Dispute Not Resolved By Friendly Consultation As Per Agreement: Rajasthan High Court Appoints Arbitrator

The Rajasthan High Court at Jaipur recently allowed an application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator, on the ground that the Lease Agreement entered between the parties provided the mechanism to resolve the dispute by ‘friendly consultation’ and the respondent did not participate and make any effort to resolve the dispute by way of ‘friendly consultation’.

The single judge bench of Justice Ashok Kumar Gaur observed,

“This Court finds substance in the submission of learned counsel for the applicants that the grievance, which was raised by the applicants, has never been redressed by the respondent and as such there is no option except to invoke Section 11 of the Act of 1996.”

A Lease Agreement was executed between the applicants and the respondent on September 24, 2018 by which the respondent being the lessee of the lease took premises of the applicants situated in Jaipur, on lease for a period of 108 months commencing from December 1, 2018 to November 30, 2027 on the terms and conditions mentioned in the Lease Agreement.

The applicants alleged that the respondent while making use of the property violated terms of the Lease Agreement, due to substantial changes, which were made in respect of the premises let out to the respondent.

It was further argued that the respondent did not pay rent from October, 2019 to November, 2019 and further there were other several outstanding dues, which were not paid by the respondent.

The applicants initially approached the High Court by filing an Arbitration Application in the year 2020.

However, the said application was dismissed by the High Court on December 2, 2021 and considering the clauses of the Lease and License Agreement, the Court held that the parties were first required to make an attempt to resolve such dispute by friendly consultation and if the dispute was not resolved by friendly consultation within 60 days, then only the matter could be referred to the arbitration, for resolution of dispute.

The Counsel appearing for the applicants submitted that in spite of notice being served upon the respondent, no action was taken by the respondent to resolve the dispute.

It was further submitted that in spite of all the efforts being made by the applicants to resolve the dispute, the respondent had not paid the requisite amount and on the contrary the building, which was let out to the respondent-lessee, substantial damage has been done to the said building.

On the other hand, the Counsel appearing for the respondent submitted that an advance payment of Rs. 2,50,000/- has been made to the applicant for clear expenses of the property and the applicants have agreed to adjust amount of Rs.6,42,000/-, the amount which was deposited as a security with the respondents.

The Counsel appearing for the respondent placed reliance upon the judgment of the Supreme Court in the case of Suresh Shah v. Hipad Technology India Private Limited 2021 (1) Civil Court Cases 749 (S.C.) and submitted that if the lease/tenancy are not granted under Special Statutes but under Transfer of Property Act, such dispute between the parties cannot be resolved by way of arbitration.

The Court noted that despite the notice for friendly consultation was given to the respondent, it did not participate and make any effort to resolve the dispute by way of friendly consultation.

“This Court finds that the Lease Agreement, as entered into between the parties, had provided the mechanism to resolve the dispute and after friendly consultation, the dispute is required to be resolved by way of arbitration,” the Court said.

The Court relied upon the judgment of the Supreme Court in Vidya Drolia & Ors. v. Durga Trading 2021 (2) SCC 1 wherein it was held that the parties to a valid arbitration agreement must abide by the consensual and agreed mode of dispute resolution and the Courts must show due respect to the arbitration agreements particularly in Commercial settings.

Thus, the Court allowed the arbitration application and appointed Justice G.R. Moolchandani (Former Judge) as the sole Arbitrator to adjudicate the dispute between the parties.

Case Title: Kapil Jain & Ors. v. Khosla Electronics Pvt. Ltd.

Citation: 2023 LiveLaw (Raj) 78

Appearances: Advocate Abhishek B. Sharma for Applicants; Advocate R.S. Sinsinwar for Respondent

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