Facts of the Case

The petitioner, Arora Hotels, entered into a Franchise Agreement dated 29 November 2017 with Casa2 Stays Private Limited, under which the respondent agreed to manage and market the petitioner's hotel property in Goa under the FabHotels.com brand.

As part of the agreement, the petitioner transferred its online listings on platforms such as MakeMyTrip, Goibibo, Booking.com and other booking portals to the respondent. The respondent allegedly failed to generate the promised revenue, resulting in substantial financial losses to the petitioner.

Following repeated complaints, the parties held discussions and entered into an Amendment Agreement dated 01 February 2019, under which the respondent increased the assured minimum revenue by ₹5,00,000 to retain the franchise relationship.

Despite the amendment, the petitioner alleged that the respondent continued deducting commissions contrary to the amended agreement and unlawfully retained various amounts, including commission, GST, TDS and salary recoveries, amounting to ₹5,98,156.50.

The petitioner issued legal notices and later invoked the arbitration clause after negotiations failed. As the respondent neither replied nor appointed an arbitrator, the petitioner approached the Delhi High Court seeking appointment of an independent arbitrator under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996.

Issues Involved

  1. Whether a valid arbitration agreement existed between the parties.
  2. Whether disputes arising from the Franchise Agreement were arbitrable.
  3. Whether the Court should appoint a Sole Arbitrator after the respondent failed to act upon the arbitration notice.

Petitioner's Arguments

  • The Franchise Agreement contained a valid arbitration clause.
  • The respondent failed to perform its contractual obligations and did not generate the promised revenue.
  • The respondent illegally deducted commission despite the Amendment Agreement.
  • Amounts relating to GST, TDS, salary recoveries and commission remained unpaid.
  • Despite legal notices and invocation of arbitration, the respondent neither replied nor appointed an arbitrator.
  • Therefore, the Court should appoint an independent Sole Arbitrator under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996.

Respondent's Arguments

Despite due service through e-mail and Speed Post, the respondent neither appeared before the Court nor filed any response contesting the petition.

Court Order / Findings

The Delhi High Court observed that:

  • A valid arbitration agreement existed between the parties.
  • The disputes raised by the petitioner were arbitrable.
  • The respondent failed to participate in the proceedings despite being duly served.
  • Since the respondent did not appoint an arbitrator after receipt of the arbitration notice, judicial intervention under Sections 11(5) and 11(6) became necessary.

Accordingly, the Court appointed Mr. Anupam Srivastava, Advocate, as the Sole Arbitrator to adjudicate the disputes between the parties.

The appointment was made subject to the disclosures required under Section 12(1) and eligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996.

The petition was accordingly disposed of.

Important Clarification

  • Failure of one party to appoint an arbitrator after receiving a valid arbitration notice empowers the High Court to exercise jurisdiction under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996.
  • At the appointment stage, the Court primarily examines whether a valid arbitration agreement exists and whether the disputes are capable of arbitration.
  • Questions regarding the merits of contractual disputes are left for determination by the arbitral tribunal.
  • Appointment of an arbitrator remains subject to the statutory disclosure and eligibility requirements prescribed under Sections 12(1) and 12(5) of the Arbitration and Conciliation Act, 1996.

Sections Involved

  • Section 11(5) of the Arbitration and Conciliation Act, 1996
  • Section 11(6) of the Arbitration and Conciliation Act, 1996
  • Section 12(1) of the Arbitration and Conciliation Act, 1996
  • Section 12(5) of the Arbitration and Conciliation Act, 1996

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785403063_2374compressed.pdf

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