Delhi High Court Upholds Licence Fee In Goyal MG Gases Dispute, Says Conduct Affirms Contract

The Delhi High Court on 12 May dismissed the appeals filed by Classic Motors Pvt. Ltd., holding that its continued occupation of the premises and execution of a subsequent addendum amounted to clear affirmation of the contract, not rescission, and therefore it could not later seek reduction of the agreed licence fee on grounds of alleged misrepresentation.

A Division Bench of Justices Anil Kshetarpal and Amit Mahajan upheld the Single Judge's decision restoring the contractual licence fee payable to Goyal MG Gases Pvt. Ltd. It observed:

“once a contracting party, after discovering the alleged misrepresentation, elects to continue under the contract and even enters into a further arrangement (the Addendum) on the same footing, its conduct is consistent with affirmance of the contract rather than rescission.”

The dispute arose from a Leave and Licence Agreement dated 18 September 2006 under which Goyal MG Gases licensed 10,625 sq. ft. at Mohan Cooperative Industrial Estate, New Delhi, for Rs. 6,73,500 per month. The agreement ran for 11 months with two permitted extensions, granted on 16 May 2007 and 7 May 2008.

On 29 May 2009, the parties executed an Addendum extending the licence from 26 June 2009 to 31 December 2009 with a 5% increase in the last paid fee. Classic Motors later questioned the commercial usability of the premises and sought clarification from municipal authorities on 21 July 2009, but stopped paying licence fees from July 2009 onwards.

Goyal MG Gases issued demand notices and terminated the agreement on 16 October 2009 before initiating arbitration. It claimed arrears and damages, while Classic Motors raised a counterclaim of Rs. 1.84 crore alleging misrepresentation regarding commercial use.

The arbitral tribunal, by award dated 25 September 2014 and corrigendum dated 22 November 2014, reduced the licence fee by applying an “industrial rate” of Rs. 20 per sq. ft. for September 2006 to April 2011 and Rs. 60 thereafter.

The Single Judge set aside that finding on 20 March 2018 and restored the contractual rates under the agreement and Addendum. Classic Motors challenged this under Section 37 of the Arbitration and Conciliation Act, arguing that the tribunal had correctly appreciated evidence on misrepresentation and pricing.

Goyal MG Gases countered that Classic Motors repeatedly renewed the agreement, executed the Addendum, and continued occupation despite awareness of the alleged issue, thereby affirming the contract.

The Division Bench agreed, holding that Classic Motors' conduct—continued occupation and execution of the 2009 Addendum—demonstrated acceptance of the contractual framework. It found that the tribunal's approach allowed Classic Motors to retain contractual benefits while avoiding payment obligations.

The Court clarified that Section 19 of the Indian Contract Act, 1872 does not permit a party to enjoy contractual benefits while selectively avoiding financial obligations. It also noted that no actual pecuniary loss had been established and that the tribunal had replaced the agreed terms with a notional industrial benchmark drawn from an unrelated lease.

Reiterating its view on conduct, the Bench held that Classic Motors' actions amounted to affirmation of the contract. It added:

“Such an exercise runs afoul of the statutory scheme of Section 19 of the Act of 1872, which does not contemplate selective avoidance or partial rescission confined to economic obligations while affirming the remainder of the contract”

Accordingly, the Division Bench dismissed the appeals, finding no error in the Single Judge's limited interference.

Appearances for Goyal MG Gases Pvt. Ltd.: Advocates Simran Mehta, Prakash Chand and Archit Vashistha.

Appearances for Classic Motors Pvt. Ltd.: Advocates Rahul Saxena and Padamja Sharma.