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2008 Supreme(Del) 1098
IN THE HIGH COURT OF DELHI
SHIV NARAYAN DHINGRA
Bougainvillea Multiplex and Entertainment Center Private Limited - Appellant
Versus
Shankar Rai - Respondent
C.R.P. No.60/2007
Decided On : 03-11-2008
Mr.Sushant Kumar with Ms.Arti Ahuja, Advocates
Ms.Gurmeet Bindra, Advocate
When the subject matter of the suit includes disputes beyond the scope of the arbitration agreement, the court is not required to refer the matter to arbitration. Bifurcation of the suit and referring part of it to arbitration is not allowed under the Act. The jurisdiction of the arbitrator is limited to the terms of the agreement between the parties.
Headnote:
Arbitration and Conciliation Act, 1996 - Section 8 - The court analyzed the conditions for the applicability of section 8 and concluded that the entire subject matter of the suit was not covered by the arbitration agreement. The court also considered the possibility of bifurcating the suit and referring part of it to arbitration, but found that such a course was not allowed under the Act. The court further noted that the agreement did not contain detailed provisions for the consequences of breach of contract, which limited the jurisdiction of the arbitrator.
Fact of the Case:
The petitioner filed an application under section 8 of the Arbitration and Conciliation Act, 1996 for referring the parties to arbitration. The application was dismissed by the court. The petitioner challenged the dismissal, arguing that the subject matter was covered by the arbitration agreement and should have been referred to the arbitrator. The court held that the subject matter of the suit included disputes beyond the scope of the arbitration agreement and therefore, the court was not required to refer the matter to arbitration.
Finding of the Court:
The court analyzed the conditions for the applicability of section 8 of the Act and concluded that the entire subject matter of the suit was not covered by the arbitration agreement. The court also considered the possibility of bifurcating the suit and referring part of it to arbitration, but found that such a course was not allowed under the Act. The court further noted that the agreement did not contain detailed provisions for the consequences of breach of contract, which limited the jurisdiction of the arbitrator. Finally, the court held that the application under section 8 was rightly dismissed by the trial court.
Ratio Decidendi: The court held that when the subject matter of the suit includes disputes beyond the scope of the arbitration agreement, the court is not required to refer the matter to arbitration. Bifurcation of the suit and referring part of it to arbitration is not allowed under the Act. The jurisdiction of the arbitrator is limited to the terms of the agreement between the parties.
Result: The court dismissed the petition, upholding the dismissal of the application under section 8 of the Act.
1. The petitioner is aggrieved by an order dated 16.10.2006 passed by ADJ whereby an application of the petitioner under section 8 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) for referring the parties to arbitration was dismissed. The petitioner filed a review against the said order, which was also dismissed vide order dated 12.2.2007.
2. Brief facts relevant for the purpose of deciding this petition are that the respondent in order to open a photo sticker shop approached the petitioner to take on lease a shop in NOIDA Entertainment Centre. A Term Sheet Agreement was entered into between the parties on 15.2.2005 and respondent paid a sum of Rs.3,97,196/- to the petitioner through cheque as interest free security deposit. The shop was promised to be handed over to the respondent in March 2005. The date was described in the agreement as tentative. Respondent submitted that on the basis of this assurance of the petitioner that shop would be ready and handed over, respondent sought quotations in respect of photographic machine from DAE-SEUNG Intercom Co., Korea. The machine at that time was quoted at a price of US$ 6750. Respondent visited the office of petitioner several times in the month of March 2005 and requested for possession as promised. The petitioner did not deliver the shop nor gave any exact date. Subsequently in response to an e-mail sent by the respondent, petitioner through reply e-mail assured that possession of the shop would be handed over around 30.5.2005 and mall would be open by August 2005. The shop was not handed over even on 30.5.2005 and the petitioner, vide its letter dated 29.6.2005 informed the respondent that possession of the shop will be handed over between 15th to 25th July, 2005 and mall would become operational from September, 2005. However, the possession of shop was still not handed over on the dates promised. Respondent submitted that construction work of the shop was much behind the schedule. Respondent vide letter dated 19.7.05 expressed his grievance regarding failure of the petitioner to hand over the shop as promised and asked the petitioner to refund the security amount of Rs.3,97,192/-. The petitioner did not give reply to this letter nor refunded the security amount. The respondent then served a legal notice dated 20.8.05 for refund of security amount and seeking a sum of Rs.14,73,039/-towards expenses incurred and damages suffered by him. Petitioner vide its letter dated 21.9.2005 replied that the security amount had been forfeited in terms of clause 43 of the Term Sheet Agreement. The respondent thereafter filed a civil suit seeking a decree of declaration to the effect that the agreement “Term Sheet-Rent Offer” dated 15.2.2005 was null and void and that the petitioner was guilty of violating the terms and conditions of the Agreement by not handing over the possession of the shop and had no right to forfeit the security. The respondent also claimed damages in the suit; pendente lite and future interest; and costs of the suit. The petitioner, instead of filing WS, filed an application under section 8 of the Act contending that the subject matter of the suit was covered under clause 41 of the Term Sheet Agreement and the suit should be dismissed and parties should be referred to arbitration. By the impugned order, the learned ADJ dismissed the application observing that the Term Sheet Agreement was more or less unilateral in nature. It provided for penalties in case of default by the lessee but correspondingly it did not provide for any remedy to the lessee if the lessor failed to deliver the possession of the shop on the promised date or even where it fails to deliver the possession at all. The agreement also made no provision for compensating the lessee in such an eventuality. The respondent had made a claim for damages in the suit which was beyond the scope of arbitration agreement. The subject matter of the suit was not covered by arbitration agreement
