Overview
In this matter, the Madras High Court considered whether the Government of India could demand minimum assignment fees from a manufacturer when the lease deed does not mention any such minimum fee and an earlier arbitral award already settled the rights of the parties.
The dispute arose from a salt manufacturing lease at Adirampattinam Salt Factory. M.A.N.S. Nadar and Co. challenged a communication which demanded assignment fees on a minimum basis while arguing that it was contrary to the final arbitral award passed on 16 September 2021.
The terms of the lease, findings of the Tribunal, calculation of dues by the Department and the effect of the final award on the Department’s renewed demand were to be examined by the Court.
Facts of the Case
Certain tenders for salt manufacturing were invited by the Government of India, the respondent herein, for Adirampattinam Salt Factory in Thanjavur District.
M.A.N.S. Nadar and Co., the petitioner herein, submitted its bid, which was accepted following which a lease was granted under a deed dated 21 August 2009.
The lessee spent huge amounts on development of the land. It also faced blocked water channels which required de-silting. On 26 September 2017, the lease was terminated by the Department. Along with that, security deposit and demanded pending dues, including minimum assignment fees were also forfeited.
In 2018, an arbitrator was appointed and by an award dated 16 September 2021, it was held by the Tribunal that the termination was invalid. It granted a mandatory injunction which directed the lessee to pay the assignment fees and ground rent after adjusting the amounts, which were already paid and ₹15,00,000 deposited following the orders of the High Court. Neither of the parties challenged the award, which made it final.
In 2023, the Department again demanded minimum assignment fees. This was challenged by the lessee before the High Court. The Department, however, sought the withdrawal of the ₹15,00,000 deposit.
Legal Issues
- Whether assignment fees could be demanded by the Department when the lease deed did not mention any such fee.
- Whether the Department could again make a demand when it has already been found unsustainable by the Arbitral Tribunal.
- Whether the Department was bound by the final arbitral award while calculating the amount to be payable by the lessee.
Decision
The Madras High Court partly allowed the writ petition and quashed the communication which was made by the Department on 12 April 2023.
It was held that the Department could not continue to demand minimum assignment fees of ₹10,80,405 per year because the lease deed did not have any provision which mentioned any such fee.
The Court considered and relied upon findings of the Tribunal, which stated that the lease deed governed the parties and the tender conditions could not override it.
Since the award became final, the Department could not refuse to accept its findings and repeat the same demand which was already made earlier.
Based on the production figures and the rate of ₹147 per tonne, assignment fees was ₹43,65,900 and the ground rent was ₹8,81,960. So the total amount to be paid was ₹52,47,860 against ₹71,12,115 already paid.
The excess amount of ₹18,64,255 was directed by the Court to be adjusted against future assignment fees. The Court permitted withdrawal of ₹15,00,000 deposit as part of the payments which had already been made.
