Facts of the Case

  • The Parties and Property: The Applicant, Smt. Palaparthi Sitamahalakshmi Rao, is the owner and landlord of a commercial building situated at Plot No. 720, Road No. 36, Jubilee Hills, Hyderabad. The Respondent is Zee Entertainment Enterprises Limited.
  • Lease Agreements: The ground floor was leased to the Respondent via a registered lease deed dated August 9, 2018, for a business called "LOFT" at a monthly rent of Rs. 4,41,400. The fourth floor was leased via another registered lease deed dated May 30, 2019, for a business called "EDGE" at a monthly rent of Rs. 4,71,000. Both lease deeds contained a strict four-year lock-in period.
  • Unilateral Termination: On June 2, 2020, the Respondent unilaterally terminated the lease via email, citing difficulties arising from the COVID-19 pandemic. The Applicant immediately contested this, stating that termination before the completion of the four-year lock-in period was impermissible.
  • Contractual Liability: Under Clause 9(c) of the lease deeds, if the Respondent terminated the lease within the lock-in period, they were legally bound to find a suitable alternative tenant on identical terms, remaining liable for the monthly rent until such a tenant was found.
  • Breaches and Defaults: The Respondent failed to hand over physical possession after the lockdown, failed to find an alternative tenant, and failed to pay the rental dues. Additionally, the Respondent defaulted on auxiliary expenses including electricity bills, water charges, cooking gas charges, and garbage collection fees.
  • Legal Action & Section 9 Petition: After exchanging multiple reminders, statutory notices (dated January 6, 2021), and a rejoinder, the disputes remained completely unresolved. The Applicant subsequently invoked Clause 34 (the Arbitration Clause) via a notice dated August 25, 2021. The Applicant also successfully moved a Section 9 petition (COP No. 22 of 2021) before the Commercial Court, Hyderabad, which ordered the ex-parte Respondent to furnish security worth Rs. 1,63,06,642.

Issues Involved

  1. Whether the Respondent could unilaterally terminate the registered commercial lease deeds during the mandatory four-year lock-in period by citing the COVID-19 pandemic as a mitigating factor.
  2. Whether the Applicant successfully complied with the statutory pre-requisites and procedural mandates required under Section 11 of the Arbitration and Conciliation Act, 1996, for the appointment of an independent Sole Arbitrator.
  3. Whether the Court should automatically grant an application under Section 11(5) when the arbitration clause is undisputed and the opposite party fails to appear or contest the proceedings.

Petitioner’s Arguments

  • Strict Adherence to Contractual Lock-in: The learned counsel for the applicant, Ms. Apurva M. Gokhale, argued that the four-year lock-in period under both registered lease deeds was absolute and legally binding. The Respondent had no legal right to unilaterally exit the lease mid-term using the pandemic as an excuse.
  • Subsisting Financial Liabilities: It was argued that as per Clause 9(c) of the agreements, the Respondent's financial obligation to clear rents for the remainder of the lock-in period subsists entirely until they find an equivalent alternative tenant.
  • Accumulated Arrears: The applicant pointed out that the respondent committed continuous defaults, accumulating arrears of rents, maintenance, and utility bills amounting to massive sums (exceeding Rs. 1.38 Crores up to January 2021).
  • Valid Invocation of Arbitration Clause: The applicant contended that Clause 34 provides a clear mechanism for dispute resolution via arbitration. A formal invocation notice was duly served to the respondent on August 28, 2021, and personal notices for the current application were also properly served, fulfilling all statutory requirements.

Respondent’s Arguments

  • No Appearance: Despite being properly served with institutional notices through registered post, and proof of service being filed with the High Court (via USR No. 80495 of 2022), none appeared on behalf of the Respondent.
  • Deemed Out-of-Court Stand: As per the factual history recorded in the order, the respondent had previously via email (dated June 2, 2020) taken shelter under the disruptions caused by the COVID-19 pandemic to justify their termination and had appointed a mediator for settlement, though they never actually settled the outstandings or completed the formal handover.

Court Order / Findings

  • Satisfaction of Service: The Hon’ble High Court, presided over by Sri Justice B. Vijaysen Reddy, verified that personal notice was successfully served on the respondent.
  • Existence of Clause and Procedural Compliance: The Court observed that Clause 34 of the registered lease deed dated August 9, 2018, explicitly provides for the resolution of disputes via arbitration. The applicant had validly invoked this clause via notice dated August 25, 2021, ensuring full compliance with Section 11 of the Act.
  • Uncontested Merits: Due to the complete absence and lack of contest from the respondent, the Court held that it had no alternative but to allow the application to protect the interests of justice.
  • Appointment of Arbitrator: The High Court formally allowed the application and appointed Sri Justice P. Swaroop Reddy, Retired High Court Judge, as the Sole Arbitrator to adjudicate all claims and disputes arising between the parties. The arbitrator’s fees were directed to be governed as per the Fourth Schedule of the Act, to be borne equally by both parties.

Important Clarification

  • Lock-in Periods & Force Majeure: The case underlines an essential commercial principle: a tenant cannot easily escape monetary liabilities of a strict "lock-in period" simply by issuing a unilateral notice citing global disruptions like COVID-19, especially when specific clauses (like Clause 9(c) herein) explicitly shift the burden of finding an alternative tenant onto the defaulting party.
  • Ex-Parte Proceedings in Section 11: If a respondent deliberately avoids or fails to contest a Section 11 application despite proper service of notice, the High Court will proceed to appoint an arbitrator based on the prima facie validity of the arbitration clause and the procedural fulfillment of the invocation notice.

Section Involved

  • Section 11(5) of the Arbitration and Conciliation Act, 1996 (Appointment of a Sole Arbitrator).
  • Section 9 of the Arbitration and Conciliation Act, 1996 (Interim measures by Court).

Link to download the order -https://mytaxexpert.co.in/uploads/1782892279_25compressed.pdf

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