Arbitration Clause In The Initial Agreement Binding Even If Subsequent Settlement Doesn't Have It: Delhi High Court

The Court observed that the relationship between the parties came into existence on the execution of the rent agreement. Further, it noted that the 'Terms of Settlement' and the 'Addendum to Settlement' executed between the parties did not contain a stipulation that the arbitration clause between them stood rescinded. The Court held that the arbitration clause was binding on the parties and thus, the dispute between the parties arising on the breach of the terms of settlement must be referred to arbitration.

The Single Bench of Justice V. Kameswar Rao reiterated that an arbitration clause will not come to an end merely because the contract containing the arbitration clause had come to an end by efflux of time.

The respondent- Direct News Private Limited, took on lease the premises owned by the petitioner- Omega Finvest LLP, and a Rent Agreement was executed between the parties. Thereafter, on the expiry of the Rent Agreement, a new Rent Agreement (second Rent Agreement) was executed between them, renewing the lease for a further period. After the respondent allegedly failed to handover the possession of the property on the expiry of the lease and defaulted in paying the rent, the petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, seeking interim relief against the respondent.

Thereafter, the parties arrived at a settlement and moved a Joint Application before the Delhi High Court, placing the terms of the settlement on record. The High Court disposed of the petition in view of the settlement arrived at between the parties.

However, the respondent, in breach of the 'Terms of Settlement' entered into between the parties, failed to hand over the vacant possession of the leased premises. The petitioner filed another petition under Section 9 of the A&C Act. After the parties executed an 'Addendum to the Terms of Settlement', the Court disposed of the petition in terms of the 'Addendum to Settlement' arrived at between the parties.

Alleging that the respondent handed over the possession of the leased property in a poor state, without complying with the terms of the second Rent Agreement, 'Terms of Settlement' and the 'Addendum to Settlement', the petitioner invoked the arbitration clause contained in the second Rent Agreement. The petitioner further claimed that the respondent had failed to pay the mesne profits to the petitioner for the relevant period.

Thereafter, the petitioner filed a petition under Section 11(5) of the A&C Act before the Delhi High Court, seeking appointment of an arbitrator to adjudicate the disputes between the parties.

Contesting the maintainability of the petition, the respondent- Direct News Private Limited, submitted before the High Court that the disputes between the parties were not subject to any arbitration agreement. The respondent averred that since the second Rent Agreement, containing an arbitration clause, got expired by efflux of time, the only agreement which governed the relationship between the parties was the 'Terms of Settlement' and not the second Rent Agreement. It added that the 'Terms of Settlement' entered into between the parties is an independent contract, which did not comprise of any arbitration clause. It added that the 'Addendum to Settlement' also did not contain any arbitration clause.

While contending that the disputes between the parties had arisen as a result of the 'Addendum to Settlement' and not the second Rent Agreement, the respondent argued that the disputes could not be referred to arbitration.

The petitioner- Omega Finvest LLP, submitted that the arbitration clause contained in the second Rent Agreement was not superseded by the 'Terms of Settlement'. It contended that the arbitration clause contained in the second Rent Agreement was a separate agreement and therefore, both the parties were bound by it.

The petitioner argued that the arbitration clause will not come to an end merely because the contract containing the arbitration clause had come to an end by efflux of time.

The Court noted that the relationship between the parties with respect to the leased premises came into existence on the execution of the first Rent Agreement. Subsequently, a second Rent Agreement containing an arbitration clause was executed between the parties, renewing the lease for a further period.

The Court, perusing the joint application filed by the parties in the petition filed under Section 9 of the A&C Act, observed that the joint application primarily contained stipulations relating to the payment of arrears of rent and the restoration of the leased premises. The bench noted that there was no stipulation contained in the joint application that the parties, on filing of the said joint application and by entering into a settlement, had rescinded the arbitration clause contained in the second Rent Agreement. Further, it took into account that the 'Addendum to Settlement' executed between the parties also did not contain a stipulation that the arbitration clause stood rescinded.

Referring to the decision of the Apex Court in Lufthansa German Airlines versus Airport Authority of India (2012), the Court reiterated that the arbitration clause would not come to an end even if the contract containing the arbitration clause had expired by efflux of time.

The bench further referred to the decision of the Supreme Court in Sanjiv Prakash versus Seema Kukreja and Ors. (2021), and ruled that in view of Section 11(6A) of the A&C Act, any issue with regard to whether the contract containing an arbitration clause stood superseded or novated must be considered by the Arbitrator.

While holding that the arbitration clause contained in the second Rent Agreement was still binding on the parties, the Court rejected the contention of the respondent that the 'Terms of Settlement' and the 'Addendum to Settlement' executed between the parties had revoked the arbitration clause contained in the second Rent Agreement.

"In other words, the limited jurisdiction of the Court while considering an application under Section 11 of the "A&C Act, 1996" is to see the existence of an arbitration agreement and not its validity. But the said proposition shall not come into play in this case as I have already held that the arbitration clause in the "Second Rent Agreement" still binds the parties", the Court said.

Hence, the Court allowed the petition, appointed an arbitrator and referred the parties to arbitration.

Case Title: Omega Finvest LLP versus Direct News Private Limited

Citation: 2022 LiveLaw (Del) 1002

Dated: 11.10.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Vivek Kohli, Sr. Adv. with Ms. Pankhuri Jain, Mr. Anmol Chawla and Ms. Nikita Maheshwari, Advs

Counsel for the Respondent: Mr. Ashish Virmani and Mr. Vishal Kapoor, Advs

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