Ultra Home Constructions(P) Ltd v. Choice Hotels International Inc & Ors

judgment was as to whether Indowind who is one of the promoters of Subuthi could be said to be a party to the Arbitration Agreement between Subuthi and Wescare. The same pertained to oral contiact being not permissible in law. In the hght of said issue the Supreme Court dealt with the provisions of the Act and held that as Indowind \\'hich is a company had not signed the agreement as Indowind it cajinot be said to be a party to the Agreement between Subuthi and Wesc^e and thus not party to the Arbitration Agi'eement. However, in the present case there is a written and' signed Assignment Agi'eement between defendant No;2 and defendant No.3. The plaintiffhas agi'eedto the Unilateral Assignmentin the Franchise and Hotel Operation Agreements in ternis of Clause 13.4.

(b) Booz Allen and Hamilton Inc. (suvra). In para 19 of the saidjudgment 5 tests to be apphed by the Court in an apphcation under Section 8 are set out. The issue which the Hon'ble Apex Court was consideringwas with respect to Page 25of36 ^cX\ arbitrable and non-arbitrable disputes. In the present case, all the test refeiTed in the judgment are fulfilled within the meaning of Section 8 of the Act and the entire dispute emanates from Franchise and Hotel Operation Agreements. Thus, the matter referred has no apphcation to the facts and circumstances of the case.

(c) M.R. Ensineers & Contractors

(P) Ltd. (supra) The scope of controversy which the Supreme Court considered in the said judgment was with respect to two distinct and separate contracts, one the main contract and another a sub contract. The main contract was between PWD, Kerala and Som Datt Builders Ltd. whereas the sub-contract was between M.R. Engineers & Contractors (P) Ltd. and Som Datt Builders Ltd. In the sub-contract, there was no clear indication with respect to the incoiporation of arbitration clause of the main contract. In the present case, prima facie there has been assignment by defendant No.2 in favour of defendant No.3 in view of vahd clause of the agreements which was cited by the plaintiff. Therefore, facts are materially different.

(d) Eastern Coal Fields Ltd. (suma). The said judgment has no apphcation as the arbitration clause which the Supreme Court was considering in terms of the express language used in the clause did not extend to private paities. The said judgment has no bearing to the facts of the present case.

(e) Shrikant (suvra) The said judgment deals with the issue of severabihtyof the Agreement and Arbitration clause. The said issue has neither been argued nor pleaded and has no relevance to the facts of the present case.

(OS) No.2589/2010 Page26of36 On the other hand, paras 15 and 16 of the said judgment support the case of the defendant No.3 as it has been held that a contract should be read as a whole and where there is no ambiguity in the provisions of the Contract, the Court should not re-write the contract.

(f) Sukanva Holdinss (P) Ltd (supra) The said judgment has no appUcation to the facts and ciicumstances of the case. In the present case, the Arbitral Tribunal has already under the Franchise Agreement ruled upon its jurisdiction.

¶42The defendant Nos.2 and 3 rely upon followingjudgments with respect to rejection of the plaint: a. K. V. Aerner Cementation India Ltd. Vs. Bairanslal Asai-wal & Anr.: 2001 (3) RAJ 414 (SC). Relevant para 1 and 2 are reproduced as under: "1. These special leave apphcations are directed against an order of a learned Single Judge of Bombay High Court refusing to interfere with an order of the Civil Court vacating an interimorder of injunctiongranted by it earlier. The suit in question had been filed for a declaration that there does not exist any arbitration clause and as such the arbitral proceedings are without jurisdiction. The learned Single Judge of Bombay High Court came to hold that in view of Section 5 of the Aibitration and Conciliation Act, 1996 read with Section thereof since the Arbitral Tribunal has the power and jurisdiction to make rule on its own jurisdiction, the Civil Court would not pass any injunctionagainstan arbitralproceeding. CS(OS) No.2589/2010 Page27of36

¶2Mr. Dave, the learned Senior Counsel appearing for the petitioner contends that the jurisdiction of the civil Court need not be inferentially held to be ousted unless any statute on the face of it excludes the same and judged from that angle when a party assails the existence of an arbitfation agreement, which would confer jurisdiction on an Arbitral Tribunal, the Court committed error in not granting an order of injunction. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitiation to an Arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and Concihation Act, 1996 has been enacted and the provisions thereof contained in Section conferring the power on the Arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the Arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised and a conjoint reading of Sub-sections (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court. The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-caUed dispute in question and such an objection being raised, the Arbitrator would do weU in disposing of the same as a prehminaty issue so that it may not be necessary to go into the entire gamut of arbitration proceedings." b. Bhushan Steel Ltd. v. Sinsavore International Arbitration Centre & Anr.: 2010 (118) DRJ 112. Relevant paras 2 and 9 are reproduced as under : CS(OS) No.2589/2010 Page 28of36 "2. The present suit has been filed seeking the following reliefs: a) declare that the purported arbitration agreement incorporated in the eight (8) Sales Contract executed between the plaintiff and the defendant no. 2 for supply of coated steel coils is vague and indeterminate and hence void and incapable ofbeing enforced; b) defendant no. 1 has no jurisdiction under the Sales Contracts and arbitration proceedings cannot be commenced or consummated under the aegis of defendant no. 1; c) declare that the Sales Contract would be interpreted in ternis of and governed by Indian Contract Act, 1872 and that the proper or substantive law in the instant case would be Indian Law; d) grant pennanent injunction in favour-of the plaintiff and against the defendants and defendant no. restraining them from initiating the arbitration proceedings, pursuant to the purported arbitration notice under the aegis of defendant no. 1; e) declare that there is no arbitrable dispute between the plaintiff and defendant no. 2.

¶9In the apphcation under consideration, defendant no. 2 has contended that the plaint ought to be rejected based on the following arguments :

(i) The suit is ban'ed by Section 5 of the Arbitration and Conciliation Act, 1996 ('the Act' for short). Defendant no. 2 has contended that the plaintiff has sought to challenge the arbitration clause in the sales contract and not the entire contract and a declaration to the effect that the arbitration clause in an agreement is null and void cannot be challenged by way of a civil suit as the Civil Court's jurisdiction is very limited as laid Page 29 of36 V\^ out in Section 5 of the Act. While arguing that the limited scope for action under Section 5 of the Act does not allow this Court to interfere in the present matter, learned counsel for the defendants referred to the judgment titled Roshan Lai Gupta Vs. Parasram Holdings Pvt. Ltd. & Anr. reported as 757 (2009) DLT 712 which can be read as under : "5 It is not as if the civil Court per se does not have jurisdiction to entertain a suit emanating from a transaction subject matter of arbitration agreement. A civil Court cannot dismiss a suit instituted before it, even though found to be subject matter of an arbitration agreement, at the threshold. It is always open to the defendant to the suit to waive, give up and abandon the plea of arbitration and if that were to happen then the suit will continue before the civil Court A peremptory Section 5 prohibiting the jurisdiction of Courts save as expressly provided under the Act has also been introduced. If in spite of the said changes, this Court is to hold that a suit is maintainable where the contract containing the arbitration clause is challenged on ground of forgery and the Court in such suit is empowered to injunct arbitration proceedings (as otherwise no purpose would be sei-vedby such suit), in my view, it would tantamount to negating the effect of the change in the statute. It may also be noticed that arbitration is noiinally provided for in commercial agreements and whereunder after the disputes have arisen, one of the parties is always interested in delaying the disposal of the claims of the other. In fact, the parties while providing for arbitration in commercial contracts do so for the reasons of expediency.If notwithstanding the aforesaid material changes between the old and the new Act, it is to be held that a suit as a present one is maintainable,it would give a tool in the hands Page 30 of36 of the party wanting to delay the disposal of the claims of the other; in each case suits would be institutedand stay of arbitrationproceedingswould be sought." The plaint in the referred matter was rejected and appeal filed by the plaintiff before the Division Bench was also dismissed. c. Devinder Kumar Gupta v. Realoev Corporation & Anr.: 2011

(125) DRJ 129. Relevant paras 2, 3, 6, 14 and 15 are ^ reproducedas under: "2. The case of the Plaintiff is that there is no arbiti ation clause in the Guaranteeand IndemnificationAgreementto which he is a party and whichis appendedas Ex.-1 to the Sub Franchise Agreement. This is also the case of the Plaintiff that there is no provision in Guarantee and IndemnificationAgreementexecuted by him, wherebythe provisions of Centuiy 21 Sub Franchise Agi-eementwould be incoiporated in the Guarantee and Indemnification Agreement and at no point of time, he agreed to informal dispute resolution, arbitration or any other method of alternative dispute resolution.

¶3The Sub Franchise Agreement was terminated by Defendant No. 1 on the ground of non-payment of Continuing Semce Fees. The case of the Plaintiff is that the teraiination was illegal, null and void since non payment of Continuing Service Fee did not constitute breach of a material provision of the agreement entitling Defendant No. 1 to tenninate it.

¶6The apphcation has been opposed by Defendant No. 1 which has claimed that the declafation sought by the Plaintiff with respect to the arbiti-ation agreement cannot be granted by a Civil Court nor can this Court restrain Page 31 of36 A DefendantNo. 1 frompursuingthe arbitrationproceedings beforeAmericanArbitrationAssociation.Thoughno reply has been filed by Defendant No. 1, it was submitted during arguments that in fact there is an ai'bitration clause betweenthe partieswhichcoversthe disputesraisedin the present suit. Hence,the first questionwhichcomesup for consideration in this case is as to whether existence of an arbitration agreement between the Plaintiff and Defendant No. 1 can be challengedby filinga civil suit and whether a civilcourt,in sucha suit, canstayarbitrationproceedings.

¶14The learned Counsel for the Plaintiff has also refen ed to the decision of Shin-EtsuChemical Co. Ltd. (supra). This judgment, as noted earlier, was considered by a learned Single Judge of this Court and his decision has been upheld by a Division Bench of this Court. Even otherwise,I find no propositionof law in this judgment whichwouldentitlethe Plaintiffto disputethe existenceor vaUdityof an arbitiation agreementby way of a suit before a Civil Court.

¶15For the reasons given in the preceding paragraphs, prima facie, I am of the view that this Court cannot go into existence or vahdity of the arbitration clause invoked by Defendant No. 1, nor can an injunction be granted by it restraining Defendant No. 1 from continuing with the arbitiation proceedings initiated by it before American Arbitration Association." d. The Handicrafts & Handlooms Exports Corporation of India Ltd. V. Ashok Metal Corporation & Anr.: 2010 (117) DRJ370 passed in RFA No.219/2009, dated 25.05.2010. Relevant para 28 and 29 are reproduced as under : "28. There is yet another reason which weighs with me in holding that the instant suit is not maintainable.The rehef of declaration and injunction as prayed for in the plaint falls within the Specific Rehef Act and the settled position of law is that such rehef can be availed of by a party only Page 32 of36 when there is no other equally efificacious alternative remedy available to the said party. Indubitably, in the instant case, the appellant can avail itself of the remedy of taking the pleas taken by it in the instant case before the Arbitral Tribunal and this, in my view, must be termed an efficacious alternative remedy.

¶29To conclude, the Arbitral Tribunal, as held by the Supreme Court in KV Aemer Cementation India Ltd. (supra), is endowed with ample power and jurisdiction to rule on its own jurisdiction and it would not, therefore, be open to the Civil Court to pass an injunction against an arbitral proceeding in the teeth ofthe provisions of Section 5 of the Arbitration and Conciliation Act, 1996 and Section 16 thereof To hold otherwise, would be to render otiose the provisions of Section 5 and Section 16 of the Act and to defeat the purpose of the enactment itself Civil Courts would, therefore, be well advised to steer clear of the arbitral process, leaving only their door ajar to the aggrievedparty for the purpose of interimorders, appeals, etc. Any other view, in my opinion,would throu^open the flood gates of pre-arbitral htigation, and in each and every case the party interested in delaying the arbitration proceedings would effectively resort to a civil suit as an adjudicatory mechanism for adjudging the existence and vaUdity of the arbitration agreement and the jurisdiction of the Arbitral Tribunal. Needless to say, appeals and counter-appeals therefrom would effectively ensure that the entire altemate dispute resolution system of arbitration is rendered ineffacious, cumbersome, expensive and dilatory." e. Oval Investment P. Ltd. & Ors v. Indiabulls Financial Services Ltd. & Ors.: 165 (2009) DLT 230 (DB). Relevant paras 8, 11, 12 and 13 are reproduced as under : "8. It is a moot question whether despite the pronouncement in Secur Industries Ltd. if a claimant neglects altogether to issue a notice invoking the Page 33 of36 arbitration clause the jurisdiction of the Civil Court would be barred on the contention that such a notice was the springboard or sine qua non for commencement of arbitration proceedings. In Secur Industries Ltd., as well as before us, the Defendant asserts that notices were dispatched and despite the attempts of the plaintiff to avoid service (Respondent in the Claim raised before the Arbitral Tribunal) it had been served. It is indeed remarkablethat this contentionhas been raised by learned Senior Counsel despite being unsuccessful in Secur IndustriesLtd., the facts of which are strikinglysimilarto the one which obtains in the case in hand.

¶11It needs to be reiterated that SBP & Co. is not a precedentfor the propositionthat the Court must be My satisfied on the existence of an arbitration clause etc. What the Seven-Judge Constitution Bench has observed is that before issuing interims orders under Section 9 of the A&C Act the Court should be fliUy satisfied that the A&C Act applies to the parties. This is obviously because a reckless exercise of powers under Section 9 would work incalculable injustice when it is subsequently found that the A&C Act was not appHcableto the parties at all.

¶12The Judgment of the learned Single Judge has taken into consideration the relevant pronouncements on this subject and has articulated in detail the arguments which have persuaded him to dismiss the Plaint.

¶13We are also satisfied that the learned Single Judge has rightly concluded that the suit is barred under Section 34 of the Specific Relief Act, 1963. It has noted that the consequential rehef that would flow fi-om the first prayer, viz. for the declaration that the letter dated

17.7.2009 invoking arbitration proceedings was invalid, would be that proceedings based thereon would also be invalid. Such a rehef could not be gianted as that would tantamount to restraint of arbitral proceedings, which is precisely what should be assiduously avoided where the Page 34 of36 existence of an arbitration clause is not in dispute. The consequential relief of injunction was, therefore, dehberately drafted in the manner so as to claim what was essentially and logically the consequential relief We are reminded of the obsei-vations in T. Arivandandam v. T. V. Satyapal (1977) 4 SCC 467, which are to the effect that the Court shouldnot fall prey to clever drafting.This case has recently been adverted to in Abdul Gaftir v. State of Uttarakhand(2008) 10 SCC 97 where his LordshipD.K. Jain, speaking for the Bench, had recommended that wherever"the High Courtis convincedthat the plaintread as a whole does not discloseany cause of action, it may reject the plaint in terms of Order 7 Rule 11 of the Code. As a matterof fact, as observedby V.R. KrishnaIyer, J., in T. Arivandandamv. T.V. Satyapal(1977) 4 SCC 467, if on a meaningftil-not formal-readingof the plaint,it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, the court should exercise its power under the said provision.And if clever draftinghas created an illusionof a causeof action,it shouldbe nipped in the bud...."

¶43In view of the facts in the present case and for the aforesaid reasons given in earlier paras of my order, it is clear that the suit filed by the plaintiff is merely to circumvent the arbitiation proceedings paiticularly when the appUcation under Section 16 of the Act filed by the plaintiff before the learned Arbitrator was dismissed. It is admitted case of the plaintiff that there is an arbitration agreement between the parties in respect of Franchise as well as Hotel Operation Agreement and hence, all dispute relating to or arising out of or in relation to the FranchiseAgreement or Hotel Operation agreement Page 35 of36 are required to be mandatorily referred to arbitration. The dispute as sought to be raised by the plaintiff in the present case was raised through letter dated 20.10.2010 issued by the plaintiff for reference of all disputes between the parties to the arbitral tribunal. The statement of claim was also filed by the plaintiff before the learned Arbitrator.

¶44Therefore, the present suit is not maintainable specifically in view of Section 5 read with Section 8 of Arbitration and ConcUiation Act, 1996. The apphcations filed by the defendant Nos. 2 and 3 aie allowed.

¶45Accordingly, the plaint is rejected. No costs. "Vs 'S MANMOHANSINGH,Ji / JANUARY 13,2012 CS (OS)No.2589/2010 Page 36 of36

.* HIGH COURT OF DELHI: NEW DELHI +I.A. No.335/2011 & LA. No.336/2011 in C.S. (OS) No.2589/2010 % Judgmentdecidedon : 13.01.2012 Ulti-aHome Constructions(P)Ltd. Plaintifif Through: Mi'.V. Giri, Sr.Adv. with Mr. NarendraKumar,Mr. Bipin Kumar, Mr. Rakesh Kumar and Mr. Suresh Chandra Sharma, Advs. Versus ChoiceHotelsInternationalInc. & Ors. Defendants Through: Mr.K. Datta, Adv. with Ml". ManishSrivastava& Mr. Kapil, Advs. for Defendant No.2 Ml". Mudit Slianna, Adv. with Mr. Moazzam Khan, Adv. for Defendant No.3. Coram: HON'BLE MR. JUSTICE MANMOHAN SINGH MANMOHAN SINGH. J. 1. By this commonorder,I proposeto decidetwo applications ffled by the defendantNos.2 and 3 being LA. No. 335/2011 and lA No.336/2011which are under Section 5 & 8 of the Aibitrationand ConcihationActs, 1996 (hereinafterreferredto as 'the Act'). As the piayer sought by both defendants is same, thus a common order is (OS) No.2589/2010 y being passed. 2. The plaintiff has filed the presentsuit praying, inter aha, grant of decree of declaration that the assignmentof the Franchise Agreement dated 19.06.2008(hereinafter referredto as "the Franchise Agreementor FA") and Hotel OperationAgreementdated 19.06.2008 (hereinafterreferredto as "the Hotel OperationAgreementor HOA") is bad in law, inter aha, seekinga declaration that applicant herein cannot unilaterally assign Franchise agreement as well as Hotel Operation Agi-eement, in favour of Defendant No.3 without prior consentor approvalof the plamtiff. It is the case of the plaintiffthat the subjectmatterofdisputevide the presentsuit cannotbe subjected to arbitration and the suit filedby the plaintiffis maintainable. 3. As per the plaint, the plaintiff^ with the intention of constructing a hotel with the defendant No. Is' brand "Clarion" entered into a memorandum of understanding (hereinafter refeixed to as the MoU) dated 17.02.2008 with the defendant No.l and thereafter the Franchise Agreement and the related Hotel Operation Agreement, both dated 19.06.2008 were entered into between the plaintiff and defendant No.2. 4. According to the plaintiff at the time of entering into the Page 2 of36 MoU and thereafterthe agreementsdated 19.06.2008,the defendant Nos.l & 2 had representedto the plaintiffthat"the defendantNo.2 is the MasterFranchiseofdefendantNo.1and has beenlicensedto grant franchisesfor the brandsofdefendantNo.l and also that the defendant No.2 has special knowledge and expertise in respect of design, construction,fiimishing,equipping,operatingand marketingofhotels. On the basis ofthe above said representationsonly the plaintiffhad enteredinto the MoU and the agreementsdated 19.06.2008with the defendant No.2. 5. Under the said MoU and the agreements, the defendant No.2 granted the plaintiff, the right to use the Franchised Maiks and also agreed to provide resei-vationservices to the plaintiff for the hotel and other hotel under the system of defendant No. 1. Thus, the plaintiff was not only entitled to use "Clarion" but was also entitled to receive service resei-vations for other Franchised Marks/Proprietary Marks of defendant No.l which included "Choice" "Quality" "Comfort" and 'Sleep'. Thereafter, the plaintiff and defendant No.2 also entered into a HOA, whereby the plaintiff entrusted the completion of hotel, its operation, administration and maintenance to the defendant No.2. 6. That on 05.02.2010, the plaintiff received two letters, one Page 3 of36 from the defendant No.l and the other from defendant No.2 wherein it was stated that as the defendant No. 1 had restructured its brand in India in December2009 therefore,now aU the ClarionHotelsin the country shall be managed and marketed by defendant No.3. Hence, the defendant No.2 has entrusted its rights and obligations under the agreementand the HOA to defendantNo.3. Accordingto the plaintiff defendantNo.3 is not similailyquahfiedas the defendantNo.2 neither it has the same experienceand goodwillas the defendantNo.2 nor did it have any dealingwiththe plaintiff.