Punjab-Haryana High Court
M/S Aditya Birla Fashion And Retail Ltd vs Dayanand on 13 February, 2026
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
FAO-CARB No. 39 of 2025 (O&M)
Reserved on: 14.11.2025.
Date of pronouncement: 13.02.2026
M/s ADITYA BIRLA FASHION AND RETAIL LIMITED ...Appellant(s)
V/s
DAYANAND ...Respondent(s)
CORAM: HON'BLE MR. JUSTICE ASHWANI KUMAR MISHRA
HON'BLE MR. JUSTICE ROHIT KAPOOR
Argued by: Mr. Aashish Chopra, Senior Advocate, assisted by
Mr. Vijender Parmar, Advocate,
Ms. Rupa Pathania, Advocate, and
Mr. Yash Pal Sharma, Advocate for the appellant.
Mr. Sumeet Mahajan, Senior Advocate, assisted by
Mr. Saksham Mahajan, Advocate,
Mr. Shrey Sachdeva, Advocate, and
Ms. Radhika Dekshay Advocate, for respondent.
****
1. Date when order was reserved 14.11.2025
2. Date of Pronouncement of order 13.02.2026
3. Date of uploading of order 16.02.2026
4. Whether operative part or full order is Full
pronounced
5. Delay, if any, in pronouncing of full order NA
and reasons thereof.
ASHWANI KUMAR MISHRA, J.
Jurisdiction of this Court under Section 37 of the Arbitration
and Conciliation Act, 1996 (for short ‘the Act of 1996’) is invoked by M/s
Aditya Birla Fashion and Retail Ltd. (hereinafter referred to as the
‘appellant’) in order to assail the order passed by the Exclusive Commercial
Court at Gurugram, dated 22.08.2025, whereby appellant’s objection under
Section 34 of the Act of 1996 to the Arbitral Award dated 23.12.2023, came
to be rejected.
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2. Appellant is a company incorporated under the Indian
Companies Act, 1956. It is engaged in the business of ‘apparels’, marketing
of garments and garment accessories under various international brand
names and trademarks such as ‘Van Heusen’, ‘Louis Philippe’, ‘Allen
Solly’, ‘Peter England’ etc. It intended to establish a warehouse for storage
of its products at Gurugram. For such purposes, the appellant entered into an
agreement with the claimant/respondent, who was the owner in possession
of Khasra No.130/19, 12, 20, 21, 22, 23, 18/2 and 131/25, admeasuring
16674 sq. meters situated in village Pataudi, Ward No.13, Rewari Road,
Tehsil Pataudi, Gurugram along with his brothers Ramesh Chand, Bhanu
Sherawat (son of late brother of Dayanand) and Naresh Kumar. Plan for
construction of the warehouse on the aforesaid land of the claimant was
already approved by the concerned authorities in the year 2012-2013.
Commercial godown in the name of ‘Misha Sehrawat Warehouse’ was
constructed over an area admeasuring 103982.72 sq. feet (9660.31 sq.
meters) allegedly by incurring an amount of INR 8.62 Crores. A loan of Rs.6
Crores was also availed by the claimant from Punjab National Bank, for
such purpose, which was repayable in 93 equal installments of Rs.5,16,563/-
per month commencing from 30.09.2015. Rest of the amount i.e.
approximately Rs.2.62 Crores was incurred by the claimant for construction
of warehouse.
3. Finally, a lease deed came to be executed on 20.04.2016 in
respect of the leased premises by the claimant/respondent in favour of the
appellant at a monthly rent of INR 10,00,000/- with a clause providing for
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5% escalation after expiry of one year, commencing from 01.05.2016. The
appellant also deposited INR 60,00,000/- with the respondent as interest free
refundable security. Under the lease deed, the appellant had the right to
install, erect and maintain, at its own cost, in or upon the leased premises,
any equipment, machinery or any other structure necessary for the purposes
of storing, selling or otherwise carrying on trade in consumer products,
allied or other products. The leased godown had carpet area of 103982.72 sq.
feet. The lease period was nine years commencing from 01.05.2016 to
30.04.2025.
4. Respective rights and obligations of the parties to the lease have
been specified in the lease deed. Clause 13 of the lease deed placed
responsibility upon the lessor/claimant-respondent to insure the entire
building premises and all equipments provided to lessee, against fire and
other perils including earthquake and terrorism etc., during the entire lease
period. The responsibility of lessee was limited to insuring of its own goods
and equipments etc. during the lease term. Clause 13 is reproduced herein
after:-
“13. INSURANCE:
The Lessor shall at all times be responsible for insuring the entire
building premises and all equipments provided to Lessee against
Fire and other perils including Earthquake and Terrorism, covering
the third party liability against all risks at all times and kept valid
during the subsistence of the Lease and a copy of such insurance
coverage policy shall be made available to Lessee as and when such
insurance policy is renewed from time to time without demand by
Lessee. Lessee shall be responsible for insuring its equipments,3 of 53
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during the Lease tenure.”
5. Clause 14 of the Lease Deed gave sole right to the lessee i.e. the
appellant to terminate the lease by giving three months’ prior written notice
without assigning any reason whatsoever.
6. Clause 27 of the lease deed provided for arbitration which is
reproduced as under: –
“27. ARBITRATION:
i) All disputes and differences arising out of this deed shall be
referred to arbitration in accordance with the provisions of
Arbitration and Conciliation Act, 1996 and an Arbitrator to be
mutually appointed by both the Parties.
ii) The venue for arbitration shall be Gurgaon and the proceedings
shall be conducted in English language.”
7. The appellant came in possession of the warehouse in question
and the payment of rent commenced from the month of May, 2016. For the
first year upto 01.04.2017, the rent was paid at Rs.10,50,000/- which was
enhanced to Rs.11,02,500/- per month for next one year i.e. 01.05.2017 i.e.
01.04.2018. The rent was further enhanced to Rs.11,90,700/- per month
w.e.f. 01.05.2018 to 01.04.2019. In terms of Clause 13 of the lease deed, the
claimant/respondent got the leased premises insured with the Oriental
Insurance Company for the period beginning from 29.05.2018, till
28.05.2019 for INR 4.5 Crore for the office-cum-godown/warehouse
together with boundary walls and INR 50 Lakh for fire extinguisher
appliances. No objection certificate from the Fire Department was also
obtained which was valid till 04.07.2019.
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THE INCIDENT
8. On 16.10.2018, an incident of fire occurred at the Warehouse/
Leased Premises. According to the appellant, attempts were made by the
employees/staff present to extinguish the fire and after such initial attempts
failed, the police and the fire departments were informed of the fire incident.
Six fire tenders were pressed into service, and the fire was ultimately
doused. The insurer M/s Oriental Insurance Company Ltd. was informed of
the fire incident. The appellant had also got its stocks kept in the warehouse
insured with its insurer M/s TATA AIG which was also informed about the
incident. In this incident major damage was caused to the
warehouse/godown and the stored material of appellant were all got burnt.
9. According to the claimant/ respondent, incident of fire occurred
due to negligence on part of the appellant as the fire hydrants and other fire
extinguishers were not activated by the employees of the appellant. It is also
the claimant’s case that though a water storage tank with a capacity of 1.5
lacs liters of water with two pumps, one of which was electric pump and
other was diesel pump, were installed in the warehouse, but were not
activated though they were in working condition. As per the claimant, the
entire godown was burnt/reduced to ashes causing huge financial loss to him
10. It has come on record that information to fire brigade was
forwarded by an employee of the appellant on 16.10.2018 itself in respect of
which a report was prepared by the Fire Department on 28.11.2018. The fire
tenders were sent to the spot at 10.35 AM (wrongly referred to as PM in
various documents). The sole fire tender which came on the spot could not
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control the fire and consequently on the information of the Fire Department
more fire tenders were requisitioned. As per report of the Fire Department,
Pataudi, District Gurugram, the fire may have been caused by short circuit’.
THE CLAIM
11. The claimant asserted that for such negligence on part of the
appellant, which led to the fire incident he has suffered loss amounting to
Rs.7,80,46,520/- and accordingly claimed such amount from the appellant.
The claim of respondent/claimant was disputed by the appellant. Initial
correspondence/communication between the parties to arrive at an agreed
settlement failed. It was in this context that the Claimant instituted claim
against the appellant.
INSURANCE
12. As per Clause 13 of the contract, it was the exclusive
responsibility of the lessor (claimant) for insuring the entire building
premises and all equipments against fire and other perils during the
subsistence of the lease. Accordingly, the claimant had secured the lease
premises by getting it insured with Oriental Insurance Company. The
incident was, therefore, reported to the insurer.
13. The Insurance Company, which had insured the claimant’s
godown, deputed its authorized surveyor to inspect the premises and
ascertain the losses caused in the incident. The surveyor submitted its final
survey report according to which the Standard Fire and Special Perils Policy
(hereinafter referred as ‘the policy’), was subsisting on the date of incident.
The sum insured was Rs.4,50,00,000/- for office-cum-godown/ warehouse
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including the boundary walls, while fire extinguishers were insured for a
sum of Rs.50,00,000/-.
14. For the damage caused to the building, shed and others, the
Surveyor of the insurance company i.e. M/s Oriental Insurance Company
Limited after referring to the statement of the insured; police report; the fire
brigade report and other media reports, specified the cause of accident in
following words:-
“07.5) Our Opinion
Based on the survey carried out and verification done, we are of theopinion that due to electric short-circuiting in some electric wire,
sparks were generated, which caused fire. The fire was aggravated
because of availability of combustible material stock nearby and due
to which, the fire spread in the entire building shed, damaging it
completely. It was verified that the cause of fire is not intentional.”
15. The claimant had initially submitted an estimate of
Rs.5,38,10,651/- towards insurance claim, which was later revised to
Rs.4,73,50,841/- as being the loss caused to the leased premises in the fire
incident, to the insurance company.
16. The claim raised by the respondent from its insurance company
ultimately led to the final settlement of loss caused to the leased premises, in
the fire incident, being determined as Rs.2.52,39,404/-. The respondent
accepted the quantification of loss/damage determined by its insurer and
issued a discharge voucher to M/s Oriental Insurance Company. The
claimant/respondent also subrogated all his rights and remedies in respect of
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loss/damage to the leased premises, in favour of the insurance company,
which is reproduced hereinafter:-
“Discharge Voucher:
Thereafter, the respondent in full and final settlement of loss caused
to the leased premises on account of fire incident settled the claim
with OIC for a sum of INR 2,52,39,404/- and signed a discharge
voucher with OIC and subrogated all his right and remedies in
respect of loss/damage on account of fire incident at the leased
premises in favour of OIC.”
TERMINATION OF LEASE
17. The appellant in the meantime continued to pay the rent for the
godown in question till a termination letter was ultimately issued by it on
17.07.2019. Mutual discussions between the parties for an amicable
settlement, prior to it, failed. Since the term of lease required three months
notice for termination, as such, the termination became effective from
18.10.2019. The vacant possession of the leased premises was offered to the
claimant on 18.10.2019. The appellant also adjusted the rent equivalent to
the notice period from the security deposit amount lying with the
respondent.
LEGAL NOTICE
18. On 27.07.2019, a legal notice was issued by the claimant
seeking surrender of security deposit of Rs.60 Lakh and compensation of
Rs.3 Crores for the negligence caused on the part of the appellant’s staff in
handling the fire incident. This notice was objected to by the appellant on
28.10.2019. The appellant disputed any negligence on its part and
highlighted that the respondent had the right as per the terms of the lease to
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inspect the premises during the continuance of lease period and that no
deficiency on the part of the appellant was ever pointed out.
ARBITRATION
19. Arbitration clause was invoked by the claimant after differences
remained unresolved between the parties. An application under Section 11 of
the Act of 1996 was filed before this Court, being Arbitration Petition
No.350 of 2019. The arbitrator consequently came to be appointed by this
Court on 09.01.2023.
20. Before the arbitrator, a statement of claim was filed by the
respondent claiming following amounts:-
Sr. No. Particulars of Claims Amount (INR)
1. Damage to Leased Premises 5,00,00,000/-
2. Loss of rent qua the Leased 2,60,46,520/-
Premises from October, 2019 to
15.08.2021 @ 11,57,625 per
month
3. Towards pain and suffering 10,00,000/-
4. Towards litigation expenses 10,00,000/-
Total 7,80,46,520/-
5. Interest @ 18% p.a. from
16.10.2018 till realization
21. A counter claim was submitted by the appellant, while objecting
to the claim of respondent, which is as under:-
Sr. No. Particulars of Counter Claims Amount (INR)
1. Balance of security 15,23,352/-0
deposit/refundable security
deposit
2. Interest @ 18% p.a. on 10,28,263/-0
security deposit from
17.07.2019 till 17.04.2023
Total 25,51,615/-
3. Interest @18% p.a. from date
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22. On behalf of the claimant/ respondent, evidence was furnished
by Ramesh Chand, brother of the respondent, by filing his affidavit. The
claimant placed on record documentary evidence in the form of loan
sanction letter issued by Punjab National Bank dated 05.06.2014,
sanctioning loan of Rs.6.00 Crores for construction of godown in question.
A certificate of chartered accountant dated 28.05.2015 was also filed
confirming that as per the information of the claimant, it has incurred
Rs.8.43 Crores in connection with construction of warehouse. On behalf of
the appellant, evidence was given by Gaurav Kumar, its authorized
representative.
THE AWARD
23. The learned Arbitrator has delivered his award on 23.12.2023,
allowing the claim of the respondent primarily on the ground that fire
incident occurred due to negligence and carelessness of the appellant.
Following claims of respondent have been accepted by the Arbitrator:-
Sr. Particulars of Claim Awarded amount (INR)
No.
1. Damage to leased premises 2,47,75,446/-
2. Loss of rent qua the leased 2,60,46,520/-
premises from October, 2019 to
15.08.2021 @ INR 11,57,625/-
per month
3. Towards litigation expenses 3,00,000/-
4. Claimant’s share of arbitral fees 7,37,508/-
under Section 31A(1)(a)(i)
Total 5,18,59,474/-
In addition, the Arbitrator awarded interest at the rate of 8% from
the date of cause of action till recovery of amount.”
24. The counter claim of the appellant was rejected. The Arbitrator
held that appellant was not entitled to terminate the lease deed. This award
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of the arbitrator came to be challenged on various grounds by filing a
petition under Section 34 of the Act of 1996. A reply to the petition was
filed by the claimant whereafter the Presiding Officer, Exclusive
Commercial Court, Gurugram vide the order impugned dated 28.08.2025
rejected the objections of the appellant and affirmed the award of the
arbitrator. Thus aggrieved, the appellant is before this Court.
THE APPEAL
25. The appellant asserts that the Court below has failed to exercise
its jurisdiction under Section 34 of the Act of 1996 in refusing to interfere
with the award, completely overlooking patent illegality therein, by going
against the express terms of the lease deed and basing its findings on no
evidence. The claims are allegedly allowed by the Arbitrator by travelling
beyond the terms of lease deed which is contrary to the settled principles of
applicable law.
26. It is urged that there is no evidence of negligence on the part of
the appellant and contrary conclusions of the arbitrator is perverse as it is
based on no evidence. It is also contended that the arbitrator has completely
overlooked the report of the claimant’s Insurer M/s Oriental Insurance
Company dated 27.08.2019, which was accepted by the claimant himself
without any demure or protest. The conclusion of actual losses caused in the
incident, by the claimant’s insurer, based on surveyor’s assessment report
was also ignored.
27. It is further submitted on behalf of the appellant that report of
the surveyor of the claimant’s insurer as also the report of Fire Department
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and police report conclusively established that it was a case of accidental fire
due to short circuit, but all such material has been ignored on hyper technical
grounds. It is also contended that the testimony of the appellant’s witnesses
has been misread and misconstrued, and excessive importance is given to the
oral testimony of the claimant’s witness by overlooking overwhelming
evidence, to the contrary, on record. The findings of the arbitrator are thus
alleged to be perverse as it is based wholly on conjectures and surmises. It is
also the contention of the appellant that there is no proof of actual loss and
the entire claim of the respondent is based on imaginary figures contained in
the statement of claim as well as the oral testimony of the claimant.
REPLY OF CLAIMANTS
28. The submissions advanced on behalf of the appellant are
opposed by learned Senior counsel for the claimant, who submits that the
Arbitrator has based its award on the terms of the lease deed, and the
Commercial Court has rightly rejected the appellant’s objections. He
submits that the claimant’s witness was not cross-examined on material
aspects. He also submits that merely because the amount awarded by
claimant’s insurer was accepted, it would not mean that the claimant is
precluded from claiming losses from the appellant. He also submits that
none of the proximate witnesses were examined on behalf of the appellant.
Learned senior counsel has also placed plethora of case laws to contend that
the discretion exercised by the Arbitrator in allowing the claim cannot be
interfered with by the Court in exercise of its jurisdiction under Section 34
of the Act of 1996 nor by this Court under Section 37 of the Act of 1996.
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29. We have heard Mr. Ashish Chopra, Learned Senior Counsel for
the appellant and Mr. Sumeet Mahajan, Learned Senior Counsel for the
claimant/respondent and perused the materials on record.
THE ISSUES
30. We have examined the facts of the case within the confines of
this Court’s jurisdiction under Section 37 of the Act of 1996, so as to
determine the question as to whether the arbitral award dated 23.12.2023
required interference on any of the grounds made permissible under Section
34(2) of the Act of 1996 or not? As a corollary, we are to adjudge whether
the Commercial Court has failed to exercise its jurisdiction while rejecting
the appellant’s objection to the Award, in the facts of this case, on the
grounds urged on behalf of the appellant?
31. The aforesaid issues arise in the context of following disputed
facts: –
i) Whether the incident of fire occurred due to short-circuit
or it was caused due to negligence of appellant’s
employees ?
ii) Whether claimant/ respondent was entitled to the sum
awarded towards damage to lease premises, on account of
fire incident, on the basis of evidence led by the claimant/
respondent?
iii) Whether the claimant/ respondent was entitled to loss of
rent from October 2019 to 15.08.2021 @ Rs. 11,57,625/-
per month ?
ANALYSIS
32. The Arbitrator has primarily allowed claim of the respondent on
account of damage caused to the leased premises to the tune of
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Rs.2,47,75,446/- and awarded Rs.2,60,46,520/- on account of loss of rental
income from October 2019 to 15.08.2021, when the godown was again let
out on rent to someone else after its repair/restoration. The basis of award is
the finding of Arbitrator that the fire incident was caused due to negligence
of the appellant’s employees in activating fire fighting equipments and that
the appellant had no right to terminate the lease in the facts of the present
case.
33. The appellant’s primarily urge that the arbitrator’s conclusions
on both the counts are patently illegal and factually flawed and thus wholly
perverse.
34. The Arbitrator had framed 12 issues for consideration vide
order dated 10.06.2023. Issues No. ii, iii and iv were the core issues on
which the outcome of arbitral proceedings has largely rested. These issues
have been dealt with together, by the Arbitrator and are reproduced as
under:-
(ii) Whether the respondent was duty bound to maintain the leased
premises and the installed fire fighting system and equipment in
good, proper and running condition?
(iii) Whether the fire fighting system and equipment was set in
motion by respondent at the time of fire incident in the leased
premises?
(iv) Whether the fire incident in question at the leased premises in
question occurred due to negligence and carelessness of
respondent?
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35. Admittedly, incident of fire caused substantial damage to the
leased premises. The fire incident was reported to the Police, the Fire
Brigade and the Insurance Company. These agencies arrived soon after the
incident and investigated the cause of incident and the manner in which it
occurred. After due investigation, reports were submitted by the Police, the
Fire Brigade, Surveyor of the Insurance Company wherein statements were
also taken of the witnesses of the appellant and the claimant/respondent. The
report of the Police, Fire Department as well as the Surveyor of the
claimant’s insurer held in categorical terms that fire was accidental and was
caused due to short circuit.
36. The Surveyor of the Insurance Company also held that the
cause of fire is not intentional. This finding, however, has been discarded by
the Arbitrator only on the ground that such material was in the nature of
opinion only and cannot be treated to be conclusive, as none of the witnesses
have been examined during the course of arbitration. The reasoning assigned
by the Arbitrator to ignore all such reports are contained in para 24 of the
award, which is reproduced as under:-
“24. (a) Learned counsel for the respondent while relying on the above
referred report Ex. RW1/2 has argued that the above named
surveyor has opined in clause 9.08 thereof that although the
exact cause of fire could not be ascertained but “most
probably” the fire could be caused due to electrical short
circuiting. This “opinion” is not conclusive because reliance is
based therein on the statement of witnesses esses statedly
examined by the above named surveyor but none of whom has
been or examined by the respondent during the arbitral
proceedings in hand.
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(b) Even the DDR entry Ex. C/12 recorded by ASI Ajit Kumar
regarding information of the fire incident in question lodged
with him by Om Parkash, an employee of respondent company,
as well as report Ex. C/11 dated 17/10/2018 based on the same
(wrongly referred to as FIR in the survey report Ex. RW1/2)
and relied upon by the respondent is inconclusive because he
was statedly informed by one Vinay Kumar regarding the fire
incident in question whereupon he alongwith Naresh Kumar
and Vinod Kumar had rushed towards the place of fire but
none of the above named Om Parkash, Vinay Kumar, Naresh
Kumar and Vinod Kumar, all employees of the respondent
company had been examined by the above named police
official, and nor has any of them been examined by the
respondent to establish the cause of fire, or even to pin point
the place from which the fire had initially started and
ultimately engulfed the entire leased premises spread over
approximately ten thousand square meters.
(c) Even the reliance by the above named surveyor in its above
referred report Ex. RW1/2 on the fire brigade report Ex. C/13
dated 28/11/2018 is inconclusive because it is mentioned
therein that one Suraj had telephonically informed from his
mobile number 7039093758 regarding the fire incident in
question. The said report makes no mention whatsoever
regarding the above named Suraj having disclosed the cause of
fire, and nor has he been examined by the respondent.
Moreover, the said report Ex. C/13 merely mentions, without
reference to any definite source of information, that the cause
of fire “appears to be” on account of short circuit”
37. The Arbitrator was supposed to adjudicate the controversy
brought before him keeping in view the express terms of the contract
between the parties.
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38. The lease deed depicts that the parties had visualized various
exigencies which may arise during subsistence of the term of lease. One
such exigency was the damage caused to the leased property in an incident
of fire. The parties to contract consequently agreed to place exclusive
responsibility upon the lessor/respondent of protection of leased property,
from fire, by getting it insured.
39. It was, therefore, for the claimant to get the entire leased
premises consisting of building premises and all equipments, goods,
furniture, fixtures and belongings in the lease premises adequately insured,
during the lease tenure. Clause 13 of the Contract clearly reveals such intent
of the parties.
40. In terms of Clause 13 of the agreement, a Fire and Perils Policy
was availed of by the claimant to secure the lease premises from the Oriental
Insurance Company. The claimant for securing the leased premises by way
of insurance policy assessed its value @ Rs.5.00 Crores (Rs. 4.50 Crores for
the leased premises and Rs. 50.00 Lakhs for fire fighting equipments).
41. The fire incident was duly reported to the insurance-company
and its surveyor inspected the premises and ultimately submitted a report
determining the losses caused in the fire incident as Rs.2.5 Crores. For
determination of insurance claim, the value of leased premises was assessed
at Rs.5.00 Crores. The claimant has accepted such determination of
insurance claim and received the insurance amount without any protest.
42. The insurance claim was processed on the premise that it was a
case of accidental fire due to short-circuit. All agencies that were entrusted
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with the task of investigating the incident, have unanimously concluded that
the fire occurred due to short-circuit. The claimant has also accepted this
position. The claimant not only accepted the insurance claim, but also
subrogated his rights to the insurance-company.
43. At the very outset, we may note that the surveyor of the
insurance-company had noticed that the insurance policy was under-valued.
The final survey report of insurer dated 27.05.2019 has been brought on
record before the Arbitrator. It was duly accepted by the claimant. Clause 7
of this report dealt with the cause of loss to the insured premises which is
reproduced hereinafter:-
“(7) Cause of Loss
Based on the survey and verifications of the affected site and
documents provided, most proximate cause of loss is explained as
below:
07.1) Insured’s Statement
Statement of insured’s officials is enclosed as Refer Annexure – 6.
As per insured’s officials, the cause of fire is electric short circuit.
07.2) Police Report
The insured reported the matter to local police station at
Pataudi, Gurgaon (Annexure – 7). The police authority have
booked the case vide General Diary No. 22 dated 17.10.2018
(Annexure – 8).
07.3) Fire Brigade Report
The insured have immediately informed the said incident to the
fire brigade and whose service engineer rushed to affected site
and control the fire.
Copy of Fire Tender Certificate is enclosed as Annexure – 9.
07.4) News paper
The news was widely covered by the print & electronic media
(Annexure – 10). As reported by one of the media channel:
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A major fire broke out at a garment warehouse in Haryana’s
Gurugram on Tuesday morning. The garment warehouse is
located at Rewari road near Pataudi in Gurugram district of
Haryana. At least six fire tenders have rushed to the spot to
douse the fire.
07.5) Our Opinion
Based on the survey carried out and verification done, we are of
the opinion that due to electric short-circuiting in some electric
wire, sparks were generated, which caused fire. The fire was
aggravated because of availability of combustible material stock
nearby and due to which, the fire spread in the entire building
shed, damaging It completely. It was verified that the cause of
fire is not intentional.
As is clear from above, the cause of loss is sudden and
accidental in nature and stands covered under the captioned
policy of insurance and hence, there appears to be a liability on
the underwriter’s w.r.t. the captioned claim.”
44. Interestingly, while lodging the insurance claim, the claimant
never asserted that either the fire incident was an outcome of negligence on
part of the lessee nor was it claimed that there was any failure on their part
in adhering to the safety norms. The conclusions drawn by the surveyor that
cause of loss was sudden and accidental in nature and was not intentional
have not only become final against the claimant but was actually accepted
by the claimant who received the compensation claim assessed by the
insurer.
45. Clause 13 of the contract otherwise provides that the
responsibility to get the premises secured by way of insurance policy was
that of the claimant. The valuer in his report has returned a specific finding
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that the building premises was under-insured to the extent of 19.92% while
the fire fighting system and other equipments were under-insured to the
extent of 54.50%. These findings of the surveyor clearly show that the
obligation under the contract on part of the claimant to get the leased
premises adequately insured had not been discharged by the claimant. Any
failure of such obligation under the contract had the obvious effect of
reducing the insurance claim. This short fall/loss, flowing from under
valuation of the leased premises for insurance, in terms of the contract,
would have to fall upon the claimant.
46. Arbitrator, in his award has virtually tried to make up for this
shortfall without appreciating that the contract required the claimant to
secure the leased premises by getting it adequately insured. By awarding
sum to compensate the losses arising from under valuation of the property,
for the purposes of insurance, the Arbitrator has virtually re-written the
contract which is not permissible. This aspect has been completely omitted
from consideration by the Arbitrator even though the appellant had
specifically asserted that securing the leased-out premise against the incident
of fire by way of insurance was the exclusive obligation of the claimant.
47. At this stage, it would be worthwhile to refer to the findings of
the insurer with regard to under valuation of leased premises, which are
reproduced as under:-
9) Adequacy of Sum Insured
To check the Adequacy of Sum Insured, it is imperative to arrive
at the Value at Risk as on the date of loss.
A Warehouse Shed
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As per the policy, Available Sum Insured is Rs.4,50,00,000/- for
Office Cum Godown and Boundary Walls.
The insured have provided us the layout plan of premises (Refer
Annexure 5) and valuation report as on 29.04.2019 giving
current day construction cost of warehouse (Annexure-11). The
relevant detail are per “Valuation Report” are as under:
S. No. Item Unit Qty Rate Amount
1. Shed Sft 99500 400 3,98,00,000
2. Boundary Wall Rmtr 600 1900 11,40,000
Cost of Mail Rolling -- -- -- 50,000
gate
Iron angle with -- -- -- 50,000
Barded wire
3. Parapet Waal, Fire Sft 3465 800 27,72,000
safety room and
canteen with parapet
wal
Fire safety Sft 350 500 1,75,000
Room+ Toilet
Block
Canteen Sft 2189 700 15,32,300
4. Fire Fighting Cum 9247.2 500 46,23,600
System
5,01,42,900
Looking at the type of construction, we have considered Rs.450/-
per sft as the present similar construction rate for shed and Rs.
6450/- per Rmt for boundary wall. The rate Analysis for
boundary wall is attached as Annexure-12.
The captioned policy is on market value basis the construction of
warehouse is 03 years old; hence we have applied 7.5%
depreciation (2.5% per annum).
In support of construction year, the Insured have provided us the
contractor bills and proof of payment (Annexure – 13).
In addition, the copies of balance sheets were obtained from
insured & it was noted that the building was capitalized in
2014-15.
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The building drawings were obtained & verified at the site.
Taking present market rates into consideration, the Value at Risk
is calculated as follows:
Sr. Item Unit Qty. Rate Reinstatement Depreciation Market Value
No. Value (Rs.) (%) Amount (Rs.)
(Rs.)
1 Shed Sft 1,02,295.50 450.00 4,60,32,975.00 7.50% 34,52,473.13 4,25,80,501.88
Boundary Rmtr 600.00 6450.00 38,70,000.00 7.50% 2,90,250.00 35,79,750.00
Wall
Cost of Main – – — 60,000.00 7.50% 4500.00 55,500.00
2 Rolling Gate
Iron Angle – 600.00 100.00 65,000.00 7.50% 4875.00 60,125.00
with Barded
wire
Office Sft 3465.00 1500.00 51,97,500.00 7.50% 3,89,812.50 48,07,687.50
Fire safety Sft 350.00 1000.00 3,50,000.00 7.50% 26,250.00 3,23,750.00
3 Room +
Toilet Block
Canteen Sft 2189.00 1200.00 26,26,800.00 7.50% 1,97,010.00 24,29,790.00
Water tanks, LS 3,00,000.00 7.50% 22,500.00 2,77,500.00
plumbing,
4 sanitary &
external
services
External Sft 25000 90.00 22,50,000.00 7.50% 1,68,750.00 20,81,250.00
5
Paving/Road
TOTAL 5,61,95,854.38Therefore,
Value at Risk = Rs.5,61,95,854
Sum Insured = Rs.4,50,00,000
Therefore,
Under Insurance = 1 – 4,50,00,000 X 100
5,61,95,854= 19.92%
B. Fire Fighting System
As per policy Available Sum Insured is Rs.50,00,000/- for Fire Extinguishers
Appliances Installed in Godown.
The insured have provided us the current value of Fire Extinguishers
Appliance as per Valuation Report based on CPWD rates (Annexure-14). The
relevant detail is as follows:
Sr. No. Item Unit Qty. Rate Amount
1 Fire Cum 9247.20 500 46,23,600.00
Fighting
System
Total 46,23,600.00
As per CPWD, Plinth area rates (PAR 2012), the rate for Fire Fighting
equipment with automatic sprinkler system & Fire Alarm system is
Rs.1250/- per sqm as the present similar cost.
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The captioned policy is on market value basis the construction of
warehouse is 03 years old, hence we have applied 7.5% depreciation.
Based on the above, value at Risk is calculated as below:-
Sr. Item Unit Qty. Rate Reinstatement Depreciation Market Value
No. Value (Rs.) (%) Amount (Rs.)
(Rs.)
Fire Fighting Sqm 9503.48 750 71,27,612.88 7.5% 5,34,570.97 65,93,041.91
system with
1
sprinkler
system
Automatic Sqm 9503.48 500 47,51,741.92 7.5% 3,56,380.64 43,95,361.27
Fire Alarm
TOTAL 1,09,88,403.18Therefore,
Value at Risk = Rs.1,09,88,403
Sum Insured = Rs.50,00,000
Therefore,
Under Insurance = 1 – 50,00,000 X 100
1,09,88,403
= 54.50 %(10) Insured’s Claim
The insured had initially submitted an estimate of Rs.53,81,0651/-
later on the insured has submitted their estimate of loss for
Rs.4,73,50,841/- as prepared by M/s Jindal Engineers &
Contractors towards the captioned loss vide claim bill (Annexure –
15) and claim form (Annexure – 16) towards the captioned loss.
The summarized break-up of estimate of loss is as follows:-
Sr. No. Description Claimed (Rs.)
1 Civil Works 4,22,50,091
2 Fire Fighting Works 51,00,750
(11) Our Assessment of Loss
One assessment towards various heads is as under:-
A) Warehouse Shed
 The insured have claimed Rs. 4,22,50,091/- towards the
cost of warehouse.
 We have recommended only those items of work with were
found as damaged and have coverage under the policy of
insurance.
 The captioned policy is issued on market value basis, the
construction of warehouse is 03 years old; hence we have
applied 7.5% depreciation (2.5% per annum).
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Based on the above, our detailed assessment of loss towards the
Warehouse Shed is enclosed as Annexure A and summarized
summary of assessment is as under:-
Sr. Description Claimed Recommended Recommended
No. Before After
Depreciation Depreciation
(Market Value)
Rs.
1. Civil Works 4,22,50,091/- 3,82,71,665 3,54,01,290
B) Fire Fighting System
 The insured have claimed Rs.51,00,750/- towards the cost of Fire
Fighting System.
 We have recommended only those items which were found damaged
as per our inspection and have coverage under the Policy of
insurance.
 The captioned policy issued on market value basis the construction
of warehouse is 03 years old. Hence, we have applied 7.5%
depreciation.
Based on the above, our detailed assessment of loss towards the Fire
Fighting System is enclosed as Annexure-B and summarized summary of
assessment is as under:-
Sr. Description Claimed Recommended Recommended After
No. Before Depreciation
Depreciation (Market Value) Rs.
1. Fire Fighting System 51,00,750/- 46,70,500/-/ 43,20,213/-
(12) Salvage
The damaged items constitute salvage value and for which the
insured have provided us the 02 salvage quotations and highest quote @
Rs. 12/- per kg (Annexure – 17).
The list of salvage items was prepared and verified.
The salvaging process was Initiated by M/s Salvage Settlers Pvt. Ltd.
in line with the CVC guidelines, and advertisements were given in the
newspapers and e-auction conducted.
After bidding process, M/s Pradhan Associates was found to be the
highest bidder and he had quoted for Rs.20.40 + GST @ 18%.
A total of 220.52 MT scrap sold to highest bidder @ Rs. 20.40/- per kg.
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Scrap weight = 220.52 MT
Salvage Rate = Rs. 20.40 per kg (20400 per MT)
Salvage Value = Rs.44,98,608 (A)
Copy of salvage report sale invoice is enclosed as Annexure – 18.
In addition to above, there is still some scrap of structural steel
members buries under debris of material like metal racks etc.
belonging to tenant, which weight approx. 30 MT
Scrap weight (buries under debris) = 30 MT
Salvage Rate = Rs. 20.40 per kg (20400 per MT)
Salvage Value = Rs.6,12,000 (B)
Also, the quantity of Tor steel claimed in the floor slab claimed is 38.70
MT, which shall constitute salvage after breaking of floor slab.
Taking Rs. 5,000/- per MT as retrieval cost for obtaining the steel after
breaking of concrete.
Net Cost of Tor Steel = Rs. 15,400 per MT
Scrap weight (of Tor steel) = 38.70 MT
Salvage Rate = Rs. 15,400 per MT
Salvage Value = Rs.5,95,980 (C)
Therefore,
Total Salvage Value (A + B + C) = Rs. 57,06,588/-
Note: The GST component has not been considered as the transaction
is between insured & salvage buyer.
(13) Summary of Assessment
Based on the above assessment, Salvage, Applicable Excess & Disposal
fee paid by insured, the summary of assessment is as under:
SUMMARY OF ASSESSMENT
Sr. Description Claimed Recommended Dep. Recommended Salavage Assessed Debris Net U.I. % Net of U.I.
No. before after depreciation removal Assessment
depreciation (Market Value) @ 1%
1 Civil Works 4,22,50,091 3,82,71,665 7.50% 3,54,01,290 48,06,866 3,05,94,424 3,05,944 3,09,00,368 19.92% 2,47,44,113
2 Fire Fighting 51,00,750 46,70,500 7.50% 43,20,213 8,99,722 34,20,491 34,205 34,54,696 54.50% 15,71,974
Works
Total= 4,73,50,841 4,29,42,165 3,97,21,503 57,06,588 3,40,14,915 3,43,55,064 2,63,16,087
Less : Excess 5% 13,15,804
Net Assured Loss= 2,50,00,282
Say = 2,50,00,000
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(14) Salvage Disposal Fee
After the salvage disposal, the salvage settler has issued a salvage
disposal fee bill vide invoices no. SS/609/18-19 dated 21.02.2019 &
SS/19-20/007 dated 02.04.2019 in the name of insured and the salvage
disposal fee paid by the insured.
Hence, we have considered the salvage disposal fee. @ Rs. 2,39,404/-
without GST in our assessment.
Therefore,
Salvage Disposal Fee = Rs. 2,39,404/-
Therefore,
Net Liability = Rs. (2,50,00,000 +2,39,404)
= Rs. 2,52,39,404
The above amount of Rs. 2,52,39,404/- (Rupees Two Crores Fifty Two
Lacs Thirty Nine Thousand Four Hundred and Four Only) is the net
liability of the underwriters, if accepted.”
The insured have given consent is enclosed as Annexure – 19.
This final survey report is being submitted without prejudice and is subject
to the terms & conditions of the policy of insurance.”
48. Going by the terms of the contract i.e. lease deed, any loss or damage to
the leased premises on account of fire incident had to be made good from the
proceeds of insurance claim against the policy availed of by the claimant. Any
shortfall on account of award of lesser amount towards insurance claim was a
matter between the claimant and its insurer. Such shortfall could not have been
made the basis for a claim against the appellant as per Clause 13 of the lease deed.
49. Even if such a claim could be raised against the appellant,
notwithstanding Clause 13 of the lease deed, it will have to be seen as to
whether it could be allowed on the basis of material placed on record. For
such purposes also, the provisions of the lease deed will have to be
adhered to.
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50. The Arbitrator has accepted the claim of respondent – claimant
for compensation relying upon Clause 11 (v) of the Lease Deed/Contract,
which reads as under:-
“That the Lessor shall carry out all structural repairs, Leakage and
seepage at his own cost in respect of the Leased Premises during the
Lease Period, within 2 (TWO) week, after the same has been
intimated in writing by the Lessee. However, it is clarified that any
material damage/destruction caused to the Leased Premises
attributed to any act, of the Lessee or its employees, servants,
agents, shall be repaired and rectified by the Lessee alone at its sole
costs and expenses.”
51. After coming to the conclusion that fire incident was due to
negligence of the appellant, the Arbitrator determined the liability on the
strength of following reasons:-
“(e) As per the report Ex. RW2/2 of Protocol Insurance Surveyors &
Loss Accessors submitted to the insurance of the claimant namely
Oriental Insurance Company, the claimant was liable to be
reimbursed only to the extent of Rs. 3,54,01,290/- against the
amount of Rs. 4,22,50,091/- claimed by the insured claimant in
respect of the warehouse shed and an amount of Rs. 43,20,213/-
against the amount of Rs. 51,00,750/-sought by the claimant in
respect of loss to fire fighting system but out of which recommended
amounts, a total amount of Rs. 2,52,39,404/- only was reimbursed to
the claimant vide discharge certificates Ex. RW2/3 to Ex. RW2/5 out
of the insured amount of Rs. 4.5 Crores in respect of the warehouse
shed and Rs. 50 Lakhs qua the fire fighting system, totalling Rs. 5
Crores.
(f) (i) Qua financial loss suffered by the claimant to the leased
premises due to the fire incident in question the above named
Ramesh Chander, CW1 has testified that the total cost of
construction of the leased premises had amounted to Rs. 8.5 crores.
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In this context, the claimant has tendered as Ex. C/8 the
confirmation letter dated 28/05/2015 issued by Chauhan Dhamija
and Associates, Chartered Accountants confirming that as per
information/details provided by the claimant, an amount of Rs.
8,43,51,568/-was incurred for the construction of the warehouse in
question which however merely describes, without any supporting
documents, that the leased premises in question were constructed at
a cost of Rs. 8,43,51,568/-“as per information provided by M/s
Dayanand warehouse”. However, in the absence of documentary
corroboration of expenses incurred statedly to the extent of Rs.
8,43,51,568/, the said confirmation letter and the testimony of CWI
Ramesh Chand regarding incurring of expenses to the extent
detailed above cannot be considered to be conclusive, more so when
insurance policy Ex. C/2 dated 28/05/2018 mentions that the leased
premises were insured only for an amount of Rs. 4.5 Crore, whereas
the fire hydrant system was insured for Rs. 50 Lakhs, thus totalling
Rs. 5 Crores in all.”
52. The basis to allow the claim in favour of the respondent is the
above analysis, as per which the cost of construction was certified to be
Rs.8.43 Crores approximately, by the chartered accountant.
53. Clause 11 (v), however, restricted the liability of lessee to
repair/rectify the damage/destruction caused to the leased premises,
attributed to any act of lessee/appellant or its employees, servants, agents
or to reimburse such costs incurred. For such purposes, the claimant had
to furnish proof of the amount spent towards repair/rectification of the
leased premises in the fire incident apart from establishing the fact that
damage to leased premises in the fire incident was on account of
appellant or its agents.
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54. A careful scrutiny of the materials placed on record would
reveal that the only material in support of such claim is the certificate of
the Chartered Accountant certifying the value of the warehouse/leased
premises as well as the documents to show the amount of loan allegedly
availed for construction of the leased out premises. No evidence has been
placed on record by the claimant to demonstrate as to what was the
amount actually spent towards repair/restoration of the leased premises
after the fire incident. Merely stating or certifying the cost incurred
towards construction of the leased premises would not be sufficient to
establish a claim under Clause 11 (v) of the Lease Deed/Contract.
55. In order to satisfactorily make out a case for compensation
under Clause 11 (v) of the Contract, the claimant was required to furnish
evidence of actual amount spent towards repair and rectification of the
leased premises. In its absence, no claim towards cost of
repair/restoration could have otherwise been accessed and allowed.
56. Merely stating that some loan etc. had been availed by the
lessor from the bank also after the fire incident, allegedly for restoration
of leased premises, would not amount to proof/evidence of the actual cost
of repair/rectification, which alone could be claimed by the lessor from
the appellant under Clause 11 (v) of the lease deed.
57. It is apt to state that the Arbitrator had to decide the claim on
the basis of specific terms of the contract entered into between the
parties. It had no authority to allow the claim contrary to the express
terms of the contract or to re-invent the contract itself.
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58. The Arbitrator could not have assumed the fire incident to have
been caused due to negligence of the appellant’s employees, by
dislodging admitted evidence of short circuit being the cause of fire
incident, when the claimant/respondent had acquiesced to such
determination by his own insurer and had subrogated his rights in favour
of the insurance company. The police report, the report of fire brigade as
well as the report of the surveyor of lessor’s insurer categorically found
the incident to be accidental in nature and was not found deliberate. All
such materials could not have been set at naught by the Arbitrator while
holding the incident to have been caused due to negligence of the
appellant.
59. It is otherwise admitted that even the appellant suffered huge
losses in the form of destruction of stored material to the tune of nearly
Rs.120 Crores. Merely because the appellant had its stock adequately
insured in terms of the contract and its insurer reimbursed such amount
would not lead to an inference that the damage to the leased premises in
the fire incident was due to the appellant or its agents/employees.
60. Curiously, the Arbitrator instead of adjudicating the claim of
the respondent in accordance with the terms of lease deed/contract,
proceeded to make out a new case which was not even the claim set up
before him. This would be reflected from the fact that the Arbitrator
attributed the cause for destruction of leased premises to the raising of
four unauthorized floors providing long span racks for storage in the
warehouse which rendered the fire fighting system ineffective. The
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arbitrator has held that though lessee is entitled to carry out interior work
and to do civil changes but it does not extend to raising of additional
floors which rendered the fire fighting system ineffective.
61. The Arbitrator has held as under in Para 27 (b) & (c) of his
award:-
“27. XXX XXXX XXXX XXXX XXXXX
(b) No doubt clause 12 (vii) of the lease deed Ex. C/9
dated 20/04/2016 permits the respondent to do all civil changes
but the said clause confines such civil changes only to the extent
of installation of its machinery by the respondent in the leased
premises and therefore raising of four floors i.e.G+3 (in addition
to providing long span racks with 4 tier storage) was certainly
gross violation of clause 12 (vii) of the lease deed, which height
of four floors thus explains the ineffectiveness of the fire hydrant
system which. was provided only for meeting the contingency of
fire fighting arrangement for ground floor construction and
would have not been effective for such 4 floor high structure.
(c) Such 4 floor high structure as adverted to above would
thus invite liability on the respondent as per clause 11 (v) of the
lease deed Ex. C/9 dated 20/04/2016 which reads as under:-
“That the lessor shall carryout all structural repairs,
leakage and seepage at his own cost in respect of the
leased premises during the lease period, within 2
(TWO week, after the same has been intimated in
writing by the lessee. However, it is clarified that any
material damage/destruction caused to the leased
premises attributed to any act, of the lessee or its
employees, servants. agents, shall be repaired and
rectified by the lessee alone at its sole costs and
expenses.”
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62. Learned senior counsel for the appellant has taken us through
the claim petition of the respondent, in its entirety, to show that no such
claim was ever raised by the claimant-respondent.
63. We have perused the statement of claim of claimant-respondent
which is Annexure A/8 (page 251 to 273 of the paper book) of this
appeal. The contents of statement of claim are not disputed. We find
substance in the appellant’s contention that the claimant-respondent had
not even alleged that any unauthorized floors were raised in the leased
premises by the appellant. We also find substance in the appellant’s
contention that in the absence of any such plea taken by the claimant-
respondent in its statement of claim, the appellants had no occasion or
opportunity to controvert such claim of the respondent.
64. Although during the course of arguments before us certain
photographs were produced to show that in fact no additional floors were
erected in the leased premises and the storage of goods were only to
optimize the utilization of space, by placing racks, which is the normal
practice of storage in the warehouse, but we refrain from commenting
upon such factual aspects when it is noticed that such facts were never
pleaded/set up by the claimant before the arbitrator. The Arbitrator has,
therefore, made out a new case to grant relief notwithstanding the fact
that the appellants never had an opportunity to controvert it or present its
version on this aspect. The finding of the Arbitrator, on this aspect, has
thus caused denial of opportunity to the appellant to contest the claim and
resulted in causing incapacity for the appellant to contest the claim,
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which is one of the recognized grounds under Section 34 of the Act of
1996 to interfere with the award.
65. The Arbitrator in Para 28 of his award has virtually rejected all
admitted material available on record with regard to the fire incident in
question, including the surveyor’s report which had attained finality qua
the claimant. Evidence which indicated that attempts were made by the
appellant’s employees to douse the fire have been rejected by the
Arbitrator by going beyond the scope of its jurisdiction. Para 28 of the
award is reproduced hereinafter:-
“28. (a) It may be recalled here that CW1 Ramesh Chander has
testified that a water storage tank having capacity of 1.5 lakh litres
of water, with two pumps, one of which was an electric pump and
the other one was a diesel pump were installed the warehouse in
question for the fire hydrant system in which context they had also
obtained NOC Ex. C/10 dated 05/07/2018 valid up to 04/07/2019
from the fire department. The said aspect of his testimony goes
unchallenged during his cross-examination. Furthermore, RW1
Gaurav Kumar authorized representative of the respondent company
has admitted during his cross-examination that fire hydrant system
stood installed in the premises in question and was in working
condition.
(b) It may also be recalled that the above named Gaurav
Kumar RW1 has deposed in para no. 10 of his affidavit that Shri Om
Parkash, warehouse in charge of the respondent company along
with Mr. Naresh Kumar and Vinod Kumar had been present at the
premises in question at the time of fire incident in question around
10:20 PM on 16/10/2018 and had made attempts to extinguish the
fire by using hand held fire extinguisher present in the said premises
and had also assisted the other official of the respondent company to
acuate therefrom.
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(c) Om Parkash above named who had lodged the fire
incident report Ex. C/11 dated 17/10/2018 with the police had
mentioned therein that he and his associate workers had attempted
to douse the fire with the help of one fire extinguishment cylinder but
they could not use the second one and were unsuccessful due to
intensity of fire and they had thus all come out of the godown area
and yet the above referred report Ex. RW1/2 submitted by
Associated Surveyors & Consultants through Tata AIG General
Insurance Company (insurer of the respondent) mentions in clause
8.05 thereof that as per information furnished by employees of the
respondent company, security guards and contractual workers (none
of whom is named in the said report nor has any of them been
examined by the respondent during the arbitral proceedings in hand
all the workers/employees present there had attempted to control the
fire with the help of in house fire fighting arrangement by connecting
the nozzle of the fire hose etc. because the seat of fire was at a height
of 24 feet. This unsubstantiated version introduced by the above
named surveyor in its report dated 28/06/2019 regarding the fire
incident dated 16/10/2018 does not therefore inspire any confidence.
(d) It will also be pertinent to recall that a water storage tank,
having capacity of 1.5 lakh litres of water, with two pumps, one of
which was an electric pump and the other one was a diesel pump
were installed in the warehouse in question for the fire hydrant
system in which context they had also obtained NOC Ex. C/10 dated
05/07/2018 which was valid up to 04/07/2019 from the fire
department as so testified by CW1 Ramesh Chand and yet no
evidence worth the name has been led by the respondent to establish
that any of its employees was specially trained/familiarized by it
with use of fire hydrant system water nozzle from above referred
electric/diesel pumps, and nor has any of them been examined by it
to establish that any of them had in fact even started the electric or
diesel pump for dousing the fire for which reason also the above
referred version introduced by the above named surveyor in its
report Ex. RW1/2 cannot be considered to have any credence. In
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these circumstances, observations of the Punjab and Haryana High
Court in the case titled M/s Amartex Industries Ltd and another
versus Aakash Education Services Ltd arising out of RSA No. 1387
of 2021(0&M) decided on 28/01/2022 filed by the counsel for the
respondent are not attracted to the controversy in hand and rather
the observations of the Hon’ble Supreme Court in the case titled
Vohra Sadikbhai Rajakbhai and others versus State of Gujrat and
others reported in 2016 (3) RCR (civil) 107 cited by the learned
counsel for the claimant would apply. The said judgment itself relies
on Rylands versus Fletcher, (1868) LR3 HI. 330, wherein it was held
inter-alia as under:-
“The rule of law is that the person who, for his own
purpose, brings on his land and collects and keeps
there anything likely to do mischief if it escapes, must
keep it in at his peril; and if he does not do so is prima
facie answerable for all the damage which is the
natural consequence of its escape.”
(e) It may, at the cost of repetition, be pointed out that in
the case in hand, the respondent in utter disregard of safety norms,
erected four floors i.e. G+3 for the storage/stacking of stocks, in
addition to long span racks with 4 tier storage. The total floor area
covered by this section was thus 33110 square feet (approx.) as so
mentioned in clause 7.04.1 of the report Ex.RW1/2 of Associated
Surveyors & Consultants submitted to the insurer of the respondent
viz Tata AIG General Insurance Company to which height the water
could not have been pumped as the pump was meant for ground
floor building only as which was constructed as per the sanctioned
site plan.”
66. The finding of the Arbitrator that fire fighting equipments were
not put to use or that trained staff for fire fighting was not employed by the
appellant are all self imagined pleas deployed by the Arbitrator to allow the
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claim even though such pleas never formed the basis of claim set up by the
claimant/respondent.
67. It is well settled that the scope of exercise of jurisdiction under
Section 34 of the Act of 1996 is narrow and is dependent upon exigencies
enumerated therein. Section 34 of the Act of 1996 is reproduced
hereinafter:-
“34. Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance with
sub-section (2) and sub-section (3). (2) An arbitral award may be set
aside by the Court only if
(a) the party making the application 1 [establishes on the basis of
the record of the arbitral tribunal that]–
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any indication
thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration: Provided that, if the
decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the
arbitral award which contains decisions on matters not
submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a
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Page 37 of 53or, failing such agreement, was not in accordance with this
Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public policy of
India.
Explanation 1. –For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,–
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.–For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.]
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the Court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
evidence.]
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making that
application had received the arbitral award or, if a request had been
made under section 33, from the date on which that request had been
disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within the
said period of three months it may entertain the application within a
further period of thirty days, but not thereafter.
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Page 38 of 53(4) On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion of
arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
(5) An application under this section shall be filed by a party only
after issuing a prior notice to the other party and such application
shall be accompanied by an affidavit by the applicant endorsing
compliance with the said requirement.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from the
date on which the notice referred to in sub-section (5) is served upon
the other party.”
68. We may also refer to Section 28 (3) of the Act of 1996 which
provides as under:-
“Rules applicable to substance of dispute.–(1) Where the place of
arbitration is situated in India:
1 and 2 XXXXXXX
(3) While deciding and making an award, the arbitral tribunal shall,
in all cases, take into account the terms of the contract and trade
usages applicable to the transaction.”
69. The possible grounds on which an award can be interfered with
under Section 34 of the Act of 1996 includes the ground where the party
making application under Section 34 of the Act of 1996, furnishes proof of
some incapacity; was unable to present his case; or the arbitral award deals
with a dispute not contemplated by or not falling within the terms of the
submission to arbitration or contains decision on matters beyond the scope
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of submission to arbitration. These grounds are in addition to the otherwise
well accepted ground of it being in conflict with Public Policy of India.
70. In Associate Builders vs. Delhi Development Authority 2015
(3) SCC 49, the Supreme Court referred to an earlier judgment of the Court
in DDA vs. R.S. Sharma and Company (2008) 13 SCC 80, para 21 to
observe as under:-
“In Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4
SCC 445, this Court held:
“14. The High Court did not have the benefit of the principles laid
down in Saw Pipes [(2003) 5 SCC 705] , and had proceeded on the
assumption that award cannot be interfered with even if it was
contrary to the terms of the contract. It went to the extent of holding
that contract terms cannot even be looked into for examining the
correctness of the award. This Court in Saw Pipes [(2003) 5 SCC
705] has made it clear that it is open to the court to consider
whether the award is against the specific terms of contract and if so,
interfere with it on the ground that it is patently illegal and opposed
to the public policy of India.”
71. The Court cautioned on the limits on power of Court to
interfere with the arbitral award under various heads and restricted it to
Public Policy of India including (I) Fundamental Policy of Indian Law
consisting of compliance with statutes and judicial precedents; need for
judicial approach; natural justice compliance and; wednesbury
reasonableness; (II) Interest of India; (III) Justice or Morality and (IV) patent
illegality in the nature of contravention of substantive law of India;
contravention of Act of 1996 and contravention of the terms of the contract.
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72. The principles laid down in Associate Builder‘s case (supra)
has been reiterated in various judgments (i) Ssangyong Engg and
Construction Company Ltd. Vs. National Highway Authority of India (2019)
15 SCC 131, Unibros vs. All India Radio 2023 SCC OnLine SC 1366, PSA
Sical Terminals Private Limited vs. Board of Trustees of VO Chidambranar
Port Trust Tuticorn and others (2023) 15 SCC 781, Delhi Metro Rail
Corporation Limited vs. Delhi Airport Metro Express Pvt. Ltd. (2024) 6
SCC 357, PAM Developments Private Limited vs. State of West Bengal
(2024) 10 SCC 715, Batliboi Environmental Engineering Limited vs.
Hindustan Petroleum Corporation Ltd. (2024) 2 SCC 375, Sepco Electric
Power Construction Corporation vs. GMR Kamalanga Energy Ltd. 2025
SCC OnLine SC 2088, Larsen and Toubro Limited vs. Puri Construction
Pvt. Ltd. And others 2025 SCC OnLIne SCC 830, UHIL Power Company
Ltd. Vs. State of Himachal Pradesh (2024) 4 SCC 116, National Highway
Authority of India vs. Hindustan Construction Company Ltd. (2024) 6 SCC
809, Haryana Tourism Ltd. Vs. Kandhari Beverages (2022) 3 SCC 237,
Consolidated Construction Consortium vs. Sofware Technology Parks of
India (2025) 7 SCC 757 and C & C Construction Ltd. Vs. IRCON
International Pvt. Ltd. (2025) 4 SCC 234.
73. Where the Arbitrator’s award is found to be contrary to the
express terms of the contract or where the award suffers from patent
illegality it would be lawful for the Court to interfere with it in exercise of its
powers under Section 34 of the Act of 1996.
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74. In the facts of the present case, the lease deed had fastened
liability upon the claimant/respondent to get the leased premises insured at
all times during the existence of lease. The records reveal that this
responsibility was not discharged by the claimant who had, contrary to the
terms of the lease deed, under insured the leased premises. This led to a
lesser amount being awarded by the insurance company to the claimant. The
Arbitrator has completely ignored this crucial part of the contract between
the parties and has referred to irrelevant facts to allow the claim which
suffers from patent illegality.
75. The award of Arbitrator since proceeds on grounds which was
not even the pleaded case of the respondent as such, the appellant has been
denied opportunity of contest in the matter and has suffered incapacity,
which is one of the grounds on which the Court was required to interfere.
76. The other limb of arbitrator’s award is the acceptance of claim
of rent till the leased premises was let out to someone else.
77. Clause 14 of the Contract, provided for termination of lease
deed upon giving of three months prior notice, without assigning any reason
whatsoever. Clause 14 is reproduced :-
“14. TERMINATION:
i) The Lessee shall have the sole right to terminate the
Lease by giving 3 (Three) months prior written notice to the
Lessor without assigning any reason whatsoever. The Lessee
shall, on the expiry or earlier determination of the Lease, be
entitled to remove from the Leased Premises, all its furniture
and fixtures, equipment and/ or appliances that may have been
brought in and/or installed therein by the Lessee.
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ii) The Lessor shall be locked-in for the entire term of the
Lease.
iii) This Deed will automatically come to an end on the
expiry date or early termination as written above, or on expiry
of the extensions hereof.
iv) Upon the expiry/ termination/ early determination of the
Lease, the Lessee shall forthwith remove itself and its staff
together with its furniture, fixtures and belongings so as to
vacate the Leased Premises, for the Lessor to occupy the
Leased Premises, subject to the terms and conditions mentioned
herein.
v) If any due to the effect of any statutory act of the
authorities the Leased Premises are demolished either partly or
otherwise or the statutory act affects the said business of the
Lessee in whatsoever manner then the Lessee shall
notwithstanding the contents herein contained be entitled to
terminate the Lease with a notice of one month to the Lessor
and the Lessor shall be obliged to refund the security deposit
forthwith.
vi) The Interest Free Security Deposit shall be refundable by
the Lessor to the Lessee, simultaneously at the time of handing
over of the vacant and peaceful physical possession of the
Leased Premises by the Lessee to the Lessor.
vii) If the Lease Dead is terminated because of default Clause
no. 15 then the Lessor shall be obliged to refund the security
deposit as per the Clause no. 5.
viii) After the expiry / termination of Lease Deed, Lessor to give
Lessee 30 (thirty) days rent free period to vacate the Lease
Premises.”
78. In terms of Clause 14, a notice for termination was served upon
the lessor on 18.10.2019. Rent for three months’ notice period was
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admittedly paid to the claimant. In such circumstances, question arises as
to whether the Arbitrator could fasten liability upon the appellant to
continue to pay rent upon the appellant till the leased premises was let
out to someone else after its restoration?
79. There is no provision in the lease deed/Contract providing for
continuation of tenancy despite service of termination notice and
payment of rent for three months. Service of notice of termination as also
the payment of rent for the notice period in terms of Clause 14 of lease
deed upon claimant is also undisputed. The other question that arises for
our consideration is as to whether the arbitrator could unilaterally modify
the express terms of the contract and award rent despite the termination
of tenancy in terms of Clause 14?
80. Law is settled that Arbitrator is bound by the terms of contract
and has no authority to rewrite it, or to add a stipulation which otherwise
does not exist in the contract. This is so as the Arbitrator has to enforce
the contract and not to substitute it by a clause which has not been agreed
upon by the parties.
81. Appellant is the lessee and in terms of Clause 14 of the Lease
Deed had the authority under the contract to terminate the lease in the
manner stipulated. Once, such right has been exercised by the lessee in
accordance with the Lease Deed it was impermissible for the Arbitrator to
have allowed payment of rent till a new tenant was inducted in the
premises.
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82. For allowing payment of rent till a new tenant was inducted, to
the Claimant, the Arbitrator has given following reasons:-
“ii) Learned counsel for the respondent has argued that even after
the fire incident in question dated 16/10/2018, the respondent had,
purely on humanitarian grounds, continued paying rental upto
September 2019 to the claimant in view of various e-mails
exchanged between the parties hereto. However, the contention of
the respondent having continued payment of rental to the claimant
upto September 2019 on “humanitarian grounds” even after the fire
incident in question dated 16/10/2018 tantamount to self praise
where none is warranted keeping in view the fact that the said fire
incident had occurred due to gross negligence on the part of the
respondent as discussed in detail in my finding under issue nos. 2, 3
& 4 above and therefore observations in the case titled Onida
Finance Ltd versus Malini Khanna reported in Manu/DE/2441/2002
of the Delhi High Court cited on behalf of the respondent are not
attracted to the facts of the case in hand.
(iii) It may also be recalled here that it is the own case of the
respondent company that it had terminated the lease deed Ex. C/9
vide notice Ex. RW1/9. dated 17/07/2019 w.e.f. 18/10/2019 onwards,
statedly owing to “business contingencies” which termination has
been held by me in my finding under issue numbers 2 to 4 above to
be unjustified in as much as the fire incident in question dated
16/10/2018 had taken place in the leased premises on account of
gross negligence on the part of the respondent and the respondent
was liable to repair/rectify at its own cost and expense the damage
to the leased premises by virtue of clause 11 (v) of the lease deed Ex.
C/9 dated 20/04/2016 but instead of doing so, the respondent chose
to terminate the lease vide notice Ex. C/14-RW1/9 dated 17/07/2019
effective from 18/10/2019 thereby resulting in loss of rental income
to the claimant from 18/10/2019 onwards till reconstruction of the
fresh building over the same land after incurring further expenses to
the tune of Rs. 5 Crores taken as loan for the second time from PNB
and leasing out the same to M/s Pathways Retail Pvt Ltd vide fresh
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lease deed Ex. C/30-A dated 12/07/2021 effective from 15/08/2021
@ Rs. 12 Lakhs per month, which loss of rental income comes to Rs.
2,60,46,520/- calculate @ 11,57,625/- which was admittedly the
amount being paid to the claimant by the respondent and which
amount is thus recoverable by the claimant.”
83. It is well settled that an Arbitrator lacks the power to deviate
from, or to re-interpret the terms of the Contract while making an Award.
The Award must be within the parameters of the Agreement entered into
between the parties.
84. In Sepco Electric Power Construction Corporation vs. GMR
Kamalanga Energy Ltd., 2025 SCC OnLine SC 2088 the Supreme Court
of India has elaborately examined the scope of powers of Arbitrator to
hold as under in paragraph Nos.91 to 96:-
“91. Numerous precedents laid down by this Court have often
emphasised that an arbitrator lacks the power to deviate from or to
reinterpret the terms of the contract while making an award. The
awards must be within the parameters of the agreement entered
between the parties.
92. This Court in Saw Pipes (supra) has reiterated that any deviation
from the mandate of Section 28 Sub-Section 3 of the 1996 Act is a
valid ground for lambasting an arbitral award. Commenting on the
duty of the arbitrators, this Court observed as follows:
“73. It is to be reiterated that it is the primary duty of
the arbitrators to enforce a promise which the parties
have made and to uphold the sanctity of the contract
which forms the basis of the civilized society and also
the jurisdiction of the arbitrators. Hence, this part of
the award passed by the Arbitral Tribunal granting
interest on the amount deducted by the appellant from
the bills payable to the respondent is against the terms
of the contract and is, therefore, violative of Section
28(3) of the Act.”
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93. To substantiate that the contract is paramount to the working,
scope, and interpretation for the purpose of an award by the
arbitrator, a reference may be made to another 3-Judge Bench
decision in South East Asia Marine Engineering and Constructions
Limited v. Oil India Limited60. Therein, while rejecting the challenge
to setting aside of the arbitral award, this Court made the following
observations:
“28. In this context, the interpretation of Clause 23 of
the contract by the Arbitral Tribunal, to provide a
wide interpretation cannot be accepted, as the thumb
rule of interpretation is that the document forming a
written contract should be read as a whole and so far
as possible as mutually explanatory. In the case at
hand, this basic rule was ignored by the Tribunal
while interpreting the clause.
29. The contract was entered into between the parties
in furtherance of a tender issued by the respondent
herein. After considering the tender bids, the appellant
issued a letter of intent. In furtherance of the letter of
intent, the contract (Contract No. CCO/FC/0040/95)
was for drilling oil wells and auxiliary operations. It is
important to note that the contract price was payable
to the “contractor” for full and proper performance of
its contractual obligations. Further, Clauses 14.7 and
14.11 of the contract state that the rates, terms and
conditions were to be in force until the completion or
abandonment of the last well being drilled.
30. From the aforesaid discussion, it can be said that
the contract was based on a fixed rate. The party,
before entering the tender process, entered the
contract after mitigating the risk of such an increase.
If the purpose of the tender was to limit the risks of
price variations, then the interpretation placed by the
Arbitral Tribunal cannot be said to be possible one, as
it would completely defeat the explicit wordings and
purpose of the contract. There is no gainsaying that
there will be price fluctuations which a prudent
contractor would have taken into margin, while
bidding in the tender. Such price fluctuations cannot
be brought under Clause 23 unless specific language
points to the inclusion.
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31. The interpretation of the Arbitral Tribunal to
expand the meaning of Clause 23 to include change in
rate of HSD is not a possible interpretation of this
contract, as the appellant did not introduce any
evidence which proves the same.”
94. Further clarification of this proposition is brought about through
observations of this Court in a further decision by 3-Judge Bench in
Union of India v. Bharat Enterprise61 wherein it was underlined that
the existence and powers of an arbitrator are a creature of the
agreement between the parties, and it is the terms of the contract
which serves as a fundamental basis for the procedure to be adopted
by the arbitral tribunal. Therefore, the concerned arbitrator is
restricted to the terms of the contract thereof and cannot go outside
its scope or what is, per se, specified. In words of the Bench, “A
disregard of the specific provisions of the contract would incur wrath
of the Award being imperiled. This position cannot be in the region of
dispute.”
95. In order to achieve an enhanced understanding apropos the scope
of the powers and jurisdiction of an arbitrator, a reference may also
be made to a decision of this Court in Associated Engineering
(supra), which was determined vis-Ã -vis Section 30 of the Arbitration
Act, 1940 wherein, it was observed that:
“24. The arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole
function is to arbitrate in terms of the contract. He has
no power apart from what the parties have given him
under the contract. If he has travelled outside the
bounds of the contract, he has acted without
jurisdiction. But if he has remained inside the
parameters of the contract and has construed the
provisions of the contract, his award cannot be
interfered with unless he has given reasons for the
award disclosing an error apparent on the face of it.
25. An arbitrator who acts in manifest disregard of the
contract acts without jurisdiction. His authority is
derived from the contract and is governed by the
Arbitration Act which embodies principles derived from
a specialised branch of the law of agency (see Mustill
and Boyd’s Commercial Arbitration, 2nd edn., p. 641).
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Page 48 of 53He commits misconduct if by his award he decides
matters excluded by the agreement (see Halsbury’s
Laws of England, Volume II, 4th edn., para 622). A
deliberate departure from contract amounts to not only
manifest disregard of his authority or a misconduct on
his part, but it may tantamount to a mala fide action. A
conscious disregard of the law or the provisions of the
contract from which he has derived his authority
vitiates the award.
26. A dispute as to the jurisdiction of the arbitrator is
not a dispute within the award, but one which has to be
decided outside the award. An umpire or arbitrator
cannot widen his jurisdiction by deciding a question not
referred to him by the parties or by deciding a question
otherwise than in accordance with the contract. He
cannot say that he does not care what the contract says.
He is bound by it. It must bear his decision. He cannot
travel outside its bounds. If he exceeded his jurisdiction
by so doing, his award would be liable to be set aside.
As stated by Lord Parmoor: [Attorney-General for
Manitoba v. Kelly, [1922] 1 A.C. 268, 276: [1922] All
ER Rep 69] (AC p. 276)
‘It would be impossible to allow an umpire to arrogate
to himself jurisdiction over a question which, on the
true construction of the submission, was not referred to
him. An umpire cannot widen the area of his
jurisdiction by holding, contrary to the fact, that the
matter which he affects to decide is within the
submission of the parties.’
Evidence of matters not appearing on the face of the
award would be admissible to decide whether the
arbitrator travelled outside the bounds of the contract
and thus exceeded his jurisdiction. In order to see what
the jurisdiction of the arbitrator is, it is open to the
court to see what dispute was submitted to him. If that
is not clear from the award, it is open to the court to
have recourse to outside sources. The court can look at
the affidavits and pleadings of parties; the court can
look at the agreement itself. Bunge & Co. v. Dewar and
Webb [(1921) 8 Ll L Rep 436].
27. If the arbitrator commits an error in the
construction of the contract, that is an error within his
jurisdiction. But if he wanders outside the contract and
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Page 49 of 53jurisdictional error. Such error going to his jurisdiction
can be established by looking into material outside the
award. Extrinsic evidence is admissible in such cases
because the dispute is not something which arises under
or in relation to the contract or dependent on the
construction of the contract or to be determined within
the award. The dispute as to jurisdiction is a matter
which is outside the award or outside whatever may be
said about it in the award.
The ambiguity of the award can, in such cases, be
resolved by admitting extrinsic evidence. The rationale
of this rule is that the nature of the dispute is something
which has to be determined outside and independent of
what appears in the award. Such jurisdictional error
needs to be proved by evidence extrinsic to the award.
[See Alopi Parshad & Sons, Ltd. v. Union of India
[(1960) 2 SCR 793 : AIR 1960 SC 588]; Bunge & Co.
v. Dewar & Webb [(1921) 8 Ll L Rep 436];
Christopher Brown Ltd. v. Genossenschaft
Oesterreichischer [[1954] 1 Q.B. 8 : [1953] 3 WLR
689]; Rex v. Fulham [[1951] 2 Q.B. 1 : [1951] 1 All
ER 482]; Falkingham v. Victorian Railways
Commission [[1900] A.C. 452 : 69 LJ PC 89]; Rex v.
All Saints, Southampton [(1828) 7 B&C 785 : 1 Man &
Rey KB 663]; Laing (James), Son & Co. (M/C) Ltd. v.
Eastcheap Dried Fruit Co. [(1961) 1 Ll L Rep 142,
145]; Dalmia Dairy Industries Ltd. v. National Bank of
Pakistan [(1978) 2 Ll L Rep 223]; Heyman v. Darwins
Ltd. [[1942] A.C. 356 : [1942] 1 All ER 337]; Union of
India v. Kishorilal Gupta & Bros. [AIR 1959 SC 1362 :
(1960) 1 SCR 493]; Renusagar Power Co. Ltd v.
General Electric Company [(1984) 4 SCC 679 : (1985)
1 SCR 432];Jivarajbhai v. Chintamanrao [(1964) 5
SCR 480 : AIR 1965 SC 214]; Gobardhan Das v.
Lachhmi Ram [(1954) 1 SCC 566 : AIR 1954 SC 689,
692]; Thawardas Pherumal v. Union of India [(1955) 1
SCC 372 : (1955) 2 SCR 48 : AIR 1955 SC 468];
Omanhene Kobina Foli v. Chief Obeng Akessee [AIR
1934 PC 185, 188: 40 MLW 138]; F.R. Absalom, Ltd.
v. Great Western (London) Garden Village Society,
Limited [[1933] A.C. 592 : [1933] All ER Rep 616] and
M. Golodetz v. Schrier [(1947) 80 Ll L Rep 647].]”
96. Examining the principles involved, a reference to decisions
under the Arbitration Act, 1940, may also be apprised through the49 of 53
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Page 50 of 53decision of a 3-Judge Bench of this Court in Allen Berry and Co.
Pvt. Ltd. v. Union of India, New Delhi62 wherein this Court
considered the proper scope of judicial review of arbitral awards
and iterated that a court has the right to review documents that are
specifically included in an award while reviewing it. However, as
also observed in some cases, the courts, especially in the United
Kingdom, have travelled farther and set aside the awards in which
the contracts have merely been referred in passing, and apparently
were incorrectly incorporated, forming the foundation of a verboten
award.”
85. Viewed in light of the specific provision of the Contract i.e.,
Clause 14 which confers right on the lessee to terminate the tenancy on three
months’ notice and in view of the admitted factual position that such notice
along with three months’ rent was actually given/paid it would be difficult to
sustain the Arbitrator’s award of awarding rent to the Claimant beyond the
termination of tenancy as per Clause 14.
86. We are, therefore, of the considered opinion that the Arbitrator
could not have allowed payment of rent for the period post termination of
tenancy vide Clause 14. No right could have been created in the Claimant to
continue to receive rent till the leased premises was let out to someone else.
87. The Commercial Court, Gurugram while adjudicating the
objection of the appellant under Section 34 of the Act of 1996 has failed to
advert to the express terms of contract which gave unencumbered right to
the lessee to terminate the tenancy by adhering to Clause 14 of the Contract.
The Court has also failed to appreciate that by allowing rent beyond the
termination of tenancy, the Arbitrator has not only gone against the express
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terms of the Contract but has virtually re-written the Contract which was
beyond the jurisdiction of the Arbitrator.
88. The Commercial Court while rejecting the objection of
appellant under Section 34 of the Act of 1996 has, therefore, failed to
exercise jurisdiction vested in it. Such failure, in our considered view, is
liable to be corrected by us under Section 37 of the Act of 1996.
89. In view of the our analysis aforesaid, we come to the following
conclusions:-
CONCLUSIONS:
(i) By virtue of Clause 13 of the Lease Deed, it was the obligation of
the claimant/respondent to secure the leased premises in an
incident of fire by adequately availing an insurance policy;
(ii) The claimant had availed of an insurance policy and for the fire
incident lodged a claim which was allowed by its insurer and a
sum of Rs. 2,52,39,404/- was paid to him;
(iii) In case the actual losses in the fire incident were more than the
awarded claim, then the claimant could have litigated for higher
damages against its insurer. Moreover, any reduction in the
insurance claim due to under valuation of the leased premises had
to be suffered by the claimant himself;
(iv) Onus lay on the claimant to establish actual losses in the fire
incident in order to establish a claim under Clause 11(v) of the
Lease Deed, which he failed to prove;
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(v) The Arbitrator could not have travelled beyond the terms of the
contract nor could have ignored evidence on record as per which
the fire incident was caused accidently, on account of short circuit;
(vi) The finding of Arbitrator regarding negligence on part of the
appellant leading to fire incident is contrary to overwhelming
evidence available on record and consequently, suffers from patent
illegality;
(vii) The Arbitrator went beyond the pleaded case of claimant and
allowed the claim by carving out a new case which not only
incapacitated the appellant in contesting the claim but also caused
denial of opportunity to him;
(viii) By virtue of Clause 14 of the Lease Deed, the lessee – appellant
had the sole right to terminate the lease by giving three months’
prior notice without assigning any reason whatsoever. This power
under the contract was unqualified and was duly invoked. As such,
appellant had no obligation to pay rent after the termination of
lease and the contrary decision of the Arbitrator is in teeth of the
express terms of the contract and thus unsustainable;
(ix) By awarding rent to the claimant even after termination of lease
agreement, the Arbitrator has re-written the contract contrary to the
express terms thereof, which suffers from patent illegality.
90. We have carefully perused the judgment of the Commercial Court
which is impugned herein. We find that the aspects highlighted in this
judgment were taken and pressed as grounds to interfere with the award of
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the Arbitrator under Section 34 of the Act of 1996. However, the
Commercial Court has not dealt with such objections and has cursorily
rejected the objections in a routine and mechanical manner. The order
impugned, of the Commercial Court, therefore, cannot be sustained.
91. Consequently, this appeal succeeds and is allowed. The order
passed by the Commercial Court at Gurugram, dated 22.08.2025, is set-
aside. The objection of the appellant to the arbitral award dated 23.12.2023,
filed under Section 34 of the Act of 1996, is allowed. As a result, the arbitral
award dated 23.12.2023, is set-aside. The parties are, however, left to bear
their own costs.
[ASHWANI KUMAR MISHRA]
JUDGE
[ROHIT KAPOOR]
JUDGE
February 13, 2026
VS/Rajesh
Whether speaking / reasoned : Yes / No
Whether Reportable : Yes / No
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