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Delhi high court on Extending of the period of Agreement by Written Communication Methods, No Novation, Arbitration Clause Stands in Effect.

Introduction

Case Title: Unique Décor (India) Pvt. Ltd. v. Synchronized Supply Systems Ltd. FAO (COMM) 69/2023 Date: 30.05.2023 Counsel for the Appellant: Mr.Nishant Nigam and Mr. Aman Abbi Counsel for respondent: Mr. Sushil Shukla. Headed by justice Vibhu Bakru and Amit Mahajan.

The Delhi High Court confirmed that if each of the parties has prolonged the term of the contract by written correspondence, the provision for arbitration that was included in the deal remains in effect. The bench of Justices Vibhu Bakhru and Amit Mahajan differentiated among situations in which a provision for arbitration comes to an end with the restructuring of the primary agreement and circumstances in which the arbitration clause remains in effect when the primary contract is not overtaken by an additional contract but is prolonged by both parties through communication in writing.

Facts of the case

Both parties signed a Rent Agreement on July 1, 2017, under which the applicant leased the appropriate property to the defendant. The respondent was leased to the relevant premises by the appellant. The contract included an arbitration provision. The initial term of the deal was one year.

When the initial term expired, the parties prolonged the agreement by written communication, such as emails and letters, and the buildings had only been evacuated in March 2019. However, a disagreement emerged amongst the parties about the restoration of the security fee, as the applicant refused to release the sum on the basis that it would be required for the upkeep of the premises due to the respondent’s occupation causing harm to the property.

The respondent, who was enraged by the confiscation of its security funds, filed a lawsuit to reclaim the money. The appellant filed an application to the commercial court for sending the issue to arbitration under Section 8 of the A&C Act (the judicial authority must necessarily refer the parties).

The Ld. Commercial Court rejected the appellant’s claim on the grounds that the agreement lapsed with the passage of time in the year 2018, so there was no existing contract, and with the expiration of the primary agreement, the arbitration provision also lapsed. As a result, the appellant filed an appeal according to Section 37(1)(a) within the Act.

Issues Raised

The appellant objected to the contested decision on the following justifications:

  • The provision requiring arbitration survives the original agreement’s cancellation.
  • The primary agreement was extended since each party maintained the agreement via communication in writing and their actions until March 2019.

Courts Analysis and Decision

The Court noted that the initial duration of the contract was only 12 months, which was scheduled to end on June 30, 2018, but both sides remained with the terms agreed upon in the agreement and prolonged the agreement until March 2019. The judge observed that where the contract between the parties has been replaced by another contract, the provision requiring arbitration is also superseded;

nevertheless, where no additional arrangement has been reached among the individuals and the original contract has been broadened by written correspondence, the arbitration clause remains in effect.

The Court further concluded that while executing authority under Section 8 of the Act, the Court should submit both sides to mediation if there is an important disagreement over if the actual contract has the provision of the arbitration clause or has been changed completely, novated, or superseded because it would otherwise it will be out of the scope of the relevant section.

The Court noted that the extent of intervention under Sections 8 and 11 is the same and must be on a prima facie level when examining the validity of the agreement.

Judgement

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Written by – Anushka Satwani

 

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