The Delhi High Court ruled that if a dispute is not referred to arbitration, it prima facie appears to be the case of non-existence of valid arbitration agreement. The Court ruled that when there is vagueness with respect to the arbitration agreement, the court has to refer the matter to arbitration.
Case of the Plaintiff
As per the plaintiff a fresh agreement was sought amid the parties concerning the use and occupation of the premises and maintenance with effect from April 2018. Thereafter it became difficult for the plaintiff to pay rental amount of the premises, to the defendant, thus plaintiff approached the defendant for negotiations pertaining to reduction in rent and maintenance with effect from April 2019.
However, the plaintiff did not even get the opportunity to terminate the agreement and remove its movables; the defendant took the possession of premises. While the plaintiff sought refund of the remaining interest-free refundable security deposit and movables, the defendant instituted an application under Section 8 of the Arbitration and Conciliation Act 1966 for referring the dispute to arbitration.
Case of the Defendant
The defendant stated that the lease agreement comprised of arbitration clauses and hence, the application under Section 8 should be permitted.
Observation of the Court
The Court observed that in the present case, the original deed undoubtedly provided for settlement of disputes through arbitration. However in the case of novation of contract the Court observed:
“A novation takes place only when there is a complete substitution of a new contract in place of the old. Do the facts of the present case warrant a conclusion that there was a novation of contract? I may first see the scope of Section 8 of the Arbitration Act.”
Taking into consideration Section 8 and the Supreme Court’s ruling in the case of Vidya Drolia and Ors. V. Durga Trading Corporation, the Court remarked that for rejection of Section 8 application, a party has to make out a prima facie case of non existence of valid arbitration agreement, by summarily portraying a strong case.
In the words of the Court:
“When in doubt, the court should refer the matter if the validity of the arbitration agreement cannot be determined on a prima facie basis”.
In the present case, the Court observed that it cannot be said in the first instance that there was a completely new contract and that the old registered lease deed has been novated. Thus stating that the matter in hand would require deeper consideration and was best left to the arbitral tribunal, the Court decided to allow the application under Section 8.
Case Details
Before: Delhi High Court
Case Title: Knowledge Podium System vs. SM Professional Services.
Coram: Hon’ble Mr. Justice Jayant Nath
Read Order@LatestLaws.com
Share this Document :
Picture Source :
