Can Initiate Arbitral Proceedings Without Other Party's Consent Even If Arbitration Mentioned As Alternative Settlement Method: Delhi High Court

Brief Facts:

Praveen Kumar Kapoor (“Petitioner”) and Respondent Nos. 1 and 2 signed a Memorandum of Understanding/Settlement Agreement" (“MoU") and agreed that Respondent Nos. 1 and 2 would construct the third and fourth floor of a property owned by the Petitioner. The MoU contained a dispute resolution clause which mandated the resolution of any disputes between the parties either through mutual agreement or via a mediator/arbitrator appointed by both parties. The Respondents failed to fulfill their construction obligations within the stipulated timeframe and the Petitioner was made to pay them Rs 50 Lakhs. Aggrieved by the same, the Petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in the Commercial Court, seeking restraint against the Respondents from selling or transferring the property's third and fourth floor.

The Commercial Court acknowledged the Respondents' argument that the petition was time-barred and granted them liberty to present these objections before the appointed arbitrator. The Petitioner filed an appeal of the Commercial Court's decision in Delhi High Court (“High Court”). While the appeal was pending, the Petitioner initiated arbitration proceedings and sent a notice to the Respondents, which went unanswered. Thereafter, the Petitioner filed a Section 11 application before the High Court seeking an appointment of the arbitrator. The Respondents raised three objections to thwart the appointment of an arbitrator. Firstly, they argued that Clause 5 of the MoU does not constitute an arbitration clause, as it presents three alternative modes of settlement. Secondly, they contended that the MoU, specifying a six-month completion period for the work, exceeded the three-year limitation period before the arbitration invocation.

Clause 5 of the MoU is produced below:

“5. That the second party is bound to this agreement and the second party cannot sale the abovesaid property of the first party to anybody. That in case any dispute arises between the parties then the dispute will be settled by both the parties mutually or through mediator/arbitrator, appointed by both the parties.”

Observations by the High Court:

The High Court held that while the clause provided three alternative methods for dispute resolution, it also established an agreement between the parties regarding each method. The High Court emphasized that no further consensus was required to adopt any of the three modes of settlement outlined. Referring to the judgment of the Supreme Court in Jagdish Chander Ramesh Chander & Ors. [(2007) 5 SCC 719], the High Court acknowledged that mere use of the mere use of the word “arbitration” would not constitute an arbitration agreement, if the reference requires further consent of the party. However, upon analyzing Clause 5, the High Court held that the parties reached a consensus ad idem regarding the resolution of disputes, whether through mutual settlement, mediation, or arbitration. The High Court highlighted that the use of the term "will" in the clause, indicated an agreement between the parties rather than uncertainty. It rejected the contention that fresh consent was required for arbitration.

Addressing the issue of limitation raised by the Respondents, the High Court noted that the petition mentioned payments made under the MoU until the beginning of 2021 which was well within the three-year limitation period from the date of payment. Referring to relevant Supreme Court judgments, the High Court emphasized that the question of limitation may be examined at the stage of a Section 11 petition only when the limitation bar is evident on the face of the petition and record. Considering the averments in the petition, the High Court found no justification for rejecting the petition on limitation grounds, leaving it open for further consideration by the arbitrator.

Hence, the Delhi High Court allowed the petition and referred the disputes between the parties to arbitration under the Delhi International Arbitration Centre.

Case Title: Praveen Kumar Kapoor vs Raj Kumar Jain and Anr

Citation: 2024 LiveLaw (Del) 156

Case Number: ARB.P. 1245/2023

Advocate for the Petitioner: Mr Ravin Rao, Mr Jujhar Singh & Mr Bhushan Arora

Advocate for the Respondent: Mr. Milan Verma & Mr. Aman Sharma

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