Arbitration Clause In Unstamped Letter Of Intent Is Valid, Independent And Binding Agreement; Delhi High Court Allows Section 11 Petition

Brief Facts:

The matter pertained to a leasing agreement between Swashbuckler Hospitality Pvt. Ltd. (“Petitioner”) and Avdesh Mittal (“Respondent”). The Petitioner contended that Respondent, as the owner, agreed to lease the property to them, leading to the execution of a Letter of Intent. The Petitioner asserted that Respondent represented the property as free from encumbrances and obtained a non-refundable security deposit of Rs. 40,00,000/-. However, later, the property was sealed due to court orders, prompting the Petitioner to seek a refund of the security deposit, and invoking arbitration proceedings under Clause 25 in the Letter of Intent.

The Petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in Delhi High Court (“High Court”), seeking the appointment of a sole arbitrator to adjudicate the disputes between the parties out of the Letter of Intent.

Respondent argued that the Letter of Intent was not legally binding and asserted that arbitration cannot be initiated based on a non-binding document.

Observations by the High Court:

Upon reviewing the Letter of Intent, which included the arbitration clause in clause 24, the High Court noted that the document was unstamped. It noted that the primary focus of the court, while considering applications under Section 11(6-A) of the Arbitration Act, was confined to examining the existence of an arbitration agreement. It held that the non-existence of an arbitration agreement is the only valid reason for a court's refusal to refer a matter to arbitration. The amended Section 8(1) of the arbitration agreement limited the judicial authority's intervention to the question of whether the parties have a valid arbitration agreement.

Referring to the Supreme Court's observations in the matter of In re: Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, the High Court highlighted that the arbitral tribunal, not the court, may test the validity of a contract and an arbitration agreement. It underscored that Section 16 of the Arbitration Act permits the preliminary enforcement of an agreement to arbitrate even if it is only an agreement.

The High Court held that the argument of the Respondent that the Letter of Intent was a non-binding agreement lacked merit, given that the arbitration agreement contained in clause 24 was treated as an independent and binding agreement. Consequently, B.B. Chaudhary, a former District & Sessions Judge, was appointed as the sole Arbitrator to adjudicate the disputes arising from the Agreements between the parties.

Case Title: Swashbuckler Hospitality Pvt. Ltd. vs Avdesh Mittal & Anr.

Citation: 2024 LiveLaw (Del) 200

Case Number: ARB. P. 849/2023.

Advocate for the Petitioner: Mr. Saurabh Gupta, Mr. Faisal Zafar.

Advocate for the Respondent: Mr. Arun Batta, Mr. Abdul Vahid.

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