Delhi High Court: In a case wherein, an application was filed under Section 8 of the Arbitration and Conciliation Act, 1996 (‘the Act’) seeking referral of disputes in the suits, to arbitration in terms of the arbitration agreement between the parties, Sachin Datta, J.*, held that any declaration of status or right for any property would be operated in personam and not in rem and thus could be adjudicated in arbitration.
Background
The plaintiff and the defendant entered into an agreement dated 02-09-1991 in which the defendant had granted the plaintiff a license for a shop and a supplementary agreement was executed between the parties modifying/amending the agreement dated 02-09-1991 (collectively referred to as “license agreement”). The license agreement also incorporated an arbitration agreement and under the license agreement, the plaintiff paid a refundable security deposit of Rs. 8,47,000 to the defendant. The defendant sought to terminate/revoke the license agreement vide communication dated 29-05-2020 and asked the plaintiff to vacate the shop within a month. Thus, the plaintiff filed the present suit.
The plaintiff submitted that the subject-matter of the suits was per se non-arbitrable as it sought a declaration in rem regarding the shops and such declarations could only be granted by the Courts, as they were binding on not only the interested third parties who might have interest in the same property but also on the general public. Further, it was submitted that the subject-matter of the suit was beyond the scope of arbitration agreement as the present suit were based on a number of documents, actions, payment receipts, and conduct that fall well outside the narrow confines of the license agreement.
Analysis, Law, and Decision
The Court relied on Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 (‘Vidya Drolia Case’) and Gujarat Composite Ltd. v. A Infrastructure Ltd., (2023) 7 SCC 193 and opined that “an Arbitral Tribunal was the preferred authority to determine and decide the questions of non-arbitrability. Unless the dispute was manifestly and/or ex facie non-arbitrable, the rule was to refer the dispute to arbitration. It was further opined that if prima facie there existed an arbitration agreement, the Court would refer the dispute to arbitration.”.
1. Whether the subject matter of the suit was capable of being adjudicated by an Arbitral Tribunal?
The Court relied on Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 and opined that only if the dispute was related to actions in rem, that did not relate to subordinate rights in personam arising from rights in rem, the subject matter would be non-arbitrable.
The Court opined that the declaration sought regarding the ownership of shops based on license agreement could not be considered in rem. The Court further opined that the declaration would operate only against the defendant and thus would be operated in personam. The Court referred to Sections 34 and 35 of the Specific Relief Act, 1963 and held that any declaration of status or right for any property would be operated in personam and not in rem and thus could be adjudicated in arbitration.
The Court relied on Vidya Drolia Case (supra) wherein it was held that landlord-tenant disputes, not governed by rent control legislations were arbitrable and the Court further relied on Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651 wherein it was held that disputes of specific performance if contract relating to immovable property could be referred to arbitration. Hence, it was held that it could not be said that the present subject matter of the suit was manifestly and/or ex facie non-arbitrable.
2. Whether the subject matter of the suit falls outside the scope of the arbitration agreement contained in the license agreement executed between the parties?
The Court observed that the plaintiff in his suit was only aggrieved with the revocation of his license and the declaration was sought based on the license granted to the plaintiff and the documents executed between the plaintiff and the defendant. The Court took note of Clause 12 of the license agreement which provided for arbitration and the arbitration agreement therein was broadly worded and included “any dispute, difference, between the licensor and licensee, with regard to any matter including interpretation of license agreement and the clarification thereof”. Thus, the subject-matter of the suit falls within the scope of the arbitration agreement.
The Court further relied on Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572 and rejected plaintiff’s contention that the arbitration agreement was invalid and unenforceable since it only provided for appointment of two arbitrators.
Accordingly, the Court allowed the application and held that the parties were at liberty to seek appointment of arbitrator or constitution of an Arbitral Tribunal in accordance with the terms of the arbitration clause in the license agreement.
[Alok Kumar Lodha v. Asian Hotels (North) Ltd., 2023 SCC OnLine Del 8161, decided on 20-12-2023]
*Judgment authored by: Justice Sachin Datta
Advocates who appeared in this case :
For the Plaintiff: Malvika Trivedi, Senior Advocate; Avishkar Singhvi, Nipun Katyal, Naved Ahmed, Shekhar Gupta, Mansha Gupta and Vivek Kumar, Advocates
For the Defendant: Saurabh Kripal, Senior Advocate; Sidhant Kumar, Manyaa Chankok, Aakanksha Kaul, Vidhi Udayshankar, Joginder Singh, Muskaan Gopal, Gurpreet Singh Bagga, Shivankar Rao, Nikhil Arora and Shatakshi Singh, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
