Sub-lease Agreement Excluded Disputes Related To Public Premise From Arbitration, Making Them Non-Arbitrable: Delhi High Court

Brief Facts:

The Petitioner approached the Delhi High Court (“High Court”) and filed a petition under Section 11(4) of the Arbitration and Conciliation Act, 1996, seeking appointment of Arbitrator to resolve disputes between the parties involved.

The Parties entered into a Sub-lease Agreement, whereby M/s Ircon Infrastructure And Services Limited (IRCON ISL) developed a Multi-Functional Complex (MFC) on a plot of land owned by Rail Land Development Authority (RLDA). The MFC, situated at Railway Station Bilaspur Near Gate No.1, Dist. Bilaspur, Chhattisgarh, was constructed as per terms agreed upon in the Memorandum of Understanding dated August 21, 2009, and a lease agreement dated July 4, 2013.

The Petitioner approached the Respondent, who was the lessee, for leasing all units within the MFC, totaling 940.29 square meters, under certain terms and conditions. However, the Respondent allegedly terminated the Sub-lease Agreement illegally through a termination notice dated January 5, 2023. Subsequently, the Petitioner filed arbitration petition against the respondent in the High Court of Chhattisgarh, Bilaspur. However, the Respondents contested the jurisdiction of the court, resulting in the dismissal of the arbitration petition by the Chief Justice of the High Court of Chhattisgarh.

The Petitioner argued that the Chhattisgarh High Court's order dated April 21, 2023, specifically noted in Para-10 that both parties seemed agreeable to resolving the dispute through arbitration. However, the issue centered on the venue of arbitration. Consequently, the Petitioner filed the petition in Delhi High Court, asserting that the Respondents cannot oppose it on frivolous grounds, given the apparent willingness of both parties to resolve the matter amicably through arbitration.

Observations by the High Court:

The High Court, in considering the jurisdiction under Section 11(6) of the Arbitration Act, emphasized the necessity for a thorough but limited scrutiny of the matter at the pre-reference stage. Referring to the decision of Supreme Court in NTPC Ltd. vs M/s SPML Infra Ltd. (Civil Appeal No. 4778/2022), the High Court highlighted that its role was to ascertain the existence and validity of the arbitration agreement, along with any issues regarding non-arbitrability. It reiterated that the arbitral tribunal should generally be the primary authority to determine non-arbitrability, except in cases where claims were manifestly and ex facie non-arbitrable. It held that the scrutiny of non-arbitrability was to be prima facie, ensuring that the matter was genuinely non-arbitrable, thus preventing the waste of resources and protecting the effectiveness of both arbitration and the judiciary.

Upon examining the Sub-lease Agreement, the High Court held that it explicitly excluded matters related to the "Eviction of Unauthorized Occupants Act, 1971" from arbitration proceedings. Consequently, the dispute concerning a public premise, as defined in the agreement, fell outside the scope of arbitration, rendering it non-arbitrable based on the terms agreed upon by the parties.

Moreover, the High Court underscored that its duty is to ensure that only matters agreed upon by the parties for arbitration were referred to arbitration. As the agreement explicitly excluded certain matters from arbitration and notice under Section 21 of the Arbitration Act was not served as required by law, the dispute in question clearly did not fall within the ambit of arbitration.

In light of these findings, the High Court held that the petition lacked merit and was thus dismissed.

Case Title: CG Engineering Company Vs Ircon Infrastructure And Services Limited (Ircon Isl) And Anr.

Citation: 2024 LiveLaw (Del) 345

Case Number: ARB.P. 935/2023, I.A. 17373/2023.

Advocate for the Petitioner: Mr. Nitin S. Tambwekar, Mr. Seshatalpa Sai Bandaru, Advs.

Advocate for the Respondent: Mr. Nishit Kush, Mr. Siddharth Sikri, Ms. Kirti Singh, Advs. for R-1. Mr. Subhash Tanwar (CGSC), Mr Ashish Choudhary, Mr. Sandeep Mishra, Advs., Mr. Kapil Yadav (GP) for Respondent/ UNION OF INDIA.