The Delhi High Court has upheld an arbitral award directing Asian Hotels (North) Ltd. to pay monetary relief to the lessors after holding that the hotel company could not prematurely terminate its lease during the contractual lock-in period on account of COVID-19-related restrictions.
Justice Subramonium Prasad dismissed the petitions filed by Asian Hotels under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the arbitral award dated May 20, 2022. The Court also disposed of the company’s connected appeals under Section 37 as infructuous.
The dispute arose from a lease deed executed on December 31, 2018, under which Asian Hotels took a service apartment at the Hyatt Regency, Bhikaji Cama Place, New Delhi, on lease for an initial period of 15 years. The agreement contained an 84-month lock-in period for the hotel company and stipulated that termination during the lock-in period, except in specified circumstances, would require payment of the lease rent for the unexpired lock-in period.
Following the nationwide COVID-19 lockdown, Asian Hotels issued a termination notice on June 27, 2020, seeking to terminate the lease retrospectively from March 25, 2020. It argued that government restrictions had prevented the operation of the hotel and made performance of the lease financially and practically impossible.
The arbitral tribunal rejected the termination, holding that the company was not entitled to invoke the relevant termination clause and that neither Section 56 of the Contract Act nor Section 108(B)(e) of the Transfer of Property Act could justify the termination.
The High Court agreed. It noted that although COVID-19 restrictions temporarily affected hotel operations, the government had subsequently permitted hotels and hospitality establishments to reopen from June 8, 2020, subject to SOPs. The Court therefore held that the restrictions were temporary and did not confer a contractual right on Asian Hotels to terminate the lease under Clause 15.2.
On the monetary liability, the Court upheld the tribunal’s finding that the contractual obligation to pay the stipulated amount for the unexpired lock-in period survived termination. The tribunal had awarded Rs. 8.50 crore, along with interest at 7% per annum from March 25, 2020, and Rs. 5 lakh towards litigation expenses in the relevant claim.
The Court also rejected the reliance placed by Asian Hotels on the Supreme Court’s decision in Kailash Nath Associates v. DDA (2015) 4 SCC 136, holding that the case concerned forfeiture of earnest money where the DDA had suffered no loss, whereas the present dispute concerned a contractual lock-in obligation and a leased premises which could not be sub-leased to another person because it formed part of the hotel.
Emphasising the limited scope of interference under Section 34, the Court held that the arbitral award contained a plausible and reasoned interpretation of the contract and that no ground under Sections 34(2) or 34(2A) was made out. The petitions were consequently dismissed and the arbitral award upheld.
