J 2021 SCC OnLine Del 136 2021 278 DLT 348 2021 1 Ar Sanskritigarg23 Gmailcom 20240305 172408 1 10

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 1 Tuesday, March 05, 2024

Printed For: Sanskriti Garg, Vivekananda Institute of Professional Studies
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
2021 SCC OnLine Del 136 : (2021) 278 DLT 348 : (2021) 1 Arb LR
236
In the High Court of Delhi at New Delhi

(BEFORE JAYANT NATH, J.)
Knowledge Podium Systems Pvt. Ltd. … Plaintiff;

Versus
S.M. Professional Services Pvt. Ltd. … Defendant.
CS (COMM) 377/2020
Decided on January 25, 2021, [Reserved On : 12.01.2021]
Advocates who appeared in this case:
Mr. Shyam Kapadia, Mr. Vikram B. Trivedi, Mr. S.R. Trilokchandani,
Ms. Priya Diwadkar and Mr. Kartik Nagarkatti, Ads.
Mr. Saurav Agrawal, Mr. Madhav Misra, Mr. Harshavardhan Singh
Rathore, Advs.
The Judgment of the Court was delivered by
JAYANT NATH, J.:—
I.A. No. 8471/2020
1. This application is filed under Section 8 of the Arbitration and
Concilliation Act, 1996 read with Order 7 Rule 11 CPC for rejection of
the plaint and for referring the parties to arbitration.
2. The present suit is filed by the plaintiff for recovery of Rs.
2,58,24,648/- being refund of the available interest-free refundable
security deposit together with interest. A decree of mandatory
injunction is also sought to handover the movables of the plaintiff
which, it is stated, have been illegally detained by the defendant.
Alternative relief of Rs. 91,05,539/- by way of damages or
compensation is also sought.
3. Some of the relevant facts are that vide a Lease Deed dated
21.02.2017, the defendant leased to the plaintiff the office premises on
the First Floor and Second Floor at 21, IT Park, Sahastradha Road,
Dehradun, Uttarakhand admeasuring 39,614 sq.ft. super built up area
with 22 car parking slots in the building for nine years from
01.01.2017. Simultaneously, a Maintenance Agreement was also
executed between the parties which was co-terminus with the Lease
Deed for payment of fit out and maintenance charges for the said
premises. As per the lease deed, there was a lock-in period from
01.01.2017 to 31.12.2022. The plaintiff deposited with the defendant,
an interest free refundable deposit of Rs. 1,90,14,720/- being 12
months rental under the Lease Deed, Rs. 1,04,58,096/- being 12
-----------------------------------------------------------------------------------------------------------------------------------------------------------
months monthly fit out charges and Rs. 57,04,416/- being annual
maintenance charges respectively under the Maintenance Agreement.
4. It is the case of the plaintiff that a Fresh Agreement was arrived
at between the parties in respect of use and occupation of the said
premises and maintenance thereof with effect from April 2018. It is
stated that the terms and conditions of the Fresh Agreement were
captured and agreed upon in emails dated 26.09.2018 and 15.10.2018
exchanged between the parties. Hence, it is the case of the plaintiff
that the Lease Deed and the Maintenance Agreement stood
substituted/novated on account of the said Fresh Agreement.
5. It is stated that later it became commercially unviable for the
plaintiff to retain the rented premises. It is stated that the plaintiff
initiated negotiations with the defendant for reduction of rentals and
maintenance with effect from April, 2019. However, it is stated that the
defendant did not budge. On 17.01.2020, it is stated, the defendant
illegally disconnected the electricity connection of the rented premises
as means to coerce the plaintiff to make payments. It is stated that
before the plaintiff could formally terminate the Fresh Agreement and
remove its movables, assets, furniture, etc, lying in the rented
premises and hand over vacant physical possession of the premises to
the defendant, one of the employees of the plaintiff who was present at
the rented premises at that time acting in concert with the defendant
handed over the keys of the rented premises to the defendant without
seeking authorization of the plaintiff.
6. On 03.02.2020, the plaintiff sent a legal notice to the defendant
whereby it terminated the Fresh Agreement for the reasons stated
therein and also requested defendant No. 1 to adjust a sum of Rs.
61,02,584/- from the available interest-free refundable security deposit
of Rs. 3,19,27,232/- and to refund the remaining interest-free
refundable security deposit of Rs. 2,58,24,648/-. The legal notice also
sought grant of access to the authorised representative of the plaintiff
to remove the movables and the server. Hence, the present suit.
7. In the present application, the defendant/applicant has taken the
stand that the plaintiff has failed to place on record the fact that the
plaintiff was on 10.08.2020 served with an advance copy of the petition
filed under Section 11 of the Arbitration and Concilliation Act which has
since been registered as Arbitration Petition No. 360/2020. The said
arbitration petition is said to be pending.
8. Essentially, the case of the defendant is that the registered Lease
Deed dated 21.02.2017 and the Maintenance Agreement had a lock-in
period of six years and was valid up to 31.12.2022. It is the case of the
defendant that in terms of the Lease Deed dated 21.02.2017 and the
Maintenance Agreement of the same date, the plaintiff is obliged to pay
the outstanding rents and maintenance charges for the lock-in period
-----------------------------------------------------------------------------------------------------------------------------------------------------------
i.e. upto 31.12.2022.

9. It is further pleaded in the present application that the parties to
the present lis have already chosen their forum for the resolution of
disputes i.e. arbitration and as such, the present suit is not
maintainable. It is pleaded that both the Lease Agreement dated
21.02.2017 and the Maintenance Agreement of the same date contain
arbitration clauses and hence, the present application under Section 8
of the Arbitration and Concilliation Act.
10. I have heard learned counsel for the parties.
11. Learned counsel for the plaintiff has pointed out that the plaintiff
and the defendant at the time of execution of the Lease Deed and the
Maintenance Agreement were family held companies. The family has
exited from the plaintiff company sometimes in September 2018 and a
new management has taken over charge of the plaintiff company. It is
strongly urged that there is a novation of Agreement and the original
Lease Deed and the Maintenance Agreement dated 21.02.2017 stand
superseded and novated in view of the terms and conditions settled
upon in the emails dated 26.09.2018 and 15.10.2018. In the novated
contract, there is no arbitration agreement and hence, the present
application is misplaced.
12. Learned counsel for the plaintiff has also relied upon the
judgments of the Supreme Court in the case of Young Achievers v. IMS
Learning Resources Pvt. Ltd., (2013) 10 SCC 535, Sukanya Holdings (P)
Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531 and Booz Allen and
Hamilton INC. v. SBI Home Finance Ltd., (2011) 5 SCC 532.
13. Learned counsel for the defendant has argued to the contrary.
He states that only the agreed rental amount was agreed to be reduced
in terms of the emails that were exchanged and all the other terms and
conditions of the Lease Deed dated 21.02.2017 and the Maintenance
Agreement remained unchanged. It is stated that the parties remain
bound by the arbitration agreement. Learned counsel for the defendant
has relied upon the latest judgment of the Supreme Court in the case
of Vidya Drolia v. Durga Trading Corporation, 2020 SCC OnLine SC
1018 to plead that in these circumstances, this court need not dwell
deep into the arguments of the plaintiff and the matter be referred to
arbitration. It is also stated that in the petition filed under Section 11 of
the Arbitration Act for appointment of an arbitrator, the plaintiff keeps
taking adjournments on the ground that the present application is
pending in the present suit. Hence, he stresses that this court may
decide the present application and appoint a learned Arbitrator to
adjudicate the dispute between the parties.
14. I may first look at the arbitration clause in the Lease Deed dated
21.02.2017. Clause 9.1 of the Lease Deed reads as follows:—
-----------------------------------------------------------------------------------------------------------------------------------------------------------
“9.1. The Parties shall attempt in the first instance to resolve any
dispute or difference arising in any way or manner out of, in relation
to or in connection with this Lease Deed by conciliation. If such a
dispute is not resolved through conciliation within thirty (30) days
after commencement of discussions, the same shall be decided by
arbitration by a sole arbitrator appointed by the mutual consent of
the Parties. The decision of the sole arbitrator shall be final and
binding on the parties. The arbitration proceeding shall be conducted
in accordance with the Arbitration and Concilliation Act, 1996.
Arbitration proceedings shall be conducted in English Language. The
place of arbitration shall be New Delhi.”
15. A similar arbitration clause, namely, Clause 10.1 also exists in
the Maintenance agreement dated 21.02.2017.
16. It undoubtedly follows that in the original lease deed and the
maintenance agreement, the parties have agreed to settle their
disputes through arbitration.
17. I may now look at the defence of the plaintiff to the present
application. It has strongly been urged that on account of the
subsequent novation of the contract through exchange of the emails
dated 26.09.2018 and 15.10.2018, a new contract has come into being
superseding the Lease Deed dated 21.02.2017 and the Maintenance
Agreement of the same date.
18. I may now look at the correspondence exchanged between the
parties on the basis of which it is pleaded by the plaintiff that there was
a novation of contract. On 26.09.2018, the plaintiff had written an e-
mail to the defendant which reads as follows:—
“Anil ji and Rajendra ji,
Refer the discussion last evening again where is was agreed that
SM will reduce billing from April 18, in view of the financial
constraints that KP is going thru and the slow down of its growth
plans as it was originally envisaged. All other points were agreed and
it was asked that the fitout charges should also reduce. Hence I am
documenting the Understaning for confirmation so that billing could
be closed in September and GST compliance be done.
SM shall Bill only upto 60% of the 2nd floor area of 22172 sq ft. @
42 rent, fixed fit out amortisation shall be billed For the above area
@15 rupees per sq ft on 8 year basis CAM shall be billed @ rs 8 per
sq ft
For cafeteria rs 20 per sq ft would be billed for the cafeteria
services of the cafeteria space. Electricity will be paid directly at
actuals
Since KP is not using campus parking, no billing shall be billed.
SM shall not separate/divide the 2nd floor at the moment but shall
-----------------------------------------------------------------------------------------------------------------------------------------------------------
try and continue its search to find a suitable tenant to make up for
the loss of rent and KP shall have no objections to it. However,
before bringing in any new client on 2nd floor KP shall have a first
right of refusal to expand.
KP shall not be using the FF other than the cafeteria on shared
basis and SM shall try and find out other tenements to cover up on
loss of rent.
Regards Mukul”
19. On 15.10.2018, the defendant replied to the said e-mail stating
as follows:—
“Hi Mukul,
Following are the agreed terms for your convenience. We will get
an addendum created as per the below….
• KP will use the second floor up to 60% of the area. SM shall bill
KP for the usage of the second floor as per the following…
• Rent for 13,300 sq. ft. (60% of the 2nd floor area of 22172 sq.
ft.) @ Rs. 42/sq. ft.
• Fit out amortization on 8 year basis for 13,300 sq. ft. (above
area) @ Rs. 15/sq. ft.
• CAM for 13,300 sq. ft. (above area) @ Rs. 8/sq. ft.
• KP will use only the cafeteria on the first floor on the shared
basis. SM shall bill @ Rs. 20/sq. ft for the area of cafeteria as
per actual floor area.
• KP will not use the campus parking. SM shall not bill KP for the
parking.
• KP will pay for electricity as per consumption. SM will ensure
that a dedicated meter is installed for measure the electricity
usage of KP.
We still need to discuss and finalize the following two items. Can
we have a quick chat tomorrow whenever convenient?
• Lock in period
• Deposit
Thanks and regards,
Rajendra”
20. It is admitted by the parties that based on these two
documents, there was an adjustment of rents. The question is can it be
said that on account of the exchange of these communications, the
parties have rescinded the old agreement being the registered Lease
Deed dated 21.02.2017 and the Maintenance Agreement of the same
date and completely novated the contract.
21. As noted above, the submission of the plaintiff is that on account
of these two communications exchanged between the parties, the old
-----------------------------------------------------------------------------------------------------------------------------------------------------------
contract got novated and was substituted by a new contract which does
not have an arbitration agreement.
22. In this context, reference may be had to Section 62 of the
Contract Act which defines novation as follows:—
“62. Effect of novation, rescission, and alteration of contract.-If
the parties to a contract agree to substitute a new contract for it, or
to rescind or alter it, the original contract need not be performed.
23. In this context, reference may be had to the judgment of the
Supreme Court in Lata Construction v. Dr. Rameshchandra Ramnikalal
Shah, (2000) 1 SCC 586 where the Supreme Court held as follows:—
“9. We may, at this stage, refer to the provisions of Section 62 of
the Indian Contract Act which provides as under:
“62. If the parties to a contract agree to substitute a new
contract for it, or to rescind or alter it, the original contract need
not be performed.”
This provision contains the principle of “novation” of contract.
10. One of the essential requirements of “novation”, as
contemplated by Section 62, is that there should be complete
substitution of a new contract in place of the old. It is in that
situation that the original contract need not be performed.
Substitution of a new contract in place of the old contract which
would have the effect of rescinding or completely altering the terms
of the original contract, has to be by agreement between the parties.
A substituted contract should rescind or alter or extinguish the
previous contract. But if the terms of the two contracts are
inconsistent and they cannot stand together, the subsequent
contract cannot be said to be in substitution of the earlier contract.”
24. Hence, a novation takes place only when there is a complete
substitution of a new contract in place of the old. Do the facts of the
present case warrant a conclusion that there was a novation of
contract?
25. I may first see the scope of Section 8 of the Arbitration Act.
Section 8 of the Arbitration Act reads as follows:—
“8. Power to refer parties to arbitration where there is an
arbitration agreement.—
(1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if
a party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any court, refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement
-----------------------------------------------------------------------------------------------------------------------------------------------------------
exists.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof.
Provided that where the original arbitration agreement or a
certified copy thereof is not available with the party applying
for reference to arbitration under sub-section (1), and the said
agreement or certified copy is retained by the other party to
that agreement, then, the party so applying shall file such
application along with a copy of the arbitration agreement and
a petition praying the court to call upon the other party to
produce the original arbitration agreement or its duly certified
copy before that court.
(3) Notwithstanding that an application has been made under sub
-section (1) and that the issue is pending before the judicial
authority, an arbitration may be commenced or continued and
an arbitral award made.”
26. I may look at the latest judgment of the Supreme Court on
Section 8 of the Arbitration Act in the case of Vidya Drolia v. Durga
Trading Corporation, (supra). The Supreme court held as follows:—
“2. A deeper consideration of the order of reference reveals that
the issues required to be answered relate to two aspects that are
distinct and yet interconnected, namely:
(i) meaning of non-arbitrability and when the subject matter of
the dispute is not capable of being resolved through
arbitration; and
(ii) the conundrum - “who decides” - whether the court at the
reference stage or the arbitral tribunal in the arbitration
proceedings would decide the question of non-arbitrability.
The second aspect also relates to the scope and ambit of
jurisdiction of the court at the referral stage when an objection of
non-arbitrability is raised to an application under Section 8 or 11 of
the Arbitration and Concilliation Act, 1996 (for short, the ‘Arbitration
Act’).
xxx
138. Discussion under the heading ‘Who decides Arbitrability?’
can be crystallized as under:
(a) Ratio of the decision in Patel Engineering Ltd. on the scope of
judicial review by the court while deciding an application under
Sections 8 or 11 of the Arbitration Act, post the amendments
by Act 3 of 2016 (with retrospective effect from 23.10.2015)
and even post the amendments vide Act 33 of 2019 (with
effect from 09.08.2019), is no longer applicable.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
(b) Scope of judicial review and jurisdiction of the court under

Section 8 and 11 of the Arbitration Act is identical but
extremely limited and restricted.
(c) The general rule and principle, in view of the legislative
mandate clear from Act 3 of 2016 and Act 33 of 2019, and the
principle of severability and competence-competence, is that
the arbitral tribunal is the preferred first authority to determine
and decide all questions of non-arbitrability. The court has
been conferred power of “second look” on aspects of
nonarbitrability post the award in terms of sub-clauses (i), (ii)
or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b)
of the Arbitration Act.
(d) Rarely as a demurrer the court may interfere at the Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is nonexistent, invalid or the disputes
are non-arbitrable, though the nature and facet of non-
arbitrability would, to some extent, determine the level and
nature of judicial scrutiny. The restricted and limited review is
to check and protect parties from being forced to arbitrate
when the matter is demonstrably ‘non-arbitrable’ and to cut off
the deadwood. The court by default would refer the matter
when contentions relating to non-arbitrability are plainly
arguable; when consideration in summary proceedings would
be insufficient and inconclusive; when facts are contested;
when the party opposing arbitration adopts delaying tactics or
impairs conduct of arbitration proceedings. This is not the
stage for the court to enter into a mini trial or elaborate review
so as to usurp the jurisdiction of the arbitral tribunal but to
affirm and uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism.
xxx
223. At the cost of repetition, we note that Section 8 of the Act
mandates that a matter should not be referred to an arbitration by a
court of law unless it finds that prima facie there is no valid
arbitration agreement. The negative language used in the Section is
required to be taken into consideration, while analyzing the Section.
The Court should refer a matter if the validity of the arbitration
agreement cannot be determined on a prima facie basis, as laid
down above. Therefore, the rule for the Court is ‘when in doubt, do
refer’.
xxx
229. Before we part, the conclusions reached, with respect to
question no. 1, are:
a. Sections 8 and 11 of the Act have the same ambit with respect
-----------------------------------------------------------------------------------------------------------------------------------------------------------
to judicial interference.
b. Usually, subject matter arbitrability cannot be decided at the
stage of Sections 8 or 11 of the Act, unless it's a clear case of
deadwood.
c. The Court, under Sections 8 and 11, has to refer a matter to
arbitration or to appoint an arbitrator, as the case may be,
unless a party has established a prima facie (summary
findings) case of non-existence of valid arbitration agreement,
by summarily portraying a strong case that he is entitled to
such a finding.
d. The Court should refer a matter if the validity of the arbitration
agreement cannot be determined on a prima facie basis, as laid
down above, i.e., ‘when in doubt, do refer’.
e. The scope of the Court to examine the prima facie validity of an
arbitration agreement includes only:
a. Whether the arbitration agreement was in writing? or
b. Whether the arbitration agreement was contained in
exchange of letters, telecommunication etc?
c. Whether the core contractual ingredients qua the arbitration
agreement were fulfilled?
d. On rare occasions, whether the subject-matter of dispute is
arbitrable?”
27. Hence for rejection of a Section 8 application, a party has to
make out a prima facie case of non-existence of valid arbitration
agreement, by summarily portraying a strong case. But when in doubt,
the court has to refer the matter to arbitration. The court should refer
the matter if the validity of the arbitration agreement cannot be
determined on a prima facie basis.
28. In the present case, in my opinion, as the facts noted above
show, it cannot be prima facie said that there is a completely new
contract and that the old registered Lease Deed dated 21.02.2017 read
with the Maintenance Agreement of the same date have been novated
and substituted by a completely new contract. The e-mail dated
15.10.2018 sent by the defendant merely agrees to reduction of rent. It
does not specifically state that all the terms and conditions of the Lease
Deed and the Maintenance Agreement stand superseded or novated.
The issue would require deeper consideration and is best left to the
arbitral tribunal to adjudicate upon.
29. I, accordingly, allow the present application.
30. I appoint Mr. Justice G.S. Sistani (Retd.) (Mobile No. +91-
9871300034) as the Sole Arbitrator to adjudicate the dispute between
the parties. The plaintiff will be at liberty to raise the plea about non-
existence of an arbitration agreement before the Learned Arbitrator. It
-----------------------------------------------------------------------------------------------------------------------------------------------------------
is left to the discretion of the Learned Arbitrator to fix his fees. The
learned Arbitrator shall comply with mandatory stipulations.
31. The application stands disposed of.
CS (COMM) 377/2020
32. In view of the above, the suit and pending applications, if any,
also stand disposed of.
———
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/
regulation/ circular/ notification is being circulated on the condition and understanding that the publisher would not be
liable in any manner by reason of any mistake or omission or for any action taken or omitted to be taken or advice
rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/ notification. All
disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The authenticity of
this text must be verified from the original source.

J 2021 SCC OnLine Del 136 2021 278 DLT 348 2021 1 Ar Sanskritigarg23 Gmailcom 20240305 172408 1 10

Uploaded by

Copyright:

Available Formats

J 2021 SCC OnLine Del 136 2021 278 DLT 348 2021 1 Ar Sanskritigarg23 Gmailcom 20240305 172408 1 10

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

J 2021 SCC OnLine Del 136 2021 278 DLT 348 2021 1 Ar Sanskritigarg23 Gmailcom 20240305 172408 1 10

Uploaded by

Copyright:

Available Formats

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Tuesday, March 05, 2024

In the High Court of Delhi at New Delhi

Knowledge Podium Systems Pvt. Ltd. … Plaintiff;

i.e. upto 31.12.2022.

(b) Scope of judicial review and jurisdiction of the court under

You might also like