessor obtains the Completion Certificate from the competent authorities. Of course, there is no obligation on the part of the respondent (Lessor) to forward the Completion Certificate. However, a reference to the order of the Commissioner of Panchayat dated 2.3.2007, which has been produced in the type set of papers, shows that the authority competent to issue the Completion Certificate for construction of the building has issued a No Objection Certificate, the operative portion of which is as follows: "..... mjid bjhlh;e;J nkw;go jfty; bjhHpy; El;g g{';fh fl;ol';fs; fl;o Kof;fg;gl;Ls;sij nehpy; brd;W Ma;t[ bra;jjpy; fl;ol';fs; tiuglj;jpy; mDkjpj;Js;sthW fl;lg;gl;Ls;sjhy;. ,jid cgnahfg;gLj;j jil VJkpy;iy vdj; bjhptpj;Jf; bfhs;sg;gLfpwJ/" 16. Clauses 3 and 4 of the Lease Deed, read together, indicate that even though the lease rent was agreed at ` 24/- per sq.ft., the said clause is applicable only if the lessor's facility reaches 5000 in number and until that the applicant has agreed to pay ` 13/- per sq.ft. on the chargeable area of 24513 sq.ft. Therefore, the point raised on behalf of the applicant as if the liability to pay lease charge would arise only after the lessor's facility reaches 5000 in number is not correct on the face of the contents of the agreement. 17. The Lease Deed in Clause 33(f), which is as follows, also adopts the terms of the Term Sheet that the Lessee shall not terminate the lease until the expiry of 36 months: "33. Termination: (a) to (e) .... (f) That the Lessee shall not have the right to terminate this Lease hereby granted and vacate the Demised Premises until expiry of three years (36 months) from the date of execution of the Lease Deed (hereinafter referred to as "the lock-in Period"). The Lessee agrees that in case the Lessee terminates the lease of the Demises Premises prior to the expiry of Lock-in period, then the Lessee agrees to be liable and hereby authorizes the Lessor to deduct from the deposits lying with the Lessor the entire rent and electromechanical equipments charges and other sums due and payable under this Deed for the unexpired Lock-in Period and other sums due and payable under this Deed on that date. Further the Lessee undertakes to pay the balance, if any, remaining after such adjustment on or before expiry of the notice of termination." 18. A reference to the letter of the applicant dated 30.7.2008, by which the applicant has requested the respondent to return the advance amount with interest at the rate of 18%, especially a paragraph in the said letter which states as follows: "To our surprise, till date only 300 people are working in the Tech Park, and starting out business operations for 300 people is absolutely not viable, and we cannot start our operations unless a minimum of 4000 people are working in the Tech Park." shows that there is no inclination on the part of the applicant to continue the lease on the ground that the people working in the IT Park are only 300 in number, whereas, as per the terms of the Lease Deed, if the Lessor's facility is less than 5000 in number, the lease charge is reduced to ` 13/- per sq.ft., which is otherwise agreed to be ` 24/- per sq.ft. The Lease Deed does not state that in the absence of the targeted number of 5000 people, the Lessee is entitled to go out of the contract. 19. Therefore, prima facie there is no ground to come to a conclusion that the respondent is on the wrong side so as to invoke the jurisdiction of this Court under Section 9 of the Act for passing an order as an interim measure, even though ultimately it is for the arbitrator to decide the same if at all there is any dispute in existence, when the same is referred to the arbitrator as per the arbitral agreement. But for providing an interim measure to secure the amount of the security deposit paid by the applicant to the respondent, certainly a duty is cast on the part of the applicant to prove that the applicant requires protection of its interest in respect of the Interest Free Security Deposit amount. It depends upon the prima facie evidence that the respondent is either not a person of means or the respondent is acting in a manner detrimental to the interest of the applicant in respect of the security deposit, either by attempting to run away or misappropriate the same and so on. The same is the condition required for an order of attachment under Order 38 Rule 5 CPC, which is as follows: "Order XXXVIII  Arrest and Attachment Before Judgment Rules 1 to 4 .... Attachment before judgment 5. Where defendant may be called upon to furnish security for production of property (1) Where, at any stage of a suit, the Court is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him, (a) is about to dispose of the whole or any part of his property, or (b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the decree, or to appear and show cause why he should not furnish security. (2) The plaintiff shall, unless the court otherwise directs, specify the property required to be attached and the estimated value thereof.