Delhi HC Denies Injunction, Citing Lack of Exclusivity in Dreamfolks-Encalm Lounge Agreement

In a significant ruling for commercial contract law, the Delhi High Court has declined to enforce a negative covenant against airport lounge operator Encalm Hospitality, finding no prima facie breach of its agreement with lounge aggregator Dreamfolks Services. The decision underscores the critical importance of explicitly defining exclusivity in service agreements.

In a dispute with significant implications for the airport services and aggregator industry, the Delhi High Court, presided over by Justice Amit Bansal, has delivered a crucial judgment in Dreamfolks Services Limited v. Encalm Hospitality Private Limited . The Court, hearing a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (ACA), refused to grant an interim injunction that would have restrained Encalm from providing services to Dreamfolks' clients. The ruling, delivered on September 16, 2025, hinges on the Court's prima facie finding that the underlying agreement did not establish an exclusive relationship between Dreamfolks and its clients, thereby permitting Encalm to engage with them through other channels.

The decision comes amidst a wider industry shake-up that has seen Dreamfolks, a dominant player in the airport lounge aggregation market, halt its domestic operations following contract terminations by key partners, including Encalm. This legal battle represents a critical flashpoint in that larger commercial conflict.

Background of the Dispute

The petitioner, Dreamfolks Services Limited, operates as a technology platform aggregating access to airport lounges and other travel services, connecting banks and credit card issuers with service providers. The respondent, Encalm Hospitality Private Limited, manages and operates airport lounges, including at major hubs like Delhi, Goa, and Hyderabad.

The two parties entered into a five-year agreement on July 26, 2022, under which Encalm agreed to provide its lounge services to customers of Dreamfolks. However, on August 4, 2025, Encalm issued a 90-day notice to terminate the agreement prematurely.

Dreamfolks subsequently approached the High Court, alleging that Encalm had breached the agreement by directly contracting with its key clients, such as ICICI Bank, Axis Bank, and American Express. This, Dreamfolks contended, led to a substantial decline in its business volumes. The petition sought to enforce a negative covenant within the agreement, specifically Clause 4.4, to restrain Encalm from dealing with its clients during the 90-day notice period.

The Core Legal Arguments: A Battle Over Exclusivity and Interpretation

The petitioner's case, argued by Senior Advocates Mr. Amit Sibal and Mr. Pavan Narang, rested on the premise that Encalm was bound by the agreement's terms during the notice period. They argued that Clause 4.4 prohibited Encalm from doing business with Dreamfolks' clients "either directly or through representatives." The petitioner's counsel broadly interpreted "representatives" to include other third-party service providers, effectively arguing for a complete bar on Encalm servicing these clients through any channel.

In response, the respondent, represented by Senior Advocate Mr. Rajiv Nayar, mounted a strong defense centered on the non-exclusive nature of the commercial relationships involved. The defense argued that Dreamfolks' contracts with its own banking clients were non-exclusive, a fact they claimed the petitioner had failed to fully disclose. These clients, Encalm submitted, had parallel arrangements with various third-party aggregators.

Furthermore, Encalm contended that it was providing services to these banking clients through other third-party service providers on a principal-to-principal basis. These third parties, it was argued, were not "representatives" or agents of Encalm in the contractual sense intended by Clause 4.4, and thus, Encalm's actions did not constitute a breach.

The High Court's Prima Facie Analysis

Justice Bansal's analysis focused on whether Dreamfolks had established a strong prima facie case that a negative covenant had been breached. The Court made several key observations that ultimately tilted the scales in favor of the respondent.

First, the Court noted the absence of any contractual language establishing exclusivity. It observed that "the Agreement did not contain a list of Petitioner's clients nor did the Agreement stipulate that the Clients of the Petitioner were its exclusive Clients." While Dreamfolks had named several major banks as its clients, it failed to produce evidence proving that these relationships were exclusive or that the banks were barred from engaging with other aggregators.

Second, the Court found merit in the respondent's submission that the clients in question maintained similar arrangements with other third parties. "Based on the material placed on record, the Court observed that there was nothing to show that there was an exclusivity between the Petitioner and its Clients," the order stated. This lack of exclusivity was fatal to the petitioner's argument. If the clients were free to contract with others, then Encalm, in turn, was not barred by its agreement with Dreamfolks from contracting with those other entities.

Third, the Court narrowly interpreted the term "representatives" in Clause 4.4. It accepted Encalm's contention that its arrangements with other third-party service providers were on a principal-to-principal basis and that these providers could not be construed as Encalm's representatives for the purpose of the clause.

On this basis, the Court concluded that, "on a prima facie view, there was no bar upon the Respondent to provide services to the Clients of the petitioners through third-party service providers."

The Question of Remedy: Injunction vs. Damages

While acknowledging its power to specifically enforce a negative covenant, the Court determined that the high threshold for such an extraordinary remedy had not been met. Justice Bansal stated, "...in the present case, at least at a prima facie stage, the Court could not conclude that the Respondents had breached the negative covenant."

Crucially, the Court also found that monetary compensation would be an adequate remedy for the petitioner if the termination were later found to be unlawful in arbitration. A reading of the agreement's clauses suggested that damages were the contemplated remedy for a breach.

To protect Dreamfolks' interests pending arbitration, the Court reiterated a direction from its earlier order of August 28, 2025. This direction compels Encalm to maintain complete and detailed records of all transactions with the 21 entities named as Dreamfolks' clients in the petition. This ensures that a clear financial trail exists, which can be used to calculate potential damages should the arbitral tribunal rule in Dreamfolks' favor.

With this protective measure in place, the Court disposed of the Section 9 petition, clearing the path for the parties to resolve their substantive disputes through arbitration.

Broader Implications for Legal Professionals

This judgment serves as a critical reminder for legal practitioners involved in drafting and litigating commercial contracts, particularly within aggregator-based business models.

1. The Imperative of Explicit Drafting: The case highlights the danger of relying on implied terms of exclusivity. To be enforceable, especially through the potent remedy of an injunction, any exclusivity or non-compete obligation must be drafted with unambiguous clarity.
2. High Bar for Negative Covenants: Courts remain cautious about granting interim injunctions that restrain business operations. A petitioner must establish a clear and compelling prima facie case of breach, not merely a plausible one.
3. Adequacy of Monetary Damages: In commercial disputes where financial losses can be quantified, courts are more likely to direct the maintenance of accounts over granting a restraining order, viewing damages as an adequate remedy that avoids disrupting business continuity.

As airport operators increasingly move to build direct relationships with banks and cut out intermediaries, this ruling provides a legal framework that appears to support such a shift, provided existing contracts do not contain clear and watertight exclusivity clauses. For businesses like Dreamfolks, the lesson is stark: market dominance does not substitute for contractual certainty.