In, Knowledge Podium Systems Pvt. ltd V S M Professional Services Pvt. Ltd, decided on 25.01.2021, a single judge of Delhi High Court held, “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 application was filed under Section 8 of the Arbitration and Conciliation Act, 1996 read with Order 7 Rule 11 CPC for rejection of the plaint and for referring the parties to arbitration in Delhi High Court.

The  suit was 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.

Vide a Lease Deed dated 21.02.2017, the defendant leased to the plaintiff the office premises 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.

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. And 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. It is stated that later it became commercially unviable for the plaintiff to retain the rented premises.

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 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 applicant had 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 Conciliation Act which has since been registered as Arbitration Petition No. 360/2020. The said arbitration petition is said to be pending. .

Whereas the defendant said 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.

The counsel for the plaintiff  relied on the judgments of the Supreme Court in the case of Young Achievers Vs. IMS Learning Resources Pvt. Ltd., (2013) 10 SCC 535, Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya & Anr., (2003) 5 SCC 531 and Booz Allen and Hamilton INC. vs. SBI Home Finance Ltd. & Ors., (2011) 5 SCC 532.

Whereas the, counsel for the defendant has relied upon the latest judgment of the Supreme Court in the case of Vidya Drolia & Ors. vs. Durga Trading Corporation, 2020 SCC Online 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.

The Court referred to, Lata Construction and Ors. vs. Dr.Rameshchandra Ramnikalal Shah and Anr., (2000) 1 SCC 586 where the Supreme Court held,” 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

The Court observed, referring to, Vidya Drolia & Ors. vs. Durga Trading Corporation, 2020 SCC OnLine 1018, “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.”

While disposing off the application, the court held, “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 read with the Maintenance Agreement of the same date have been novated and substituted by a completely new contract. The issue would require deeper consideration and is best left to the arbitral tribunal to adjudicate upon.”