THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.166 of 2010 (Dated : 21-11-2011) Between: Citadel Wealth Advisory, (a company incorporated under the Companies Act, 1956) Rep. by its Deputy General Manager (HR) Mr. Hemanth Goparaj ...Applicant A n d Mrs.G.Ramaprabhavathi Street No.15, Himayat Nagar ...Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.166 of 2010 ORDER: This arbitration application has been taken out by the CITADEL Wealth Advisory under sub-sections (5) and (6) of Section 11 of the Arbitration & Conciliation Act, 1996 (“the Act”, for brevity) read with the Scheme for Appointment of Arbitrators, 1996 seeking appointment of an arbitrator for resolution of the disputes that have arisen in respect of Lease Deed dated 19-6-2008. 2(a). The applicant is engaged in the business of financial services and other capital market services. The respondent is the owner of the premises bearing Municipal No.1-98/60, Sri Avenue, Plot No.60, Jaihind Enclave, Mahdapur, Hyderabad- 500 081 admeasuring 2600 sft in the 2nd floor situated at Jaihind Enclave, Madhapur, Hyderabad. The husband of the respondent approached the applicant offering the premises bearing Municipal No.1-98/60 on lease. The applicant agreed to take the semi-finished premises on lease subject to certain terms which were later reduced into writing culminating into a Lease Deed dated 19th June 2008. The tenure of the lease was for a period of three years. The lease period was extendable for a further period on mutual consent. As per the terms of the lease deed, the respondent is required to provide two separate toilets in the floor and 25% parking space for parking vehicles of the applicant company without any extra payment. Since the respondent failed to provide necessary amenities, the applicant issued notice to the respondent informing vacation of the premises. 2(b) Thereupon, the applicant issued a lawyer’s notice on 24.4.2010 calling upon the respondent to pay security deposit amount of Rs.3,00,000/-, Rs.8,50,000/- (lease rental amount of Rs.50,000/- per month paid from 01.9.2008 to 01.01.2010) and Rs.10,00,000/- towards interiors along with interest @ 24% per annum. The respondent issued a reply notice disputing her liability to pay the amount . As per the terms of the lease deed, disputes between the parties are required to be resolved by taking recourse to the provisions of the Act. The applicant issued a legal notice dated 28th August 2010 invoking arbitration clause and proposing Shri S.Bhujanga Rao, District Judge (Retd.) as an arbitrator for resolution of the disputes pertaining to the lease deed. The respondent issued a reply dated 20th September, 2010 disputing the liability. There being no consent from the respondent for the proposed arbitrator, the applicant company has approached this Court invoking the jurisdiction under sub-sections (5) and (6) of Section 11 of the Act, read with the Scheme for Appointment of Arbitrator. 3. The respondent filed counter resisting the application. The counter affidavit, in brief, is as follows: 3(a) Execution of the Lease deed dated 19-6-2008 is not disputed by the respondent. It is further stated in the counter that the applicant himself terminated the Lease deed under notice dated 01.2.2010. The applicant having promised to take the other floors of the premises on lease failed to fulfil its obligations and thereby, the respondent has been deprived of rents for a period of one year in respect of other floors. The respondent has no objection for the applicant in removing interior alterations, if any, made in the premises covered under the lease deed. The respondent demanded the applicant under a notice dated 6-3-2010 to pay a sum of Rs.81,095/- towards rent for the month of February and rents for a further period of three months. As the applicant itself terminated the lease deed by issuing notice dated 01.2.2010, the lease deed is no more in force. For better appreciation, I may refer paras (7) to (9) of the counter, which read as hereunder:- “7. I submit that the allegations of the applicant in its application that I have not provided toilets and did not complete the civil works within 6 months and that the applicant done the interior works and spent a sum of Rs.10,00,000/- basing on my assurance that I will complete the civil works within 6 months are totally false and untenable. The further allegation of the applicant that the applicant agreed to pay the rents even without occupying the premises and paid the said at my request is totally false. In fact the applicant occupied the premises on the date of the execution of the lease deed and did business till it vacated the premises. 8. I submit that in fact the applicant developed evil idea to threaten me for the refund of the advance money, by way of this application. As the applicant did not issue three months notice, I am entitled the rents for a period of three months. 9. I submit that the question of invoking of Arbitration Clause in the Lease Deed does not arise for the reason that the applicant itself terminated the lease and as such the lease is no longer in force at the time of issuance of notice by the applicant for invoking the Arbitration Clause. That apart the Arbitration Clause in the lease deed is not in accordance with the provisions of Arbitration and Conciliation Act. That apart there is no dispute whatsoever between me and the applicant to be decided by the Arbitrator, in view of the fact that the applicant itself terminated the lease without raising any dispute, by its notice dated 01.02.2010.” 4. Heard learned counsel appearing for the applicant and learned counsel appearing for the respondent. 5. Learned counsel appearing for the applicant contends that the respondent having undertook to provide certain amenities in the leased premises failed to fulfil her obligations and consequently, the lease deed came to be terminated. The applicant demanded the respondent for return of the security deposit of Rs.3,00,000/- and various other amounts. A further submission has been made that the respondent disputed her liability and made a counter claim and thereby, disputes arose between the parties. As per Clause (20) of the lease deed, the disputes between the parties are required to be resolved by way of arbitration. Learned counsel refers Clause (20) of the arbitration clause in the lease deed, which reads as hereunder:- “ This agreement will be governed by Indian Law. Any dispute between the parties with regard to this agreement or the subject matter thereof, including existence and validity of the agreement will be settled by arbitrators under the provisions of Indian Arbitration and Conciliation Act, 1996. The arbitration will be conducted in the City of Hyderabad and each party will be entitled to one arbitrator each. The two arbitrators will choose an umpire for the arbitration proceedings. The proceedings shall be conducted in English. The arbitration award is final and binding on both the parties.” 6. Learned counsel appearing for the respondent contends that since the applicant itself terminated the lease, it cannot place reliance on any of the terms of the lease deed and in which case, the arbitration clause in the lease deed shall stand perish. He would also contend that had the respondent not demanded Rs.3,81,095/- under reply notice dated 20-10-2010, the applicant ought not to have raised any issue for arbitration. In a way, his contention is that the applicant invoked arbitration clause to avoid the payment of amount demanded by the respondent in the reply notice dated 22-10-2010. 7. I do not see any substance in the contention advanced by the learned counsel appearing for the respondent in view of the decision of the Supreme Court in Branch Manager, Magma Leasing and Finance Limited v. Potluri Madhavilata[1], wherein it has been held that merely because the contract has come to an end by its termination due to breach, the arbitration clause does not perish nor is rendered inoperative rather it survives for resolution of the disputes arising under or in connection with the contract. 8. The applicant has made certain claims in the notice dated 24-4- 2010 and whereas the respondent in her reply made a counter claim against the applicant. The relevant portion of the reply notice reads as hereunder:- “.....Further your client has not specified the time and date of vacation of the premises. Further you and your associated persons have orally promised that you would also take the entire building for your office requirement. Thus believing your word we have not lease out the other floors and thus we lost valuable rent for a period of one year. I was of the fond hope that you would take the entire building on lease, but to my surprise, you have issued a vacation notice without following the termination clause of our lease agreement. Due to your high handed and negligent attitude in dealing with the Lease agreement, we are put to huge amount of pecuniary and non-pecuniary losses. The following amounts are due from you. Rent due for month of February 2010 Rs. 50,000/- Rent for notice period of three months Rs.1,50,000/- Enhanced rent due @ 4.5% from Sept. 2009 to Jan,2010+4 months Rs. 20,250/- Electricity Bill @ 130 units X 6.50 As on date Rs. 845/- Flooring Damage Rs.1,50,000/- Labour charges for removing the interiors Rs. 10,000/- _____________ Rs.3,81,095/- _____________ You are liable to pay me the above amounts. I therefore call upon you to pay me a sum of Rs.3,81,095/- within 15 days from receipt of this notice as otherwise I will be constrained to appropriate security deposit amount towards the above dues and sue you in the appropriate court of law for recovery of balance due amount and without further notice to you. I submit that on issuance of said reply, your client has summoned me to his office for discussions. My husband attended the meeting. Your client persisted for refund of security deposit. Since your client has damaged the premises and since various losses and expenditure have to be incurred for repair and renewals amount to Rs.3,81,095/- and thus we were constrained to appropriate the security amount”. 9. A reading of the notices exchanged between the parties indicates that both have claims against each other and thereby, disputes arose. As per clause (20) of the Lease Agreement, the disputes are required to be resolved by way of arbitration. In that view of the matter, the applicant made out a valid ground for appointment of arbitrator for resolution of the dispute relatable to Lease Agreement dated 19-6-2008. 10. Accordingly, the Arbitration Application is allowed appointing Sri A.P.Bhanje Deo, a retired District Judge as arbitrator. The arbitrator is at liberty to fix his own fee. No costs. _____________________ B.SESHASAYANA REDDY, J Dt.21-11-2011 RAR [1] (2009) 10 SCC 103