: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.969 OF 1999 APPEAL NO.969 OF 1999 APPEAL NO.969 OF 1999 IN IN IN ARBITRATION PETITION NO.107 OF 1996 ARBITRATION PETITION NO.107 OF 1996 ARBITRATION PETITION NO.107 OF 1996 IN IN IN AWARD NO.205 OF 1995 AWARD NO.205 OF 1995 AWARD NO.205 OF 1995 International Airports Authority of India now known as Airports Authority of India ..Appellants. V/s. Hotel Leela Venture Limited ..Respondents. Mr.F.Divetre, Sr.Counsel with Prakash Rajgopal i/b Ms.Rekha Rajgopal for the Appellants. Mr.Francis Mathew, Sr.Counsel with Cyrus Adreshir and C.D.Patel i/b Kanga & Co. for the Respondents. CORAM: D.K.DESHMUKH & CORAM: D.K.DESHMUKH & CORAM: D.K.DESHMUKH & J.H. BHATIA, JJ. J.H. BHATIA, JJ. J.H. BHATIA, JJ. RESERVED ON: 25TH JULY, 2007. RESERVED ON: 25TH JULY, 2007. RESERVED ON: 25TH JULY, 2007. PRONOUNCED ON: 16th August, 2007 PRONOUNCED ON: 16th August, 2007 PRONOUNCED ON: 16th August, 2007 JUDGMENT: (Per J.H.Bhatia, J.) JUDGMENT: (Per J.H.Bhatia, J.) JUDGMENT: (Per J.H.Bhatia, J.) 1. The appeal is preferred by the original petitioner challenging the order in the judgment dismissing the Arbitration Petition filed under Sections 30 and 33 of the Indian Arbitration Act, 1940 to set aside the award dated 27th October, 1994 passed by the learned Sole Arbitrator. 2. Admitted facts are that the petitioner/appellant is International Airports Authority of India, now known as Airports Authority of India. The petitioner is the owner of 29,000 sq.mtr. of land : 2 : situated at Sahar, Bombay in the vicinity of international airport. The respondent was promoted by one Leela Scottish Lace Private Limited (hereinafter referred to as ’Promoter Company’), which held 3219.5 sq.mtrs. of land adjoining the land of the petitioner. The said Promoter Company requested the petitioner for grant of 9,000 sq.mtrs. of land on lease and remaining 20,000 sq.mtrs. of land on licence The land sought on lease was proposed to be used for construction of flight kitchen and hotel while the land proposed to be taken on licence was for beautifying it, for landscaping and for providing a beautiful garden, swimming pools, squash courts, golf course and other recreational facilities. The proposal made by the promoter company by the letter dated 20th May, 1982 was accepted by the petitioner by its letter dated 21st May, 1982. As agreed, about 5,000 sq.mtrs. land was to be used for flight kitchen and about 4,000 sq.mtrs. land was to be used for construction of the hotel. Accordingly, a lease deed dated 12-7-1982 was executed between the petitioner and the promoter company. The lease period was to be 30 years ending on 11-7-2012. The lease deed provided for payment of lease money of Rs.1,80,000/- per annum and in addition to the same, Clause 3A provided as under : "3.A. In addition to the lease money : 3 : mentioned hereinabove as revised from time to time, the lessee shall pay a fixed sum based on his gross turnover as follows: a) 2 percent of the gross turnover from the flight kitchen, plus b) that part of 2% of the gross turnover of the Hotel which the IAAI land area bears to the total area of the Hotel." The above proportion of the gross turnover shall be paid by the lessee quarterly. The said payment shall be made within 30 days of the close of each quarter. 3. Licence agreement dated 2nd August, 1982 was executed between the petitioner and promoter company in respect of remaining 20,000 sq.mtrs. of land for a period of 30 years. The licence was also to end on 11-7-2012 alongwith the lease. Licence fee was to be Rs.2,00,000/- per annum. 4. After the respondent company, i.e., the hotel Leela Venture was promoted by the promoter company, a fresh lease deed dated 19th October, 1983 came to be executed between the petitioner and the respondent for the same 9,000 sq.mtrs. of land, which was the subject matter of the earlier lease deed dated 12th July, 1982. This lease was for the remaining period and was to expire on 11th July, 2012. In terms of this lease, the only difference was that lease money was increased to Rs.2,25,000/- while other terms and conditions continued : 4 : to be the same. 5. Thereafter on 23rd November, 1983, another lease deed of additional 9,000 sq.mtrs. out of 20,000 sq.mtrs. land, which was given on licence, was executed between the petitioner and the respondent. The terms of this lease deed were similar to the terms of the lease deed dated 19th October, 1983. Thus, out of 29,000 sq.mtrs. land belonging to the petitioner, 18,000 sq.mtrs. land was leased out to the respondent while the remaining 11,000 sq.mtrs. land was in possession of the respondent on the basis of licence agreement executed between the petitioner and the promoter company. 6. Shortly after the execution of the lease deeds, by letters dated 9th December, 1983 and 31st March, 1984, the respondent sought clarification from the petitioner to the effect that under both the lease agreements, respondent would be liable to pay altogether 2% of the gross turnover from the flight kitchen and the share in 2% of the gross turnover of the hotel in proportion to the land of the petitioner with the total land of the hotel. However, the petitioner informed the respondent that it was liable to pay 2% of gross turnover separately under each lease agreement and thus, : 5 : the total amount to be paid by the respondent to the petitioner would be 4% of the gross turnover of the hotel as well as flight kitchen. A lot of correspondence took place between the parties from time to time. According to the petitioner, the respondent finally agreed that it is liable to pay 4% of the gross turnover of the hotel in view of the terms of two separate lease deeds. However, by letter dated 3rd April, 1989, the respondent contended that their offer to pay 4% of the gross turnover of the hotel in letter dated 11-11-1987 was in context of the negotiations that were in progress for conversion of the license to lease in respect of remaining 11,000 sq.mtrs. land. In view of the dispute, the matter was referred to the learned Sole Arbitrator. 7. On the request of the respondent, Chairman of the petitioner referred the following point for decision of the Sole Arbitrator by letter dated 5th November, 1992. " The correct interpretation of Clause 3-A of the two Lease Agreements dated 19-10-1983 relating to the payment of a fixed sum based on the gross turnover of the Lessee as mentioned in their letter dated 10th April 1990 invoking the arbitration clause (enclosed)." : 6 : Subsequently by another reference letter dated 2nd April, 1993, the chairman of the petitioner referred to the Arbitration, the following point also for determination and decision. "To determine the amount payable in accordance with the true meaning of Clause 3-A of the two lease agreements and interest thereon and award payment of the said amount." 8. Both the parties submitted their Written Statements, several documents and material before the learned Sole Arbitrator. It was contended by the petitioner that whole of 29,000 sq.mtrs. land including that under licence, should be treated as hotel land for the purpose of proportion of petitioner’s share in the gross turnover of the hotel. After hearing the parties, the learned Sole Arbitrator held that the promoter company had already contributed 3219.50 sq.mtrs. of land on which some hotel was already in existence, and thus, upto June, 1989, the total area of the hotel including 18,000 sq.mtrs. lease land of the petitioner, was 21,219.50 sq.mtrs. The learned Arbitrator also held that the respondent had also taken 4305.50 sq.mtrs. of land on lease from the promoter company on 20th June, 1989 and out of the same 2,001 sq.mtrs. land was used for the purpose of hotel of the respondents and thus, : 7 : from June, 1989, the area of land with hotel 23,220.50 sq.mtrs. It was also held by the learned Arbitrator that the respondent had purchased 2102.28 sq.mtrs. land from Anmol properties on 29th December, 1989 and it was used for parking cars, etc. of the hotel and thus, with effect from 1st January, 1990, the total area of land with hotel was 25322.78 sq.mtrs. It does not include 11,000 sq.mtrs. of the land of the petitioner held by the respondent on the basis of licence agreement. The learned Arbitrator held that the petitioner was not entitled to 2% of gross turnover of the hotel independently under each of the two lease agreements but was entitled to share in 2% of the gross turnover of the hotel in the proportion which the I.A.A.I land (The petitioner’s land) bears to the area of the hotel for three different periods depending upon the amalgamation of land of the respondent with 18,000 sq.mtrs. of land of the petitioner. 9. In view of the findings about the total area of the land of the hotel and the proportion of I.A.A. land, the petitioner was held entitled to 1.70%, 1.52% and 1.42% of the gross turnover respectively for each of the three different periods. The learned Arbitrator accordingly passed an award whereby the respondent was required to pay arrears of the royalty based on the : 8 : share of the petitioner in 2% gross turnover of the hotel with simple interest at the rate of 18% per annum as per lease agreement. The learned Arbitrator observed that the respondent had made some excess payment and the interest on such excess amount would also be at the rate of 18% per annum till the date of adjustment of such excess payment. 10. Being not satisfied with the award, the petitioner filed arbitration petition no.107 of 1996 which came to be dismissed by the learned Single Judge. By the impugned judgment, the learned Single Judge directed that there shall be decree in favour of the petitioner as per the award and the petitioner shall be entitled to recover the amount awarded with 18% per annum from the date of decree till payment. This is subject to the adjustment of the amount already paid by the respondent pursuant to the award. 11. Heard the learned counsel for both the Parties. The learned senior counsel for the petitioner vehemently attacked the award passed by the learned Arbitrator. He contended that 29,000 sq.mtr. land of the petitioner has been used for the construction of the hotel and for other purposes of the hotel. Out of the same, 18,000 sq.mtr. was used for the construction of the hotel and : 9 : remaining 11,000 sq.mtr. has been used for the purpose of development of garden, squash court, golf course, swimming pool, etc., which are necessary to increase the business of the hotel. According to him, 11,000 sq.mtr. land under licence could not be excluded from the petitioners contribution in the hotel land and, therefore, the petitioner would be entitled to get royalty on the basis of total 29,000 sq.mtr land. The learned senior counsel also contended that no land of the respondent was used for the purpose of construction of the hotel and, therefore, question of proportionate share of the petitioner in gross turnover would not arise. According to him, at the most contribution of the respondent in the land used for the purpose of construction of the hotel could be 3219.50 sq.mtrs. on which some part of the hotel was in existence when the land was taken on lease by the promoter company. He contends that the land allegedly taken by the respondent from the promoter company on lease or the land allegedly purchased from Anmol properties could not be amalgamated in the hotel land so as to reduce the share of the petitioner in the gross turnover, without the consent or approval of the petitioner. No such consent of the petitioner was taken. Further, it is contended that the land allegedly taken from the promoter company as well as land taken from the Anmol properties was never used : 10 : for the purpose of construction of the hotel. There was no reason to take land from Anmol properties just to have parking space for the cars because the land of the petitioner itself could be used for the purpose of car parking also. Therefore, that land could not be treated as contribution of the respondent. 12. The learned senior counsel for the petitioner vehemently contended that even though as per the terms of the lease deeds about 5,000 sq.mtr. land of the petitioner was to be used for the purpose of construction of flight kitchen and the petitioner would be entitled to 2% gross turnover of the flight kitchen under each of the two lease deeds, flight kitchen was never constructed and operated. That land was also used for the purpose of construction of the hotel and thus, the petitioner was deprived of 4% of the gross turnover expected from the flight kitchen. Further it is contended that as per the each lease agreement, the respondent was to pay 2% of the gross turnover of the hotel and, therefore, respondent was bound to pay 4% of the gross turnover of the hotel to the petitioner. Even though initially there was some dispute about the interpretation of the clause, the respondent had accepted the interpretation of the petitioner and had agreed to pay 4% of the gross turnover of the hotel to : 11 : the petitioner. The correspondence and the admission by the respondent in this respect has not been considered by the learned Arbitrator. It is also contended that the learned Arbitrator committed error in holding that the respondent had only agreed to pay 4% of the gross turnover subject to condition that the 11,000 sq.mtr. land under licence should be converted into lease land. It is contended that there was no such condition attached to the admission made by the respondent. 13. On the other hand, the learned senior counsel for the respondent strongly supported the award. It is contended that the learned Arbitrator had considered the terms of the contract and the relevant documents. The specific clauses of the lease deed were referred for his opinion. The learned Arbitrator was right in giving his opinion strictly as per the said terms of the contract. It is also contended that the learned Arbitrator has given valid reasons for inclusion of 7322.78 sq.mtrs. of land contributed by the respondents for the hotel in three instalments and, therefore, that land has been rightly included in the hotel land for the purpose of determining share of the petitioner. It is contended that the award can not be set aside merely because alternative view is possible. : 12 : 14. Admittedly, shortly after execution of the lease deeds, a question arose as to how the share of the petitioner in the gross turnover of the hotel was to be calculated. There was lot of correspondence between the parties in this respect while the petitioner was insisting the respondent to pay 4% of the gross turnover from the hotel and the flight kitchen, the respondent insisted that the petitioner was entitled only to share in 2% of the gross turnover in proportion of its land with the total land of the hotel. Admittedly, the respondent did not construct, develop and operate flight kitchen and, therefore, petitioner could not get any share in gross turnover of the flight kitchen, which was expected as per the lease agreements. It will be noted that by the letter dated 11th June, 1987, the respondent had tried to contend that on the basis of proportion of the lease land of the petitioner and the land contributed by the respondent in view of the Clause 3A(b) of the agreements, the petitioner was entitled only to 1.70% of the gross turnover. This was rejected by the petitioner and it insisted for 4% gross turnover as royalty. After a lot of correspondence, the respondent forwarded twelve demand drafts for an amount of Rs.9,61,083/- to the petitioner towards royalty at the rate of 4% of gross turnover of the hotel under protest. By letter dated 6/12th October, 1987, the : 13 : petitioner acknowledged the receipt of the drafts but rejected the protest. By another letter dated 20/21st October, 1987, the petitioner not only insisted for 4% gross turnover for the lease land but also informed the respondent that the licence period for remaining 11,000 sq.mtrs. land has expired on 1st August, 1987 and the occupation over the same had become unauthorised. By the same letter, the petitioner also specifically informed that the request of the respondent for allotment of additional land for flight kitchen could not be acceded to. 15. After receipt of the letter dated 20th October, 1987, the respondent addressed the letter dated 11th November, 1987 informing the petitioner that the respondent was agreeable to the stipulation to pay 4% of the gross turnover of the hotel for 18,000 sq.mtrs. of land leased to the respondent. In the second paragraph of the same letter, the respondent also requested the petitioner to kindly consider the application for conversion of 11,000 sq.mtrs. of land from the licence to lease, which was required to build additional rooms and to make the hotel economically viable. This letter was followed by the letters dated 10th December, 1987 and 16th February, 1988. To appreciate the facts of the contract properly, it will be useful to quote from the : 14 : said letters. Relevant part of letter dated 11th November, 1987 reads as follows: . "In view of the letter no.COM/912/3.3/87/4717 dated 20th October, 1987 from the Chief of Commercial Services, IAAI, we are now agreeable to the stipulation to pay 4% of the gross turnover of the hotel for the 18,000 metres of land leased out to us vide Lease Agreements dated 18th August, 1983 and 12th November, 1983 from the commencement of operations of the hotel." First three paragraphs of the letter dated 10th December, 1987 read as follows: . Please refer to our letter dated 11th November, 1987 wherein we have agreed to the stipulation to pay 4% of the gross turnover of the Hotel ( of 245 guest rooms) for the 18000 metres of land already leased out to us vide Lease Agreements dated 18th August, 1983 and 12th November, 1983. . We would now request you to kindly consider our application for conversion of 11000 sq.metres of land from licence to lease which is required to build the additional 192 guest rooms in the rear block of the hotel. The additional rooms would make the hotel economically viable. . We are willing to pay 4% of the gross turnover of the entire hotel (245 rooms + 192 rooms) to IAAI at the same terms and conditions as the previous agreements." From paragraph 1 of the above letter, it becomes clear that the respondent had agreed to stipulation to pay 4% : 15 : of the gross turnover of hotel, i.e., of 245 rooms constructed on 18,000 sq.mtrs. of land. Besides that in the next paragraph, the respondent requested for conversion of licence to lease in respect of remaining 11,000 sq.mtrs. and the paragraph 3 makes it clear that in consideration of the conversion of the licence to lease in respect of 192 rooms proposed to be constructed on said 11,000 sq.mtrs. also, the respondent was willing to give 4% of the gross turnover. 16. By the letter dated 16th February, 1988 while repeating request for conversion of licence to lease in respect of 11,000 sq.mtr. land, respondent offered 7.5% of incremental gross turnover of the hotel attributable to the extent of use of 11,000 sq.mtr. land. Following portion of the letter is relevant: ...............We would like to confirm that the F.S.I. (F.A.R.) actually utilised for construction will be the basis for the measurement of the area utilised for construction. The licensed Architect will produce the certificate to show the area utilised for construction so that as per our proposal, 7.5% of the incremental gross turnover of the hotel attributable to the extent of the use of the 11,000 sq.mtrs. of land can be paid to I.A.A.I. once the additional hotel block is put into operations. Till Till Till that time, we have already agreed to your stipulation to pay 4% of the gross turnover of the hotel already : 16 : operational wide two lease agreements for 18,000 sq.mtrs. already executed with I.A.A.I." (emphasis supplied) From this letter there remains no doubt that the respondent had already agreed to the stipulation of the petitioner to pay 4% of the gross turnover of the hotel, which was already operational as per the terms of two lease agreements for 18,000 sq.mtrs. Besides this agreed position, the respondent offered 7.5% of the gross turnover attributable to the rooms, which would be constructed on 11,000 sq.mtrs. land proposed to be converted from licence to lease. 17. It is contended on behalf of the respondents that this was only offer to pay 4% of the gross turnover on condition of conversion of licence to lease in respect of the remaining land. The learned Arbitrator accepted this contention and held that as the petitioner had not accepted the proposal of conversion, the respondent is also not liable to pay 4% of the gross turnover. The learned Arbitrator observed that the matter was referred to him only for the purpose of interpretation of the Clause 3A(b) of the contract and on the basis of language of the said Clause, the petitioner could not claim 4% of the gross turnover. The learned Arbitrator observed that the Clause 3A(b) in : 17 : both the agreements being similar, the petitioner could claim only that part of the 2% of the gross turnover of the hotel which the I.A.A.I. (Petitioner’s) land area bears to the total area of the hotel. In view of this language, the learned Arbitrator came to conclusion that with the increase in land proportion will also tilt in favour of the petitioner but the total gross turnover for sharing the profit on the basis of contribution of the land could not be more than 2% of the gross turnover. 18. It appears that the correspondence between the parties was placed before the learned Arbitrator. However, the learned Arbitrator only referred to the letter dated 11th November, 1987 and rejected the contention of the petitioner that the respondent had agreed to pay 4%. The learned Arbitrator observed as follows: . "On a bare reading of the letter dated 11th November, 1987 it is clear that there is nothing in that letter which could be taken as admission as to the true meaning and content of Clause 3-A(b) of the lease. This letter has to be read in the context of negotiations between the parties for conversion of the licensed area of 11,000 square metres to leased area and it was a part of these negotiations that the Claimants expressed their willingness to pay 4% of the gross turnover of the Hotel provided the provided the provided the Respondents converted the remaining 11,000 square metres of land from licence to lease. : 18 : Admittedly, these negotiations have failed as at present and nothing in this letter dated 11th November 1987 can, therefore, be considered as acceptance by the Claimants that they are liable to pay 4% of the gross receipts. In any case, the true meaning of Clause 3-A(b) is itself a matter which has been referred for decision in these proceedings." (emphasis supplied) 19. We have already quoted the relevant three letters in this reference. It appears that the learned Arbitrator did not take into consideration the letters dated 10th December, 1987 and 16th February, 1988. Infact, even in the letter dated 11th November, 1987 there was nothing to show