No Privity Of Contract Between Parties, not party to MOU: Delhi High Court Dismisses Section 11(4) A&C Petition

Brief Facts:

The Petitioner approached the Delhi High Court (“High Court”) under Section 11(4) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking to secure the appointment of an arbitrator to settle disputes arising from the Memorandum of Understanding (MoU).

Mr. Vaibhav Gupta and Shalini Tyagi entered into an MoU with the Respondents concerning the lease of new furniture, fixtures, fittings, and interior works. Subsequently, the Petitioners assented to establish a private limited company as per clause 3(k) of the MoU.

The Company was duly registered under the name 'MRVS Value Straight Private Limited'. As outlined in the MoU, the Petitioners were designated as the "Lessors" while the Respondent was termed as the "Lessee". However, changes occurred when Mr. Vaibhav Gupta resigned from the CEO position, and his father, Mr. Mewa Lal Gupta, assumed the role. Additionally, the Lessee under the MoU changed its name from 'Cybiz Brightstar Restaurants Private Limited' to 'Brightstar Restaurant (Carl's Junior)'.

The Petitioner asserted that despite their investment of Rs. 1,53,00,000/-, the Respondent failed to comply with the MoU terms and neglected payment obligations. Following unsuccessful attempts at amicable resolution, the Petitioner issued a notice, invoking the arbitration clause per Clause-5 of the MoU.

Despite repeated efforts, including sending notices to updated addresses, the Respondent failed to respond effectively, prompting the Petitioner to file an arbitration petition, which was dismissed as premature. The Petitioner's subsequent efforts to invoke arbitration met with similar resistance from the Respondent, who contended that internal disputes within the company were already subject to arbitration proceedings.

In response, the Respondent maintained that the MoU was superseded by a subsequent business partnership agreement, which involved a different set of parties. It argued that the Petitioner, not being party to the original MoU, lacked standing to invoke arbitration under its terms.

Furthermore, the Respondent challenged the jurisdiction of the court to adjudicate disputes involving non-signatories to the arbitration agreement, emphasizing that the MoU was specifically between Mr. Vaibhav Gupta, Mrs. Shalini Tyagi, and 'Cybiz Brightstar Restaurants Private Limited', thus contesting the validity of the petition initiated by different parties.

Observations by the High Court:

The High Court reiterated that the court's purview in Section 11 of the Arbitration Act is circumscribed, confined primarily to ascertain the existence of an arbitration agreement and the presence of a dispute amenable to arbitration.

The High Court noted the dispute started through the MoU dated 14.08.2018 between Mr. Vaibhav Gupta, Mrs. Shalini Tyagi, and 'Cybiz Brightstar Restaurants Private Limited'. However, crucially, the High Court noted that the Petitioners disclaimed any involvement in a subsequent business partnership agreement. The High Court observed that the notice invoking arbitration was explicitly grounded in the terms delineated in the aforementioned MoU.

Moreover, it emerged incontrovertibly that the Petitioners stood distinct from the signatories to the MoU, thus lacking any privity of contract with the Respondent. The High Court held that there was absence of a contractual nexus, underscored by the Petitioners' acknowledgment, further exacerbated the deficiency of an agreement housing an arbitration clause between the pertinent parties.

In light of these considerations, the High Court held that the petition before it lacked merit. The absence of a contractual foundation binding the Petitioners and the Respondent, coupled with the dearth of an arbitration clause-containing agreement, rendered the matter unfit for arbitration referral.

Consequently, the High Court dismissed the petition.

Case Title: Mrvs Value Straight Private Limited & Anr. Vs Brightstar Restaurant Pvt. Ltd. & Ors.

Citation: 2024 LiveLaw (Del) 355

Case Number: ARB. P. 128/2023.

Advocate for the Petitioner: Mr.Pradeep Kumar Arya, Mr.Aditya Yadav, Mr.Gaurav Chaudhry, Mr.Pulkit Chadha, Mr.ArpitBamal and Mr.Vaibhav Chaudhry, advts.

Advocate for the Respondent: Mr.Abhimanyu Arun Walia and Mr.Harsh Chauhan, Advts. for R-1. Mr.Chand Chopra, Ms.Ruchika Rao and Ms.Bhpathi Raju, advts. for R-3.

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