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TMI Blog2018 (5) TMI 2184X X X X Extracts X X X X X X X X Extracts X X X X ..... . The subject land in question viz Asset Area 3 belong to the Government of India which has been leased to the Air India, who in turn had licensed the same to the respondent for development, who in turn had given it to the petitioner for construction of Five Star Hotel. The term of the license was initially for 26 years and it was renewable for further period of 30 years. The petitioner and the respondent had entered into two agreements namely a) Agreement for Development and b) Infrastructure Development Service Agreement (in short IDSA), both dated 26.02.2010. 3. The learned senior counsel for the petitioner submitted both these agreements were terminated by the respondent on 16.07.2015 on the ground the petitioner had defaulted for three years in payment of the license fee and has also failed to pay the advance development cost amount. 4. Mr. Sandeep Sethi, the learned senior counsel appearing on behalf of the petitioner has primarily raised four grounds to challenge the impugned majority award passed by the learned arbitral tribunal as follows:- a) The termination is not valid in view of the express finding of the learned arbitral tribunal that the respondent was holding ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being a security deposit placed with the respondent for securing the payment of the annual license fee and the said finding is contrary to the terms of article 3.2 of the Development Agreement and hence the impugned award is patently illegal as is in contravention of the express provisions of the contract and is liable to the set aside. 9. To substantiate his arguments, the learned senior counsel for the petitioner has taken me to the relevant provisions of the contract, pleadings as well as the impugned award. It would be apposite to set out the express terms of the contract in regard to the payment of the annual license fee and the security deposit. The said articles are as follows: "DEVELOPMENT AGREEMENT' 2.1 Grant: of Development Rights 2.1.1 DIAL hereby grants to the Developer the exclusive right and authority during the Term to undertake and implement the Project upon Asset Area 3 and in furtherance of the same grants a license to the Developer in respect of the Asset Area 3, as per this Article 2, for the sole purpose of undertaking the Project and Developer hereby accepts such license and agrees to undertake the Project in accordance with the terms and conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year, the License Fee shall be calculated from the date of issue of the letter of award to the successful Bidder. The License Fee shall be exclusive of all taxes (including service tax.), cesses, fees and other charges, which shall all be borne by the Developer, except income tax deductions at source if any, in accordance with Applicable Law. In addition to this License fee and in order to secure the payment of the annual License Fee in accordance with this Agreement, and the performance of all other obligations under the Development Agreement. The Developer hereby agrees to pay to DIAL a sum equal to three times the average aggregate annual License fees for the Term (including the Extended Term) as a security deposit (the "Security Deposit'). The parties agree that for the purposes of as set forth in Annexure B and for the Extended Term the year on year escalation of the License fee shall be assumed to be 5.5%. The Security Deposit shall be paid by the Developer to DIAL in the manner set out hereunder. 6.1.10 The Developer shall be obliged to achieve commercial operations of all permissible Assets on Asset Area 3, within a period of 6(six) years from the Effective Date. Upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to the exercise of rights of substitution by the Developer's Lenders in accordance with the Substitution Agreement provided however the Developer shall not be entitled to any Cure Period for a breach under Article 12.1(xvi) hereof. Provided, that if the default is of the nature specified in Article 13.1 (i) and is cured within the Cure Period, then the payments to be made by the Developer to cure the said default shall attract interest at a rate per annum of 5% above prime lending rate of State Bank of India (or in the absence of State Bank of India's prime lending rate, the highest lending rate applicable to term lending).The default shall not be considered cured unless such interest is also paid within the Cure Period. Provided further, upon the occurrence of any default after the second default, under Article 13.1(i), DIAL shall have the right to issue a Notice of Intent to Terminate. Upon the issuance of Notice of Intention to Terminate, the Developer shall have the right to rectify the breach within a restricted cure period of 15 (fifteen) days of issuance of such Notice of Intention to Terminate. In the event that the Developer fails to cure such event of defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier of the 30th anniversary of the Effective Date of the OMDA or the termination of the OMDA in accordance with the terms thereof or earlier at the option of DIAL No interest shall be payable by DIAL to Developer in respect of the said unspent Advance Development Cost. In the event of termination of this Agreement due to the termination of the Development Agreement for a DIAL Event of Default (as defined in the Development Agreement) or the OMDA for a DIAL event of default or an AAI event of default (as defined in the OMDA) the unspent Advance Development Cost (as on the date of termination) shall be returned to the Developer, free of any interest, on the Transfer Date simultaneously with transfer of Assets by the Developer to DAIL.' 10. After going through the relevant articles, let me refer to the conduct of the petitioner herein. The annual license fee per Article 3.1 (supra) was payable on yearly basis in one tranche on 15th April every year. After the execution of the development agreement on 26.02.2010, the annual license fee for the first year was paid in time. However the annual license fee for the second year was payable on 15.04.2011, but was paid in bits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.2012 admitted its default and requested for some more time to clear its dues. Since the petitioner was in continuous default, the respondent issued yet another cure notice dated 26.03.2015 in terms of Article 13.3 of the Development Agreement requesting the petitioner to remedy the default but yet again the petitioner vide its letter dated 15.07.2015 though admitted its default but did not pay and requested for some more time. 14. The petitioner instead filed a petition under Section 9 of the Act wherein it was permitted to deposit Rs. 60 Crores towards the outstanding dues without prejudice to its rights and contentions but yet again the petitioner deposited only Rs. 5.5 Crores. The said amount was later released to the petitioner herein. The application under Section 17 of the Act filed by the petitioner was also dismissed vide order dated 24.07.2016 wherein the learned arbitral tribunal recorded the petitioner did not pay the annual license fee since 2012. Hence, in petition under Section 9 of the Act the Court found the petitioner to be in breach of the terms and conditions of the agreements. 15. Qua the contention the excess security deposit per Article 3.2 of the Develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proving its entitlement thereto does not arise. 156. The Tribunal has noticed hereto before that payment of Annual License Fees provides for a distinct obligation on the part of the Claimant Non-payment of such Annual License Fees from 2012 till the issuance of notice of termination must be held to be fundamental in nature. By reason of such breaches, the Respondent has been deprived of the principal benefits under the Contract. It cannot be characterized with a mere default in performance of Contract by a party thereto. 157. This Tribunal has furthermore noticed hereto before that the Respondent has served upon the Claimant a Cure Notice in 2012 and only on the request of the Claimant not to act thereupon as it would arrange finances from the financial investors, the said cure notice was not given effect to and the second cure notice was issued only in 2015. 158. In this case, non-payment of Annual License Fees and the Advance Development Cost is admitted. On construction of the Contract as well as in terms of the aforementioned finding; this Tribunal is of the opinion that the Claimant has committed fundamental breach of the terms of the Contract. 161. Non Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder a corresponding obligation to make timely payment of Annual License Fees to AAI from its revenues and thus the Respondent was obligated to comply with the terms of OMDA irrespective of the fact as to whether the Claimant and/or other Developers have been paying the Annual License Fees or not. 186. It is beyond any doubt or dispute that the Claimant did not pay ALF from 2012 onwards resulting in termination of the Contract. 187. No such case was made out at any point of time even after issuance of its letter 29.03.2013. Despite issuance of such a notice the Claimant did not repudiate the Contract nor did it issue any 'cure notice' against the Respondent. The Claimant did not invoke the 'dispute resolution clause' contained in the Contract. This aspect of the matter shall be dealt with a little later. It not only did not repeat its, allegations in any of its subsequent letters, but therein also accepted its liability to pay ALF. 188. In other words, the Claimant, save and except in aforementioned letter dated 29.03.20l3, never denied or disputed its liability to pay the Annual License Fees. On the other hand, it repeatedly requested for extension of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h advance development charges and the refund was only in an event of the advance development cost being unused and that too on 30th anniversary of the Operation, Management and Development Agreement (ODMA) dated 04.04.2006 i.e. in the year 2036 (which event had not occurred.) 23. Hence, the findings of learned tribunal viz. the petitioner is liable to pay the balance of the advance development cost of Rs. 20 Crores is strictly based upon the terms of the agreement as also upon admission of the petitioner that it is liable to pay the same per its own letter dated 25.05.2015. Further no relief in respect of advance development cost or its refund was ever claimed prior to termination of agreement or before the learned tribunal. It is duly recorded by learned tribunal in following paras of award :- "152. It is pertinent to note that the Claimant in its Statement of Claim has also not sought any relief against the Respondent in respect of return of the purported excess developmental cost payable by the Respondent to the Developers in term of the Contract. xxx xxx 214. The Claimant at all material times and even before the Tribunal was ready and willing to pay not only the Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming interest under the Interest Act)'. 27. The learned senior counsel for the petitioner relied upon South Eastern Coalfields Limited vs State of MP and Others (2003) 8 SCC 648, which notes:- "29. Once the doctrine of restitution is attracted, the interest is often a normal relief given in restitution. Such interest is not controlled by the provisions of the Interest Act of 1839 or 1978.' 28. And Union of India vs Tata Chemicals Limited (2014) 6 SCC 335, where the Supreme Court observed:- "38. ....... The obligation to refund money received and retained without right implies and carries with it the right to interest. Whever money has been received by a party which ex ae quo et bono ought to be refunded, the right to interest follows, as a matter of course.' 29. And Gopesh Mehta vs Swift Initiative Private Limited 2017 SCC OnLine Del 8337, where this Court noted :- "16. However in the facts and circumstances of the present case, denial of pre-suit interest to the plaintiff appears to be inequitable. It cannot be lost sight of that the defendant, inspite of showing the sum of Rs. 50 lakhs as payable to the plaintiff in the balance sheet, took a false stand before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that since the ONGC case (supra) and Three Circles case (supra) related to awards under the Arbitration Act, 1940, they can be of no assistance in interpreting subsection (7) of section 31 of the Act, 1996. I concur with the above reasoning to show the inapplicability of the ONGC case (supra) and the Three Circles case (supra) to the present case. 33. I may here also refer to Article III clause 3.24 of the agreement and it read as under : Article III 3.2.1 xxx xxx. 3.2.2 xxx xxx. 3.2.3 xxx xxx 3.2.4 The Parties further agree that DIAL shall not be liable to pay any interest on the Security Deposit.' 34. The learned senior counsel for the petitioner then argued the annual license fee has been awarded beyond the period of the termination. Indisputably, the date of the termination of the contract is 16.07.2015, but it is argued the learned arbitral tribunal awarded the annual license fee of Rs. 56.68 Crores from 15.04.2012 to 16.07.2015 and further the annual license fee of Rs. 56.68 Crores from 15.09.2015 to 24.07.2016; and the advance development cost is also awarded from 26.02.2011 till 16.07.2015 to the extent of Rs. 20.07 Crores with interest on it from 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular manner as set out by the terms of the contract. Further a letter dated 25.05.2015 written by the petitioner to the respondent admits the petitioner would pay the annual license fee for the year 2014-15 and 2015-16 along with pending advance development cost of Rs. 20,07,50,000/- by 25.02.2017. Hence, at this stage it would be out of place for the petitioner to challenge the award on advance development cost. 38. Even the learned arbitral allowed interest only till July, 2016 (i.e., the date of order under Section 7 of the Act) because of the inability of the respondent to use the land due to the conduct of the petitioner herein. The learned arbitral tribunal rather reduced the interest after the date of the termination and rather acted on the equity. In this context the paras 180 and 182 to 188 of the award are material. "180. In view of the clear and unambiguous admission made on the part of the Claimant vide several emails and letters, as indicated heretobefore, as also by its conduct, the Tribunal is of the opinion that the Claimant is estopped and precluded from raising any plea that no ALF or ADC was payable to the Respondent. Such a stand taken by the Claimant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her award on 08.09.2017 wherein it awarded the costs of Rs. 84.72 Lac and stated that this order shall form part of the earlier award and as such it was argued that since the award is beyond the statutory period, it needs to be set aside. 40. The arguments of the petitioner is totally misconceived since in the instant case the award both majority and minority were made on 27.06.2017 in the presence of all the parties after due notice to them. It was prior to the expiry of extended period of 06 months which rather came to end on 30.06.2017. Since the fee of learned tribunal was outstanding so vide order dated 27.06.2017 it exercised a lien on the award. Hence only the delivery of the award was withheld per Section 39(1) of the Act. In its order dated 08.09.2017, the learned tribunal did not adjudicate the interse rights of the parties in relation to the project agreements which were subject matter of the arbitration but merely vacated the lien on the award. Hence the petitioner cannot be allowed to take advantage of its own wrong since the fee of learned tribunal was merely paid by the respondent. 41. A bare perusal of award would reveal the arbitral tribunal has examined all the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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