2013 Supreme(Bom) 1295

High Court of Judicature at Bombay
R.D. DHANUKA, J.
Gujarat Urja Vikas Nigam Limited & Others
Versus
Tata Motors Limited
Arbitration Petition No. 955 of 2011
Decided on: 16-07-2013

A claim for creation of fund does not fall under clause-14 of a Lease Agreement and is beyond the scope of such clause if it is not a dispute arising under the Lease Agreement.

Headnote:

Whether the claim for creation of fund would fall under clause-14 of the Lease Agreement or not and whether such claim was beyond the scope of clause-14 or not.

Fact of the Case:

Tata Finance Ltd. which stood amalgamated with the respondents herein (hereinafter referred to as the said Agreement) entered into an agreement of lease with the Gujarat Electricity Board (Predecessor of the petitioners herein) whereby the respondents agreed to lease in favour of the said Gujarat Electricity Board suit property for a period of 72 months on the terms and conditions setout therein. Under the said agreement Gujarat Electricity Board was liable to pay lease rentals every month based on an asset cost of Rs.1,000/- fixed at Rs.19.95 per month per thousand payable monthly in advance. Parties thereafter executed supplementary lease schedules in respect of the said equipments. The said Board started paying lease rentals to the respondents from April 1994 at the rate prescribed under the said agreement. Some of the relevant clauses of the said agreement which would have bearing on the subject matter of this petition are extracted as under :- Clause 2.2 That in the event of the Lessee being in arrears of such lease rentals, such arrears of lease rentals shall carry service charges at the rate of 30% per annum on the compounding basis with monthly rests from the due dates specified in supplementary lease schedules attached / to be attached till date of actual payment. Clause 2.4 The Lessor shall be entitled to vary the lease rental charges at any time during the continuance of this Agreement in the event of a change occurring on the basis of which the lease rentals charged hereby are computed, namely variables relating to depreciation rate, permitted as per the Indian Income Tax Regulations for the time being in force on declining balances or modifications in the cost of money to the Lessor. The Lessee irrevocably agrees and declares that the lease rental charges shall be increased in co relation to increase in taxes whether sales tax or excise, and any other related or consequential charges that may be levied on or in connection with the lease of the equipment under this Agreement. At any time hereafter or any increase in the price of the equipment between the date of the order placed on the manufacturer/supplier thereof and the date of its delivery. Clause 3.4 The Lessees shall not be liable for fair and normal wear and tear of the Equipment and the burden and depreciation resulting from any such fair wear and tear shall fall upon the Lessor who shall be entitled to claim from the Revenue all capital allowances in respect of the Equipment. Clause 3.5 Since the Lessee is not the owner of the Equipment, the Lessee shall not claim any relief by way of any deduction, allowance or grant, available to the Lessor as owner of the Equipment under the Income Tax Act, 1961, or under any other statute, rules, regulations or guidelines issued by the Government of India or any statutory authority and not do or omit to do any act, deed or thing whereby the Lessor is deprived wholly or partly and that the Lessee shall, at the end of each financial year of the Lessor, provide to the Lessor such information as it may require to claim relief by way of any deduction allowance or grant, as the owner of the Equipment, under the Income Tax Act 961, and the Lessee undertakes to comply with and observe, at all times, the terms and conditions to be complied with or observed in respect of the use and operation of the Equipment to entitle the Lessor to obtain such relief. Clause 14 The Lessee shall indemnify and keep indemnified the Lessor, at all times, against any loss or seizure of the Equipment under distress, execution or other legal process or destruction or damage to the Equipment by fire, accident or other cause, from any claim or demand arising out of the storage, installation, use or operation of the Equipment or any risk of liability for death or loss of limb of any person whether employee of the Lessee or of third party and hold the Lessor harmless, against all losses, damages, claims, penalties, expenses, suits, or proceedings of whatsoever nature made, suffered or incurred consequent thereupon and for this purpose take out such workmen’s compensation third party insurance cover as may be necessary, customary to the practice in the business carried on by the Lessor or as may be directed by the Lessor, in that behalf. Clause 18.1 That upon occurrence of any of the events specified in clauses 18.1 to 18.1.7 of the Lease Agreement, the Lessor will be entitled to, without prejudice to their other rights under the Agreements to terminate the Lease. Clause 18.2 That upon termination of the Lease, the Lessor will be entitled, inter alia, to:- (a) to remove and re-possess the said equipment: (b) to recover the entire amount of Lease rentals for the unexpired residue of the term of six years; (c) to recover the cost of all repairs and maintenance of the said equipment to maintain it in good working order and condition and all costs, charges and expenses that may be incurred by them in re-possessing the said equipment; (d) to sell, release and/or dispose off the said equipment in such a manner as the Lessor shall deem fit and (e) that upon termination of the lease by the efflux of time or otherwise, the same shall at its own costs and expenses forthwith deliver or cause to be delivered to the Lessor the said equipment, at such time and place as ma be directed by the Lessor in good repair, order and condition. Clause 20.9 Any disputes arising under this Lease the same shall be referred to an Arbitrator to be nominated by the Lessor and the Award of the Arbitrator shall be final and binding on all the Parties concerned. The venue of such Arbitration shall be in Bombay.

Finding of the Court:

The court found that the claim for creation of fund would not fall under clause-14 of the Lease Agreement and that such claim was beyond the scope of clause-14.

Issues: Whether the claim for creation of fund would fall under clause-14 of the Lease Agreement or not and whether such claim was beyond the scope of clause-14 or not.

Ratio Decidendi: The court held that the claim for creation of fund would not fall under clause-14 of the Lease Agreement and that such claim was beyond the scope of clause-14. The court reasoned that clause-14 only applied to situations where there was a loss or seizure of the equipment under distress, execution or other legal process or destruction or damage to the equipment by fire, accident or other cause. The court also found that the claim for creation of fund was not within the scope of the arbitration agreement because it was not a dispute arising under the Lease Agreement.

Final Decision: The court allowed the arbitration petition and set aside the impugned award.