Bombay High Court upholds arbitral award; directs business house in Mumbai to refund security deposit to Government of Israel

The petitioner – Earnest Business Services Private Limited – a business house in Nariman Point, Mumbai filed a petition in the Bombay High Court challenging the arbitration award in favour of the Government of Israel (respondent). The High Court upheld the arbitral award in favour of the Government of Israel.

The petitioner and the respondent entered into two separate agreements i.e. Business Centre Facility Agreement and Support Services Agreement whereby the petitioner agreed to provide business centre facilities and support services to avail business centre facilities with respect to the Office units.

The respondent had deposited an interest free refundable security deposit of Rs.64,80,000/- and an amount of Rs.52,20,000/- with the petitioner under the said Business Centre Facility Agreement and Support Services Agreement respectively as interest free deposit. The respondent had also agreed to pay monthly charges of Rs.7,20,000/- per month under the Business Centre Facilities Agreement and Rs.5,80,000/- per month under the Support Services Agreement to the petitioner.

Both the aforesaid agreements expired on 30th June, 2012. It was the case of the petitioner that under Clause 6 of the Business Centre Facilities Agreement, if the respondent failed to handover vacant and peaceful charge of the office units back to the petitioner on the agreement coming to an end by efflux of time or termination or sooner determination thereof for any reason whatsoever, the respondent was under a legal obligation to pay compensation of Rs.58,500/- per day to the petitioner in addition to the normal Business Centre charges.

The petitioner claimed that the said amount of Rs.1,17,000/- per day was liable to be paid by the respondent to the petitioner irrespective of any other agreement entered into between the parties.

The petitioner filed its written statement, set off and counter claim against the respondent on the ground that the respondent was in unauthorized use or occupation of the office units from 1st July, 2012 till 27th November, 2012 and had caused loss of business earnings and profit to the petitioner.

The respondent filed an application under Section 17 of the Arbitration Act, 1996 before the learned Arbitrator against the petitioner-business house. By an order dated 20th December, 2016, the learned Arbitrator directed the petitioner to maintain an amount of Rs.1,17,00,000/- with one Frank Merchant Bankers till the passing of the arbitral award.

A perusal of counter claim filed by the petitioner before the learned arbitrator indicated that the same was filed only on 19th December, 2016. However, in view of Section 3(ii)(b)(i) of the Limitation Act, 1963, the date of filing such claim for set off would be the date on which the statement of claim was filed by the respondent before the learned arbitrator. It is thus clear that the claim for set off made by the business house for the period three years prior to the date of filing statement of claim by the respondent is ex-facie barred by law of limitation. Even if date of receipt of notice invoking arbitration agreement issued by respondent is considered as the date for filing set off, still the claim for set off is ex-facie barred by law of limitation.

The arbitrator rejected the petition filed by the company to withhold the security deposit as well as its claim that the Israeli Government owed the firm Rs. 11.58 crore for using its premise for five months after the expiry of the rental agreements in July 2012.

The Arbitrator passed an award directing the business house to pay an amount of Rs.1,17,00,000/- along with interest @ 12% p.a. from 9th April, 2013 on amount of Rs.1,17,00,000/- till payment or realization. He also directed the petitioner to pay costs quantified at Rs.38,75,000/- inclusive of arbitral fees within a period of 120 days from the date of the communication of the arbitral award and failing which with interest @ 9% p.a. thereon.

The business house – Earnest Business Services Private Limited appealed before the High Court of Bombay.

In the High Court’s view, even if the date of invocation of the arbitration agreement by the respondent i.e. notice dated 4th April, 2016 is considered as the date of commencement of arbitration proceedings in respect of the claims made by the respondent against the petitioner and such date is considered as the date for stoppage of limitation in respect of claim for set off, since the entire period of claiming compensation @ Rs.1,17,000/- per day from 1st July, 2012 till 27th November, 2012 was three years prior to the date of issuing such notice invoking arbitration agreement, the entire claim for set off is ex-facie barred by law of limitation.

The Bombay High Court upheld the Arbitral award and directed the business house to refund Rs. 1.17 crore, which the Israeli Government had given as security deposit to use the office space owned by the firm between 2009 and 2012. Additionally, the business house shall have to pay an interest at the rate of 8% per annum beginning from April 2013.

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