Summary
The lessee of the State-owned Norkhill Hotel in Gangtok offered renewal terms in time under the 24-year lease, which provided for reference to an arbitrator appointed by the Chief Justice of the Sikkim High Court. The State refused renewal in order to select a lessee through a bidding process. The Commercial Court granted interim protection under Section 9, but the High Court set it aside and dismissed the Section 11 petition. It held the clause applied only to disputes over period or rent after the lessor accepted the offer. Reading the lease as a whole, the Court held the clause prima facie covered disputes over renewal and non-renewal. A refusal to renew, or a later policy, could not render it otiose, and arbitrability was for the arbitrator. The appeals were allowed, an arbitrator was appointed and status quo continued.
Issues
- Whether a renewal clause providing for arbitration failing mutual agreement covered a dispute over the lessor's refusal to renew, or only disputes over period and rent after acceptance.
- Whether the High Court rightly set aside interim protection under Section 9 and rejected the Section 11 petition for want of an arbitrable dispute.
Provisions considered
- Sections 9 and 11(6), Arbitration and Conciliation Act, 1996At the referral stage the court applies only a prima facie test and refuses reference only where the dispute is ex facie non-arbitrable. The dispute over non-renewal was arbitrable, so the High Court erred in dismissing the Section 11 petition, and an arbitrator was appointed. (¶¶ 17, 18, 19, 20)
Held
- A lease deed must be construed as a whole. Clause 3 made the lease renewable on acceptance of the lessee's offer under clause 4(xiii), and the parties used the word shall. Prima facie, a timely offer for renewal had to be considered, and if rent or period could not be agreed the matter had to go to arbitration. (¶¶ 14, 15, 16)
- Following Vidya Drolia, at the Section 11 stage the court applies a prima facie test and interferes only where non-arbitrability is manifest. Arguable questions of arbitrability are for the arbitral tribunal. The High Court erred in confining the clause to disputes after acceptance of the offer. (¶¶ 14, 17, 18)
- The arbitration clause cannot be rendered otiose by the lessor's refusal to renew. A later State policy to select lessees by competitive process cannot affect an existing agreement with a renewal clause. All disputes on renewal or non-renewal, the period and the rent, including arbitrability, are for the arbitrator. (¶ 19)
Result
Appeals allowed and the High Court's judgment set aside. A former Chief Justice of the Gujarat High Court was appointed sole arbitrator, to conclude preferably within three months uninfluenced by the Court's observations. Status quo continues for three months or until the tribunal orders otherwise.