Arbitration Clauses Survive Contract Expiry: Allahabad HC Rules in BHU vs. Umang Cure Pharmacy Dispute - 2025-12-17

Pharmacy Eviction Dispute: Allahabad High Court Clarifies the "Survival" of Arbitration Clauses

In a significant ruling regarding contract continuity and commercial disputes, the Allahabad High Court has addressed the long-standing question of whether an arbitration agreement perishes once its underlying contract expires. The case, Banaras Hindu University (BHU) vs. M/s Umang Cure Pvt. Ltd. , provides clarity for practitioners on how arbitration clauses function in the presence of conduct-based contract extensions.

The Backdrop: A Dispute Over Hospital Pharmacies

The conflict arose from the operation of 24-hour pharmacies within BHU’s Sir Sunderlal Hospital. The University and M/s Umang Cure Pvt. Ltd. had been bound by a series of license deeds since 2013, with the most recent explicit term expiring on March 31, 2023.

Following the expiry, the University moved to initiate a new tender process and issued an eviction notice to the pharmacy operator. When BHU attempted to reclaim possession and disconnect utilities, the pharmacy operator—citing a lack of lawful eviction—approached the Commercial Court in Varanasi under Section 9 of the Arbitration and Conciliation Act, 1996, obtaining an ex-parte injunction against eviction.

Arguments from the Bench and Bar

The University challenged the lower court’s order, arguing that because the license had expired in March 2023, the arbitration clause—contained within the original deed—was effectively dead, rendering the Section 9 application non-maintainable. Furthermore, BHU asserted that the Commercial Court granted an overly broad "blanket" injunction without considering the standard triple test of prima facie case, balance of convenience, and irreparable injury.

Conversely, the respondent argued that regardless of the written term, their continued occupation and the University ’s continued acceptance of license fees created a de facto extension, thereby keeping the arbitration clause alive through conduct.

Unpacking the Legal Principles

The High Court, led by Chief Justice Arun Bhansali and Justice Kshitij Shailendra, conducted a deep dive into the survival of arbitration clauses. Relying on the Supreme Court’s verdict in Bharat Petroleum Corporation Ltd. vs. Great Eastern Shipping Co. Ltd. , the Court observed that terms of a contract can be proven by performance and conduct.

"The conduct of the parties... coupled with the fact that they continued to use the [premises]... manifestly goes to show that... they continued to bind themselves by other terms and conditions contained in the [deed], which obviously included the arbitration clause," the bench noted, distinguishing this from a previously cited, narrower single-judge decision ( Anoop Maheshwari ).

Key Observations from the Judgment

The Court’s critique of the lower court’s process was pointed, particularly regarding the lack of judicial reasoning in granting relief:

• On the duty of the Commercial Court : "The fundamental requirements of granting an injunction under Section 9 of the Act of 1996 wherein existence of a prima facie case, balance of convenience and irreparable injury was required to be determined by the Commercial Court , not a word has been indicated on the said aspects of the matter."
• On the nature of the injunction: "A blanket order has been granted not to evict the respondent and further not to take any coercive measures. The manner in which the order has been passed, cannot be countenanced/approved."
• On contract survival: "Merely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor is rendered inoperative; rather it survives for resolution of disputes."

The Verdict and Its Implications

The High Court set aside the Commercial Court ’s order, finding it "wholly unjustified" due to the absence of the requisite legal tests. However, in a move to maintain procedural fairness, the Court directed the parties to appear before the Commercial Court for a fresh decision by January 31, 2026.

Pending that final decision, the Court ordered a status quo to hold, emphasizing that the respondent's offer to pay enhanced rent—an aspect the lower court ignored—must be central to any future interim order. This judgment serves as a vital reminder to commercial litigants that while arbitration clauses may "survive" the expiration of a contract through conduct, interim relief under Section 9 is not a rubber-stamp exercise and requires rigorous judicial scrutiny of equity and convenience.