Dgs Realtors Pvt. Ltd. vs Realogy Coproration
2009 Latest Caselaw 3531 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 OMP No.508/2009

%                       Date of decision:3rd September 2009

DGS REALTORS PVT. LTD.                                ....Petitioner
              Through: Mr. Rajiv Nayar, Sr. Advocate with Mr. Prateek
                       Jalan, Mr. Surendra Dube, Mr. Siddharth
                       Bhatnagar, Mr. RakeshSinha, Ms. Sonia Dube &
                       Ms. Priyanka Chaudhry, Advocates.

                               Versus

REALOGY COPRORATION                                 ... Respondent

             Through: None.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                 Yes

2.    To be referred to the reporter or not?          Yes

3.    Whether the judgment should be reported
      in the Digest?                                  Yes


RAJIV SAHAI ENDLAW, J.

1. The petition under Section 9 of the Arbitration Act, 1996 for

interim measures is for consideration. Though the senior counsel for

the petitioner had on 31st August, 2009 when the petition came up

first before this court pressed for ex-parte ad-interim relief but this

court was pleased to issue notice of the petition to the respondent

including by electronic media, courier and registered post. The

petitioner has filed an affidavit dated 2nd September, 2009 in this

court of having served the respondent; along with the said affidavit

the transcript of e-mail on 2nd September, 2009 of the advocate for

the petitioner to the respondent and of the reply dated 2 nd

September, 2009 of the respondent to the advocate for the petitioner

has been filed. The respondent has in its reply expressed inability to

appear in the short time and also contended that the petitioner in

accordance with the agreement with the respondent is not entitled to

invoke any proceedings in India and if wants resolution of the

disputes ought to approach the Arbitral Tribunal in accordance with

the agreement. In view of the said reply of the respondent, the

respondent having been duly served and having refused to appear, is

proceeded against ex-parte. The senior counsel for the petitioner

has been heard today also.

2. The petitioner is a company incorporated under the laws of

India. The respondent is a company organized under the laws of

Delaware, USA. An agreement dated 24th October, 2007 was entered

into between the parties whereunder the respondent, itself a

licensee of a plan for the establishment, development and operation

of real estate brokerage offices under the trademark "CENTURY 21"

and the "CENTURY 21 System", with further rights to grant

international sub franchisees, has granted sub-franchise to the

petitioner of the said trademark and system and on the terms &

conditions contained therein. Though the agreement initially was not

for the entire territory of India but by a subsequent amendment

thereto was extended to the entire territory of India. Dr. Devinder

Kumar Gupta having substantial interest in the petitioner also

agreed to stand as guarantor for due compliance of all the terms &

conditions of the agreement by the petition. Under the said

agreement, the petitioner was to pay to the respondent an amount

towards initial franchise fee. It is the case of the petitioner that the

petitioner has paid the same amounting to approximately Rs.30

crores. Besides the said initial franchise fee, the petitioner under the

agreement is also to pay continuing service fee to the respondent

and on the dates mentioned therein. The senior counsel for the

petitioner has drawn attention to Clause 4 D (v) of the agreement

whereunder upon the said fee being late by more than 10 days, the

petitioner has agreed to pay to the respondent additional sums

towards late charge plus interest at 10% per annum besides

exchange rate loss, if any etc.

3. The senior counsel for the petitioner has also drawn attention

to Clause 13 A of the agreement whereunder the respondent is

entitled to terminate the agreement upon any breach by the

petitioner of a material provision of the agreement, only after

notifying the petitioner and upon the failure of the petitioner to cure

the breach within 30 calendar days of the notice. The said agreement

also provides for arbitration.

4. The jurisdiction of this court is invoked on the averment in the

petition that since part of cause of action including payment of initial

franchise fee, part performance under the agreement and

termination of the agreement has arisen within the territorial

jurisdiction of this court, this court would have jurisdiction.

5. The respondent being a body corporate incorporated in a

country other than India, the arbitration between the parties would

be International Commercial Arbitration within the meaning of 2 (f)

of the Act. Though the Supreme Court in Bhatia International Vs.

Bulk Trading S.A. 2002 4 SCC 105 on which reliance is placed in

the OMP itself, has held the Provisions of Part-I of the Act (including

Section 9) applicable to the International Commercial Arbitrations

also but since Bhatia International (Supra) itself lays down that

the same is subject to the parties, by agreement express or implied

not excluding the said law or any of the provisions of the said Part-I

of the Act, query from the senior counsel for the petitioner was made

in this regard.

6. The senior counsel contended that in the arbitration clause,

though providing for submission for arbitration to the New York

office of the American Arbitration Association under its Commercial

Arbitration Rules, with the arbitration proceedings to be conducted

in the English language in New York, USA, there was nothing therein

to indicate that the parties had agreed to exclude the applicability of

Part-I of the Act. The senior counsel for the petitioner also drew

attention to sub clauses iii & iv of the arbitration clause in the

agreement where the reference has been made to "a court of

competent jurisdiction" and it was urged that the parties had not

agreed to the jurisdiction of any court and since the agreement in

the present case was to be implemented in India, including within

the territorial jurisdiction of this court, it was contended, that this

court was the court of competent jurisdiction.

7. Attention of the senior counsel for the petitioner was invited to

clause 21 of the agreement providing for "the agreement to be

construed under and governed by the laws of the State of New

Jersey, USA" and providing for exclusion of certain legislations in

force there. Attention of the senior counsel was also invited to the

recent dicta of this court in Max India Ltd. Vs. General Binding

Corporation MANU/DE/1212/2009 where on an interpretation of

the agreement in that case, the parties were held to have excluded

the application of Part-I of the Act.

8. From reading of the judgment in Bhatia International it

cannot be made out whether there was any clause in the agreement

under consideration in that case providing for any governing law as

in this case. The senior counsel for the petitioner faced with this,

invited attention to INDTEL Technical Services Pvt. Ltd. Vs. W.S.

Atkins PLC (2008) 10 SCC 308, Venture Global Engineering Vs.

Satyam Computer Services Ltd. 2008 4 SCC 190 and lastly to

Citation Infowares Ltd. Vs. Equinox Corporation (2009) 7 SCC

220.

9. In INDTEL Services Pvt. Ltd. (Supra) the agreement

provided for its construction, validity and performance to be

governed and construed in accordance with the laws of England &

Wales. The agreement further provided for disputes not amicably

settled to be referred to the adjudicator or the courts as the case

may be, appointed to decide the disputes or difference under the

agreement. The agreement did not provide the venue for such

adjudication. The Supreme Court held the said clause in the

agreement to be an arbitration clause. It was inter-alia the

contention of the respondent foreign party therein that since the

parties had expressly agreed to the law of England & Wales to be the

proper law, it showed that the arbitration proceedings should also be

subject to the jurisdiction of the courts of England & Wales. The

application filed by the petitioner in that case under Section 11 (9) of

the Act before the Supreme Court was thus contended to be not

maintainable. The Supreme Court in para 24 of the judgment while

accepting the proposition that when the arbitration agreement is

silent as to the law and procedure to be followed in implementing the

arbitration agreement, the law governing the said agreement would

ordinarily be the same as the law governing the contract itself as

well settled, however in view of the Bhatia International , held the

petition under Section 11 (9) of the Act to be maintainable and

appointed the arbitrator.

10. Venture Global Engineering (Supra) was concerned with the

maintainability of a petition/challenge under Section 34, also falling

in Part-I of the Act, qua a foreign award. The agreement in that case

also provided for being construed in accordance with and governed

by the laws of the State of Michigan, USA and provided for

arbitration of the London court of arbitration. The Supreme Court

held the petition under Section 34 to be maintainable in the courts in

India.

11. Notwithstanding the aforesaid state of law, the single judge of

this court and the Division Bench in appeal in Max India Ltd.

(Supra) held the petition in this court under Section 9 of the Act to

be not maintainable. While applying the test laid down in Bhatia

International, this court found that the parties had in the

agreement in that case manifested the intention to have their

disputes adjudicated by arbitration of a neutral Arbitral Tribunal at

Singapore in accordance with the laws of Singapore and had also

made clear that the arbitration proceedings would be conducted as

per the rules of the Singapore Tribunal and specifically vested

jurisdiction in Singapore courts. The Division Bench thus held that

not only the proper law of contract but the proper law of arbitration

agreement, procedural as well as substantive, was that of Singapore

and it showed an unmistakable intention of the parties to exclude the

jurisdiction of this court and the applicability of Part-I of the Act.

12. The senior counsel for the petitioner contended that the

agreement between the parties in Max India Ltd. of choosing the

exclusive jurisdiction of the Singapore courts and also choosing the

law governing the arbitration to be that of Singapore is what

distinguishes Max India Ltd. from the facts of this case. It is argued

that in the present case there is no agreement that the procedural

law applicable to arbitration would be the law of New Jersey, USA

and the parties had not agreed to the jurisdiction of the courts at

New Jersey, USA.

13. To butress the said argument, reliance was placed on Citation

Infowares Ltd. (Supra). In that case, being an application under

Section 11 (9) of the Act for appointment of the arbitrator in an

agreement of International Commercial Arbitration, the parties had

agreed to the governing law being of California, USA. The senior

counsel contended that notwithstanding the agreement as to the

governing law, the Supreme Court held on the basis of Bhatia

International that Part-I of the Act would be applicable and

appointed the arbitrator. However, in my opinion Citation

Infowares Ltd. does not help the petitioner. The Supreme Court in

this case also in para 25 of the judgment reiterated that the law of

arbitration is normally the same as the proper law of the contract

and it is only in exceptional cases that it is not so, even where the

proper law of contract is expressly chosen by the parties; it was

further held that there is a presumption that the law of the country

where the arbitration is agreed to be held is the proper law of

arbitration (NTPC Vs. Singer Company (1992) 3 SCC 551).

However, in spite of reiterating the said proposition, the Supreme

Court in this case held the application under Section 11 (9) of the Act

to be maintainable because the parties had in that case not agreed to

the venue of arbitration. On this ground, the NTPC case (Supra) was

distinguished and the arbitrator appointed, though to decide in

accordance with the Californian law.

14. Once the aforesaid distinction is highlighted, in my view the

dicta of this court in Max India Ltd. would be squarely applicable.

The parties in the present case have not only agreed to the

governing law being that of New Jersey, USA but also to the place of

arbitration being New York. It being the settled proposition that the

governing law is presumed to be the law of arbitration also, it

necessarily follows that the parties had expressly or impliedly agreed

to the exclusion of Part-I of the Act. The parties having found to have

so agreed, this court would not have jurisdiction under Section 9 of

the Act.

15. There is yet another relevant factor as noticed in para 14 (d) of

the judgment in Bhatia International. One of the reasons which

prevailed upon the court for holding the courts in India to have

jurisdiction to entertain the petition under Section 9 was that the

properties and assets, with respect whereto interim measures were

sought, were lying in India and it was felt that without Section 9

being held to be applicable, the party seeking the interim measure

would be remediless. Similarly, in Venture Global Engineering

also one of the reasons which prevailed with the court was that the

agreement, besides providing for governing law of Michigan, USA,

also provided that the shareholders of company shall act in

accordance with Company's Act and other laws in force in India; it

was felt that the implementation of the award in that case was required

to be in accordance with the Indian law and that unless petition

under Section 34 with respect to the award was held to be

maintainable in Indian courts, the question of the award being

opposed to public policy of India or not had to be decided by Indian

court. The other two judgments as aforesaid were not with respect to

Section 9 of the Act. The nature of the interim measures sought by

the petitioner in the present case is not such which can be enforced

in this court alone. The respondent is a company incorporated

outside this country and if interim measures against the respondent

are necessary, the same can be sought also in the territorial

jurisdiction of the court, to applicability of whose law, the parties

have agreed to, and the relief is not found to be such which can be

granted by this court only.

16. I have also examined the Commercial Arbitration Rules and

Mediation Procedures of the American Arbitration Association. Rule

48 (c) thereof provides that the parties to an arbitration under those

rules shall be deemed to have consented that judgment upon the

arbitration award may be entered in any federal or state court

having jurisdiction thereon. The said rule shows that the parties by

agreeing to the arbitration of the American Arbitration Association in

accordance with its Commercial Arbitration Rules inter-alia agreed

to the jurisdiction of the federal or state court of USA. Similarly, the

said rules also contain optional rules for emergency measures of

protection whereunder a party in need of emergent relief is entitled

to apply to the Arbitral Tribunal constituted under the said rules.

Thus, I also find that the parties by opting for the arbitration of the

American Arbitration Association inter-alia excluded the applicability

of Part-I of the Act.

17. I find that the Bombay High Court also in Frontier Drilling A.S.

Vs. Jagson Internatural Ltd. (2003) 3 Arb. LR 548 held that where

substantive law was English Law and the place of arbitration was

London, the curial law, in the absence of any other specific provision

would be the curial law as applicable to arbitration in London. The

application under Section 9 of the Act was thus held no maintainable

on this ground, though held maintainable for the reason of

respondent having itself invoked jurisdiction of Indian courts.

18. I had on 31st August, 2009 itself also enquired from the senior

counsel for the petitioner as to how the interim measure of

injunction claimed could be granted since the agreement appeared

not capable of specific performance. There cannot be an injunction

restraining termination of an agreement which cannot be specifically

enforced The senior counsel for the petitioner has today urged that

the agreement in clause 6 D thereof contains a negative covenant;

reliance is placed on Rajasthan Breweries Ltd. Vs. The Stroh

Brewery Company AIR 2000 Delhi 450 to contend that even if the

agreement is not specifically enforceable, if contains a negative

covenant, the court is not precluded from granting an injunction to

perform the negative covenant.

19. The agreement as aforesaid was of sub-franchise by the

respondent to the petitioner of the trademark "CENTURY 21" and

the right to use the "CENTURY 21 System" in the territory of India.

Clause 4 G of the said agreement inter-alia provides that the

respondent shall not grant a license as granted to the petitioner to

any other person or entity within the same territory, without first

offering the petitioner a right of first refusal and modality whereof is

laid down in the agreement. This shows that the license given to the

petitioner was not intended to be an exclusive license, for the

petitioner to claim the interim measure from this court of restraining

the respondent from entering into contract with any other person.

Not only so, the petitioner has in the clause aforesaid also

acknowledged that the respondent and the owner of "CENTURY 21"

trademark and system could within the same territory establish the

same business themselves or through their subsidiaries. This again

shows that there was never intended to be any exclusivity in favour

of the petitioner. Clause No.6 D relied upon by the petitioner in

support of enforcement of negative covenant has been expressly

made subject to clause 4 G aforesaid. All that, clause 6 D provides is

that so long as the agreement remains in effect, the petitioner shall

have exclusive right to sub license "CENTURY 21 System" and marks

in accordance with the terms of the agreement. The said clause does

not restrain the respondent from terminating the agreement during

the term thereof. Thus the argument of the petitioner being entitled

to interim measure in enforcement of negative covenant also does

not survive.

20. Also, even for a negative covenant to be enforced, the same

can be done only when the petitioner is not in breach. In the present

case, it is the admitted position that the petitioner is in

breach/default of its obligations of making payments to the

respondent. In fact the statement of the petitioner offering to

deposit the payments in this court or to pay the same to the

respondent, without prejudice to its rights and contentions, was

recorded in the order dated 31st August, 2009. The petitioner has

itself filed its letters dated 9th April, 2009 & 20th April, 2009 to the

respondent seeking waiver of payments due. The respondent by its

letter dated 23rd April, 2009 to the petitioner reminded the petitioner

to clear the payments already due by 15th May, 2009. The petitioner

again vide its letter dated 27th April, 2009 expressed its inability to

make the payments, citing the general economic slowdown. The

respondent on 29th April, 2009 gave notice of intent to terminate the

agreement in accordance with the agreement, giving more than 30

days time i.e. till 1st June, 2009 to the petitioner to cure the default

by making the payment. The petitioner, though vide its letter dated

6th May, 2008 represented that it was attempting to make

arrangements for the monies, did not make the payment. The

respondent finally vide its letter dated 9th June, 2009 while

confirming termination to have come into effect upon non-payment

by the petitioner within the period of 30 days, called upon the

petitioner to stop using the trademark "CENTURY 21" and do other

acts which it was required to do post termination. The petitioner

corresponded with the respondent thereafter also calling upon the

respondent to review its decision, again generally citing the

slowdown in the realty sector throughout the world. However, it

appears that the respondent did not oblige the petitioner. The

present petition came to be filed only on 28th August, 2009.

21. The aforesaid would also show that the petitioner is guilty of

laches. As aforesaid the agreement stood terminated on 1st June,

2009; the notice of termination was given on 29th April, 2009. The

present petition has been preferred after nearly three months. The

petitioner has in the interregnum not disputed the ground or

modality of termination and the pleas taken in this petition appear to

be an afterthought.

22. The senior counsel for the petitioner has laid emphasis on the

petitioner having not only paid a huge sum of Rs.30 crores to the

respondent as initial license fee but also having incurred other

expenses in developing the business in India. It is also contended

that the default alleged is of payment of approximately Rs.50 lacs

only and that it is insignificant in comparison to the investments

already incurred and payments already made to the respondent. The

senior counsel for the petitioner has also urged that the respondent

has in its e-mail dated 2nd September, 2009 (Supra) not claimed to

have already entered into an agreement with any third party and

thus the rights of the petitioner be protected. However the same

cannot be a ground for granting interim relief, if otherwise the

petitioner as aforesaid is not found entitled thereto. The petitioner

has the agreed remedy of arbitration available to it for redressal of

its grievances, if any.

23. Thus neither is the petition under Section 9 found to be

maintainable nor is the petitioner found entitled to the interim

measure.

The petition is dismissed.

No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE) September 3rd, 2009 PP