KNOWLEDGE PODIUM SYSTEMS PVT. LTD.  Vs S M PROFESSIONAL SERVICES PVT. LTD.

CS(COMM) 377/2020 Page 1 of 14
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 12.01.2021
% Pronounced on: 25.01.2021

+ CS(COMM) 377/2020
KNOWLEDGE PODIUM SYSTEMS PVT. LTD. ….. Plaintiff
Through Mr.Shyam Kapadia, Mr.Vikram
B.Trivedi, Mr.S.R.Trilokchandani, Ms.Priya
Diwadkar and Mr.Kartik Nagarkatti, Ads.

Versus
S M PROFESSIONAL SERVICES PVT. LTD. ….. Defendant
Through Mr Saurav Agrawal, Mr Madhav
Misra, Mr Harshavardhan Singh Rathore , Advs.

CORAM:
HON’BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
1. This application is filed under Section 8 of the Arbitration and
Conciliation Act , 1996 read with O rder 7 Rule 11 CPC for rejection of the
plaint and for referring the parties to arbitration. IA No.8471/2020
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 detai ned by the defendant. Alternative relief of Rs.91,05,539/ –
by way of damages or compensation is also sought.
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3. Some of the relevant facts are that vide a L ease 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 Maintena nce 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 plainti ff deposited
with the d efendant, 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 term s
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 M aintenance
Agreement stood substituted/novate d 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
negoti ations with the defendant for reduction of rentals and mainte nance
with effec t 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
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electricity connection of the rented premises as means to coerce the plaintiff
to make paymen ts. 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 empl oyees 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 th e present application, the defendant/applicant has taken the stand
that the plaintiff ha s failed to place on record the fact that the plaintiff w as
on 10.08.2020 served with an advance copy of the petition filed under
Section 11 of the Arbitration and Conc iliation Act which has since been
registered as Arbitration Petition No. 360/2020. The said a rbitration petition
is said to be pending.
8. Essentially, the case of the defendant is that the register ed 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 L ease Deed dated 21.02.2017 and the Maintenance
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Agreement of the same date, the plaintiff is obliged to pay the outstanding
rents and ma intenance 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 dispute s i.e.
arbitration and as such, the present suit is not maintainable. It is pleaded that
both the L ease Agreement dated 21.02.2017 and the Maintenance
Agreement of the same date contain arbitration clauses and h ence, the
present application under Section 8 of the Arbitration and Conciliation Act.
10. I have heard learned counsel for the part ies.
11. Learned counsel for the plaintiff has pointed out that the plaintiff and
the defendant at the time of execution of the L ease 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 A greement and the original L ease Deed
and the Maintenance Agreement dated 21.02.2017 stand superseded and
novated in view of the terms and conditions settled upon in the email s 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 th e plaintiff has also relied upon the judgment s 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 53 2.
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
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of the email s 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 relie d upon the latest
judgment of the Supre me Court in the case of Vidya D rolia & 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 pendi ng 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 L ease Deed dated
21.02.2017. Clause 9.1 of the Lease Deed reads as follows:-
“9.1 The Par ties 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 (3 0) 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 Conciliation Act, 1996. Arbitration proceedings shall be conducted in English Language. The place of arbitration shall be New Delhi. ”
15. A similar arbitration c lause , namely, Clause 10.1 also exis ts in the
Maintenance agreement dated 21.02.2017.
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16. It undoubtedly follow s that in the original lease dee d and the
maintenance agreement, the parties have agreed to settle their dispute s
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 super seding the Lease
Deed dated 21.02.2017 an d 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 ha d 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 i ts growth plans as it was
originally envisaged . All other points were agreed and it was asked
that the fitout cha rges should also reduce. Hence I am documenting
the Understaning for confirmation so that billing could be closed in September and GST complia nce 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 f t 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 .

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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 ha ve 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 F F 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 agr eed 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…
o Rent for 13,300 sq. ft. (60% of the 2nd floor area of 22172
sq. ft.) @ Rs. 42 /sq. ft.
o Fit out amortization on 8 year basis for 13,300 sq. ft. (above
area) @ Rs. 15 /sq. ft.
o 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 b ill @ 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.

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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 th ese two documents, there
was an adjustment of rents. The question is can it be said that on account of
the exchange of th ese communications, the parties have rescinded the old
agreement being the registered L ease Deed dated 21.02.2017 and the
Maintenance Agreement of the sa me 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, r eference 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 and Ors. vs. Dr.Rameshchandra Ramnikalal
Shah an d Anr. , (2000 ) 1 SCC 586 where the Supreme Court held as
follows: –
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“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 f or 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, t he 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
substitut ion 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 auth ority, 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
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through or under him, so applies not later than the date of
submitting his first sta tement 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 ref erred 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 a greement 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 iss ue 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 and Ors. vs. Durg a
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
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(ii) the conundrum – “who decides” – whether the court at the
reference stage or the arbitral tribunal in the arbitration
proceedings wou ld 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 “seco nd 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
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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 scruti ny. 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 Sectio n 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 ‘w hen 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.
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b. Usually, subject matter arbitrability cannot be de cided 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 fac ie (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 arbit ration 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 r ejection 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 re fer the matter if the validity of
the arbitration agreement cannot be determined on a prima facie basis.
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28. In the present case, in my opinion, as the facts noted above show , it
cannot be prima facie said that there is a complete ly new contract and that
the old registered L ease Deed dated 21.02.2017 read with the M aintenance
Agreement of the s ame 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 L ease 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 arbitra tion agreement before the L earned 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 a pplication stands disposed of.
CS (COMM) 377/2020
In view of the a bove, the suit and pending applications, if any, also
stand disposed of.

JAYANT NATH, J
JANUARY 25, 2021
rb/st

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