Would Subsequent Agreement Cover Past Transactions ? Arbitrator To Decide: Delhi High Court

The Bench of Justice V. Kameswar Rao held that the limited scope of judicial scrutiny under Section 11 of the Act does not permit the High Court to examine issues that would require an interpretation of the contract, therefore, all such issues are to be referred to arbitrator.

Facts

The parties entered into a Service Agreement dated 26.06.2020. As per the agreement, the respondent was to perform certain "services" in relation to end-to-end dismantling, packing and transportation of materials from identified OYO (petitioner) branded hotel properties located at various locations across India and storing them in the respondent's warehouses.

Further, the Agreement stated the obligations of the respondent to include transportation and storage of the goods/inventory of the petitioner at the respondent's warehouses and thereafter raising invoices on the petitioner in relation thereto. The date of commencement of the agreement was 01.07.2020. Prior to entering into an agreement, the parties were engaged in transactions of similar nature for which the agreement was created.

A dispute arose between the parties. Accordingly, the petitioner served a notice of arbitration on the respondent. However, the respondent in its reply refused to refer the dispute to arbitration. Accordingly, the petitioner filed a petition before the Court for the appointment of the arbitrator.

The contention of the Parties

The respondent objected to the maintainability of the petition on the following grounds:

• There was no agreement between the parties in relation to the transactions for which the arbitration is sought.
• All the invoices in question precede the agreement between the parties, therefore, the arbitration clause in the agreement dated 26.06.2020 cannot be resorted to for disputes that arose prior to the agreement itself as it does not cover past services.
• There was no written agreement between the parties that governed the transactions in question and the past services were rendered on the basis of oral understanding between the parties.
• The respondent in its reply has unequivocally denied the existence of the arbitration agreement and there cannot be any arbitration in absence of an arbitration agreement.
• Moreover, the respondent has no inventory as alleged by the petitioner and no loss has been caused by the respondent to the petitioner and all the goods of the petitioner have been returned in the same condition in which they were received.

The petitioner countered the above submission by raising the following arguments:

• The petitioner has not denied the existence of the arbitration agreement in its reply to the notice of arbitration, therefore, once the existence is admitted, the parties by default are to be referred to arbitration.
• An Agreement dated February 28, 2020, was prepared to record the terms and conditions of the services and the relationship between the parties. But post the commencement of operations and the recording of February 28, 2020 agreement, a country wide lockdown was imposed from March 22, 2020, due to the outbreak of COVID-19, and in view of the same, reconciliation of the material/goods that were actually picked up, was not carried out by the parties.
• This agreement was agreed to be merged into a subsequent agreement i.e., agreement dated 26.06.2020. The intention of the parties to stick to the terms and conditions of the said Agreement were clear and adhered to, therefore, all the services rendered pursuant to the understanding of agreement dated 28.02.2020 were to form part of the agreement dated 26.06.2020.
• Clause 17.6 of the Agreement also provides that this agreement supersedes any prior agreement/understanding/correspondence between the parties. Moreover, the scope of both the agreement is identical.
• An issue that requires a deeper consideration, whether or not an arbitration agreement exist should be left to the Arbitrator to decide.

Analysis by the Court

The Court observed that the claim of the petitioner primarily relates to recovery of goods to the tune of ₹2,29,00,000/- which were stored in the respondent's warehouse between the period March 16, 2020 to June 30, 2020 and some of which were not accounted for.

The Court held that the petitioner has notified the issue of shortfall of inventory only after the parties entered into the agreement dated 26.06.2020. It observed that the respondent has denied the claim, however, the dispute in question relates to the goods allegedly stored in the warehouse of the respondent, existing after 01.07.2020.

The Court observed that both the parties have relied on the clauses of the agreement to advance their cases, therefore, the issue requires interpretation of the clauses and of surrounding circumstances.

The Court held that while exercising jurisdiction under Section 11 of the A&C Act, the High Court cannot examine an issue as to whether the arbitration clause in a subsequent agreement would govern the past transactions of similar nature as it requires detailed consideration of clauses and surrounding circumstances.

The Court held that the limited scope of judicial scrutiny under Section 11 of the Act does not permit the High Court to examine issues that would require an interpretation of the contract, therefore, all such issues are to be referred to arbitrator.

Accordingly, the Court allowed the petition and appointed the sole arbitrator.

Case Title: OYO Hotels and Homes Pvt. Ltd. v. Agarwal Packers and Movers Ltd. 

Citation: 2022 LiveLaw (Del) 863

Date: 01.09.2022

Counsel for the Petitioner: Mr. Prashanto Chandra Sen, Sr. Adv. with Ms. Kanika Tandon and Mr. Sumant Nayak, Advs

Counsel for the Respondent: Mr. Jeevesh Nagrath, Ms. Kirti Mewar, Mr. Arjun Gaur and Mr. Aayush Kumar, Advs.

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