Agreement Between Parties Must Be Given Primacy When Deciding Petition U/S 9 Of Arbitration Act: Delhi High Court

The Delhi High Court Bench of Mr. Justice Jasmeet Singh held that the role of the court under section 9 of the Arbitration Act is to preserve the subject matter of the Arbitration till the arbitral tribunal decides the claims on merits. Whether termination of the agreement was valid or not is not be decided by the court at section 9 stage. Primacy to agreement between the parties has to be given while deciding petition under 9 of Arbitration Act.

Brief Facts

This is a petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 seeking stay of the effect and operation of the Termination Notice dated 01.10.2024 issued by the respondent No. 1 to the petitioner.

the petitioner is a company specialising in integrated facility management services including housekeeping, maintenance and technical support. The respondent No. 1 is in the business of providing furnished office spaces to various sub-lessees.

The respondent No. 1 entered into two lease deeds for two unfurnished buildings namely AIHP Towers and AIHP Horizon. The petitioner and respondent No. 1 entered into a Service Agreement dated 30.12.2016 to provide maintenance services for AIHP Towers and AIHP Horizon. The respondent No. 1 issued Termination Notice dated 01.10.2024 alleging service deficiencies, breach of contract, non-payment of arrears of electricity and hence terminated the Service Agreement with the petitioner and appointed respondent No. 2 as the replacement maintenance agency.

Contentions

The petitioner while referring to relevant clauses of the agreement submitted that in the present case, Clause 6 after the amendment under the Addendum has a positive covenant but Clause 6.3 contemplates a negative covenant and in view of the negative covenant, status quo must be granted to the petitioner.

Per contra, the respondents submitted that the contract by its nature is determinable and hence damages/compensation is an adequate remedy.

That allowing negative covenant will indirectly lead to enforcement of the positive covenant and that is not permitted as per section 42 of the Specific Relief Act. The reliance was placed on the judgment of the Delhi High Court in ABP Network Private Limited v. Malika Malhotra (2021).

Court's Analysis

The court at the outset placed reliance on the judgment of the Delhi High Court in Egis India Consulting Engineers Private Limited v. Pawan Hans Limited (2021) wherein the interpretation of the similar clause as in the present case was involved.

The court in the abovementioned held that “the parties have, therefore, ad idem, crafted a protocol in which, even after a notice of termination of the contract is issued, if the contractor refers the matter to arbitration, the termination of the contract would not take effect and would remain subject to the arbitral award which would come to be passed.”

While applying the above ratio to facts of the present case, the court observed that Clause 6.3 of the Agreement is somewhat identical. The parties by mutual consent have agreed to the fact that if there are any disputes between the parties, the same shall be resolved through mutual discussions and if the parties are unable to resolve their disputes through mutual discussion, they would resort to arbitration. However, during arbitration process, the parties are to maintain status quo with respect to services, consideration and other obligations.

The court further noted that primacy is to be accorded to the Agreement between the parties. I am also of the view that the enforcement of the negative covenant is not leading to enforcement of the positive covenant as the status quo is only till the time the arbitral tribunal decides the disputed question of whether the termination is valid/invalid. Under Section 9 of the Arbitration & Conciliation Act, 1996, this Court is only preserving the subject matter of the arbitral dispute.

The court further rejected the contention regarding damages being an adequate compensation and observed that as regards damages being adequate compensation, the same also would not apply as the petitioner in the present case is not seeking specific performance of the contract but is only seeking enforcement of the negative covenant.

The court also rejected the argument pertaining to new specific relief act being applicable to the facts of the present case while referring to the Supreme Court judgment in Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd., (2023). In this case, the Supreme Court held the new Specific Relief Act to be prospective in nature. Hence, an agreement executed in 2016 cannot be within the ambit or purview of the amended Specific Relief Act (effective from 01.10.2018).

Accordingly, the present petition was allowed.

Case Title: M/S INNOVATIVE FACILITY SOLUTIONS PVT LTD v. M/S AFFORDABLE INFRASTRUCTURE

Case Reference: O.M.P.(I) (COMM.) 369/2024

Judgment Date: 29/10/2024

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