MOU Terminating The Main Agreement Containing The Arbitration Clause Can Be Referred To Arbitration: Delhi High Court

The bench of Justice Mini Pushkarna held that dispute arising out of any subsequent agreement that arises out of the main agreement containing the arbitration clause can be referred to arbitration.

The Court further reiterated that the arbitration clause survives the termination of the main agreement, therefore, the arbitration clause would remain effective despite the termination principal agreement in which it is embedded.

Facts

The parties entered into an agreement dated 24.01.2019 whereby the respondent appointed the petitioner to provide various business advisory support for product development, market development, running and for product development, market development, running and development. Clause 11 of the agreement provided for resolution of dispute at first by way of negotiation and on failure of the amicable settlement by way of arbitration.

Certain disputes arose between the parties, accordingly, negotiations happened and the parties decided to terminate the Business agreement and entered into a Memorandum of Understanding (MoU) dated 24.02.2022 for termination of agreement and for entering into a Memorandum of Settlement (MoS) on mutually agreed terms on or before 28.02.2022. It was recorded in the MoU that the arrangement as envisaged in Business Agreement dated 24.01.2019 shall be discontinued w.e.f. 30.06.2022.

Afterwards, parties entered into Memorandum of Settlement dated 16.03.2022 wherein they mutually agreed to discontinue the arrangement as contemplated in the Business Agreement dated 24.01.2019 w.e.f. 31.05.2022. However, as per the petitioner, the respondent, in gross violation of the terms of MoU and MoS, started ousting it before the stipulated due date. Accordingly, the petitioner filed an application under Section 9 of the A&C Act wherein the Court had directed the parties to maintain the status quo in respect of the plant and machinery supplied by the petitioner.

Thereafter, the petitioner filed an application for the appointment of the arbitrator.

Objections

The respondent objected to the maintainability of the petition on the following grounds:

• There is no arbitration neither in the MoU nor in MoS.
• The petitioner cannot invoke the arbitration clause contained in the Business agreement dated 24.01.2019 as the dispute in question does not relate to that agreement.

Analysis by the Court

The Court observed that the MoU was entered into to terminate the agreement dated 24.01.2019 and in pursuance thereof, the MoS was created. The Court observed that the subject of both these agreements emanate from the main agreement and the dispute itself pertains to interference with the services that the petitioner was to provide to the respondent under the main agreement.

Although the MoU and MoS terminated the agreement dated 24.01.2019, however, they set a date till which the services as given under that agreement were to continue, therefore, the Court rejected the objection regarding the dispute being outside the purview of the business agreement.

The Court further reiterated that the arbitration clause survives the termination of the main agreement, therefore, the arbitration clause would remain effective despite the termination principal agreement in which it is embedded.

Accordingly, the Court allowed the petition and appointed the arbitrator.

Case Title: Super Blastech Solutions v. Rajasthan Explosives and Chemicals Limited, ARB.P. 977 of 2022

Citation: 2022 LiveLaw (Del) 1189

Counsel for the Petitioner: Mr. Sanjay Hegde, Sr. Advocate with Mr. Zain A. Khan, Mr. Shahrukh Ali, Mr. Raghav Gupta, Advocates

Counsel for the Respondent: Mr. Aditya Wadhwa and Mr. Ayush Shrivastava, Advocates.

Click Here To Read/Download Order