CIVIL MISCELLANEOUS APPEAL NOS.970 OF 2016 AND BATCH 03-01-2017 Hyderabad Metropolitan Development Authority (HMDA) and others .. Appellants M/s Hotel Malligi Pvt. Ltd... Respondent http://judis.nic.in/Judis_Andhra/list_new2.asp?FileName=13824

THE HONBLE SRI JUSTICE SANJAY KUMAR AND THE HONBLE SMT. JUSTICE ANIS              

CIVIL MISCELLANEOUS APPEAL NOS.970 OF 2016 AND BATCH

03-01-2017

Hyderabad Metropolitan Development Authority (HMDA) and others  .. Appellants

M/s Hotel Malligi Pvt. Ltd... Respondent

Counsel for the Appellants: Sri V.Narasimha Goud (AP)
                                               
Counsel for the Respondent : Sri S.Niranjan Reddy and
                              Sri K.V.Rusheek Reddy

<Gist:

>Head Note:    


? CASES REFERRED:    

1. AIR 1959 SC 1262
2. 1992 Supp (2) SCC 29
3. AIR 2009 SC 2519
4. 2015 (6) ALD 486
5. (2012) 7 SCC 587

THE HONBLE SRI JUSTICE SANJAY KUMAR        
AND
THE HONBLE SMT. JUSTICE ANIS    

CIVIL MISCELLANEOUS APPEAL NOS.970 AND 987 OF 2016          

C O M M O N   J U D G E M E N T  
(Per Honble Sri Justice Sanjay Kumar)
       
       Parties and the cause being the same, these two cases are
amenable to disposal by way of this common order.
      C.M.A.No.970 of 2016 arises out of the order dated 17.08.2016
passed by the learned XI Additional Chief Judge, City Civil Court,
Hyderabad (hereinafter, the Court below), in Arbitration O.P.No.1669
of 2016, extended thereafter from time to time, i.e., on 01.09.2016,
07.09.2016, 14.09.2016, 19.09.2016 and 20.09.2016. C.M.A.No.987
of 2016 arises out of the order dated 29.09.2016 passed by the Court
below in Arbitration O.P.No.2229 of 2016.  The orders under appeal
were passed under Section 9 of the Arbitration and Conciliation Act,
1996 (for brevity, the Act of 1996). Hyderabad Metropolitan
Development Authority (HMDA), the respondent in the O.P.s, is the
appellant in both appeals, filed under Section 37 of the Act of 1996.
      The respondent in these appeals, M/s. Hotel Malligi Pvt. Ltd.,
Bellary District, Karnataka, was granted a licence by the HMDA over
the land admeasuring 2500 square metres situated adjacent to the
IMAX theatre at Hyderabad (hereinafter, the licensed premises) for
developing and operating any one or a combination of Restaurants,
Food Courts, Indoor Entertainment Centre, etc.  This licence
agreement was executed by and between the parties on 01.08.2011  
and was to come into effect 60 days thereafter, i.e., on 01.10.2011.
The licence period was for five years which expired on 30.09.2016.  It
is an admitted fact that the respondent entered into an
understanding with Paradise Food Court under agreement dated 
28.01.2012 vis--vis the licensed premises and received amounts far
in excess of what it paid to the HMDA.
      While so, the HMDA issued notification dated 04.08.2016 in
relation to the licensed premises inviting bids for grant of a licence to
develop, operate and maintain a Food Court thereon.  This led to the
respondent filing Arbitration O.P.No.1669 of 2016 before the Court
below under Section 9 of the Act of 1996 seeking an injunction
restraining the HMDA from taking further action pursuant to the
tender notification dated 04.08.2016. By order dated 17.08.2016, the
Court below opined that the respondent had invested huge amounts 
to start the Food Court in the licensed premises; had not committed
any default in payment of the agreed licence fees; that the letter of
the respondent seeking extension of the lease of the licensed
premises and renewal of the licence was pending but the tender
notification was issued on 04.08.2016 arbitrarily.  The Court below
accordingly held that the balance of convenience was in favour of the
respondent and granted an ad interim ex parte injunction restraining
the HMDA from taking further action or going ahead with any
proceeding pursuant to the notification dated 04.08.2016.
      This order was to remain operative till 01.09.2016 but was
extended thereafter from time to time, the last such extension being
on 20.09.2016.  On the said day, the Court below concluded the
hearing and reserved orders, while extending the interim order
granted earlier till further orders.  Admittedly, the Court below is yet
to pronounce its final orders.
      As the licence period under the agreement dated 01.08.2011
was to expire on 30.09.2016, it appears that the respondent
apprehended a threat to its possession and filed a separate petition
under Section 9 of the Act of 1996 in Arbitration O.P.No.2229 of 2016
before the Court below, wherein it sought an injunction restraining
the HMDA from taking any further action, including its eviction from
the licensed premises, till the disposal of the arbitration proceedings.
      By order dated 29.09.2016 passed therein, the Court below
observed that the workers and employees of the HMDA had visited
and tried to interfere with the possession of the licensee and
threatened to get it vacated from the premises on 30.09.2016 and
held that the balance of convenience lay in its favour.  The Court
below accordingly granted an ex parte ad interim injunction
restraining the HMDA from taking further action, including eviction
of the licensee, from the licensed premises till 15.11.2016.
      It is against these orders of the Court below that the present
appeals were preferred by the HMDA.
      Heard Sri V.Narasimha Goud, learned standing counsel for the
HMDA, and Sri S.Niranjan Reddy, learned senior counsel
representing Sri K.V.Rusheek Reddy, learned counsel for the licensee.
      As this Court heard these appeals at length and the validity of
the interim orders passed by the Court below in the pending
Arbitration O.P.s was subjected to challenge, interim stay of further
proceedings in Arbitration O.P.No.1669 of 2016, including
pronouncement of final order therein, was granted on 01.12.2016.
      Sri V.Narasimha Goud, learned standing counsel, would point
out that the notification dated 04.08.2016 clearly demonstrated that
there was no intention on the part of the HMDA to disturb the
licensee during the subsistence of the reserved licence period under
the agreement dated 01.08.2011.  Learned standing counsel would
point out that at the point of time the licence was granted in the year
2011, the licence fee contemplated per year was only Rs.55,00,000/-
whereas the expected returns per year from granting such licence is
now Rs.2.00 crore and the upset price was therefore fixed at Rs.2.00
crore for the first year under the tender notification dated
04.08.2016. He would point out that the tender validity of the bids to
be submitted thereunder was 90 days, which clearly demonstrated
that the award of the licence thereunder would have been made only
after 30.09.2016, the date of expiry of the respondents licence
period.  He would contend that the apprehension of the licensee that
the HMDA would cut-short the licence period was therefore without
basis and assert that there was no cause whatsoever for it to file
Arbitration O.P.No.1669 of 2016.  He would point out that efforts
were made by the HMDA on 29.09.2016 to bring it to the notice of the
Court below that the licence period was expiring on 30.09.2016 but
despite the same the Court below, having reserved orders on
20.09.2016, failed to pronounce the final orders till date.  Learned
standing counsel would assert that on the very same day, viz.,
29.09.2016, the Court below again granted an interim order in
Arbitration O.P.No.2229 of 2016, overlooking the fact that there was
only a licence in favour of the respondent, whereunder it could not
lawfully seek to prolong its occupation beyond the licence period.  He
would also assert that the renewal application filed by the respondent
was rejected as long back as in August, 2016, and that there was no
basis whatsoever to allow it to prolong its possession and occupation
over the licensed premises to the detriment of public interest.
      On the other hand, Sri S.Niranjan Reddy, learned senior
counsel, would rely upon the terms and conditions of the licence
agreement dated 01.08.2011 and contend that though renewal of the
licence was at the discretion of the HMDA, the first right of refusal for
extension was given to the respondent and, therefore, such a
valuable right could not be brushed aside by the HMDA even after
the expiry of the stipulated licence period.  Learned senior counsel
would assert that the licensee invested Rs.3.00 crore for developing
the licensed premises and consequently had valuable rights and
interest therein.  He would point out that the licence agreement itself
permitted the licensee to enter into any agreement, contract and
arrangement as it thought fit, necessary and expedient in furtherance
of the purpose and for proper implementation of the terms of the
agreement.  He would therefore assert that the franchise agreement
of the licensee with Paradise Food Court in relation to the licensed
premises was not illegal or beyond the terms of the licence
agreement.  He would also state that when the HMDA sought to
terminate the licence on the strength of this franchise agreement, the
said move was struck down by this Court.  Learned senior counsel
would contend that the first right of refusal given to his client gave
rise to an arbitrable dispute and therefore, the licensee was well
within its rights in approaching the Court below under Section 9 of
the Act of 1996 to seek interim protection pending initiation of
arbitration proceedings.  Learned senior counsel would further point
out that the HMDA filed a vacate stay petition before the Court below
on 02.09.2016 and, arguments having concluded on 20.09.2016, the
Court below reserved orders thereon.
      He would further state that on 29.09.2016, the HMDA officials
informed the licensee that it had no right to continue after
01.10.2016 and threatened to take coercive measures.  Learned
senior counsel would assert that owing to the genuine apprehension
that it would be unceremoniously evicted from the licensed premises;
the licensee once again approached the Court below by way of a fresh
petition under Section 9 of the Act of 1996.  Learned senior counsel
would again assert that the licensee was given the first right of
refusal under the licence agreement and being bound by the same,
the HMDA was estopped from ignoring this valuable right of the
licensee.  He would point out that the tender notification dated
04.08.2016 clearly demonstrated that this valuable right of the
licensee was completely ignored.  He would therefore assert that it
was well within the right of the licensee to seek specific performance
of this term in the licence agreement and ask for the status quo to be
preserved pending resolution of this arbitrable dispute.  As regards
Arbitration O.P.No.2229 of 2016, learned senior counsel would state
that the HMDA sought time on 15.11.2016 to file its counter and the
matter was accordingly posted on 06.12.2016.  Learned senior
counsel would state that as the Court below is seized of the matter
and is yet to pronounce orders in Arbitration O.P.No.1669 of 2016, it
is wholly premature for this Court to interfere in the matter at this
stage.  He would therefore pray for dismissal of the appeals leaving it
open to the Court below to proceed further in the matter.
      In reply, Sri V.Narasimha Goud, learned standing counsel,
would state that the first right of refusal was not automatic and was
subject to review of satisfactory performance like regular payments to
the HMDA and compliances with GHMC norms and Traffic Police  
Rules etc.  He would therefore assert that the licensee cannot rely
upon this clause to prolong its occupation over the licensed premises
beyond the stipulated licence period.  Learned standing counsel
would point out that Article 7 of the licence agreement specifically
provided that upon expiry of the tenure of the licence, the licensee
shall hand over the site with all the immovable assets to the HMDA
without any claim for compensation.  He would further point out that
there was mischief in relation to Arbitration O.P.No.2229 of 2016 in
as much as the case status website in relation to this O.P. indicated
that the case was heard by the Court below on 29.09.2016 and the
next hearing was on 17.10.2016, the purpose being Notice.  He
would point out that the Business portion of the website data stated
that an ex parte ad interim injunction was granted till 17.10.2016
and concluded with the sentence - Notice to respondents through
Court and R.P by 17.10.2016.  However, the certified copy of the
order dated 29.09.2016 indicated that the date 17.10.2016 was
changed to 15.11.2016 at every place where it found mention
therein. Learned standing counsel would assert that this indicated
that all is not well with how this case is being dealt with. He would
conclude by reiterating that the Court below erred in interfering in
the matter at the fag-end of the licence period and in permitting the
licensee to prolong its occupation over the licensed premises, ignoring
the legal status of a licensee.
      Though the Court below is presently seized of the Arbitration
O.P.s filed by the licensee under Section 9 of the Act of 1996,
consideration of the merits of the case to a limited extent is
warranted in these appeals as the Court below has effectively brought
matters to a grinding halt by granting and extending ex parte interim
injunction orders in both the O.P.s., while at the same time sleeping
over the final orders which were reserved as long back as on
20.09.2016.  However, be it noted that any observations made by this
Court on the merits of the case are only for the limited purpose of
disposing of these appeals and the Court below is at liberty to
examine the case before it independently and in accordance with law,
uninfluenced by any observations made herein.
      At the outset, it would be necessary to note the legal status of a
licensee.  Section 52 of the Indian Easements Act, 1882 (for brevity,
the Act of 1882) defines licence thus:
  Where one person grants to another, or to a definite number of
other persons, a right to do, or continue to do, in or upon the
immovable property of the grantor, something which would, in
the absence of such right, be unlawful and such right does not
amount to an easement or an interest in the property, the right is
called a licence.

      Section 64 of the Act of 1882 provides that when a licensee is
evicted before he has fully enjoyed, under the licence, the right for
which he contracted, he is entitled to compensation from the grantor.
      In ASSOCIATED HOTELS OF INDIA LIMITED V/s.    
R.N.KAPOOR , the Supreme Court observed that if a document gives  
only a right to use the property in a particular way or under certain
terms, while it remains in possession and control of the owner
thereof, it will be a licence and the legal possession, therefore,
continues to be with the owner of the property but the licensee is
permitted to make use of the premises for a particular purpose but
for which his occupation would be unlawful.
      Unlike a lessee, the legal incidence of a licence, in normal
parlance, is that licensee has no right to possession of the demised
property as the legal possession always remains with the licensor.
The licence creates neither interest nor estate therein and after expiry
of the period of licence, the continuance in possession by the licensee
would be as a trespasser, unless the covenant in the contract under
which he came into possession creates such a right or is acquiesced
by the licensor. His possession, therefore, would not be juridical.
(EAST INDIA HOTELS LTD. V/s. SYNDICATE BANK ).      
      In the present case it is not in dispute that the agreement
dated 01.08.2011 constitutes a licence.  However, it is contended by
Sri S.Niranjan Reddy, learned senior counsel, that notwithstanding
the fact that the HMDA only granted a licence thereunder, the first
right of refusal for extension of the licence granted thereunder vested
the licensee with the valuable pre-emptive right of renewing the
licence. He would contend that denial thereof constitutes an
arbitrable dispute and pending resolution of the same, status quo has
to be continued so as to secure and protect the licensees interest.
        The concept of the first right of refusal is traceable to the
Swiss Challenge Method, wherein upon receipt of a suo motu
proposal from a developer, tenders are invited by way of
advertisement; the tenders received in response to the advertisement
are compared with the proposal given by the developer; this method
confers on the developer, who has given the original proposal, the
opportunity or the first right of refusal; the original developer is
required to match/raise his bid on par with/or more than the highest
proposal tendered; the original proposer has the opportunity to take
up the project on the highest offer; and, in the event he refuses, the
highest bidder has the right to implement the project. If the original
proposer exercises his right of first refusal, the project is then offered
to the highest bidder. If the highest bidder refuses the offer the
amount deposited by him can be forfeited. In the Swiss Challenge
Method, there is no provision for allowing other tenderers to raise the
bid further, when the "initiator of the proposal" agrees to raise his bid
upto the highest bid. Under this method the originator of the
proposal must, in consideration of his vision and his initiative, be
given the benefit of matching the highest bid submitted. An
unsolicited bid or a proposal received from a developer can thus be
subjected to a bidding process by different modes including the
Swiss Challenge Method. (See RAVI DEVELOPMENT V/s. SHREE      
KRISHNA PRATHISTHAN ).    
      The controversial article in the agreement dated 01.08.2011
pertaining to the first right of refusal reads as under:
      Renewal
      After expiry of the License tenure, the License may be renewed
on such terms and conditions as may be determined by the Licensor
at its discretion First Right of Refusal for extension shall be based
review of satisfactory performance like regular payments to HMDA
and compliances with GHMC & Traffic Police Rules etc.

      To begin with, this Court finds no clarity in this article for
renewal.  The conventional concept of the first right of refusal, as
set out supra, has no application to this renewal article, as the
licensee did not come up with the original idea of development but
responded to a tender notification. The renewal article begins by
stating that the licence may be renewed on such terms and
conditions as may be determined by the licensor at its discretion and
then states that the first right of refusal for extension shall be based
on review of satisfactory performance like regular payments to HMDA
and compliances with GHMC & Traffic Police Rules etc.  Prima facie,
the first right of refusal contemplated under this article, if at all it
can be called that, does not seem to be for the licensee but, rather,
for the HMDA.  The former part of the article demonstrates that after
expiry of the licence period, its renewal, if any, is at the sole
discretion of the HMDA.  However, such exercise of discretion is
subjected to the first right of refusal by the HMDA based on the
review of the satisfactory performance by the licensee in relation to
regular payments to HMDA and complying with municipal and police
rules etc.  No other logical meaning can be given to this clause.
Accepting the contrary construction placed upon this first right of
refusal would result in a contradiction between the two parts of the
article apart from rendering the sole discretion vested in the HMDA
redundant and also Article 7 of the agreement. This misconstrued
interpretation of the article would therefore not vest the licensee with
any pre-emptive right of renewal of the licence.
      The concept of a licence, being wholly different from that of a
lease, it is not open to the licensee to assert any leasehold rights over
the licensed premises after expiry of the licence period and seek to
prolong its occupation thereof.  Its status upon expiry of the licence
period is that of a trespasser.  In any event, even if the licensee is in a
position to establish that it was lawfully deprived of the benefits of
the licence during its subsistence, the only relief that it can seek is in
the form of compensation/damages.  There is no legal and tenable
basis for a licensee to assert a right to continue in occupation of the
licensed premises after expiry of the licence period.  The Court below
seems to have been unmindful of the distinction between a licence
and a lease, as is clear from the order dated 29.09.2016 passed in
Arbitration O.P.No.2229 of 2016, where it used the terms licence
and lease interchangeably.
      As pointed out by a Division Bench of this Court in ICICI BANK
LIMITED V/s. IVRCL LTD. AND ORS. , an ex parte injunction, as a
principle, should be granted only under exceptional circumstances
and no such injunction should be granted unless the petitioner
establishes that it has a prima facie case, meaning thereby that there
is a bonafide contention between the parties or a serious question to
be tried.  In the present case, there seems to be no clarity either
between the parties or in the Court below as to what is the import of
the so-called article of renewal.  This Court finds, on due
consideration, that the said article does not lend itself to the
interpretation sought to be placed on it by the licensee.
      Sri V.Narasimha Goud, learned standing counsel, would place
reliance on COX AND KINGS LTD. V/s. INDIAN RLY. CATERING      
AND TOURISM CORPORATION LTD. AND ANR. , to contend that        
merely because the licensee invested money in developing the
licensed premises, it cannot seek an injunction to permit it to
continue in occupation beyond the licence period.  In this case, the
Supreme Court was dealing with a lease and not a licence but even
then, the lessee was held disentitled to a mandatory injunction to
permit operation of the leased train after the lease agreement/
arrangement was terminated.  The Supreme Court pointed out that
the petitioners remedy would lie in an action for damages for
variation of any of the terms and conditions of the agreement.
      That apart, this Court must take serious note of the fact that
the Court below reserved orders in the matter as long back as on
20.09.2016 and remains somnolent, ignoring the mandate of Rule
142 of the Civil Rules of Practice and Circular Orders, 1980 with
regard to the time frame for pronouncement of its order.  When
public interest is involved, the Court below is not justified in adopting
this tardy approach in dealing with a case. All the more so, when the
HMDA, an instrumentality of the State, specifically asserted that the
public exchequer was being put to loss.
      Further, the careless manner in which the dates were changed
by the Court below, as is evident from the website data and the
certified copy of the order dated 29.09.2016 in Arbitration
O.P.No.2229 of 2016, warrants particular mention.  As rightly
pointed out by Sri V.Narasimha Goud, learned standing counsel,
these kind of post-facto alterations made by the Court below do not
inspire confidence and shake the faith of litigants in the sanctity of
the judicial process.
      Be it viewed from any angle, this Court finds no justification in
the Court below granting injunctions in favour of the licensee
permitting it to continue in occupation of the licensed premises after
the admitted expiry of the licence period.  As is clear from the statute
and case law, the only remedy for the licensee, if it makes out a case,
is to sue for damages and it cannot resort to trespassing over the
licensed premises after expiry of the licence period.
      The appeals are accordingly allowed.  The licensee is granted
one week from today to hand over peaceful physical vacant
possession of the licensed premises to the HMDA.  Pending
miscellaneous petitions, if any, shall stand closed in the light of this
final order. In the circumstances, there shall be no order as to costs.
______________________  
SANJAY KUMAR, J  
__________________  
ANIS, J
3rd JANUARY, 2017

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