Changing Rent Claim To Mesne Profits Without Changing Quantum Not Patent Illegality: Gujarat High Court

The Gujarat High Court on 24 September held that recasting an arbitral claim from “rent” as “mesne profits” does not amount to patent illegality warranting interference with an award when the monetary liability remains unchanged.

A Division Bench comprising Chief Justice Sunita Agarwal and Justice D.N. Ray dismissed Indus Towers' challenge to an arbitral award directing it to pay the landowners Rs. 25,800 per month, with contractual escalation, until it handed over vacant possession, describing the objection to the characterisation of the claim as “essentially on semantics”. The judges observed:

“We are, however, of the further opinion that the mere qualitative change in the nature of the claim (mesne profit vis-a-vis rent), the quantum being exactly the same, even if accepted to be an error of law for the sake of arguments, would not constitute either a patent illegality or against the fundamental policy of India law, which would warrant an interference by the Court under Section 34 and much less by us under Section 37 of the Act, 1996.”

The dispute arose from a 16 September 2011 lease deed under which Indus Towers took 450 sq. ft. of terrace premises from the landowners to install a telecom tower. The 15-year lease commenced on 27 July 2011 at a monthly rent of Rs. 25,800.

Indus Towers claimed that obstruction by neighbouring occupants prevented the tower from becoming operational and issued a termination notice on 19 September 2012. However, it left its equipment at the premises and did not hand over vacant possession to the landowners.

Landowners invoked arbitration and obtained an award dated 18 March 2015 directing Indus Towers to pay rent at Rs. 25,800 per month from 27 August 2011, with a 10% escalation to Rs. 28,380 per month from 27 August 2014.

The arbitrator also directed payment at the escalated contractual rate until Indus Towers handed over vacant possession, besides interest, Rs. 75,000 towards damage and arbitration costs. Indus Towers challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the Commercial Court, Ahmedabad.

On 8 April 2026, the Commercial Court set aside the Rs. 75,000 awarded towards damage but upheld the remainder of the award. It held that although the lease stood terminated after the three-month notice period, the landowners could recover the same amount as mesne profits until Indus Towers handed over vacant possession.

Indus Towers challenged the order under Section 37, arguing that the Commercial Court could not award mesne profits after holding that contractual rent ceased upon termination, particularly when the landowners had neither pleaded mesne profits nor put the issue before the arbitrator.

The High Court rejected the challenge. It noted that Indus Towers continued to occupy the premises by leaving its equipment there and had failed to establish that the landowners prevented it from removing the equipment.

It held that Indus Towers could not seek reconsideration of the tribunal's finding on continued occupation within the limited scope of interference under Sections 34 and 37.

Further, the Bench held that the relevant test was not merely whether the award contained an error of law, but whether the error was “of such an egregious nature which would vitiate the award itself” as being opposed to the fundamental policy of Indian law.

It therefore held that changing the characterisation of the claim from rent to mesne profits, while keeping the quantum identical, did not justify interference with the award. It also held that the Commercial Court had wrongly applied the doctrine of severability in deleting the Rs. 75,000 awarded by the arbitrator towards actual physical damage to the property.

The judges noted that the arbitrator had awarded compensation for “damage” to the property and not “damages” under the Indian Contract Act, 1872. However, the landowners had not challenged the deletion. The Bench therefore declined to restore the amount.

Accordingly, the High Court dismissed Indus Towers' appeal and upheld the 18 March 2015 arbitral award, subject to the deletion of Rs. 75,000 towards damage. It also imposed costs of Rs. 1.5 lakh on Indus Towers for dragging the landowners into the proceedings. It directed Indus Towers to pay Rs. 75,000 to the landowners and deposit Rs. 75,000 with the Gujarat State Legal Services Authority within four weeks.

Appearances for appellant (Indus Towers Limited): Senior Advocate R.S. Sanjanwala with Advocates Kunal J. Vyas, Rhea Sewak and Yash Modi for Gandhi Law Associates.

Appearances for respondents (landowners): Advocate Bomi H. Sethna.