M/s Rohtas Projects Limited and others vs. M/s Decathlon Sports India Private Ltd.

Allahabad High Court has announced a very analytical and detailed judgement in the case of M/s Rohtas Projects Limited and others Vs. M/s Decathlon Sports India Private Ltd. where in the Petitioner has filed petition under Article 227 of the constitution of India, challenging the validity of an order dated 15.07.2022 passed by the sole arbitrator in the arbitration proceeding invoked by the Petitioner against Respondents. The Arbitrator vide his above referred order allowed the application filed under section 16(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) and dropped the Arbitration proceeding for the want of jurisdiction. 

Facts of the case:

Facts of the case is as follows

• The Insolvency and Bankruptcy code, 2016 – Section 14 – Stay of proceeding during Period of Moratorium:

Petitioner submitted that the Respondent in his application under section 16(2) of the Arbitration Act has prayed stay of the proceedings, as per moratorium imposed on the institution of any proceedings as per Section 14 of the IBC. However, the learned Arbitral Tribunal has committed an error in dropping the proceedings, instead of staying the same till lifting of the moratorium. Further, moratorium has already seized to be in force with effect from 13.12.2021 i.e. prior to passing of the order dated 15.07.2022. Thus the learned Arbitrator was not justified in dropping the proceedings on the ground of moratorium.

• Transfer of Property Act, Section 109

Petitioner submission was as follows

Supreme Court has observed that “ a transferee of the landlord’s rights steps into the shoes of the landlord with all the rights and of the transferor landlord in respect of the subsisting tenancy”[1]. It was submitted that this Section does not require that the transfer of the right of the landlord can take effect only if the tenant attorns to him and attornment is not necessary to confer validity to the transfer of the landlord’s rights.

Rebuttal by Respondent’s Counsel

Lease deed dated 07.04.2017 executed by M/s Rohtas Projects Limited in favour of the respondent no. 1 mentions that the “Lessor” which expression means and includes its successors and permitted assigns. Since the lessor transferred the rights without permission of lessee, the lessee was entitled to hold the monthly rentals of the lessor till execution of proper legal documents. Further, Respondent has already deposited the claimed arrears of rent and other amounts claimed in this regard with NCLT and vacated the premises and these contentions are not disputed by Petitioner.

In this connection the Court also viewed that the proceedings under the IBC have been initiated against the lessor M/s Rohtas Projects Limited. A Resolution Professional has already been appointed by the NCLT, New Delhi. The respondents have deposited the entire arrears of rent and damages etc. in the National Company Law Tribunal and they have already vacated the premises in dispute.

 Hon’ble Court’s observation in respect of section 109

Section 109 provides that if the lessor transfers the property leased, in the absence of a contract to the contrary, the transferee shall possess all the rights of the lessor and, if the lessee so elects, the transferee shall be subject to the liabilities of the lessor as to the property or part transferred. However, in the instant case Clause 19 of the lease deed prohibits transfer of any part of the leased property without prior permission of the lessee. In these circumstances, the rights of the lessor shall not stand transferred to the petitioners by virtue of Section 109 of the Transfer of Property Act. Further, Section 109 makes the transferees subject to all the liabilities of the lessor as to the property transferred, at the option of the lessee. Here the lessee has not exercised this option and in fact lessee has objected to the transfer made in favour of the petitioners in violation of the conditions contained in the lease deed.

Further, the Hon’ble Court also observed that the decision in Ambica Prasad (supra) will not apply to the facts of the present case as the words “in the absence of a contract to the contrary” and “if the lessee so elects”, occurring in Section 109 of the Transfer of Property Act was neither considered nor decided in this judgment. It is settled law that while interpreting a provision of any Statute, any word used by the Legislature cannot be ignored. It is also a settled law that a judgment is an authority for what it actually decides.

• Arbitration and Conciliation ACT, 1996
• Section 7 –Arbitration Agreement

The existence of an arbitration agreement between the parties is the prerequisite for initiating arbitration proceedings. It is observed by the Hon’ble court that the Arbitration clause contained in Clause 23 of the lease deed dated 07.04.2017 has been executed by M/s Rohtas Projects Limited in favour of M/s Decathlon Sports India Private Ltd. (respondent no. 1). However, there is no arbitration agreement between petitioners and respondents.

•  Section 11 –Appointment of arbitrators

The learned Counsel of petitioner had placed reliance on Mayavati Trading (P) Ltd. versus Pradyuat Deb Burman[2], Duro Felguera, S.A. versus Gangavaram Port Ltd.,[3] Vidya Drolia and Others Vs. Navrang Studios[4], wherein the Hon’ble Supreme Court observed that the scope of judicial intervention, as per under Section 11(6-A) is confined to examination of the existence of Arbitral Agreement and is to be understood in the narrow sense. if the validity of the Arbitration agreement cannot be determined on a prima facie. The Rule for the Court is “when in doubt, do refer”.

The Hon’ble Allahabad High Court also stated that as per the Hon’ble Supreme Court the Court has to appoint an arbitrator even if there is a doubt

regarding existence of an arbitration agreement. Thus the appointment of an arbitrator does not require a conclusive finding by the Court that there is an arbitration agreement between the parties.

• Section 16- Competence of arbitral tribunal to rule on its jurisdiction

The Petitioner’s Counsel relied on the decision of Delhi High Court in Surender Kumar Singhal v. Kumar Bhalotia[5] in which court outlined the well settled principles in respect of the scope of interference under Article 226/227 in cases of challenges to orders by an arbitral tribunal including orders passed under Section 16 of the Act. The Court stated that “Following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction. However, Section 16(5) requires that the Tribunal ought to decide the plea. The reference was also made to ONGC Ltd. v. Discovery Enterprises (P) Ltd.[6]

In view of above the Court in the instant case observed that the transfer of property made by M/s Rohtas Projects Ltd. in favour of Petitioners are

in violation of the terms and conditions of lease deed executed by M/s Rohtas Projects Limited in favour of the respondent no. 1 and, therefore, none of the obligations contained in the lease deed dated 07.04.2017 by M/s Rohtas Projects Limited stood transferred to the petitioners, including the right to initiate the arbitration proceeding under Clause 23 of the lease deed. Therefore, there is no arbitration agreement between the petitioners and the respondent no. 1.

In view of the above Court decided not to interfere in the order dated 15.07.2022 passed by the sole Arbitrator dropping the arbitration proceedings for want of jurisdiction, although for different reasons.

[1] Hon’ble Supreme Court in the case of Ambica Prasad Vs. Alam and others: (2015) 13 SCC 13

[2] Mayavati Trading (P) Ltd. versus Pradyuat Deb Burman^[2] (2019) 8 SCC 714

[3] Duro Felguera, S.A. versus Gangavaram Port Ltd., (2017) 9 SCC 729

[4] Vidya Drolia and Others Vs. Navrang Studios: (1981) 1 SCC 523

[5] Surender Kumar Singhal v. Arun Kumar Bhalotia, 2021 SCC OnLine Del 3708

[6] ONGC Ltd. v. Discovery Enterprises (P) Ltd., (2022) 8 SCC 42,

AUTHOR: KESHVANI BEN