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IN THE HIGH COURT OF DELHI
Najmi Waziri, Vikas Mahajan, JJ.
India Tourism Development Corporation Limited - Appellant
Versus
Bougainvillea Multiplex Entertainment Centre Pvt. Ltd. - Respondent
FAO(OS) (COMM) 137 of 2022
Decided On : 27-05-2022
A licensor's duty to disclose defects in licensed premises is essential, and the condition 'as is where is' does not absolve them from ensuring the premises are fit for use.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 37(1)(c) - Appeal against an arbitral award - The order of the Single Judge dismissing the petition under Section 34 on grounds of patent illegality was challenged - Respondent awarded compensation for damage caused by water leakage in licensed premises attributed to licensor's failure to maintain the structure - Court held there was a fundamental breach of contract when licensor did not ensure premises were fit for licensee's purpose. (Paras 1-8)
(B) Contract Law - Duty to disclose defects - The court confirmed that the licensor's obligation included ensuring the premises were suitable for the intended use and that 'as is where is' does not absolve them from disclosing structural issues. (Paras 25-30)
Facts of the case:
The appellant challenged the dismissal of a petition for setting aside an arbitral award favoring the respondent, based on claims of structural failure due to water leakage, affecting their business operations. The licensor failed to disclose the temporary nature of the premises which significantly impacted the use of the property as intended.
Findings of Court:
The arbitral tribunal found that the failure to keep the premises in good repair constituted a fundamental breach of the license agreement, which released the licensee from obligations under the contract. The court upheld the tribunal's findings regarding the licensor's nondisclosure and the premises' unsuitability.
Issues: Whether the condition 'as is where is' absolves the licensor from its duty to disclose defects and whether the tribunal's conclusions regarding the breach were valid.
Ratio Decidendi: The court ruled that a mere 'as is where is' clause does not release a licensor from its duty to disclose material defects which affect the premises' usability, supporting the arbitral tribunal's decision.
Result: Appeal dismissed.
JUDGMENT
Najmi Wazri, J. (Oral)
FAO(OS) (COMM) 137/2022, CM APPL. 25520/2022, CM APPL. 25521/2022 & CM APPL. 25522/2022
1. This appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (`Act') impugns the order dated 01.04.2022 in O.M.P. (COMM.) 402/2018, passed by the learned Single Judge of this court dismissing the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996, against an Arbitral Award dated 11.05.2018. Primarily, the ground of challenging the order under Section 34(2-A) of the Act is "patent illegality" appearing on the face of the Award.
2. The learned Senior Advocate for the appellant submits that the Award is against the public policy; that the respondent had been awarded compensation, which is unjustified and is contrary to the admitted facts; that the responsibility to maintain the structure, in which the licensed premises were housed, lay upon the licensee; that the licensed premises were taken after inspection by the licensee on `as is where is basis'; the leakage in the roof of the structure was not to be repaired by the licensor; therefore damages, etc, as may have been caused to and claimed by the licensee, was entirely because the licensor failed in duly maintaining the structure or keeping it in good repair.
3. The aforesaid order of the learned Single Judge has dealt with the issue as under:
"...
Reasons & Conclusions
25. The disputes between the parties essentially stem from the existence of water leakage from the roof of the Premises licenced by ITDC to BMEL. There is no dispute that in March, 2015, there was an incident of water leakage from the roof of the Premises. BMEL claimed that it had placed buckets at various places inside the Premises to collect the water from the leaking roof so as to protect the equipment, furniture and other fixtures. It was suggested by ITDC that the description was exaggerated; however, there is no serious dispute that there was water leakage in March, 2015. It is also not disputed that there were heavy rains during the period 10.07.2015 to 12.07.2015. BMEL claimed that the roof of the premises almost caved in and there was continuous water pouring from the roof. This completely destroyed the equipment as well as the dicor of the Premises in question. There is ample material on record to show that water had leaked from the roof damaging the interiors and rendering the Premises unfit for being used for the purpose for which it was licenced. The Arbitral Tribunal had examined the material on record and had found that the assertions made by BMEL in this regard were correct.
26. It is seen that ITDC had not seriously contested that there was leakage of water in the Premises from 10.07.2015 to 12.07.2015. ITDC's defence largely rested on two assertions. First, that it had licenced the premises on an `as is where is basis' and therefore, was not responsible for the upkeep or repairs of the Premises. And Second, that BMEL was required to carry out the repairs of the Premises for its purpose.
27. The Arbitral Tribunal rejected the aforesaid contentions. The Arbitral Tribunal accepted BMEL's assertion that the roof of the Premises over the main area was a tin roof, which was covered by a thin layer of cement. The Arbitral Tribunal was of the view that handing over of the Premises on `as is where is basis' did not absolve ITDC of its obligation to ensure that the Premises were fit for the purpose for which the same were licenced. There was no dispute that the Premises were licenced to run a high-end International Cuisine Restaurant cum Night Club; the Premises are within the precincts of a Five Star Hotel; and the Licence Fee payable to ITDC was substantial. The Arbitral Tribunal was of the view that considering these facts it was incumbent upon ITDC to at least ensure that the Premises were structurally sound for the purpose for which the same were licenced.
28. The Arbitral Tribunal also referred to the Agreement which ex
