The arbitrator must address allegations of fraud and collusion affecting the enforceability of a contract; failure to do so results in an award being set aside for patent illegality.

JUDGMENT :

(Sunita Agarwal, CJ.)

(1) The present appeal under Section 37 of the Arbitration and Conciliation Act’ 1996 (for short, “the Act’ 1996”) is filed challenging the judgment and order dated 13.09.2024 passed by the Special Judge, Commercial Court and the 3rd Additional District Judge, Ahmedabad (Rural) at Navrangpura in Commercial Civil Application No.07 of 2022 under Section 34 of the Act’ 1996 as also the arbitral award dated 26.11.2021 passed by the learned Arbitrator, adjudicating the dispute between the parties arising out of the alleged lease agreement dated 14.09.2012, entered into between the parties.

(2) The appellants herein namely the original claimants would contend that the subject property namely eight shops / showrooms, viz. Unit Nos. 201 to 208 (admeasuring 11,941 sq.ft., super built-up area) situated at the Second Floor of building known as Shri Rang Heights and Arcade, New PDPU Crossroads, Gandhinagar Airport Highway, Gandhinagar, Gujarat constructed upon Final Plot No.5, Sub-plot 3 of Moje Kudasan, Ta.Gandhinagar, Dist.Gandhinagar was given on lease to the respondent company namely Gujarat Metro Rail Corporation (GMRC) formally known as Metro Link Express for Gandhinagar and Ahmedabad (MEGA Company Ltd.), for the period of five years with effect from 01.09.2012 till 31.08.2017, vide lease agreement dated 14.09.2012 executed between the parties.

(3) It is contended that the possession of the subject property was taken by the respondent on 01.09.2012 and formally, a lease agreement was executed on 14.09.2012. It was agreed between the parties that the respondent shall pay monthly rent of Rs.5,37,345/- (Rs.45/- per sq.ft.) with effect from 01.09.2012 and there would be escalation in the rate of rent by 10% each year till the subsistence of the lease period till 31.08.2017.

(4) It was further agreed upon between the parties that the respondent shall handover the vacant possession of the subject property to the claimants on the expiry of the lease period, i.e. 31.08.2017 and in event of failure, the respondent shall be liable to pay penalty to the tune of 1.5 times of the lease rent amount as determined at the time of expiry of the contract, without prejudice to other remedies available to the appellants / lessor.

(5) It is contended by the learned Senior Counsel Mr. Percy Kavina appearing for the appellants that the execution of the lease agreement / contract was not disputed by the respondent and further, the respondent had occupied the subject property on the basis of the lease agreement executed on 14.09.2012. The rent, as agreed upon between the parties, however, had been paid only till December’ 2013 and with effect to January’ 2014, the respondent had stopped payment of monthly rent in breach of the agreement.

(6) Inspite of repeated reminders, neither rent had been paid nor the possession of the property was restored to the claimants and the respondent continued to use the property in question in breach of the conditions of the lease agreement. Even after expiry of the lease period on 31.08.2017, the possession of the property was not restored back and the respondent continued to use the tenament after the expiry of the lease period in total breach of the contract.

(7) The arbitration proceedings were initiated by the claimants by filing a petition under Section 11 of the Act’ 1996 before the High Court, wherein dispute was referred to the arbitrator under the order dated 27.04.2018. It is contended that, at the fag end of the arbitral proceedings, the possession of the property in question was restored back to the claimants on 31.12.2020.

(8) The challenge to the arbitral award is on the ground that the arbitral tribunal is ex facie, illegal, unjust, unfair and unreasonable, suffering from patent illegality being beyond the scope of the arbitral reference and, thus, suffering from the jurisdictional error. It was argued that there was a broad consensus between the parties on the jurisdiction of th