M/S. Berkeley Lifestyle Brands Private Limited & Ors. vs. M/S. Raj Builders Private Limited

Facts

The appellants, M/s. Berkeley Lifestyle Brands Private Limited & Ors., filed an intra-court appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, challenging a judgment that rejected their application under Section 34 of the same Act. This application had challenged an arbitral award dated March 27, 2023. The arbitral award dealt with disputes arising from five lease deeds executed on October 21, 2019, concerning separate floors of a building. The respondent, M/s. Raj Builders Private Limited (RBPL), is the lessor. The appellants defaulted on rent payments from February 2020, citing COVID-19 as a force majeure event and attempting to terminate the leases. RBPL sought outstanding rent, interest, and possession. Disputes led to arbitration, and an arbitral tribunal was appointed. The appellants agreed to refer disputes to arbitration, and possession of some floors was handed over. The arbitral tribunal awarded RBPL arrears of rent, damages for the lock-in period, legal costs, and utility bills.

Held

The Court held that the Arbitral Tribunal's decision to restrict the damages to six months' rent, instead of the entire remaining lock-in period, was legally tenable. The Court reasoned that Section 34 of the Arbitration and Conciliation Act, 1996, does not permit a merits review of an arbitral award. The Arbitral Tribunal had not accepted RBPL's claim for the full lock-in period as damages, instead restricting it to a reasonable period. The Court found that it was permissible for the Arbitral Tribunal to restrict the claim to what it considered reasonable in its assessment, considering the time a landlord would reasonably take to find a new tenant after factoring in repairs, advertising, and potential rent-free periods for the new tenant. The Court relied on the Division Bench's decision in Soril Infra Resources Limited. v. M/s. Annapurna Infrastructure Pvt. Ltd. & Ors., which upheld a similar award of six months' post-handover possession charges as damages. The Court concluded that the Arbitral Tribunal's assessment of loss was not without basis and could be drawn from common knowledge, and therefore, the impugned decision could not be faulted. The appeal was dismissed.

Key Issues

1. Whether the Arbitral Tribunal's decision to award damages equivalent to six months' rent, instead of the entire remaining lock-in period, was legally tenable, considering RBPL's claim for damages based on the breach of lease deeds (Clause 2) and the appellants' early termination. 2. Whether the Arbitral Tribunal's assessment of damages was arbitrary or lacked a basis, particularly in light of the appellants' contention that the award of six months' rentals was contrary to law and unsupported by pleadings. RBPL argued that the appellants breached the lease deeds by terminating them before the expiry of the lock-in period, making them liable for rent for the entire remaining lock-in period. They contended that this compensation would place RBPL in the same position as if the breach had not occurred. RBPL relied on Clause 2 of the lease deeds and the principle of compensating for breach of contract. The appellants argued that the Arbitral Tribunal's restriction of damages to a reasonable period (six months' rent) was contrary to law and unsupported by pleadings. They contended that the Arbitral Tribunal's assessment was arbitrary and that Section 34 of the A&C Act does not permit a merits review of the award.