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High Court of Delhi
MANMOHAN SINGH, J.
Ultra Home Constructions (P) Ltd.
Versus
Choice Hotels International Inc. & Others
I.A. Nos.335 of 2011, 336 of 2011 in CS (OS) No.2589 of 2010
Decided on : 13-01-2012
Arbitration and Conciliation Act, 1996 - Section 5 R/w 8 - Suit filed by the plaintiff is merely to circumvent the arbitration proceedings particularly when the application under Section 16 of the Act filed by the plaintiff before the learned Arbitrator was dismissed - It is admitted case of the plaintiff that there is an arbitration agreement between the parties - All dispute arising out of or in relation to the Franchise Agreement or Hotel Operation agreement are required to be mandatorily referred to arbitration - The dispute as sought to be raised by the plaintiff was raised through letter dated 20.10.2010 issued by the plaintiff for reference of all disputes between the parties to the arbitral tribunal - The statement of claim was also filed by the plaintiff before the learned Arbitrator - Suit is not maintainable specifically in view of Section 5 read with Section 8 of Arbitration and Conciliation Act - Applications filed by the defendant Nos. 2 and 3 are allowed - Plaint is rejected.
Arbitration Act, 1940 - Section 8 - Absence of privity of contract - Scope of arbitration - When there neither exist any privity between the parties nor any consideration was involved, it cannot be said that the arbitration cannot proceed in the absence of the said third party specifically, when it is not in dispute that the subject matter of the suit and the claims therein are within the ambit of the arbitration agreement.
Arbitration Act, 1940 - Section 8 - Arbitration agreement between the parties contains the arbitration clause - Ingredients which are required to be satisfied is, whether the subject matter of the suit falls within the scope of arbitration - Dispute between the parties has arisen on the alleged breach of the agreements which admittedly contain an Arbitration Clause - Defendant has not filed first statement on the substance of dispute and has not submitted itself to the jurisdiction of his court - Held - Relief sought by the plaintiff from this court, can also be decided by the Arbitral Tribunal.
Arbitration Act, 1940 - Section 8 - Ingredients of section 8 - Jurisdiction of the court - Discretion of judicial authority - Once, all the necessary pre-requisites enshrined under Section 8 of the Act are fulfilled and there is no dispute regarding the validity of the Arbitration Agreement, then in such circumstances, the judicial authority ceases to exercise jurisdiction and the dispute is to be adjudicated upon by the Arbitrator - Section 8 of the Act is mandatory in nature - Where there is an arbitration clause in the agreement, it is for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be determined in the suit - Exercise of discretion by the judicial authority has been taken away under new Act, 1996.
Arbitration Act, 1940 - Section 8 - Jurisdiction of Arbitrator - The courts while deciding an application under Section 8 of the Act are not to go into the merits of the dispute including the ground of fraud, undue influence, misrepresentation, etc., - Same are also capable of being adjudicated by the Arbitrator who is competent to decide all issues relating to the Franchise as well as Hotel Operation Agreement including allegations of fraud.
MANMOHAN SINGH, J.
1. By this common order, I propose to decide two applications filed by the defendant Nos.2 and 3 being I.A. No. 335/2011 and IA No.336/2011 which are under Section 5 & 8 of the Arbitration and Conciliation Acts, 1996 (hereinafter referred to as “the Act”). As the prayer sought by both defendants is same, thus a common order is being passed.
2. The plaintiff has filed the present suit praying, inter alia, grant of decree of declaration that the assignment of the Franchise Agreement dated 19.06.2008 (hereinafter referred to as “the Franchise Agreement or FA”) and Hotel Operation Agreement dated 19.06.2008 (hereinafter referred to as “the Hotel Operation Agreement or HOA”) is bad in law, inter alia, seeking a declaration that applicant herein cannot unilaterally assign Franchise agreement as well as Hotel Operation Agreement, in favour of Defendant No.3 without prior consent or approval of the plaintiff. It is the case of the plaintiff that the subject matter of dispute vide the present suit cannot be subjected to arbitration and the suit filed by the plaintiff is maintainable.
3. As per the plaint, the plaintiff, with the intention of constructing a hotel with the defendant No.1s’ brand “Clarion” entered into a memorandum of understanding (hereinafter referred to as the MoU) dated 17.02.2008 with the defendant No.1 and thereafter the Franchise Agreement and the related Hotel Operation Agreement, both dated 19.06.2008 were entered into between the plaintiff and defendant No.2.
4. According to the plaintiff, at the time of entering into the MoU and thereafter the agreements dated 19.06.2008, the defendant Nos.1 & 2 had represented to the plaintiff that the defendant No.2 is the Master Franchise of defendant No.1 and has been licensed to grant franchises for the brands of defendant No.1 and also that the defendant No.2 has special knowledge and expertise in respect of design, construction, furnishing, equipping, operating and marketing of hotels. On the basis of the above said representations only the plaintiff had entered into the MoU and the agreements dated 19.06.2008 with the defendant No.2.
5. Under the said MoU and the agreements, the defendant No.2 granted the plaintiff, the right to use the Franchised Marks and also agreed to provide reservation services to the plaintiff for the hotel and other hotel under the system of defendant No.1. Thus, the plaintiff was not only entitled to use “Clarion” but was also entitled to receive service reservations for other Franchised Marks/Proprietary Marks of defendant No.1 which included “Choice” “Quality” “Comfort” and “Sleep”. Thereafter, the plaintiff and defendant No.2 also entered into a HOA, whereby the plaintiff entrusted the completion of hotel, its operation, administration and maintenance to the defendant No.2.
6. That on 05.02.2010, the plaintiff received two letters, one from the defendant No.1 and the other from defendant No.2 wherein it was stated that as the defendant No.1 had restructured its brand in India in December 2009 therefore, now all the Clarion Hotels in the country shall be managed and marketed by defendant No.3. Hence, the defendant No.2 has entrusted its rights and obligations under the agreement and the HOA to defendant No.3. According to the plaintiff, defendant No.3 is not similarly qualified as the defendant No.2 neither it has the same experience and goodwill as the defendant No.2 nor did it have any dealing with the plaintiff.
7. It is also stated that even if the reasons given for forcing the defendant Nos.2 and 3 upon the plaintiff are accepted, it would conclusively establish that the defendant No.2 had lost its rights to use the “Clarion” brand and after losing its rights to use the “Clarion” brand in the territory, the defendant No.2 had no right to assign the same to any third party including defendant No.3.
8. Therefore, vide letter dated 15.03.2010 the plaintiff rejected the said change by means of assignment. By lega
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