Safiya Malik

The High Court of Jammu & Kashmir and Ladakh, Single Bench of Justice Sanjay Dhar, dismissed a petition seeking to set aside an arbitral award that had declared the cancellation of a lease deed illegal. The court upheld the findings of the Arbitral Tribunal and directed that the award, which included directions for either restoration of possession or financial compensation with interest, be enforced. The petition was dismissed on grounds that none of the conditions under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1996 were fulfilled to warrant interference. The judgment further recorded that the cancellation of the lease deed was carried out without compliance with the lease terms and lacked proper service of notice, rendering the action arbitrary and unlawful.

The petition was filed by the Union Territory of Jammu & Kashmir and others under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1996, seeking to set aside an award dated 28.02.2024 rendered by an Arbitral Tribunal chaired by former High Court Judge, Justice M. K. Hanjura. The dispute arose from a lease arrangement for a property at Site No.221-A, Gulmarg, granted to the respondent for hotel business development.

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As per the respondent's claims, the lease was executed via a deed dated 17th May 1989, along with a supplementary deed dated 16th July 1989, for an initial 15-year period with a renewal clause for another 15 years. The lease included provisions allowing the respondent to mortgage leasehold rights for raising construction loans. Pursuant to the agreement, she secured a loan of Rs. 40.00 lakhs from the State Financial Corporation for the purpose.

However, due to the insurgency and militancy that erupted in the Valley around 1990, the respondent had to migrate. She alleged that, despite returning when normalcy was partially restored, she faced impediments from the petitioners, allegedly due to her husband's political affiliations.

In response to these alleged obstructions, she filed a writ petition in 2004. In their objections, the petitioners revealed that the lease had been cancelled via communication dated 2nd October 2002. The respondent subsequently withdrew the writ petition and filed another petition challenging the lease cancellation and subsequent re-allotment of the property to a third party.

The respondent contended that the termination violated the lease deed's covenants, lacked valid notice, and was not based on the grounds specified in the deed. She claimed substantial financial losses due to the alleged wrongful cancellation, asserting that she had mortgaged leasehold rights and incurred debt obligations.

The petitioners contested the writ petition, asserting that the respondent failed to fulfil lease obligations by not completing construction or starting operations within a reasonable time. They also submitted that notices had been served, including via newspaper publication.

The Court, citing Clause 24 of the lease agreement, referred the dispute to arbitration and appointed Hon’ble Justice M.K. Hanjura as Sole Arbitrator. The Arbitrator issued notices to both parties and received a statement of claims and a statement of defence.

The respondent sought a declaration that the lease cancellation was illegal and compensation totalling Rs.25.86 crores for construction-related expenses with interest, Rs.30.58 crores for business losses, and Rs.50 lakhs as litigation expenses.

The Arbitral Tribunal, after evaluating evidence, found the lease cancellation invalid, noting the respondent incurred Rs.40 lakhs in construction and had an outstanding debt of Rs.1.37 crores to the State Financial Corporation. However, the Tribunal denied the claims for Rs.25.86 crores and Rs.30.58 crores due to lack of sufficient evidence.

The petitioners challenged the award, arguing that the Arbitrator exceeded the reference terms and granted reliefs not sought. They also argued that the relief was infructuous due to expiry of the lease and creation of third-party interest in favour of Mr. Ghulam Qadir Palla, who was not a party to the arbitration.

The court noted, "the power of this Court to interfere with an award of the Arbitrator is extremely limited and it is only on the grounds as mentioned in Section 34 of the Act of 1996 that this Court would be justified in interfering with the award." It clarified that courts cannot act as appellate authorities over arbitral decisions.

On the issue of exceeding the reference, the court stated, "The view taken by the learned Arbitral Tribunal is plausible and permissible and cannot be found fault with by this Court while exercising its powers under Section 34 of the Act of 1996." It held that the arbitration was initiated under Section 8 at the petitioners' own request.

Addressing the respondent's status as a migrant, the court recorded, "The respondent/claimant has nowhere and at no stage sought protection of her household rights which qualifies to be a 'migrant property'... What the respondent/claimant has conveyed... is that because of the threat to her life... she was unable to commission the project."

The court further recorded that, "...as already stated, it is at the instance of the petitioners herein that the matter was referred to arbitration and they cannot now turn around and try to wriggle out of the arbitration award by taking contradictory stands."

As to the third-party allotment, it stated, "Shri Ghulam Qadir Palla derives his interest and title to the demised premises through petitioners and he has no independent right to the demised property." Hence, the award could stand even in his absence.

Regarding public policy, the court referred to several Supreme Court judgments, noting, "...the phrase 'in conflict with the public policy of India' must be accorded a restricted meaning... mere contravention of law is not enough..."

The court observed, "...asking the respondent/claimant to setup a new hotel business at Gulmarg by adhering to the terms and conditions of the lease deed would be asking for the moon." It also noted the respondent was not properly served with notice before the lease was cancelled: "Merely publishing notices in local daily newspapers like Greater Kashmir... would not lead to an inference that the respondent/claimant was having knowledge of the said notices."

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The court concluded, "...action of the petitioners in cancelling the lease... is illegal and unlawful... the action of allotting the demised premises in favour of Shri Ghulam Qadir Palla is a mala fide and arbitrary exercise of power."

On damages, the court accepted the Tribunal’s findings: "...respondent/claimant had raised loan of Rs.17.78 lacs... and ultimately her liability swelled up to Rs.1,37,57,009/-..." Hence, the compensation awarded was held to be justified.

The High Court concluded that none of the statutory grounds under Section 34 of the Act were established. It observed that "I do not find that either the impugned award has decided matters which were beyond the terms of reference or that the impugned award is in conflict with the public policy of India." The judgment then directed:

"The petition lacks merit and is dismissed accordingly."

Advocates Representing the Parties:

For the Petitioners: Mr. Faheem Nissar Shah, Government Advocate; Mr. Ilyas Nazir Laway, Government Advocate

For the Respondent: Mr. Mir Suhail, Advocate, with Mr. Raja Jaffar, Advocate

Case Title: UT of J&K and Others v. Mrs. Rajinder Oberoi

Case Number: Arb. P. No. 15/2024

Bench: Justice Sanjay Dhar