Limited interference with arbitral awards under S.34/37 of A&C Act; partial set-aside for patent illegality in severable claims.

JUDGMENT :

P. VELMURUGAN, J.

1. The present Civil Miscellaneous Appeal is directed against the order dated 12.10.2022 passed in Arb.O.P.No.209 of 2015 by the Principal District Judge, Coimbatore, whereby the Arbitral Award dated 21.02.2015 made in Arbitration Case No.5 of 2014 by the learned Sole Arbitrator was confirmed, awarding a sum of Rs.18,89,000/- (Rupees Eighteen Lakhs and Eighty Nine Thousand only) together with interest at the rate of 18% per annum from 01.02.2012 till the date of payment, and costs.

2. The brief facts, in a nutshell, are as follows:

(i) The appellant, a Company incorporated under the provisions of the Companies Act, 1956, and engaged in the business of operating fitness centres/institutions and sale of healthcare products, entered into a registered lease agreement dated 22.08.2008 with respondents 1 and 2 in respect of premises admeasuring 2600 sq.ft., situated at D.No.339/2A, Nava India Road, Peelamedu, Coimbatore. The lease was for a period of nine years, stipulating a monthly rent of Rs.45,000/- for the first three years, with an escalation of 15% for the succeeding three years and 18% for the final three years. An interest-free security deposit of Rs.4,50,000/- was paid by the appellant.

(ii) The appellant complied with the terms of the lease up to June 2010. Thereafter, owing to business exigencies, the appellant issued a termination notice dated 01.07.2010, calling upon respondents 1 and 2 to take over possession of the premises on 09.07.2010, and sought refund of the balance security deposit of Rs.3,15,000/-, after adjustment of rent in terms of Clause 14 of the lease agreement. Upon resumption of possession, respondents 1 and 2 issued a notice dated 12.08.2010 claiming arrears of rent and damages to the tune of Rs.17,48,000/- based on an engineer’s report, followed by a subsequent notice dated 31.08.2010 revising the claim to Rs.14,87,000/- after adjusting the security deposit. The appellant refuted the said claim by replies dated 23.08.2010 and 14.09.2010, respectively. Thereafter, respondents 1 and 2 initiated proceedings in A.O.P.No.13 of 2011 before the District Court, Coimbatore invoking Section 9 of the Arbitration and Conciliation Act, 1996 [hereinafter referred to as ‘the A & C Act, 1996’ for brevity], pursuant to which an Advocate Commissioner was appointed to inspect the subject premises along with a private engineer. Subsequently, arbitration was invoked by notice dated 22.02.2011, and in O.P.No.436 of 2012, this Court appointed the third respondent herein as the Sole Arbitrator to adjudicate the disputes arising out of the lease agreement dated 22.08.2008.

(iii) The learned Sole Arbitrator entered upon reference and constituted the Arbitral Tribunal on 01.08.2014. While so, the appellant had approached this Court by filing a petition seeking substitution of the Arbitrator. Notwithstanding the pendency of the said proceedings, the learned Sole Arbitrator proceeded with the Arbitral proceedings and ultimately passed an ex-parte Award dated 21.02.2015 in Arbitration Case No.5 of 2014. Challenging the said Award, the appellant filed an application under Section 34 of the A & C Act, 1996 before the learned Principal District Judge, Coimbatore, which came to be dismissed by order dated 12.10.2022. Aggrieved thereby, the present appeal has been preferred by the appellant.

3. Mr.S.Kamalakannan, learned counsel representing Ms.Jayasudha, counsel on record for the appellant contended that under Clause 7(e) of the registered lease agreement dated 22.08.2008, the