Whether the Small cause court has jurisdiction to try a claim for recovery of security deposit or damages or is said dispute arbitrable?

As held by this Court in the case of Brainvisa Technologies Pvt. Ltd. (supra) license fee, charges and rent are periodical payments made for use and occupation. A claim for recovery of the same, legitimately falls within the exclusive jurisdiction of the Court of Small Causes. In the case at hand, the respondent professes to withhold the security deposit on the ground that the applicant is liable to pay damages. Such a claim, in my considered view, does not fall within the exclusive jurisdiction of the Court of Small Causes, and is amenable to arbitration. 

{Para 45}

 IN THE HIGH COURT OF BOMBAY

Arbitration Application No. 340 of 2019

Decided On: 05.05.2022

 Bafna Motors Private Limited  Vs.  Amanulla Khan

Hon'ble Judges/Coram:

N.J. Jamadar, J.

Citation: MANU/MH/1583/2022

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Whether claim for recovery of rent,mesne profit,security deposit can be treated as commercial dispute?

 In order to appreciate the controversy, we would first reproduce the relevant definition clause, i.e. 2 (1) (c) (vii), as also the explanation thereto:-

"Definitions.-(1) In this Act, unless the context otherwise requires-

(c) "commercial dispute" means a dispute arising out of-

(vii) agreements relating to immoveable property used exclusively in trade or commerce;

Explanation.-A commercial dispute shall not cease to be a commercial dispute merely because-

(a) It also involves action for recovery of immoveable property or for realisation of monies out of immoveable property given as security or involves any other relief pertaining to immoveable property;

(b) One of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;"
It cannot be disputed that action for recovery of immoveable property would be covered under sub-clause (vii) to clause (c) when the immoveable property is exclusively used in trade or commerce. Read in this manner, we do not think that claim for recovery of rent or mesne profit, security deposit etc., relating to immoveable property which was used exclusively in trade or commerce should not be treated as a commercial dispute in view of the language, ambit and scope of sub-clause (vii) to clause (c) to Section 2 of the Act. These would qualify and have to be regarded as commercial disputes. The use of expression "any other relief pertaining to immoveable property" would mean disputes relating to breach of agreement and damages payable on account of breach of agreement would be covered under sub-clause (vii) to clause (c) to Section 2 of the Act when it is arising out of agreement relating to immoveable property exclusively used in trade and commerce.
IN THE HIGH COURT OF DELHI

FAO (OS) No. 166/2016

Decided On: 22.09.2017

 Jagmohan Behl Vs. State Bank of Indore

Hon'ble Judges/Coram:
Sanjiv Khanna and A.K. Chawla, JJ.

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When court can set aside arbitration award as per S 34 of Arbitration Act?

On perusal of the judgment relied upon by the learned
counsel for the respondents in Associate Builders vs. Delhi
Development Authority (supra), it is clear that the Court can set-aside
the award if the award is against justice or morality, discloses patent
illegality, contrary to the terms of the contract and not in accordance
with the substantive law of India. In my view, the petitioners have
made out a case that the award is patently illegal on the face of
record and the learned arbitrator has decided contrary to the terms of
the tender documents and has also decided contrary to the law laid
down by the Supreme Court and this Court and thus this Court has
ample power to set-aside such award under section 34 of the said
Act.
 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.240 OF 2013
Maharashtra State Electricity
Distribution Company Limited,

V
Vijai Electricals Limited

 CORAM : R.D. DHANUKA, J.

 PRONOUNCED ON : 4TH FEBRUARY, 2015
Citation:2016 (5) ALLMR74

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When arbitration award should not be set aside?

I have heard the learned counsel for the parties, appraised
the paper book and of the view that there is no merit and force in the
submission of Ms.Pathak, for, the Arbitrator categorically recorded a
finding with regard to tendering of documents at the behest of the
respondent-contractor. The officials of the Corporation should not have
been right in calling upon the contractor to sign the agreement as he was
in custody and, therefore, had executed GPOA and assignment of right of
a principal to the agent is recognised in law and once the Corporation
failed to honour the contract and insisted upon the presence of the
contractor for signing the agreement, there was no occasion for them to
cancel the contract. The intention of the contractor is evident from the
deposit of the security deposit. It is the conceded position on record that
respondent No.1 was in judicial custody w.e.f. 1.9.2002 and on
6.11.2002, the appellant issued notice to respondent No.1 to sign the

agreement in person by 17.11.2002, failing which the contract shall be
rescinded at his risk and cost and earnest money shall also be forfeited.
It is now a settled law that in what circumstances, the award
has to be interfered with. The question, which is now raised in the
aforementioned appeal, has already been answered by the Hon'ble
Supreme Court in catena of judgments, wherein it has been laid down
that until and unless the award suffers from illegality as statutorily
prescribed under Section 34 of the Act, the same cannot be interfered
with. In this context, I intend to refer the judgments of Hon'ble Supreme
Court in Associate Builders Vs. Delhi Development Authority (2015)
3 SCC 49 and Navodaya Mass Entertainment Ltd. Vs. J. M.
Combines (2015) 5 SCC 698. In the aforementioned judgments, the
Hon'ble Supreme Court had culled out the ratio decidendi by holding that
until and unless there is error apparent on the face of record or the
arbitrator has not followed statutory legal position, it is only in these
circumstances, it would be justified interfering with the award. The High
Court should not act as a Court of appeal and reappraise the
material/evidence and embark on a path by substituting its own view in
support of the Arbitrator's view. It is not the case of the appellant that the
award is against the public policy or has violated the principles of
judicial approach, much less against the statute and other provisions of

Section 34 of the Act. The Arbitrator has dealt with the dispute, which
was contemplated and was within its scope. The parties to the lis had
participated in the proceedings and were given proper notice not only
with regard to the appointment of the Arbitrator but vis-a-vis
proceedings. In my view, the award of the Arbitrator does not suffer from
any illegality in as much as the Arbitrator, who is expert, has dealt with
the matter and decided the claims of respective parties to the lis.
In my view, the award read as a whole is just, fair and
reasonable. It is now a settled law that the Arbitrator is the sole judge of
quality and quantity of the evidence before him and decide on the basis
of the available evidence.
I am of the view that the award of the arbitrator is perfect,
legal and justice and based upon the appreciation of the evidence.

 IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
F.A.O.No.6853 of 2010 (O&M)
Dated: August 01, 2016
Central Ware Housing Corporation, Panchkula

V
M/s Jaswinder Singh,
CORAM:  AMIT RAWAL, JUDGE
Citation:AIR 2016(NOC)675 P&H

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Whether security deposit can be forfeited even though no loss is caused to one of contracting party?

 Only one contention was urged on behalf, of the appellants before us: that the security deposit was taken from the respondents in order to ensure the due performance the contract and respondents having defaulted, the entire amount was liable to be forfeited. A similar contention was advanced before this Court but was rejected in Maula Bux v. Union of India . The appellant therein had entered into a contract with the Government of India for the supply of certain goods and had deposited a certain amount of security for the due performance of the contract. As in the instant case, it was stipulated in the contract there that the amount of security deposit was to stand forfeited in case the appellant neglected to perform his part of the contract. On the appellant committing default in the supply, the Government rescinded the contract and forfeited the security deposit. It was held by this Court that forfeiture of earnest money under a contract for sale of property does not fall within Section 70 of the Contract Act, if the amount is reasonable, because the forfeiture of a reasonable sum paid as earnest money does not amount to the imposition of a penalty. But, "where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he was already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty." It was further held that the amount deposited by way of security for guaranteeing the due performance of the contract cannot be regarded as earnest money.

 It is important that the breach of contract caused no loss to the appellants. The stipulated quantity of sum was subsequently supplied to the appellants by the respondents themselves at the same rate. The appellants, in fact, made no attempt to establish that they had suffered any loss or damage on account of the breach committed by the respondents.

Supreme Court of India

Union Of India (Uoi) vs Rampur Distillery And Chemical ... on 20 February, 1973

Equivalent citations: AIR 1973 SC 1098, (1973) 1 SCC 649, 1973 (5) UJ 560 SC

Bench: J Shelat, Y Chandrachud

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Whether instrumentality of state is entitled to get exemption from deposit of security in case of stay of decree?

Equivalent Citation: 2014III AD (S.C.) 358, 2014 (103) ALR 270, 2014(1)ARBLR134(SC), 2014 2 AWC1494SC, 2014-3-LW182, 2014(2)RCR(Civil)173, 2014 123 RD116, 2014(1)SCALE207, (2015)5SCC267

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 26 of 2014 (Arising out of S.L.P. (Civil) No. 27572 of 2013

Decided On: 03.01.2014

Appellants: Kanpur Jal Sansthan and Anr.
Vs.
Respondent: Bapu Construction

Hon'ble Judges/Coram:Anil R. Dave and Dipak Misra, JJ.

Code of Civil Procedure, 1908 - Order XXVII, Rules 8A and 8B and Order XLI, Rule 5--Arbitration--Applicability of Order XXVII, Rules 8A and 8B and Order XLI, Rule 5 of C.P.C.--When appellant is 'Jal Sansthan' which come within extended wing of Government or agency of State--Order XXVII, Rules 8A and 8B and Order XLI, Rule 5 of C.P.C. applicable only to Government and not to instrumentality or agency of State--There is difference between concept of "State" under Article 12 of the Constitution and "Government" as used in Order XXVII, Rules 8A and 8B of C.P.C.--Division Bench of High Court fallen into error by directing appellants to deposit entire amount awarded by arbitrator in court below and release of 50% of same without furnishing security and remaining half after furnishing security--Appellants directed to furnish security for entire amount to satisfaction of concerned District Judge--Impugned order of Division Bench of High Court modified accordingly.

Calling in question the defensibility of the order passed by the High Court whereby the Division Bench, after admitting the appeal, while dealing with the application for stay, directed the appellants to deposit the entire amount awarded by the arbitrator in the Court below with a further direction permitting the claimant-respondent to withdraw half of the said amount without furnishing security and remaining half after furnishing security to the satisfaction of the District Judge, with a further stipulation that in case of default in making the deposit, the order of stay shall automatically stand vacated.

From the language employed in Order XXVII, Rules 8A and 8B. Cr.P.C. it only means the "Government". In fact, Rule 8B clearly states "in relation to any suit by or against the Central Government or against a public officer in the service of the Government" and similar language is used for the State Government. Hence, the Legislature has deliberately used a restrictive definition and its scope cannot be expanded to cover an agency or instrumentality of the State by interpretative process.

The counsel for the appellants has relied on the decision in State of Kerala v. Kuruvilla, AIR 2000 Ker. 233, of the High Court of Kerala wherein the Division Bench placing reliance on the decision in Collector, Cuttack v. Padma Charan Mohanty's, 50 (1980) CLT 191, has basically dealt with the applicability of Order XXVII, Rule 8A and grant of stay under Order XLI, Rule 5 when the State is the appellant. The Supreme Court does not intend to express any opinion on the correctness of the said decisions as the controversy does not arise in the present case because it is neither the Central Government nor the State Government in that sense in appeal. It is the "Jal Sansthan" which claims to be an extended wing or agency of the State has preferred the appeal. It was observed Order XXVII, Rules 8A and 8B are applicable only to the Government and not to instrumentality or agency of the State. That is the specific and definite language employed by the Legislature and for that purpose there is a distinction between the concept of "State" under Article 12 of the Constitution and the "Government" as used in Order XXVII, Rules 8A and 8B of C.P.C.

Coming to the legal validity of the impugned order this Court finds the High Court has directed for deposit of the money and withdrawal of the 50% of the same without furnishing security and remaining half after furnishing security. The High Court has not given any justifiable reason for permitting such withdrawal. Without commenting on the merits of the grounds sought to be urged the Supreme Court only modify the order that the appellant shall furnish the security for the entire amount to the satisfaction of the concerned District Judge within a period of six weeks.

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When govt is not entitled to forfeit security deposit given by contractor?

 We find that there is no term in the agreement between the parties enabling the appellant to forfeit the security deposit. The only right given to the appellant was to deduct out of the security deposit the amount of loss incurred by the appellant which was caused to them by reason of non-completion of the work by the respondent in time and to recover the extra cost of the work which had to be completed by the appellant departmentally on account of default of the respondent subject to certain limits. The appellant has neither proved the amount of damage incurred by it nor has it proved the extra amount of cost incurred by it for getting the uncompleted work done departmentally. Thus, the argument that the appellant was entitled to forfeit the security deposit or any part of the same, must fail. 

Supreme Court of India

State Of Rajasthan vs Botamal Sachdeva (Dead) Through ... on 2 August, 1989

Equivalent citations: AIR 1989 SC 1811, 1989 (2) ARBLR 354 SC, JT 1989 (3) SC 315, 1989 (2) SCALE 288, (1989) 4 SCC 35, 1989 (2) UJ 632 SC

Bench: M Kania, T Thommen

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No Emergent relief regarding refund of security deposit when tenant is is possession of premises

It is necessary to bear in mind that the Respondent has already filed a Suit for possession and other reliefs including recovery of licence fee and damages etc. against the Petitioner in the Small Causes Court. The Petitioner claims that as the security deposit paid by it has not been refunded by the Respondent it is entitled to continue with possession of the licenced premises. Considering the area and location of the licenced premises it is undisputed that the value of the licenced premises is several times more than the claim of the Petitioner for security deposit. In such circumstances at least at this

stage when the Petitioner is continuing in possession of the premises in question, I do not see any justification for granting any emergent interim measures or orders as against the Respondent for securing the claim of the Petitioner. Being in possession of the premises, the claim of the Petitioner is as on today substantially secured. As on today, no case is made out for grant of interim measures as prayed for in the Petition. However, if the Petitioner in future relinquishes the possession of the premises to the Respondent, the Petitioner may have a prima facie case for applying for interim measures against the Respondent in terms of the prayers made in this Petition. 24 Hence, while disposing off this Petition, I deem it necessary to grant a specific liberty to the Petitioner to make an Application for interim measures in case the Petitioner relinquishes the possession of the premises in question to the Respondent

Bombay High Court

Bnp Paribas Securities India ... vs Cable Corporation Of India Ltd on 7 May, 2012

Bench: G. S. Godbole

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