Jammu & Kashmir High Court – Srinagar Bench
Ut Of J&K And Others vs Mrs. Rajinder Oberoi on 4 July, 2025
Author: Sanjay Dhar
Bench: Sanjay Dhar
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT SRINAGAR
(COMMERCIAL DIVISION SRINAGAR WING )
Reserved on: 05.06.2025
Pronounced on:04.07.2025
Arb. P. No.15/2024
UT OF J&K AND OTHERS ...PETITIONER(S)
Through: - Mr. Faheem Nissar Shah, GA.
Mr. Ilyas Nazir Laway, GA.
Vs.
MRS. RAJINDER OBEROI ...RESPONDENT(S)
Through: - Mr. Mir Suhail, Advocate, with
Mr. Raja Jaffar, Advocate.
CORAM: HON'BLE MR. JUSTICE SANJAY DHAR, JUDGE
JUDGMENT
1) The petitioners have filed the instant petition under
Section 34 of the Jammu and Kashmir Arbitration and
Conciliation Act, 1996 (hereinafter for short “the Act of
1996”) for setting aside award dated 28.02.2024 passed by
the learned Arbitral Tribunal presided over by Hon’ble Mr.
Justice M. K. Hanjura, former judge of the High Court of
Jammu & Kashmir and Ladakh.
2) Before coming to the grounds of challenge, it would be
apt to give a brief background of the facts leading to the
filing of the present petition.
3) As per case of the respondent/claimant, lease in
respect of a building situated at site No.221-A Gulmarg was
granted in her favour for a period of 15 years by the
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petitioners herein by virtue of a lease deed dated 17th May,
1989 read with supplementary lease deed 16th July, 1989.
The building was leased out to the respondent for carrying
on the business of hotel/restaurant and bar for promotion
of tourism initially for a period of 15 years renewable for a
further period of 15 years. A clause was incorporated in
the lease deed whereby the respondent was given right to
mortgage the lease hold rights for the purpose of raising
loan in connection with construction and commissioning of
the project during the currency of the lease.
4) According to the respondent, after taking over
possession of the demised premises, she obtained loan of
Rs.40.00 lacs from the State Financial Corporation for the
purpose of completion of construction work at the site but
due to onset of militancy in the year 1990, she had to
migrate outside Kashmir Valley, as such, she could not
undertake further construction activities in the demised
premises.
5) It is being claimed by the respondent that when
Kashmir valley limped back to normalcy, she returned to
the Valley and started completing the balance construction
work but due to political affiliations of her husband, the
petitioners started interfering in completion of the
construction work on the demised premises.
Arb. P. No.15/2024 Page No. 2 of 37
6) The respondent filed a writ petition bearing
No.08/2004, challenging the aforesaid action of the
petitioners herein. However, in the objections filed by the
petitioners herein to the said writ petition, they claimed that
the lease of the demised premises in favour of the
respondent stands cancelled in terms of communication
dated 2nd October, 2002. The respondent, upon coming to
know about the aforesaid position, withdrew the writ
petition and filed the another petition bearing OWP
No.518/2004 challenging the communication dated
02.10.2002 and subsequent lease in respect of demised
premises in favour of one Mr. Ghulam Qadir Palla in terms
of communication dated 11.06.2004 read with
corrigendum dated 23.06.2004.
7) The respondent in her writ petition took a stand that
the lease in respect of the demised premises has been
cancelled during the currency of initial lease period of 15
years in violation of covenants of the lease deed. It was
further contended by the respondent that she has raised
huge loans by mortgaging the leasehold rights in terms of
the covenants of the lease deed and because of cancellation
of the lease deed, she has been put to loss. According to the
respondent, her lease in respect of the demised property
has been terminated without serving any notice upon her
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and that the lease could not have been terminated on the
grounds other than those incorporated in the said lease
deed. Thus, according to the respondent, the action of the
petitioners herein was without sanction of law.
8) The petitioners herein contested the writ petition and
raised a preliminary objection to the maintainability of the
writ petition on the ground that the subject matter of the
writ petition is covered by the Arbitration clause contained
in the lease deed and, as such, the matter is required to be
referred to Arbitrator in view of the provisions contained in
Section 8(1) of the Arbitration and Conciliation Act. The
petitioners further claimed that the respondent failed to put
the demised premises to the desired use and she did not
complete the construction within a reasonable time. It was
further claimed by the petitioners that the respondent left
the construction incomplete and did not start any hotel
business in the premises thereby depriving the petitioner
Municipal Committee of the rental income. It was also
claimed that the respondent did not maintain the demised
premises in accordance with the terms of the agreement
thereby causing huge losses to the valuable asset belonging
to the Municipal Committee. Regarding service of notices,
the petitioners claimed that the notices were duly served
upon the respondent and one of the notices was also
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published in the newspaper on 17.02.1999 but the
respondent did not respond to these notices which
compelled the petitioners to cancel the lease deed.
9) Subsequent allottee of the lease, Shri Ghulam Qadir
Palla, who had been impleaded as a party to the writ
petition, did not choose to contest the writ petition and he
was set exparte.
10) This Court vide order dated 17.08.2022, after noticing
Arbitration Clause (24) of the lease deed executed between
the parties, referred the disputes arising between the
parties to the arbitration and Hon’ble Mr. Justice M. K.
Hanjura, former Judge of this Court was appointed as the
sole Arbitrator for determination of the disputes.
11) Pursuant to the aforesaid order passed by this Court,
the learned Arbitrator entered upon the reference and
issued notices to both the parties. The respondent filed her
statement of claims whereas the petitioners herein filed
their statement of defence before the learned Arbitrator. The
respondent in her statement of claims, besides seeking a
declaration that cancellation of her lease by the petitioners
is unlawful and illegal, as such, liable to be set aside, also
sought an amount of Rs.25,86,07,059/ on account of the
amount invested by her upon construction of the demised
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premises together with interest accruing thereon. She also
sought compensation. The respondent/claimant further
claimed an amount of Rs.30,58,36,000/ on account of loss
of business besides claiming Rs.50.00 lacs on account of
litigation expenses. The respondent/claimant further
incorporated the residuary clause in the relief para of her
statement of claims.
12) The learned Arbitral Tribunal, after recording the
evidence led by the parties and after admission/denial of
the documents produced by the parties and on the basis of
the record and the submissions made by the parties, came
to be conclusion that there is substance in the contention
of the respondent/claimant as regards cancellation of the
lease and, accordingly, the order of cancellation of lease was
set aside by the learned Arbitrator. However, the claim of
the respondent/claimant regarding payment of
Rs.25,86,07,059 on account of amount stated to have been
invested by her upon construction together with interest
thereon as also the her claim of Rs.30,58,36,000/ on
account of loss of business was found to be without any
substance. The learned Arbitrator has, however, come to
the conclusion that there is substance in the submission of
respondent/claimant that she has incurred expenditure of
Rs.40.00 lacs on construction work and there is an
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outstanding amount of Rs.1,37,57,009/ inclusive of the
aforesaid amount against her which she has to pay to the
State Financial Corporation.
13) On the basis of the aforesaid findings, the learned
Arbitral Tribunal in para (34) of the impugned award held
the claimant entitled to the following reliefs:
(a) The Order of Cancellation of the lease vis-à-vis the
property in question is set-aside.
(b) As a consequence of the setting-aside of the Order
of the Cancellation:
(i) the respondents shall hand over the
possession of the property in question, viz.
Extension Part of Yemberzal Hotel at
Gulmarg, to the claimant;
OR
(ii) the respondents shall pay an amount of Rs.
1,37,57,009/- (One Crore Thirty Seven Lakhs
Fifty Seven Thousand and Nine) along with
interest@6% per annum from the date of
reference and 12% from the date of
issuance of this Award till its final
realization; and shall give/allot to the
claimant an alternate land equivalent in area
to the earlier one including the permission to
raise the constructions on it, as also the
mortgage and other allied rights as she had
in the demised premises during the
subsistence of the earlier lease as
stipulated in the lease deed itself.
(c) The respondents shall also pay an amount of Rs.20.00
Lakhs as litigation charges to the claimant to which an
amount of Rs. 1.35 lakhs shall be added that was due to
be paid by the respondents to the Arbitrator and has now
been paid by the claimant under the heads,
‘miscellaneous expenses’, ‘travel expenditure’, ‘reading
charges’ and for ‘framing the Award’.
14) The petitioners have challenged the impugned award
on the grounds that the learned Arbitrator has granted the
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reliefs which were not prayed by the claimant and that the
reliefs granted are beyond the terms of the reference as well
as the lease agreement.
15) It has been further contended that the lease in favour
of the respondent had already expired, as such, the relief
relating to setting aside of the cancellation of lease had
become infructuous. Besides this, third party interest
stands already created in favour of one Shri Ghulam Qadir
Palla, who was not a party to the arbitration proceedings.
Thus, the arbitration award cannot be executed against him
being not a party to the proceedings. It has been further
contended that the learned Arbitral Tribunal has failed to
appreciate that the respondent/claimant did not fulfil her
obligations and commitments in terms of the covenants of
the lease deed and that she was given reasonable
opportunity by issuing notices but despite this, she failed
to honour her commitments. It has been contended that the
respondent/claimant had left the demised premises
unattended for years together which caused huge damage
to the said property thereby resulting in great financial loss
to the Municipal Committee. It has been further contended
that the award passed by the learned Arbitrator is against
the public policy, inasmuch as, as per own showing of the
learned Arbitrator, the respondent/claimant has failed to
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prove any losses but in spite of this, the learned Arbitral
Tribunal has proceeded to award an amount of
Rs.1,37,57,009/ in favour of the respondent/claimant.
16) I have heard learned counsel appearing for the parties,
perused the impugned award rendered by the learned
Arbitrator, examined the record of the Arbitration, and
considered the arguments advanced by the learned counsel
for the parties.
17) Before proceeding to determine merits of the grounds
of challenge urged by the petitioners against the impugned
award, it would be apt to consider the legal position as
regards the scope and power of this Court under Section 34
of the Act of 1996 to interfere with an award of an Arbitral
Tribunal.
18) Section 34 of the Act of 1996, which is relevant to the
context, reads as under:
34. Application for setting aside arbitral award.–(1)
Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award
in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only
if–
(a) the party making the application establishes on
the basis of the record of the arbitral tribunal
that–
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid
under the law to which the parties have
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subjected it or, failing any indication
thereon, under the law for the time being in
force; or
(iii) the party making the application was not
given proper notice of the appointment of
an arbitrator or of the arbitral proceedings
or was otherwise unable to present his
case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the
terms of the submission to arbitration, or it
contains decisions on matters beyond the
scope of the submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated from
those not so submitted, only that part of the
arbitral award which contains decisions on
matters not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal or
the arbitral procedure was not in
accordance with the agreement of the
parties, unless such agreement was in
conflict with a provision of this Part from
which the parties cannot derogate, or,
failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that–
(i) the subject-matter of the dispute is not
capable of settlement by arbitration under
the law for the time being in force, or
(ii) the arbitral award is in conflict with the
public policy of India.
Explanation 1.–For the avoidance of any doubt,
it is clarified that an award is in conflict with the
public policy of India, only if,–
(i) the making of the award was induced or
affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental
policy of Indian law; or
(iii) it is in conflict with the most basic notions
of morality or justice.
Arb. P. No.15/2024 Page No. 10 of 37
Explanation 2.–For the avoidance of doubt, the
test as to whether there is a contravention with
the fundamental policy of Indian law shall not
entail a review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations other
than international commercial arbitrations, may also be
set aside by the Court, if the Court finds that the award
is vitiated by patent illegality appearing on the face of
the award:
Provided that an award shall not be set aside merely on
the ground of an erroneous application of the law or by
reappreciation of evidence.
(3) An application for setting aside may not be made
after three months have elapsed from the date on which
the party making that application had received the
arbitral award or, if a request had been made under
section 33, from the date on which that request had
been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the
application within the said period of three months it may
entertain the application within a further period of thirty
days, but not thereafter.
(4) On receipt of an application under sub-section (1),
the Court may, where it is appropriate and it is so
requested by a party, adjourn the proceedings for a
period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral
proceedings or to take such other action as in the
opinion of arbitral tribunal will eliminate the grounds for
setting aside the arbitral award.
(5) An application under this section shall be filed by a
party only after issuing a prior notice to the other party
and such application shall be accompanied by an
affidavit by the applicant endorsing compliance with the
said requirement.
(6) An application under this section shall be disposed
of expeditiously, and in any event, within a period of one
year from the date on which the notice referred to in
sub-section (5) is served upon the other party.
19) In the present case, having regard to the nature of
grounds of challenge projected by the petitioners, we are
concerned with sub-clause (iv) of clause (a) of sub-section
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(2) quoted above and also with sub-clause (ii) of clause (b)of sub-section (2) of Section 34 of the Act of 1996. As per
sub-clause (iv) of clause (a) of sub-section (2) quoted above,
if the arbitral award deals with a dispute not contemplated
by or not falling within the terms of reference or if it
contains decisions on matters beyond the scope of the
submission to the arbitration, the arbitral award is liable to
be set aside to this extent and as per sub-clause (ii) of
clause (b) of sub-section (2) quoted above, the arbitral
award is liable to be set aside if the same is in conflict with
the public policy of India.
20) It is to be borne in mind that 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 of an Arbitrator.
When a Court is considering a challenge to an arbitral
award, it has not to act as a Court of appeal. An award
based on limited evidence or an interpretation given by an
arbitrator to the terms of the agreement, which is plausible
cannot be interfered with by a Court while considering a
challenge to the award. The Court cannot re-appreciate the
evidence with a view to hold that the award suffers from
patent illegality, nor can it interpret the terms of the
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agreement so as to undo the interpretation given by the
arbitrator, provided the interpretation given by an
Arbitrator to the terms of the agreement is plausible and
reasonable. It is also clear that every error of law committed
by the Arbitral Tribunal would not constitute a patent
illegality. Thus, the Courts have to follow the principle of
‘minimal intervention’ while testing the validity of an
arbitral award. Nonetheless, if the grounds set out for
setting aside an arbitral award as contained in Section 34
of the Act are made out, the legislature has vested the power
with the Court to step in and set aside such an award.
21) With the aforesaid legal position in mind, let us now
proceed to determine the merits of the grounds urged by
the petitioners for assailing the impugned award. The first
ground that has been urged by learned counsel for the
petitioners is that the reliefs claimed by the respondent/
claimant before the learned Arbitral Tribunal were beyond
the terms of reference and it was not open to the learned
Arbitrator to grant such reliefs in view of the clear
interdiction contained in sub-clause (iv) of clause (a) of sub-
section (2) of Section 34 of the Act of 1996. In this regard,
learned counsel for the petitioners has submitted that a
perusal of the prayer clauses made in the writ petition and
the claim petition would reveal that the reliefs claimed
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before the learned Arbitral Tribunal were entirely different
from the reliefs claimed before the Writ Court. It has been
contended that the Writ Court has referred only those
disputes which were arising in the writ petition and not any
other disputes and, therefore, it was not open to the learned
Arbitral Tribunal to award reliefs in favour of the claimant
which were beyond the terms of reference. Reliance in this
regard has been placed upon the judgment of the Supreme
Court in the case of M/S MSK Projects(I)(JV) Ltd. v. State
of Rajasthan & Anr. (2011) 10 SCC 573.
22) The aforesaid issue has been dealt with and
deliberated upon by the learned Arbitrator in paras (19),
(20) and (21) of the impugned award. While dealing with
this issue, the learned Arbitrator has rejected the
contention of the petitioners and held that the reliefs prayed
by the respondent/claimant in the statement of claims are
to be considered by the Arbitral Tribunal at the end and not
at the threshold after it is seen and ascertained as to
whether the claimant is able to make out a case or not. 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. Even otherwise, if we have a look at the writ petition
that was filed by the respondent/claimant before this
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Court, in the said writ petition even though the
respondent/claimant did not seek any compensation from
the petitioners and had only sought setting aside of
cancellation of the lease with a further prayer to allow her
to commission the project, yet the respondent/claimant
had specifically pleaded that she had availed a huge loan of
Rs.40.00 lacs by mortgaging the leasehold rights in respect
of the demised premises, which amount she has to recover
from the petitioners against the rent payable by her to them
after commissioning of the project. So, it is not a case where
the respondent/claimant had not projected the losses in
her writ petition which, according to her, she had incurred
on account of cancellation of the lease. Therefore, the
contention of the petitioners that the respondent/claimant
could not have sought the relief of compensation from them
by way of her statement of claims being beyond the terms
of reference, is without any substance.
23) In fact, it is at the instance of the petitioners, who
invoked the provisions of Section 8 of the Act of 1996 while
submitting their response to the writ petition before the
Writ Court, that the disputes came to be referred to the
Arbitral Tribunal. The petitioners cannot now turn around
and submit that the disputes raised by the respondent in
the statement of claims fall beyond the scope of terms of
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arbitration. The argument raised by the petitioners is,
therefore, contradictory and self-defeating. The same has
rightly been rejected by the learned Arbitral Tribunal.
24) It is a settled position of law that after the parties are
referred to arbitration by a ‘Judicial Authority’ on account
of exercise of power as available under Section 8, the
pending proceedings come to an end and the arbitration
proceedings are commenced de novo. In fact, a new claim
is necessarily to be filed and entire proceedings as
contemplated under the Arbitration Act are commenced
afresh. The contention of the petitioners that after the
reference the same proceedings would continue and the
respondent would be bound by the prayer made by her in
the writ petition, is utterly misconceived hence liable to be
rejected.
25) Another argument that has been raised by learned
counsel for the petitioners for impugning the award is that
the dispute between the parties could not have been
referred to the arbitration because, admittedly, the
respondent/ claimant is a registered migrant and, as such,
the only remedy available to her was in terms of the
machinery available under the Jammu and Kashmir
Migrant Immovable Property (Protection, Preservation and
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Restraint on Distress Sale) Act, 1997 (hereinafter for short
“the Act of 1997”). In this regard reliance has been placed
by learned counsel for the petitioners upon the judgments
of the Supreme Court in the cases of Vidya Drolia vs.
Durga Trading Corporation, (2021) 2 SCC 1, and A.
Ayyasamy vs. A. Paramasivam, (2016) 10 SCC 386.
26) The aforesaid aspect of the matter has also been dealt
with by the learned Arbitral Tribunal in para (22) of the
impugned award and it has been held that the Arbitral
Tribunal would be well within its jurisdiction to deal with
any kind of case(s) of the claimant under the background of
Act of 1997 simultaneously.
27) If we have a look at the claim petition filed by the
respondent/claimant before the learned Arbitral Tribunal,
in the said claim petition, the respondent/claimant has
pleaded that because of the turmoil in Kashmir Valley and
being a member of the minority community, she had left
Srinagar as she had a credible security threat from
militants as her husband was a political worker besides
being a member of the minority community. In her rejoinder
to the statement of defence filed by the petitioners, the
respondent/claimant has further explained that she is a
Kashmiri Hindu migrant who, in the year 1990 owing to the
threat to life of her husband for being a political worker,
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had to leave Kashmir Valley along with her family. She has
also placed on record a copy of the certificate issued by the
Relief and Rehabilitation Commissioner, Jammu, according
to which she stands registered as a migrant.
28) The respondent/claimant has nowhere and at no
stage sought protection of her household rights which
qualifies to be a “migrant property” as defined under the Act
of 1997 in terms of the machinery provided under the said
Act. What the respondent/claimant has conveyed in her
pleadings is that because of the threat to her life and
because of migration from Kashmir Valley, she was unable
to commission the project. The submission of respondent/
claimant is twofold, one that the commissioning of the
project could not take place for the reasons beyond her
control, and second that notice prior to termination of the
lease was never served upon her because she was living
outside the Valley and had left her address in Srinagar.
Therefore, the claim of the petitioners that the
respondent/claimant should have resorted to the remedy
available under the Act of 1997 instead of going for
arbitration, is without any substance. In fact, as already
stated, it is at the instance of the petitioners herein that the
matter was referred to arbitration and they cannot now turn
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around and try to wriggle out of the arbitration award by
taking contradictory stands.
29) Another contention that has been raised by learned
counsel for the petitioners is with regard to executability of
the impugned award, so far as it provides for handing over
possession of the demised premises to the respondent/
claimant. It has been contended that, admittedly, the
demised premises has been allotted to one Shri Ghulam
Qadir Palla who is not a party to the arbitration proceedings
and, as such, not a party to the award. It has been further
contended that even if the award is upheld by this Court,
the same cannot be executed as against Shri Ghulam Qadir
Palla.
30) The learned Arbitrator has dealt with the aforesaid
aspect of the matter in para (26) of the impugned award. It
has been held by the learned Arbitrator that the claim
petition is maintainable and is not hit by non-joinder or
mis-joinder of parties. While holding so, the learned
Arbitrator has observed that the expression “claiming
through or under” appearing in Sections 8 and 45 of the Act
of 1996 is intended to provide a derivative right and it does
not enable a non-signatory to become a party to the
arbitration agreement. The learned Arbitrator, while coming
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to the aforesaid conclusion, has relied upon the ratio laid
down by the Supreme Court in the case of Cox and Kings
Ltd. v. SAP India Pvt. Ltd. & Anr. 2023 SCC Online SC
1634, wherein the Supreme Court has held that an
arbitration agreement can be binding on non-signatory
firms under the Group of Companies doctrine. It was also
held by the Supreme Court that the court or tribunal may
look into the surrounding circumstances, such as nature
and object of the contract and the conduct of parties during
the formation, performance and discharge of the contract
and that while interpreting and constructing the contract,
courts or tribunal may adopt well-established principles,
which aid and assist proper adjudication and
determination.
31) If we consider the facts and circumstances of the
present case, Shri Ghulam Qadir Palla was a party to the
writ petition and he chose not to contest the writ petition.
The dispute between the parties was ultimately referred to
the arbitration without contest from said Shri Ghulam
Qadir Palla who happened to be respondent No.7 to the writ
petition. 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. If the
action of the petitioners in cancelling the lease of the
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respondent/claimant is upheld, the rights of Shri Ghulam
Qadir Palla would flow out of the said lease but in case it is
held that the cancellation of lease of the demised premises
qua the respondent/claimant is illegal and unlawful and,
as such, liable to be set aside, the action of subsequent
allotment of the demised premises in his favour would be
rendered illegal. The fact that Shri Ghulam Qadir Palla did
not choose to contest the writ petition, shows that he has
left it to the petitioners herein to watch his interests and if
the petitioners do not succeed in defending their impugned
actions, Shri Ghulam Qadir Palla has to face the
consequences, even though he may not be a signatory to
the arbitration agreement.
32) Thus, in the aforesaid facts and circumstances of the
case, in terms of GOC doctrine, even if Shri Ghulam Qadir
Palla is a non-signatory to the arbitration agreement, the
benefits and duties arising from the arbitration agreement
would stand extended to him by operation of general rules
of private law, principally on assignment, agency and
succession. This Court while exercising its powers under
Section 34 of the Act of 1996 does not find any cogent and
convincing ground to interfere with the finding of the
Arbitral Tribunal on this aspect of the matter. The
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contention of the petitioners is, therefore, found to be
without any merit.
33) That takes us to the grounds of challenge urged by the
petitioners on merits of the impugned award. It has been
contended that the impugned award is against the public
policy of India, inasmuch as the findings recorded by the
learned Arbitral Tribunal are perverse based upon no
evidence. In this regard, it has been contended that the
learned Arbitral Tribunal has committed a patent illegality
by awarding an amount of Rs.1,37,57,009/ along with
interest in favour of the respondent/claimant, though there
was ample material on record to show that the
respondent/claimant had committed breach of terms of
lease and that there was no evidence on record to show that
the claimant had incurred any expenses on the
construction of the demised premises.
34) Before proceeding to determine the merits of the
aforesaid contention of learned counsel for the petitioners,
it is necessary to understand as to what is meant by the
expression “public policy of India” as it appears in sub-
clause (ii) of clause (b) of sub-section (2) of Section 34 of the
Act of 1996. This aspect of the matter has been a subject
matter of deliberation and deliberation before the Supreme
Arb. P. No.15/2024 Page No. 22 of 37
Court in a large number of cases. In Oil and Natural Gas
Corporation vs. Saw Pipes Ltd. (2003) 5 SCC 705, the
Supreme Court has held that an award could be set aside
if it is against the public policy of India, that is to say, if it
is contrary to:-
(a) fundamental policy of Indian law;
(b) the interest of India;
(c) justice or morality,
(d) if it is patently illegal.
35) It is pertinent to mention that at the time when the
Supreme Court delivered the judgment in Saw Pipes Ltd’s
case (supra), Explanation-1 to sub-clause (ii) of clause (b)
of sub-section (2) of Section 34 of the Act of 1996 had not
been incorporated. The same was done only vide Act 3 of
2016 with effect from 23.10.2015. The question as to what
is meant by the expressions “fundamental policy of Indian
law”, “the interest of India”, “justice or morality”, or “patent
illegality”, which came to be incorporated by virtue of Act 3
of 2016, came up for discussion and deliberation before the
Supreme Court in the case of Associate Builders vs. Delhi
Development Authority, (2015) 3 SCC 49.
36) The matter was again considered by the Supreme
Court in the case of OPG Power Generation Private Ltd
vs. Enexio Power Cooling Solutions India Private
Arb. P. No.15/2024 Page No. 23 of 37
Limited and another, 2024 SCC Online SC 2600. In thesaid case the Supreme Court held that, for an award to be
to be against the policy of India, a mere infraction of the
municipal laws of India is not enough. It was held that there
must be, inter-alia, infraction of fundamental policy of
Indian law, including a law meant to serve public interest
or public good. As to what is meant by the expression
‘fundamental policy of Indian law’, the Supreme Court
observed that the said expression has to be accorded a
restricted meaning in terms of Explanation-1 which was
incorporated vide amendment made in the year 2015. Paras
55 and 56 of the said judgment are relevant to the context
and the same is reproduced as under:
55. The legal position which emerges from the
aforesaid discussion is that after the ‘2015
amendments’ in Section 34(2)(b)(ii) and Section
48(2)(b) of the 1996 Act, the phrase “in conflict with
the public policy of India” must be accorded a
restricted meaning in terms of Explanation-1 The
expression “in contravention with the fundamental
policy of Indian law” by use of the word
‘fundamental’ before the phrase ‘policy of Indian
law’ makes the expression narrower in its
application than the phrase “in contravention with
the policy of Indian law”, which means mere
contravention of law is not enough to make an
award vulnerable. To bring the contravention
within the fold of fundamental policy of Indian law,
the award must contravene all or any of such
fundamental principles that provide a basis for
administration of justice and enforcement of law in
this country.
56.Without intending to exhaustively enumerate
instances of such contravention, by way ofArb. P. No.15/2024 Page No. 24 of 37
illustration, it could be said that
(a) violation of the principles of natural justice;
(b) disregarding orders of superior courts in India or
the binding effect of the judgment of a superior
court; and
(c) violating law of India linked to public good or
public interest, are considered contravention of
the fundamental policy of Indian law.
However, while assessing whether there has been
a contravention of the fundamental policy of Indian
law, the extent of judicial scrutiny must not exceed
the limit as set out in Explanation 2 to Section
34(2)(b)(ii). Most basic notions of morality and
justice”
37) In the aforesaid judgment, the Supreme Court, while
explaining the connotation of the expression ‘most basic
notions of morality and justice’ observed as under:
“58. In the light of the discussion above, in our view,
when we talk about justice being done, it is about
rendering, in accord with law, what is right and
equitable to one who has suffered a wrong. Justice is
the virtue by which the society/ court / tribunal gives a
man his due, opposed to injury or wrong. Dispensation
of justice in its quality may vary, dependent on person
who dispenses it. A trained judicial mind may dispense
justice in a manner different from what a person of
ordinary prudence would do. This is so, because a
trained judicial mind is likely to figure out even minor
infractions of law/ norms which may escape the
attention of a person with ordinary prudence.
Therefore, the placement of words “most basic
notions” before “of justice” in Explanation 1 has its
significance. Notably, at the time when the 2015
Amendment was brought, the existing law with regard
to grounds for setting aside an arbitral award, as
interpreted by this See paragraph 76 of the judgment in
Ssyanyong (supra) Court, was that an arbitral award
would be in conflict with public policy of India, if it is
contrary to:
(a) the fundamental policy of Indian law; (b) the interest
of India;(c) justice or morality; and /or is (d) patently
illegal. As we have already noticed, the object of
inserting Explanations 1 and 2 in place of earlierArb. P. No.15/2024 Page No. 25 of 37
explanation to Section 34(2)(b)(ii) was to limit the
scope of interference with an arbitral award, therefore
the amendment consciously qualified the term
‘justice’ with ‘most basic notions’ of it. In such
circumstances, giving a broad dimension to this
category would be deviating from the legislative intent.
In our view, therefore, considering that the concept of
justice is open- textured, and notions of justice could
evolve with changing needs of the society, it would not
be prudent to cull out “the most basic notions of
justice”. Suffice it to observe, they ought to be such
elementary principles of justice that their violation
could be figured out by a prudent member of the public
who may, or may not, be judicially trained, which
means, that their violation would shock the
conscience of a legally trained mind. In other words,
this ground would be available to set aside an arbitral
award, if the award conflicts with such elementary/
fundamental principles of justice that it shocks the
conscience of the Court in conflict with most basic
notions of morality or justice most basic notions of
justice Morality
59. The other ground is of morality. On the question of
morality, in Associate Builders (supra), this Court, after
referring to the provisions of Section 23 of the Contract
Act, 1872; earlier decision of this Court in Gherulal
(supra); and Indian Contract Act by Pollock and Mulla,
held that judicial precedents have confined morality to
sexual morality. And if ‘morality’ were to go beyond
sexual morality, it would cover such agreements as are
not illegal but would not be enforced given the
prevailing mores of the day. The court also clarified
that interference on this ground would be only if
something shocks the court’s conscience.”
38) While explaining as to what is meant by the expression
‘patent illegality’ the Supreme Court, in the aforesaid
judgment, clarified that it refers to such an illegality as goes
to the root of the matter and does not amount to mere
erroneous application of law.
39) In the light of the aforesaid position of law, let us now
deal with the contention raised by learned counsel for the
Arb. P. No.15/2024 Page No. 26 of 37
petitioners. It has been contended by learned counsel for
the petitioners that the respondent/claimant has all along
been in default in maintaining the demised premises and
commissioning the project thereon in accordance with the
terms of the lease and despite service of notice upon her,
she has not taken steps to commission the project which
resulted in huge financial losses to the petitioners as the
property could not be put to use for earning income by the
petitioners. The second limb of argument of learned counsel
for the petitioners is that there is no evidence on record to
show that the respondent/claimant had incurred any
expenses on commissioning of the project or raising
construction on the demised premises in accordance with
the terms of the lease, therefore, the learned Tribunal could
not have awarded compensation in her favour.
40) So far as the first argument of learned counsel for the
petitioners is concerned, this aspect of the matter has been
dealt with extensively by the learned Arbitral Tribunal in
paras (24), (25), (27), (28), (29) and (30) of the impugned
award. The learned Tribunal, while dealing with this aspect
of the matter, has held that the actions of the petitioners
are impregnated with mala fides, arbitrariness and reflects
breach of principles of natural justice. It has been further
held that the petitioners herein have failed to establish that
Arb. P. No.15/2024 Page No. 27 of 37
the respondent/claimant did not comply with the terms and
conditions of the lease deed. The learned Arbitral Tribunal
has gone on to hold that the act of the petitioners herein in
allotting the property in question in favour of third person
is illegal and even if they could have done so, they were duty
bound to provide alternate property with compensation to
the respondent/claimant.
41) For determining the merits of the contention raised by
learned counsel for the petitioners on this aspect of the
matter, it would be apt to refer to the terms of the lease deed
dated 17th May, 1989, executed between the parties, which
is an admitted document. As per the terms of the lease, the
respondent lessee had to complete the remaining 50% of
construction work, such as electric fittings, sanitary
fittings, painting of complete building, construction of
kitchen block/servant quarters and part, window panes,
fitting of geysers, completion of one bathroom and other
building work etc. to be specified separately by N.A.C and
lessee jointly. The expenditure had to be borne by the
lessee, which was to be adjusted towards the fixed rent after
the submission of bills and the amount so spent by lessee
was to bear interest @14% annually to be adjusted against
the rent fixed. It was further provided that the lease deed
was for a period of 15 years at the first instance, which had
Arb. P. No.15/2024 Page No. 28 of 37
to be renewed after expiry for another term of 15 years with
escalation of 10% of the annual fixed rent after the first five
years of the first term and subsequently every five years
thereafter. The annual rent was fixed at Rs.1,50,000/ and
in the event of poor sales, the rent was to be reduced to the
extent of 15% of the original rent. It was also provided that
rent was to be effective/in operation from the date the hotel
will be actually started and the construction completed by
the lessee. The demised premises was to be used only for
the aforesaid business and not for any other purpose.
Clause (20) of the lease deed gave a liberty to the lessor to
cancel the lease during the currency of the lease period in
case the demised premises is needed for public purpose and
in that event, the lessee was to be allotted an alternate
accommodation on the same terms and conditions. The
lessee was also given a right to mortgage the leasehold
rights for raising loan for completion and commissioning of
the project from a recognized financial institution during
the currency of lease.
42) From the above it is clear that the lease in respect of
the demised premises was in effect for a period of 30 years
as it contained a compulsory renewal clause after the expiry
of term of first 15 years. The contention of the petitioners is
that the respondent/claimant failed to commission the
Arb. P. No.15/2024 Page No. 29 of 37
project for more than fourteen years which compelled them
to cancel the lease and allot the demised premises in favour
of Shri Ghulam Qadir Palla so as to prevent loss to the State
exchequer.
43) It has been the consistent case of the respondent/
claimant that with the onset of militancy in the year 1990,
she had to migrate out of Kashmir Valley and she was
registered as a migrant. It is a fact of common knowledge
that after the onset of militancy in the year 1990, a number
of persons including the people from the minority
community and political workers had to leave their homes
and hearths on account of precarious security situation in
the Valley. Most of commercial activities, particularly the
activities pertaining to tourism came to a grinding halt. In
fact, most of the tourist destinations were infested with
foreign and local militants making it next to impossible for
any tourist to visit these places. This, in turn, made the
hoteliers and the people associated with tourism business
to shut down their businesses. In these circumstances,
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.
The petitioners, who are functionaries of the State, are very
well in knowledge of the situation that was prevailing at the
Arb. P. No.15/2024 Page No. 30 of 37
relevant time in Kashmir. Therefore, they cannot shut their
eyes to the ground situation that was prevailing at the
relevant time. Their claim that there was failure on the part
of the respondent/claimant to commission the project on
the demised premises is, therefore, misconceived. The
petitioners are well aware of the fact that even the
established hotels in Kashmir Valley came to the verge of
closure and most of the hotels were occupied by the
Security Forces and protected persons for running the show
in Kashmir Valley, for which the Government of India was
paying rentals out of the security related expenses. The
stand taken by the petitioners in blaming the
respondent/claimant in not commissioning the project, in
the facts and circumstances of the case, deserves to be
rejected outrightly.
44) As already stated, it is an admitted fact that the
respondent/claimant was not residing in Kashmir Valley at
the relevant time as she had migrated out of Kashmir
Valley, therefore, the claim of the petitioners that they had
served notice upon her at her address in Srinagar is not
tenable. The petitioners have not placed on record any
receipt executed by the respondent/claimant in respect of
any notice nor have they even claimed that they had
addressed any notice to the abode of respondent/claimant
Arb. P. No.15/2024 Page No. 31 of 37
outside Kashmir Valley. Merely publishing notices in local
daily newspapers like Greater Kashmir and Srinagar Times,
which have hardly any circulation outside Kashmir Valley
would not lead to an inference that the respondent/
claimant was having knowledge of the said notices. It is not
the case of the petitioners that they had published these
notices in any newspaper having circulation in Jammu or
any other part of the country. Therefore, it cannot be stated
that prior to cancellation of the lease deed, the petitioners
had served any notice upon the respondent/claimant.
45) Even otherwise, the petitioners had no right in terms
of the covenants of the lease deed to terminate the lease
during the currency of the lease period except if the demised
premises was needed for public purpose and even in that
eventuality, they were obliged to allot alternative
accommodation to the respondent/lessee on same terms
and conditions. The petitioners have cancelled the lease of
the respondent/claimant and thereafter allotted the
premises in question in favour of Shri Ghulam Qadir Palla
without holding any auction and without inviting
applications from the interested persons. This arbitrary act
on the part of the petitioners smacks of mala fides and
favouritism. The same cannot be given the colour of public
purpose in any circumstances whatsoever. The learned
Arb. P. No.15/2024 Page No. 32 of 37
Arbitral Tribunal is right in holding such action of the
petitioners as mala fide and arbitrary in nature. The
contention of the petitioners in this regard is, therefore,
without any merit as it is clearly discernible from the
records that action of the petitioners in cancelling the lease
of the demised premises qua the respondent/claimant is
illegal and unlawful and even the action of allotting the
demised premises in favour of Shri Ghulam Qadir Palla is a
mala fide and arbitrary exercise of power on their part.
46) So far as contention of the petitioners that award of
compensation in the amount of Rs.1,37,57,009/ in favour
of the respondent/claimant is based upon no evidence and,
as such, the same is perverse, is concerned, in this regard
it is to be noted that the learned Arbitral Tribunal has
refused to grant claim of the respondent/claimant for
amount of Rs.25,86,07,059/ which amount, according to
the respondent/claimant, she had invested upon
construction, together with the interest thereon. The
learned Arbitral Tribunal has also declined the claim of the
respondent/claimant to the extent of Rs.30,58,36,000/ on
account of loss of business as, according to the learned
Tribunal, both these claims have no substance. So, it is not
a case where the learned Arbitrator, has, with his eyes shut,
accepted the claims of the respondent/claimant. While
Arb. P. No.15/2024 Page No. 33 of 37
declining the aforesaid two claims, the learned Arbitrator
has taken into account the fact that the respondent/
claimant has not succeeded in substantiating these two
claims with any cogent and convincing evidence.
47) However, once it was held by the learned Tribunal that
there was breach of terms of the agreement on the part of
the petitioners in cancelling the lease deed prematurely
without any notice to the respondent/claimant, she
becomes entitled to damages in accordance with the
provisions contained in Section 73 of the Contract Act. As
per the said provision, the party who suffers by breach of
contract is entitled to receive, from the party who has
broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual
course of things from such breach or which the parties
knew when they made the contract to be likely to result of
breach from it. Of course, such compensation is not to be
given for any remote and indirect loss or damage sustained
by reason of the breach.
48) In the present case, it has been established that in
terms of the covenants of the lease deed, the respondent/
claimant was entitled to raise loan against the security of
leasehold rights from a recognized financial institution.
Arb. P. No.15/2024 Page No. 34 of 37
There is material on record to show that the respondent/
claimant had raised loan of Rs.17.78 lacs from J&K State
Financial Corporation. This loan was to be repaid by the
respondent/claimant in 14 instalments of Rs.1,27,000/
each and was to carry interest at a minimum rate of 16½%.
There is also material on record to show that because the
respondent/claimant could not operate the hotel business
on account of cancellation of lease deed by the petitioners,
she could not repay the loan amount and ultimately her
liability swelled upto Rs.1,37,57,009/, which is evident
from communication dated 28th August, 2003, issued by
the J&K State Financial Corporation. The illegal and
unlawful termination of the lease of the demised premises
by the petitioners, which, otherwise in normal course,
would have come to an end in the year 2017 because there
was an option of renewal for another fifteen years term, has
resulted in loss/damage to the respondent/claimant, at
least to the extent of Rs.1,37,57,009/ as she had to
liquidate this amount without actually making use of this
money for the purpose of commissioning the project which
she could not do because of the illegal actions of the
petitioners. Therefore, the learned Arbitral Tribunal is
justified in assessing the aforesaid amount as
compensation in favour of the respondent/claimant.
Arb. P. No.15/2024 Page No. 35 of 37
49) Learned counsel for the petitioners has argued that in
the claim petition, the respondent/claimant has prayed for
an amount of Rs.25,86,07,059/ on account of amount
invested on construction and compensation and once the
said claim has been declined by the learned Tribunal, the
amount of Rs.1,37,57,009/ could not have been awarded
in favour of the respondent/claimant.
50) In the above context, it is to be noted that the
respondent/claimant has not only prayed for an amount of
Rs.25,86,07,059/ on account of amount invested on
construction together with interest thereon but she has also
prayed for compensation. The compensation part has not
been declined by the learned Tribunal in clause (d) of
paragraph (33.3) of the impugned award. Only the part of
claim relating to expenses incurred on construction
together with interest and loss of profits has been declined
by the learned Arbitral Tribunal. The compensation part
has not been declined. The contention of the learned
counsel for the petitioners is, therefore, without any merit.
51) For the foregoing reasons, 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. None of the grounds
enumerated in Section 34 of the Act of 1996 is made out in
Arb. P. No.15/2024 Page No. 36 of 37
the present case so as to persuade this Court to interfere in
the impugned award passed by the learned Arbitrator. The
petition lacks merit and is dismissed accordingly.
(Sanjay Dhar)
Judge
Srinagar,
04.07.2025
“Bhat Altaf”
Whether the judgment is reportable: YES/NO
Arb. P. No.15/2024 Page No. 37 of 37