Safiya Malik

The High Court of Judicature at Madras, Single Bench of Justice N. Anand Venkatesh set aside an arbitral award directing a lessee company to pay rent arrears to a property owner, holding that the award suffered from patent illegality. The Court found the arbitrator’s act of declaring earlier proceedings non est—without any objection from the parties—constituted a perverse finding and violated natural justice. It clarified that the earlier proceedings merely recorded an undertaking and thus did not attract Section 31 of the Arbitration and Conciliation Act, 1996. Observing that the arbitrator’s final award conflicted with his own interim findings under Section 17, the Court directed refund of the lessee’s security deposit with 12% interest, reimbursement of expenses, and compensation of ₹2.5 lakh.

The petitioner, Truliv Properties and Services Private Limited entered into a lease agreement dated July 12, 2019, with the respondent, C. Ravishankar, the owner of 20 residential flats in a project known as 'Sobha Serene'. The lease covered all 20 flats for five years, from July 11, 2019, to June 30, 2024, with a total monthly rent of Rs.5,40,000 at Rs.27,000 per flat. The petitioner was entitled to use the premises as service apartments, undertake furnishing, and sub-lease the flats to tenants. A refundable security deposit of Rs.32,40,000 was paid, along with brokerage and furnishing expenses.

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The petitioner later received notice from Sobha Developers Limited indicating disputes between the developer and the respondent and an interim order by an earlier Arbitral Tribunal restraining the respondent from encumbering or leasing the properties. On learning of this injunction, the petitioner sought clarification from the respondent and demanded a refund of investments. After initial acknowledgment and an undertaking from the respondent to refund the deposit, no payment was made. The petitioner lodged a police complaint and terminated the lease. The respondent later refused liability, claiming the lease was valid and sought rent arrears amounting to Rs.2,32,20,000.

The petitioner invoked the arbitration clause and obtained appointment of Mr. V. Nallasenapathy as sole arbitrator. Truliv claimed refund of the deposit, reimbursement of furnishing and brokerage expenses, and damages. The respondent denied liability and raised a counterclaim for rent arrears. The Arbitrator held that the petitioner was liable to pay Rs.1,99,80,000 to the respondent after adjusting the security deposit, with 10% interest from the date of award. The Arbitrator permitted the petitioner to take back furnishing items and directed possession to be handed over to the respondent. Aggrieved, the petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The judgment recorded that “the AT did not pass orders on merits and merely recorded the undertaking given by the respondent. To read Section 31 of the Act into such proceedings and to hold them non est is clearly a perverse finding.”

The Court observed that the Arbitrator had wrongly invoked Section 31 of the Arbitration and Conciliation Act, which applies to arbitral awards, not to interim proceedings recording undertakings. It held that the Arbitrator’s conclusion that the earlier tribunal’s order had no effect was irrational and “violative of the principles of natural justice since this point was not raised and the petitioner never had an opportunity to put forth arguments.” The Court held that this fell under Section 34(2)(d)(iv) and constituted patent illegality under Section 34(2A) of the Act.

The Court recorded that “if the lease deed was inadmissible for want of registration, the Arbitrator ought to have considered it for collateral purposes under the proviso to Section 49 of the Registration Act.” Instead, by treating the contract as oral and rewriting the terms, the Arbitrator committed patent illegality. The Court held that the Arbitrator’s reasoning under Sections 106 and 108(q) of the Transfer of Property Act was legally flawed, observing that “Section 108 starts with the expression ‘in the absence of a contract to the contrary,’ and here, a written contract existed defining the obligations of both parties.”

The Court further found inconsistency between the Arbitrator’s interim order and final award. “The same Arbitrator could not have rendered one finding at the time of passing the interim order and a completely conflicting finding at the time of the final award,” the Court stated, holding this contradiction as a ground of patent illegality.

On the issue of rent arrears, the Court found that the Arbitrator ignored the distinction between lease commencement and rent commencement. The Court stated that “the incidence of rent payment would arise only after the respondent obtained necessary permissions and allowed occupation as service apartments. The petitioner terminated the lease before rent commencement, hence there was no occasion for rent liability.” It termed the Arbitrator’s direction for rent arrears from September 2019 to May 2023 as “a premium for illegality committed by the respondent.”

The judgment also criticized the Arbitrator’s failure to appreciate that the respondent had violated his undertaking before the prior tribunal. The Court found that the Arbitrator’s disregard for the interim order and finding that the respondent’s conduct was lawful “shocks the conscience of this Court.” Citing Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, the Court reiterated that patent illegality arises where findings are irrational or contrary to the record.

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Regarding damages, the Court found that the Arbitrator had wrongly denied relief. Justice Venkatesh held that “where a person sustains loss by reason of breach of contract, he must, so far as money can do it, be placed in the same situation as if the contract had been performed.” Considering the mental agony and financial loss suffered by the petitioner, the Court fixed damages at Rs.2,50,000.

The High Court concluded that the arbitral award suffered from patent illegality, irrational findings, and violations of the Arbitration and Conciliation Act. Justice Venkatesh set aside the award and substituted specific directions. The Court ordered refund of the refundable security deposit of Rs.32,40,000 with interest at 12% per annum from October 8, 2019, until realization. It further directed reimbursement of Rs.1,77,086 towards furnishing and hardware expenses, also carrying 12% annual interest from the same date. The respondent was ordered to refund Rs.3,18,600 towards brokerage fees, again with 12% annual interest from October 8, 2019.

In addition to the refunds, the Court awarded Rs.2,50,000 as damages for the loss and distress caused to the petitioner due to the respondent’s conduct, which the Court found to be “tainted with moral turpitude.” The respondent was also directed to pay Rs.2,50,000 towards costs of the proceedings. The Court held that the award’s conclusions on liability and rent arrears were contrary to the contract’s terms and therefore invalid. The connected Application No.3025 of 2025, which sought a stay of the arbitral award, was closed as a consequence of the main petition being allowed.

Advocates Representing the Parties:
For the Petitioner: Mr. Sathish Parasaran, Senior Counsel, for Mr. G. Vivekanand.


Case Title: Truliv Properties and Services Private Limited v. C. Ravishankar

Neutral Citation:2025:MHC:2307

Case Number: Arb O.P. (Com. Div.) No.353 of 2025 and A. No.3025 of 2025

Bench: Justice N. Anand Venkatesh