Rights Under An Agreement Are Superseded By A Subsequent One? Arbitrator To Decide: Delhi High Court

The single bench of Justice Mini Pushkarna held that the issue whether the rights of parties under an agreement are superseded by a subsequent agreement or not, is itself an arbitrable issue which can be examined by the arbitrator. The Court ruled that the question whether an agreement containing an arbitration clause has been novated by another agreement, cannot be adjudicated at the time of considering a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking appointment of an arbitrator.

A Memorandum of Understanding (MoU) was executed between the petitioner PVR Ltd. and the respondent- Imperia Wishfield Pvt. Ltd., for entering into an arrangement for operating a multiplex. Subsequently, a Lease Agreement was executed between the parties. The petitioner/lessee PVR alleged that the respondent failed to perform its obligations as envisaged under the Lease Agreement. Subsequently, a "Mutual Recession and Release Deed" (Release Deed) was executed between the parties, bringing the MoU and the Lease Agreement to an end. The Release Deed provided that in furtherance of the terms of the MoU and the Lease Agreement, the respondent shall refund the security deposit paid by the petitioner.

After the respondent Imperia Wishfield failed to refund the security deposit, the petitioner issued a notice invoking the arbitration clause contained in the MoU and the Lease Agreement. The petitioner filed a petition under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking appointment of an arbitrator before the Delhi High Court.

The respondent Imperia Wishfield submitted before the High Court that the MoU and the Lease Agreement contained arbitration clauses; however, the parties had thereafter entered into a Release Deed, which expressly terminated and annulled the MoU and the Lease Agreement, along with the terms and conditions contained therein. Thus, it contended that there was no arbitration clause surviving. Averring that there is no arbitral clause contained in the Release Deed, the respondent argued that the dispute raised by the petitioner was not arbitrable.

The petitioner PVR argued that even though the MoU and the Lease Agreement between the parties came to an end, the Arbitration Agreement survived.

The Court noted that the MoU and the Lease Agreement stipulated that the respondent was to refund the security deposit paid by the petitioner, at the time of termination of the Agreement.

Further, it observed that the Release Deed clearly provided that the respondent would be absolved of its liabilities towards the petitioner under the MoU and the Lease Agreement, only upon repayment of the security deposit.

The bench took into account that the respondent, by failing to pay the security deposit, had not only failed to comply with its obligations under the MoU and Lease Agreement, but also the Release Deed. Thus, the Court ruled that the liabilities of the respondent under the MoU and the Lease Agreement cannot be said to have been absolved.

The Court held that even after execution of the Release Deed, any dispute arising out of the MoU and Lease Agreement can be referred to arbitration, as the Arbitration Agreement contained in the MoU and the Lease Agreement will survive even if the contract comes to an end.

Ruling that an arbitration clause relates to the resolution of disputes between the parties and not the performance of the contract, the Court held that in accordance with the Doctrine of Severability, an arbitration agreement is deemed to be a separate and severable clause. Thus, the arbitration agreement survives even if the contract comes to an end.

The Court reiterated that the issue whether the rights of the parties under an agreement are being superseded by a subsequent agreement or not, is itself an arbitrable issue which can be examined by the Arbitrator.

Referring to the decision of the Supreme Court in Intercontinental Hotels Group (India) Private Ltd. & Anr. versus Waterline Hotels Private Limited (2022), the Court ruled that the Apex Court has repeatedly adopted a pro-arbitration stance by propounding the watchword, "when in doubt, do refer".

While holding that the issue whether an agreement containing an arbitration clause has been novated by another agreement or not, cannot be adjudicated at the time of considering a Section 11 petition, the Court added that an Arbitral Tribunal is competent to rule on its own jurisdiction, including on the existence or validity of the arbitration agreement.

The Court added that the MoU and the Lease Agreement contained a valid arbitration agreement; therefore, the Court allowed the petition and appointed a Sole Arbitrator.

Case Title: PVR Limited versus Imperia Wishfield Private Limited

Citation: 2022 LiveLaw (Del) 1109

Dated: 23.11.2022 (Delhi High Court)

Counsel for the Petitioner: Ms. Sonal Singh, Ms. Sukanya Lal, Advocates

Counsel for the Respondent: Mr. Rishabh Pant, Advocate

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