The Single Bench of the Delhi High Court in the case of Vistrat Real Estates Pvt Ltd vs Asian Hotels North Ltd consisting of Justice Mukta Gupta observes that in an arbitration agreement, the issue whether the petitioner is entitled to any relief in the absence of a third party to the agreement or that third party is required to be impleaded in the proceedings, is covered by the Doctrine of Competence-Competence and it will be for the Arbitrator to decide the said issue.
Facts
The petitioner purchased certain floors along with the respective car parking areas at the Hyatt Complex from the respondent vide four registered Sale Deeds (“the Agreements”) along with perpetual right to use car parking area. The petitioner transferred and assigned all rights and title in the premises to IndusInd Bank Limited along with perpetual right to use car parking area. Thereafter, the petitioner sought refund of the security deposit of ₹15 Crores deposited by the petitioner pursuant to Refundable Security Deposit Agreement entered between the petitioner and the respondent. Since the claim of the petitioner now is in terms of the Refundable Security Deposit Agreements, Clause 7 whereof provides for an arbitration, the
Contentions Made
Appellant: It issued a demand notice which was not responded by the respondent and, thereafter, the petitioner issued notice giving 30 days’ time for resolution of the disputes failing which the invocation of the arbitration in terms of the Agreements. Even this notice was not replied by the respondent. Reliance was placed on Chrolo Controls India Private Ltd. v. Severn Trent Water Purification Inc. & Ors.
Respondent: The petitioner sold off the property to the third party and in terms of Clauses 2 and 3, though the third party was to give a refundable security to the respondent, the same had not been given thus in the disputes raised by the petitioner, since the rights of a third party, who was not a party to the agreement were also involved, no Arbitrator could be appointed to adjudicate the disputes arising between the parties in terms of Clause 7 of Agreements. Reliance was placed on Sukanya Holdings (P) Ltd. Vs. Jayesh Shah Pandya & Anr.
Observations of the Court
Relying on above-stated case, the Bench observed that in exceptional cases applying the principle of “composite performance” or implied authority, even a third party who is not a signatory to the arbitration agreement can be joined in arbitration. The main underlying principle for holding that the courts review of the arbitration agreement should be limited to a prima facie standard is the principle of competence-competence.
“Further, if the courts are empowered to fully scrutinise the arbitration agreement, an arbitral proceeding would have to be stayed until such time that the court seized of the matter renders a decision on the arbitration agreement. This would defeat the credo and ethos of the Arbitration and Conciliation Act which is to enable expeditious arbitration without avoidable intervention by the judicial authorities.”
On a bare perusal of the agreement, if it is found that a particular dispute is not relatable to the arbitration agreement then the court may decide the relief sought for by a party in a Section 11 petition. However, if there is a contestation regarding the issue as to whether the dispute falls within the realm of the arbitration agreement, then the best course would be to allow the arbitrator to form a view in the matter.
Judgment
Once a valid arbitration agreement exists between the parties, the issue whether the petitioner is entitled to any relief in the absence of a third party to the agreement or that third party is required to be impleaded in the proceedings, is covered by the Doctrine of Competence-Competence and it will be for the Arbitrator to decide the said issue. Thus, the issue whether in the absence of a third party, the petitioner can claim the refundable security deposit would be for the learned Arbitrator to determine. The Court found no merit in the objection taken by the respondent. Consequently, Justice Usha Mehra, a former Judge of this Court was requested to arbitrate the disputes between the parties.
Case Name: Vistrat Real Estates Pvt Ltd vs Asian Hotels North Ltd
Citation: ARB.P. 1124/2021
Bench: Justice Mukta Gupta
Decided on: 22nd April 2022
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