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2025 Supreme(Bom) 122
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SOMASEKHAR SUNDARESAN, J.
Lords Inn Hotels And Resorts (Formerly Known As Lords Inn Hotels And Developers Pvt. Ltd.) - Appellant
Versus
Pushpam Resorts Llp And 3 Ors. - Respondent
Comm. Arbitration petition no. 14 of 2025 With Comm. Arbitration Application (Lodg.) No. 1005 of 2024
Decided On : 11-02-2025
Advocate Appeared:
Mr. Mayur Khandeparker a/w. Aman Kacheria, Rishabh Dhanuka, Ms.
Anisha Didwania and Ms. Mahima Shah i/b. Agarwal and Dhanuka
Legal, for Petitioner/Applicant.
Mr. Siddhesh Bhole a/w. Mr. Yakshay Chheda, Ms. Praharshi Saxsena,
Mr. Approva Kulkarni i/b. SSB Legal & Advisory for Respondent No.1.
The court discerned an intent to arbitrate from ambiguous provisions in the Resort Management Agreement, applying the business efficacy test to establish the existence of an arbitration agreement.
Headnote:
(A) Arbitration and Conciliation Act, 1996 - Section 7 - Existence of arbitration agreement - Disputes arose between parties regarding Resort Management Agreement - Court examined whether an arbitration agreement existed based on the language of the agreement and the intent of the parties - The court found ambiguity in the agreement necessitating the application of the business efficacy test to discern intent to arbitrate. (Paras 20-49)
(B) Business efficacy test - The court applied a five-fold test to determine if the parties intended to arbitrate, concluding that the references to arbitration in the agreement indicated such intent despite the absence of a conventional arbitration clause. (Paras 38-48)
Facts of the case:
The parties entered into a Resort Management Agreement, but disputes arose leading to a termination notice. Lords Inn invoked arbitration, while Pushpam denied the existence of a valid arbitration agreement.
Findings of Court:
The court found that an intent to arbitrate could be discerned from the Resort Management Agreement, despite its ambiguous drafting.
Issues: The main issue was whether an arbitration agreement existed between the parties.
Ratio Decidendi: The court held that the ambiguity in the Resort Management Agreement warranted the application of the business efficacy test, leading to the conclusion that the parties intended to arbitrate their disputes.
Result: The Section 11 Application was disposed of, appointing an arbitrator to adjudicate the disputes.
JUDGMENT :
(SOMASEKHAR SUNDARESAN, J.)
Context and Background:
1. Whether an arbitration agreement between the parties is at all in existence, is the vexed question that falls for consideration in these proceedings under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
2. A Hotel Franchisee and Management Agreement dated February 10, 2021 (“Resort Management Agreement”) was executed between the Petitioner-Applicant, Lords Inn Hotels and Developers Private Ltd. (“Lords Inn”) and Respondent No. 1, Pushpam Resorts LLP (“Pushpam”). Respondent Nos. 2 to 4 are partners of Pushpam.
3. Pushpam built a resort on land owned by it at Karjat (“Resort”). Under the Resort Management Agreement, Lords Inn was contracted to operate and manage the Resort.
4. Disputes and differences arose between the parties. Pushpam issued a termination notice dated October 8, 2024, terminating the relationship with effect from December 15, 2024. Lords Inn replied through a letter from its advocates, dated October 26, 2024 setting out the various breaches on the part of Pushpam under the Resort Management Agreement, demanding that the termination notice be withdrawn, and called for a meeting to resolve the disputes. On November 26, 2024, Pushpam replied through its advocates, dealing with Lords Inn’s contentions and reiterated the demand that Lords Inn vacate the premises by December 15, 2024. These exchanges were preceded by e-mail correspondence from each party, alleging various shortcomings attributed to the other party.
5. By a letter dated December 7, 2024, advocates of Lords Inn pointed to a provision that dealt with a lock-in period, and invoked arbitration under Article XXIV of the Resort Management Agreement. By a letter dated December 12, 2024, Pushpam replied stating that there is no valid arbitration agreement in conformity with Section 7 of the Arbitration Act.
6. The stand-off led to the filing of Commercial Arbitration Petition No. 14 of of 2025 under Section 9 of the Arbitration Act (“Section 9 Petition”), seeking a stay on the termination of the Resort Management Agreement, and protection against being removed from the Resort. This was followed by a Commercial Arbitration Application (L) No. 1005 of 2025 under Section 11 of the Arbitration Act (“Section 11 Application”), seeking appointment of an arbitrator.
7. A statement made on behalf of Pushpam on December 13, 2024 that the termination letter would not be acted upon, has continued till date.
8. Copious pleadings have been filed by the parties. However, Learned Counsel on both sides, fairly stated that the one issue that really falls for consideration is whether there is an arbitration agreement between the parties.
Arbitration Agreement – Form and Substance:
9. The Resort Management Agreement is structured in the form of Articles numbered in capitalised Roman numbers, which in turn contain Sections numbered in Arabic numerals, with decimal form for sub-sections. Article I has definitions referred to as Clauses, [Section 13.14 refers to the definition of “Deductible Expenses” as being contained in “Clause 10 of Article I”] while all other Articles have decimalised Sections and then Clauses.
10. The provision invoked by Lords Inn as being the arbitration agreement is Article XXIV of the Resort Management Agreement. It reads as follows:-
ARTICLE XXIV
GOVERNING LAW AND JURISDICTION
This Agreement shall be governed and interpreted in accordance with the laws of India and subject to the provisions of Clause (Arbitration) below, the Parties submit to the exclusive jurisdiction of the courts at Mumbai, India.
[Emphasis Supplied]
11. On a plain reading of Article XXIV, it is evident that the first limb of the provision provides that the proper law of the Resort Management Agreement is Indian law. The second limb confirms submission to the exclusive jurisdiction of the courts in Mumbai. Such submission to jurisdiction of courts in Mumbai is “subject to the provisions of Clause (Arbitration) below”. How
