IN ARB.P. 194/2022-DEL HC- Arbitration agreement exists only when it is valid and legal; Party cannot sue and claim rights based on unenforceable document: Delhi HC
Justice V. Kameswar Rao [31-10-2022]

Read Order:M/S SEQUOIA FITNESS AND SPORTS TECHNOLOGY PVT. LTD v. GD GOENKA PVT. LTD. & ORS 

Mansimran Kaur

New Delhi, November 1, 2022: “Existence” of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and is enforceable in law, the Delhi High Court has observed.

The Single-Judge Bench of Justice V. Kameswar Rao dismissed the  present petition instituted under Section 11 (6) of Arbitration and Conciliation Act , 1996 by observing that  there was no agreement between the parties.

In the present case, Sequoia Fitness and Sports Technology Pvt. Ltd.  was a Company incorporated under the provisions of the Companies Act, 1956.  On the other hand, the first respondent (GD Goenka Pvt. Ltd.) is running schools in the name and style of GD Goenka International School at Distt., Nainital-second respondent  and GD Goenka International School, Kashipur- third respondent. 

According to the facts of this case, the petitioner emailed the profile of the Company to the respondents for entering into a sports training and coaching arrangement, called the ‘Fitness 365’  for the students studying in the schools being operated by the first respondent. Thereafter, several rounds of meetings were held between the petitioner and the fourth respondent for conducting the program offered by the petitioner in the schools operated by respondents, two and three.  That apart, an in-person meeting was also held between the respondents and the petitioner. 

It was the case of the petitioner that it shared the copy of the proposal-cum-agreement for conducting the Program during the meeting. The proposal contained exhaustive terms & conditions including an arbitration clause clearly stipulating, referring to the disputes arising out of the proposal-cum-agreement to the Arbitral Tribunal consisting of a sole arbitrator.

After hearing the submissions from both the sides, the Court noted that the first issue that was needed  to be decided was  whether the proposal-cum-agreement said to have been shared by the petitioner with the respondents, two to four  would bind the petitioner and the respondents for referring the dispute with regard to non-payment of the invoices to an Arbitrator. 

The answer to the same has to be ‘No’ for more than one reason; firstly the said proposal-cum-agreement has not been signed / executed by the parties. It was only a copy of the proposal-cum-agreement, which according to the petitioner was shared with respondents, two to four, the Court noted. 

In the present case, none of the parties had signed the agreement referred to by the petitioner. None of the whatsapp messages or the invoices or communications referred to proposal-cum-agreement, though in one of the whatsapp messages reference was made to the agreement but it was not clear whether the reference was to the proposal-cum-agreement on which reliance was placed dated March 19, 2019, the Court noted. 

In fact, in the notice, no reference was made to the proposal-cum-agreement and as such the very existence of the agreement was doubtful. To draw an inference or for showing meeting of minds on the arbitration agreement, a mere exchange of communication shall not suffice, the Court further noted. 

On the contention of the petitioner that the  issue of existence of an arbitration agreement can be looked into by the Arbitrator in view of Section 16 of the Arbitration and Conciliation Act, 1996 , in respect  of the same, the Court noted that  in view of Section 11(6A) of the Arbitration and Conciliation Act, 1996, as interpreted by the Supreme Court in the case of Vidya Drolia v. Durga Trading Corpn, the scope of Section 11 has been clearly delineated to mean the Court, while exercising power under Section 11, has to see the ‘existence’ of an arbitration agreement between the parties.

 The court further examined the question of “existence” by stating that a reasonable and just interpretation of existence requires understanding the context, purpose and relevant legal norms applicable for a binding and enforceable arbitration agreement. “An agreement evidenced in writing has no meaning unless parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document”, the Bench said. 

Thus, there were good reasons to hold that an arbitration agreement exists only when it is valid and legal. 

Hence, since it was concluded that there was no agreement between the parties, the present petition was dismissed on the account of maintainability.