Daulat Singh Consulting Private Limited and Ors. v. Gateway Rail Freight Limited & Ors.

1. This is a petition, under Section 11(6) of the the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”), seeking reference of the disputes, between the petitioners and the respondents, to arbitration. O R D E R (ORAL) % 25.02.2021 (Video-Conferencing)

2. The requisite notice invoking arbitration, was sent by the petitioner to respondents on 3rd June, 2020.

3. Though learned counsel are, ad idem, agreeable to the disputes being referred to arbitration (with a reservation by Respondent No. 2, 2021:DHC:732 to which I would presently allude), it may be appropriate to provide a brief conspectus of the factual matrix in which the dispute arises.

4. On 23rd June, 2011, a lease agreement was executed between the petitioner and Respondent No. 1, whereby the property located at SF-7, Second Floor, D-2, Southern Park, Saket District Centre, New Delhi-110017 was leased for nine years. The lease deed was registered on 28th “16. In the event any dispute arises between the Parties out of or in connection with this Lease Agreement, including the validity thereof, the Parties hereto shall endeavour to settle such dispute amicably in the first instance. The attempt to bring about an amicable settlement shall be treated as having failed as soon as one of the Parties hereto, after reasonable attempts, which shall continue for not less than thirty (30) days, gives a notice to this effect to the other Party in writing. In case of such failure, the dispute shall be referred to a sole arbitrator, who shall be mutually appointed by the Parties. In the event the Parties are unable to mutually agree on the identity of the sole arbitrator in the manner specified above, then the arbitration proceedings shall be conducted by the three (3) arbitrators of which the first arbitrator shall be appointed by the Lessee, the second arbitrator jointly by the Lessors and both such arbitrators appointed shall mutually appoint the third presiding arbitrator. The arbitration proceedings shall be governed by the Arbitration and Conciliation Act, 1996 or any re-enactment or modification thereof and shall be held in New Delhi. The language of arbitration shall be English. During the pendency of any dispute resolution exercise whether by negotiation or arbitration, the Parties shall continue to perform their respective obligations not under dispute under the Lease Agreement.” June, 2011. Clause 16 of the lease deed provided for arbitration as the mode of resolution of the dispute between the parties, and read thus:

5. Vide a Deed of Assignment, dated 24th August, 2011, Respondent No. 1 assigned the aforesaid lease in favour of its sister concern. Clause 4 of the Deed of Assignment required the assignee to abide by the terms and conditions of the lease agreement and retained the covenants in the lease agreement unchanged.

6. On 25th “10. In the event of any difference or dispute which may arise between the Parties during the continuance of this Adherence Deed or any extensions or renewals thereof, touching these presents or the construction or the application or the interpretation hereof or as to any other matter in any way relating to the transaction contemplated under these presents etc., which may be connected with any of the terms and conditions of these presents, which cannot be settled amicably between the Parties hereto, the same shall be referred to arbitration to be conducted by a mutually appointed sole arbitrator at New Delhi in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996, or any other modifications or re-enactment thereof for the time being in force. August, 2011, a Deed of Adherence was executed amongst the petitioner and the respondents. Clause 10 thereof provided for arbitration for resolution of the disputes between the parties, which reads as under: In the event the Parties are unable to mutually agree on the identity of the sole arbitrator as mentioned above, then the arbitration proceedings shall be conducted by the three arbitrators of which the first arbitrator shall be jointly appointed by the Lessors, the second arbitrator shall be jointly appointed by the Lessee and the Assignee and both such arbitrators appointed shall mutually appoint the third presiding arbitrator. The arbitration proceedings shall be conducted at New Delhi in accordance with and subject to the provisions of the Arbitration & Conciliation Act, 1996 or any other modifications or re-enactment thereof for the time being in force. The language of arbitration in all cases shall be English.”

7. Thereafter, the lease agreement was successively amended four times, with the first amendment being on 27th August, 2011, the second on 25th February, 2014, the third on 5th February, 2016, and the fourth on 1st August, 2019.

8. The petition sets out the details of the dispute between the parties in paras (VII) (k) to (n), which may, for ready reference, be reproduced thus: “k) In terms of Amendment to Lease Agreement No.4, the respondents were under a binding contractual obligation to enter in a fresh lease agreement, fresh deed of assignment and fresh deed of adherence with the petitioners for the additional lease period from 01.08.2020 to 31.07.2029 (with the lock in period explicitly extended to 31.07.2023) on or before 30.04.2020, which has not yet been complied by the respondents, who claim that it was so due to Covid-19 lockdown restrictions applied across India from 23.03.2020 to 04.05.2020. In terms of Amendment to Lease Agreement No.4, apart from the above mentioned amended terms as mentioned in this paragraph and the reduced monthly rentals/ escalation waivers agreed to by the petitioners with the respondents, all other terms and conditions of the existing Lease Agreement, Deed of Assignment and Deed of Adherence were to remain the same as before in the above mentioned fresh lease agreement (including fresh deed of assignment and fresh deed of adherence, if required).

1) In accordance with the Amendment to Lease Agreement No. 4 as mentioned above, the petitioners, vide email dated 28.01.2020 (with reminder sent vide emails dated 21.02.2020 and 02.05.2020), circulated the soft copy (in word format) of the fresh lease agreement agreed to be executed by the respondents with the petitioners (for the lease period 01.08.2020 to 31.07.2029 with a lock in period explicitly agreed to be extended upto 31.07.2023) by making the respondent No. 2 ( existing Assignee), the lessee therein and the respondent No.1 ( existing Lessee) the Confirming Party therein as per the discussions with Mr. V. Srinivasula Reddy, [Sr. Vice President- Projects & Services of respondent No.1 (Lessee)] and referred to the same in the petitioners' email dated 28.01.2020. m) Then on 02.05.2020, the petitioners received an email Notice dated 02.05.2020 from the respondent No.2 seeking a rent waiver due to Covid-19 to which petitioners promptly replied vide their email reply dated 02.05.2020 giving a one (1) month rent waiver to be adjusted equally in six (6) subsequent quarterly monthly rental invoices and subject to the fresh lease agreement (for the lease period 01.08.2020 to 31.07.2029) being executed and registered without any further delay in accordance with the contractual obligations as explicitly stated in the Amendment to Lease Agreement No.4 (read along with the Lease Agreement and Deed of Adherence). n) Then on 04.05.2020, the petitioners received another email Notice dated 04.05.2020 from the respondent No.2 (contrary to what was stated in the first email notice dated 02.05.2020) stating that the respondent No. 2 cannot afford to pay monthly rent and had decided to intimate that it would be vacating the said Property on 31.07.2020. The petitioners gave their detailed reply to this notice vide their email reply dated 04.05.2020 itself, which is self-explanatory. Then on 06.05.2020, the petitioners received another email Notice dated 06.05.2020 from the respondent intimating that the respondent No.2 would be vacating the said Property as on 31.07.2020 (the expiry date of the existing Lease Agreement) and seeking an adjustment of the quarterly monthly rent for the period 01.05.2020 to 31.07.2020 against the security deposit (of Rs.18,68,736/-) as mentioned in the Lease Agreement, which is contrary to the terms agreed to amongst the parties. The petitioners gave their detailed reply to the respondents' Notice dated 06.05.2020 vide their Notice of Breach/Default dated 08.05.2020, which was served electronically vide email dated 08.05.2020 (vide scanned pdf copy) and hard copy vide speed post-dated 15.05.2020 (due to Covid-19 lockdown restrictions).” Mr. Abhijeet Sinha, learned counsel for Respondent No. 1, disputes the validity of the fourth amendment to the lease agreement.

9. On 3rd “18. If the Addresses (i.e. the Lessee and the Assignee) do not comply with the above contractual Obligations of the Lease Agreement read along with the Deed of Assignment, Deed of Adherence and Amendment to Lease Agreement No.4 within the seven (7) days final remedy period in order to resolve the dispute, arbitration in terms of the arbitration clause contained in the Lease Agreement would stand automatically invoked by our Clients and Justice (Retd.) Manju Goel, a retired Judge of Hon'ble Delhi High Court would automatically be nominated as the sole arbitrator. In the event of you (the Addressees) not agreeing to the said nomination, our Clients would be agreeable to any other independent sole arbitrator mutually appointed by the Lessee/ Assignee and the Combined Lessors. Please convey your acceptance to the above proposal or in the alternate, suggest any other independent sole arbitrator within a maximum period of thirty (30) days of expiry of the seven (7) days final remedy period as mentioned above, failing which, our Clients shall be constrained to take recourse to the appropriate legal remedies available to them in this regard.” June, 2020, the petitioner addressed a legal notice to the respondents, para 18 of which invoked the provision for arbitration in the following terms:

10. On 9th July, 2020, the Respondent No.1 replied to the aforesaid legal notice of the petitioner, questioning the arbitrability of the disputes as being in excess of the arbitration clause. The petitioner replied to this communication on 18th July, 2020.

11. Attempts at settlement between the parties being alleged to have proved futile, the petitioner has approached this Court under Section 11(6) of the 1996 Act.

12. Mr. Abhijeet Sinha, learned counsel for Respondent No.1, and Ms. Tanvi Gupta, learned counsel for the Respondent No. 2, have both sought to submit that the invocation of arbitration, by the legal notice, dated 3rd June, 2020, issued by the petitioner, was only of the arbitration clause contained in the lease agreement dated 23rd June, 2011, and not of the clause the Deed of Adherence or Deed of Assignment or any other agreement between the parties.

13. Ms. Tanvi Gupta, learned counsel for Respondent No. 2, has taken this argument a step further, by contending that, as her client was not a party to the original lease agreement, the maintainability of the arbitral proceedings, qua her client, was itself disputable. Nevertheless, she is agreeable to this aspect being kept open for decision by the learned arbitrator, to be appointed by the court.

14. The claims forming subject matter of the dispute are stated to be in the region of about ₹ 2.[5] crores.