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Section 2 in The Arbitration Act, 1940
Section 2(1)(e) in THE ARBITRATION AND CONCILIATION ACT, 1996
THE ARBITRATION AND CONCILIATION ACT, 1996
Section 20 in THE ARBITRATION AND CONCILIATION ACT, 1996
Article 15 in The Constitution Of India 1949
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Delhi High Court
Rohit Bhasin & Anr. vs Nandini Hotels on 1 July, 2013
Author: Manmohan Singh
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                    Judgment pronounced on: July 01, 2013

+                         ARB.P. No.70/2012

       ROHIT BHASIN & ANR                                 ..... Petitioners
                     Through:          Ms.P.M. Saigal, Advocate

                          versus

       NANDINI HOTELS                                    ..... Respondent
                    Through:           Ms.Noopur Singhal, Adv.

       CORAM:
       HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The petitioner has filed the present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of a sole independent arbitrator.

2. As per petition, the facts are that the International Recreation Parks Pvt. Ltd. (IRPPL) entered into a Memorandum of Understanding dated 20 th June, 2006 with the petitioners for transfer of the leasehold rights of the premises bearing No.309A on the Third Floor of Tower "A admeasuring approx. 90.11 sq. mts. (940 sq. ft.) situated at Plot No.A2, Sector 38A, Noida, District Gautam Budh Nagar, Uttar Pradesh (hereinafter referred to as the "said premises") to the petitioners. Agreement for sub-lease dated 19th July, 2006 executed between IRPPL and the petitioners whereby the petitioners became the owners of the said premises. Clause 5 of the said agreement to sub-lease authorized IRPPL to induct a licensee in the said premises and execute all or any document required for the purpose on behalf Arb.P.No.70/2012 Page 1 of 10 of the petitioners.

3. IRPPL inducted the respondents as the licensee in the said premises vide an agreement to license dated 23rd June, 2007. Article 3.1 of the license agreement provided a licnese fee of `110 per sq. ft. of the total super area (970 sq. ft.) amounting to a license fee obligation of `1,06,700/- to be paid by the respondents per month for the initial period of three years. It was further agreed that the initial license would be for a period (term) of three years only and if the license was to be renewed for a second term as per the license agreement, the license fee would be increased by 15% and therefore, the license fee for the second term would be `126.50 per sq. ft. or `1,22,705/- per month for the said second term. Article 15.2 of the said license agreement provided for disputes, differences and disagreement arising out of, in connection with or in relation to this agreement, which cannot be amicably settled shall be finally decided by arbitration to be held in accordance with the Arbitration and Conciliation Act, 1996. Clause 15.4 provided for a sole arbitrator to be appointed by the Licensor (petitioners herein). Further, vide Article 10.2, IRPPL was vested with the right to sell, transfer or create third party rights with respect to the said premises during the period of license to any third party. Further upon the petitioners purchasing the said premises from IRPPL, the said petitioners have now become the owners of the premises and have stepped into the shoes of IRPPL.

4. Tripartite agreement dated 8th April, 2008 executed among IRPPL, petitioners and the respondents whereby the petitioners stepped into the shoes of IRPPL and all the rights, claims, liabilities, obligations etc. of IRPPL under the agreement to license dated 23rd June, 2007 stood transferred to the petitioners. The said tripartite agreement also obligated Arb.P.No.70/2012 Page 2 of 10 the respondents to pay license fee to the petitioners w.e.f. 1 st June, 2008. IRPPL wrote a letter dated 23rd May, 2008 to the respondents directing the respondents to pay rent directly to the petitioners w.e.f. 1 st June, 2008. The respondents made the payments as per the license agreement till the month of January, 2009. On 6th January, 2009 the petitioners received a letter from respondents informing that the respondents had unilaterally decided to reduce the license fee from `106,700/- to `74,690/-.

5. The petitioners vide letter dated 3rd February, 2009 protested against the unilateral reduction of the license fee by the respondents. However, the respondent continued to pay the reduced license fee despite protest by the petitioners which was clearly in breach of their obligations stipulated under the License Agreement read alongwith the Tripartite Agreement. As per the license agreement, with effect from July, 2010, the second term of the license in respect of the said premises had commenced. The respondents were liable to pay enhanced license fee at `126.50 per sq. ft. or `1,22,705/- per month for the second term but they continued to pay the reduced license fee.

6. Petitioners wrote a letter dated 30th November, 2010 to the respondents accepting the reduced licensee fee under protest and without prejudice. The respondents have also failed to get the license agreement stamped and registered as per law despite repeated requests by the petitioners and hence the petitioners are seeking relief in respect thereof. Since all the efforts to amicably resolve the disputes had failed, the petitioners issued a notice invoking Arbitration Agreement and appointed Sh. Vibhu Bakhru, Senior Advocate as the Arbitrator and sought consent of the respondents. But no reply or consent given by the respondent.

7. It is further stated by the petitioners that with effect from July, 2010 Arb.P.No.70/2012 Page 3 of 10 as per the terms of the licence agreement, the petitioners were entitled to a revision in the rate of licence fee for second term after three years. However, the respondents failed and neglected to make the payment of the reduced license charges. The petitioners also sent a protest letter dated 30th November, 2010 to the respondents. The respondents also refused to get the License Agreement stamped and registered as per law despite repeated requests.

As the disputes arose which could not be resolved amicably, the petitioners issued a notice dated 3rd October, 2011 invoking arbitration agreement and appointed Sh.Vibhu Bakhru, Sr. Advocate as the Arbitrator and sought consent of the respondents. However, no response was received from the respondents. The total claim of the petitioners as on 1st November, 2011 is `17,44,380/-. The respondents are still in continued use and occupation of the said premises and are not even getting the agreement stamped and registered. Hence, the present petition.

8. Notice of the petition was served upon the respondents. Reply has been filed wherein various objections have been raised to the maintainability of the petition on the ground of territorial jurisdiction.

9. Learned counsel appearing on behalf of the respondent argued that the petitioners stepped into the shoes of developer and therefore, the petitioner is bound by the terms and conditions of agreement to licence dated 23 rd June, 2007. It is also argued that the tripartite agreement dated 8 th April, 2008 was entered into at Noida. In the earlier agreement clause 14.2 provides that Civil Court at Noida and High Court of Allahabad shall have jurisdiction in all matters originally out of and/or concerning this transaction. Therefore, this Court has no jurisdiction to entertain the territorial jurisdiction.

Arb.P.No.70/2012 Page 4 of 10

10. It is contended by the learned counsel for the petitioners that the Agreement to Licence, which forms the basis of the present proceedings, was signed, sealed and delivered at New Delhi. It is further contended that the Tripartite Agreement between the parties does not have any overriding effect over the Agreement to Licence. Therefore since the agreement was executed in Delhi, this Court has the territorial jurisdiction. It is further contended by the counsel that subject matter of the dispute involved in the present proceedings is in the nature of recovery of money from the respondents which rent is payable at New Delhi and was being paid at New Delhi.

The respondent is also carrying on its business from New Delhi i.e. S- 196 Panchsheel Park, New Delhi therefore, in terms of clause 15.1 of the Agreement to licence dated 23rd June, 2007 between IRPPL, petitioners and respondent, this Court has jurisdiction to entertain this petition.

11. Clause 15 of the agreement referred by both side are reproduced below :

"Article 15 Arbitration 15.1 All disputes, differences or disagreement arising out of, in connection with or in relation to this Agreement shall be mutually discussed and settled between the parties. 15.2 All disputes, differences or disagreement arising out of, in connection with or in relation to this Agreement, which cannot be amicably settled, shall be finally decided by arbitration to be held in accordance with the provisions of the Arbitration and Conciliation Act, 1996. Any arbitration as aforesaid shall be a domestic arbitration under the Applicable Law. 15.3 The venue of arbitration shall be New Delhi or such other place as may be mutually agreed between the parties and the language of arbitration shall be English. 15.4 The arbitration shall take place before the sole arbitration, Arb.P.No.70/2012 Page 5 of 10 appointed by the Licensor. The award shall be rendered in English Language."

12. No doubt as far as civil disputes between the parties are concerned as per clause 14, the jurisdiction for civil court at Noida and High Court of Uttar Pradesh at Allahabad alone would have jurisdiction concerning this transaction but from Clause 15 (2) and 15(3) is clear that all disputes and differences arising out of this agreement shall be mutually discussed and settled between the parties as far as arbitration is concerned. The venue of arbitration shall be New Delhi or other place as may be mutually agreed between the parties.

13. The Supreme Court in Civil Appeal No.7019 of 2005 titled as Bharat Aluminum Company vs. Kaiser Aluminum Technical Service, Inc. has explained the meaning of the term "court" as has been provided for in Section 2(1)(e) of the Act and as has follows:-

"95. ..........................
Section 2(1) (e) of the Arbitration Act, 1996 reads as under:
"2. Definitions (1) In this Part, unless the context otherwise requires -.........................
(e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes."
Arb.P.No.70/2012 Page 6 of 10
96. We are of the opinion, the term "subject matter of the arbitration" cannot be confused with "subject matter of the suit". The term "subject matter" in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.
Arb.P.No.70/2012 Page 7 of 10
97. The definition of Section 2(1)(e) includes "subject matter of the arbitration" to give jurisdiction to the courts where the arbitration takes place, which otherwise would not exist........"

14. From the above, it is clear that the Supreme Court while explaining the meaning of the term "court" as defined in Section 2(1)(e) has held that the subject matter on the basis of which the jurisdiction of a court can be decided is not confined within the barriers of Section 20 CPC but has a wider meaning thereby also concurring jurisdiction upon the Court where the seat of arbitration will be located. It is pertinent to mention here that the meaning of Section 2(1)(e) of the Act was not in dispute before the Supreme Court in the above said judgment and the Supreme Court has not overruled any previous law in relation to the same but has clarified the intent of the legislature in ascribing such broad meaning to the term "court" in Section 2(1)(e).

15. In the present case, undisputedly the venue under Clause 15(3) is agreed to be in New Delhi by mutual consent even the matter also covered within the meaning of Section 2(1)(e) of the Act as part of cause of action has arisen in Delhi.

16. Thus, this court has got the territorial jurisdiction to entertain the present petition.

17. Admittedly, the petitioners have issued legal notice dated 3 rd October, 2011 to the respondent by referring the earlier legal notice dated 23rd October, 2010 and informed the respondents that since the respondent have failed to amicable settle the dispute and neglected to pay rent, therefore, by involving clause 15.2 the petitioner asked the respondent to agree for appointment of sole Arbitrator.

Arb.P.No.70/2012 Page 8 of 10

The relevant extract of legal notice dated 3rd October, 2011 are reproduced below :

"1. Further to our Clients Legal Notice dated 23rd November, 2010, as you have failed and neglected to pay the rent as per contract, our Clients hereby invoke clause 15.2 of the Agreement to License dated 23.06.2007 (read along with the Tripartite Agreement dated 08.04.2008), whereby the parties had agreed that if, any dispute, differences or disagreement arises in relation to the agreement dated 23.6.2007 (read with Tripartite Agreement dated 8.4.2008) arise which cannot be amicable settled, the same shall be finally decided by arbitration. Pursuant thereto, it was agreed, as per Clause 15.4, that the arbitration shall take place before the sole arbitrator appointed by our clients.

2. We hereby give you notice that as per the rights stipulated and agreed under provisions of the License Agreement (read with Tripartite Agreement), our clients have appointed Sh. Vibhu Bakhru, Senior Advocate as the sole arbitrator for the adjudication of the dispute that has arisen on account of your deliberate and willful failure to adhere to the contracted obligations as per the Agreement to License dated 23.06.2007 (read along with the Tripartite Agreement dated 08.04.2008).

3. That, you are hereby called upon to give consent or file any objections to the abovementioned appointment within thirty days of this notice. In case you fail to give consent or file any objections, as stated hereinbefore, within thirty days from the receipt of this notice, then such failure will be deemed as your consent to the appointment of the abovementioned arbitrator."

18. Despite of receipt of notice, no reply or consent has given for appointment of Arbitrator by the respondent till date. Thus, the petitioner has filed the present petition.

19. In view of abovesaid reasons mentioned above, the prayer made in the petition is liable to be allowed. Accordingly, Mr.Karan Bharihoke, Advocate (Mob. No.8826122888/23385717) is appointed as sole Arbitrator Arb.P.No.70/2012 Page 9 of 10 to adjudicate the disputes between the parties arising out of the agreement. Total fee of the Arbitrator is fixed at `70,000/- which shall be paid by both parties in equal proposition.

20. The petition is accordingly disposed of. The learned Arbitrator shall commence the proceedings after the service of notice to both parties.

21. Copies of the order be given dasti to the parties. A communication be also issued to the learned Arbitrator in this regard along with copy of this order.

(MANMOHAN SINGH) JUDGE JULY 01, 2013 Arb.P.No.70/2012 Page 10 of 10