Facts of the Case

The petitioner, Kush Raj Bhatia, was the owner of a commercial property situated in DLF Mega Mall, Gurgaon. The property had been leased to the respondent, M/s DLF Power and Services Limited (formerly M/s DLF Utilities Limited), under a registered Lease Deed dated 16 May 2011 for the period commencing from 1 March 2011 to 30 June 2022, with a lock-in period extending up to 30 June 2022.

Under the Lease Deed, the respondent was obligated to pay monthly rent, maintenance charges, electricity and water charges, along with an interest-free refundable security deposit. According to the petitioner, the respondent defaulted in payment of rent from 1 April 2020 onwards and also issued a legal notice terminating the lease before expiry of the agreed lock-in period.

The petitioner claimed substantial arrears of rent, interest, GST liability, maintenance charges and utility dues. After disputes arose, the petitioner invoked the arbitration clause contained in the Lease Deed and sought appointment of an independent sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

The respondent opposed the petition by raising objections regarding arbitrability and territorial jurisdiction.

 

Issues Involved

  1. Whether disputes relating to recovery of rent under the Lease Deed were arbitrable.
  2. Whether the Delhi High Court had territorial jurisdiction to entertain a petition under Section 11 of the Arbitration and Conciliation Act, 1996.
  3. Whether the arbitration clause providing for arbitration proceedings in New Delhi could override another contractual clause conferring exclusive jurisdiction upon the Civil Courts at Gurgaon and the High Court at Chandigarh.
  4. Whether the arbitration venue and the exclusive jurisdiction clause should be harmoniously interpreted to determine the seat of arbitration.

 

Petitioner's Arguments

The petitioner submitted that the respondent had committed a material breach of the Lease Deed by stopping payment of rent from April 2020 and by attempting to terminate the lease before expiry of the agreed lock-in period.

It was argued that the respondent remained liable to pay outstanding rent together with contractual interest, GST, maintenance charges, electricity charges and water charges.

The petitioner further contended that a valid arbitration agreement existed between the parties under Clause 48 of the Lease Deed. Since disputes had arisen regarding contractual obligations, the arbitration clause had been duly invoked through a legal notice, and the respondent failed to cooperate in constituting the arbitral tribunal.

Accordingly, the petitioner sought appointment of an independent sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

 

Respondent's Arguments

The respondent raised a preliminary objection that the dispute arose from a landlord-tenant relationship governed by the Haryana Urban (Control of Rent and Eviction) Act, 1973 and therefore was not arbitrable in view of the Supreme Court decision in Vidya Drolia & Others v. Durga Trading Corporation.

It was further argued that Clause 49 of the Lease Deed specifically conferred exclusive jurisdiction upon the Civil Courts at Gurgaon and the High Court at Chandigarh.

The respondent submitted that despite arbitration proceedings being contemplated in New Delhi, the parties had expressly agreed that only the Courts at Gurgaon and Chandigarh would have jurisdiction over disputes arising from the agreement.

Reliance was placed upon various judgments of the Supreme Court, including:

  • Vidya Drolia & Others v. Durga Trading Corporation
  • Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.
  • Brahmani River Pellets Ltd. v. Kamachi Industries Ltd.
  • A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies
  • Other High Court decisions dealing with arbitration jurisdiction and determination of seat and venue.

 

Court Order / Findings

The Delhi High Court first observed that the dispute primarily related to recovery of rent and monetary claims. Since the applicable rent legislation did not provide a mechanism for recovery of rent, such disputes were capable of being referred to arbitration and were therefore arbitrable.

However, the principal issue before the Court concerned territorial jurisdiction.

The Court analysed the distinction between the concepts of "seat" and "venue" of arbitration under the Arbitration and Conciliation Act, 1996 and referred to several landmark judgments of the Supreme Court, including BALCO, Mankastu Impex, Enercon, Indus Mobile Distribution and other authorities explaining the legal principles governing arbitration jurisdiction.

After examining Clauses 48 and 49 of the Lease Deed, the Court found that although arbitration proceedings were to be conducted at an appropriate location in New Delhi, Clause 49 specifically provided that the Civil Courts at Gurgaon and the High Court at Chandigarh alone would have jurisdiction.

The Court held that this constituted a clear contractual indication that the parties intended exclusive supervisory jurisdiction to vest in the Courts at Gurgaon and Chandigarh.

Consequently, the Delhi High Court concluded that it lacked jurisdiction to entertain the petition under Section 11 of the Arbitration and Conciliation Act, 1996.

The petition was dismissed with liberty to the parties to approach the appropriate Court having competent jurisdiction.

 

Important Clarification

The judgment reiterates several important principles governing arbitration law:

  • Recovery of rent claims may be arbitrable where the applicable rent legislation does not provide an exclusive statutory remedy.
  • The concepts of "seat" and "venue" of arbitration are distinct and cannot be used interchangeably.
  • Merely specifying the venue where arbitration proceedings are to be conducted does not necessarily determine the juridical seat of arbitration.
  • Where the agreement expressly confers exclusive jurisdiction upon particular courts, such clauses must be carefully interpreted while determining the supervisory court for arbitration proceedings.
  • Courts exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act must examine the arbitration agreement as a whole to ascertain the true intention of the parties regarding jurisdiction.

 

Sections Involved

  • Section 11, Arbitration and Conciliation Act, 1996
  • Section 2(1)(e), Arbitration and Conciliation Act, 1996
  • Section 20, Arbitration and Conciliation Act, 1996
  • Sections 16–20, Code of Civil Procedure, 1908

 

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1784614428_1608compressed.pdf

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