THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.8 of 2011 Date:18th April, 2011 Between: Royal Orchid East Pvt. Ltd. …Applicant And Sandhya Hotels Pvt. Ltd. …Respondent *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.8 of 2011 ORDER: This application has been taken out under Sections 11(4) and (6) of the Arbitration and Conciliation Act, 1996, read with Scheme for Appointment of Arbitrators, 1996 by Royal Orchid East Pvt. Ltd., seeking for appointment of arbitrator to adjudicate the claim and disputes, pursuant to the lease agreement, dated 09.02.2007. 2. Background facts, in a nutshell, leading to filing of this application by Royal Orchid East Pvt. Ltd. are:- The applicant is a private limited company incorporated under the provisions of the Companies Act, 1956 and it is engaged in the business of running hotels, restaurants, resorts, cafes and Rest Houses etc. The respondent is the absolute owner and possessor of property bearing No.6-1-1063 and C1, B/4, B/2, 6-1-1063/D/4/1 & 2650 (old) situated at Lakdi-ka-pul, Hyderabad. A lease agreement came to be entered on 09.02.2007 whereby and whereunder the applicant-company took the premises on lease. The respondent received refundable security deposit of Rs.4.00 crores. As per the terms of agreement, the respondent has to return the security deposit on the termination of the lease and in the event of failure to refund the security deposit, it should carry interest at 18% p.a. Until the payment of the security deposit, the applicant-company shall not be obliged to vacate and hand over the possession of the premises. As per the terms and conditions of the lease deed, dated 9.2.2007, the applicant- company shall be entitled to terminate the lease after giving 6 months prior notice and that upon expiry/early termination of the lease, the applicant shall be entitled to remove all furniture, fixtures, fittings, goods, belongings, chattels and other articles. The applicant- company vacated the premises on 28.02.2010 and both parties executed a deed dated 02.03.2010 styled as “Surrender of Lease Deed” registered as document No.383 of 2010 in the office of Sub Registrar, S.R.Nagar, Hyderabad and thereby rescinding/terminating the lease deed dated 9.2.2007. After termination of the lease deed, when the applicant company sought to remove the assets/movables which it had installed in the premises, the respondent prevented from removing the same on the pretext that it is exercising its option under clause 14(b) of the Lease Deed, dated 9.2.2007. The applicant- company has to get Rs.3,09,70,118/- from the respondent since the respondent exercised option. But the respondent paid only Rs.2,38,75,000/-. The respondent promised to pay Rs.2,00,93,464.49 ps. being the value of the said movable/fixed assets along with the refund of balance security deposit amount of Rs.70,95,118/- on or before 10.03.2010. However, the respondent did not keep the promise and failed to pay the amount of Rs.2,71,88,582.49 ps. The respondent started misleading the customers of the applicant company by giving an impression that the hotel on the property is being still run by the applicant even though the applicant has terminated the lease in respect of the property with effect from 28.02.2010. Since the respondent failed to pay the balance amount, the applicant got issued a legal notice on 12.3.2010 calling upon the respondent to pay Rs.2,71,88,582.49 ps. being the amount payable towards the refund of balance security deposit, value of fixed and movable assets belonging to the applicant lying in the hotel premises/property and also to pay a sum of Rs.1.00 crore towards damages. Though the respondent received the notice, failed to comply with the demand nor attempted to give any reply. There being no response from the respondent, the applicant company invoked arbitration clause in the lease deed, dated 9.2.2007 by issuing notice dated 30.8.2010 and nominated Sri Justice A.Gopala Rao, a retired Judge of A.P.High Court as its arbitrator. There being no response to the notice, the applicant approached this Court by invoking the jurisdiction under Section 11(4) and (6) of the Arbitration and Conciliation Act, 1996 read with the Scheme for Appointment of Arbitrators. 3. Notice to the respondent came to be ordered on 25.2.2011 and the applicant has been directed to take out notice to the respondent by registered post with acknowledgement due and file proof of service. In compliance of the direction, the applicant took out notice and filed proof of service. Despite notice being served on the respondent, it did not choose to enter appearance either in person or through a counsel. 4. Heard learned counsel appearing for the applicant and perused the lease deed, dated 09.02.2007 and surrender of leased deed, dated 02.03.2010. 5. Learned counsel appearing for the applicant submits that some disputes cropped up pursuant to the cancellation of the lease deed and the said disputes are required to be resoled by invoking the arbitration clause in the lease deed. Much emphasis has been laid on clause 16 of the lease deed, which deals with the arbitration and jurisdiction. The said clause reads as hereunder: “16. ARBITRATION & JURISDICTION: a) all disputes and differences which may arise between the parties hereto including as to the meaning and effect of this Agreement or any part thereof or in any way related to or pertaining thereto shall be resolved by having recourse to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1966. b) The venue of arbitration shall be Hyderabad.” 6. No doubt the lease deed, dated 09.02.2007, contains arbitration clause, which obligates the parties to resolve their disputes by invoking the provisions of the Arbitration and Conciliation Act, 1966. Indisputably, the lease deed, dated 09.02.2007, came to be cancelled and the surrender of lease deed came to be executed between the parties, on 02.03.2010. Clause 2 of the surrender of lease deed, dated 02.03.2010, reads as hereunder: “02. The parties hereto agree and confirm that they are relieved of their respective obligations under the Lease Deed dated 09.02.2007.” Lease deed, dated 09.02.2007, came to be cancelled and fresh document came to be executed between the parties. The moment the lease deed, dated 09.02.2007, stood cancelled and superseded by surrender of lease deed, dated 02.03.2010, the arbitration clause mentioned in the lease deed, dated 09.02.2007, cease to exist. There is no arbitration clause in the surrender of lease deed, dated 02.03.2010, obligating the parties to work out their disputes by taking recourse to the arbitration. In the absence of such clause in the surrender of lease deed, dated 02.03.2010, the application filed by the applicant is not maintainable. 7. Accordingly, the Arbitration Application is dismissed. No costs. ______________________ B.SESHASAYANA REDDY, J. Date:18th April, 2011. Cs/RAR THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.8 of 2011 Date:18th April, 2011