Arbitration Clauses Require Explicit Reference In Subsequent Agreements: Delhi High Court
The Delhi High Court bench of Justice Jasmeet Singh has held that for an arbitration clause to be enforceable in subsequent agreements, it must be explicitly referenced within those agreements. The bench noted that the subsequent agreement in the dispute contained a specific exclusion of the arbitration clause. The bench held that: “Both the parties have agreed to the said...
The Delhi High Court bench of Justice Jasmeet Singh has held that for an arbitration clause to be enforceable in subsequent agreements, it must be explicitly referenced within those agreements.
The bench noted that the subsequent agreement in the dispute contained a specific exclusion of the arbitration clause.
The bench held that:
“Both the parties have agreed to the said clause and therefore cannot at this stage seek a remedy that they have waived of by way of this express condition in the Second Agreement.”
Brief Facts:
Deepa Chawla's (Petitioner) filed suit of recovery of an amount of Rs. 4,55,45,182/-. It arose from a series of events stemming from the agreements between the Plaintiff and Raheja Developers Ltd (Defendant). Initially, Plaintiff agreed to purchase a flat in Gurgaon for Rs. 2,00,00,000/- under the Flat Buyer's Agreement, supplemented by a Second Agreement wherein committed to complete the flat's refurbishment. However, despite several extensions granted by the Plaintiff, the Defendant failed to fulfil these obligations. The Defendant approached the High Court under Section 8 of the Arbitration and Conciliation Act, 1996 and sought to refer the parties in the suit to arbitration as per Clause 14.2 of the Flat Buyer's Agreement.
The Plaintiff contended that the suit sought recovery of Rs. 4,55,45,182/- which included the principal amount, interest, and assured returns. She argued that the dispute primarily centered on the Second Agreement, which lacked an arbitration clause. Plaintiff argued against arbitration and stated that the relief sought pertained more directly to breaches under the Second Agreement rather than the arbitration clause found solely in the Flat Buyer's Agreement.
Observations by the High Court:
The High Court noted that there were two agreements: the Flat Buyer's Agreement and the Second Agreement governing the re-fabrication and possession of the flat. The Flat Buyer's Agreement delineated the sale terms without provisions for a refund of the sale amount or specific deadlines for possession. In contrast, the Second Agreement mandated the Defendant to deliver possession by 02.12.2016 or refund Rs. 2 crores.
The High Court noted the distinct functions of each agreement and held that the Second Agreement's stipulations for refund were not covered by the arbitration clause of the Flat Buyer's Agreement. The High Court referred to the decision of the Supreme Court in NBCC (India) Limited vs Zillion Infraprojects Pvt. Ltd and held that arbitration clauses must be specifically referenced to apply to subsequent agreements. It noted that Clause 9 of the Second Agreement explicitly excluded arbitration for disputes arising under its terms.
The bench held that:
“…clause 9 of the Second Agreement categorically contains that this agreement shall have an overall overriding effect over the Flat Buyer's Agreement, including the settlement of any dispute, meaning thereby that there is a specific exclusion of the arbitration clause for settlement of any dispute. Both the parties have agreed to the said clause and therefore cannot at this stage seek a remedy that they have waived of by way of this express condition in the Second Agreement.”
Therefore, the High Court held that the Defendant's application lacked merit. The application was dismissed.
Case Title: Deepa Chawla Vs Raheja Developers Ltd
Citation: 2024 LiveLaw (Del) 772
Case Number: CS(OS) 416/2023
Advocate for the Plaintiff: Mr. Arun Vohra, Adv.
Advocate for the Respondent: Mr Gaurav Mitra, Ms Manmeet Kaur, Ms Suditi Batra, Mr Chandan Malav and Mr Ishan Roy Choudhary, Advs.
Date of Judgment: 01.07.2024