Case Comment On Delhi High Court Judgment In M/S Oravel Stays PVT. LTD. vs. Nikhil Bhalla

The Oravel Stays Pvt. Ltd. (hereinafter referred to as the ‘Petitioner’), extensively known in the Hospitality Sector under the name & banner of ‘OYO Rooms.’ OYO Rooms, drawing upon its experience in the hospitality sector, offers services to ‘establishments’ engaged in providing boarding and lodging, to grow their business (hereinafter referred as the ‘said services’). The owners of such establishments list their properties on the online platform provided by OYO Rooms, thereby, they can offer their services to a wider set of customers. The customers can book accommodations/rooms provided by these establishments online. Mr. Nikhil Bhalla (hereinafter referred to as the ‘Respondent’), operates a hotel in the name and style of ‘The Spruce Mansion’ which is located at Kannyal Road, Simsa Village, Nasogi, Manali, Himachal Pradesh and availed the services of the Petitioner.

On 16.09.2018, both parties entered an agreement for the said services. Thereafter on 28.11.2018 the parties entered into Marketing & Operational Consulting Agreement (hereinafter referred as ‘MOCA’) and digitally affirmed its acceptance. It is pertinent to note there were minor alterations in the MOCA from earlier version on the agreement dated 16.09.2018, but the agreement's essence remained the same.

As per MOCA, the parties inter alia agreed to the following terms & conditions: -

a. The agreement was for a period of 12 months,

b. The OYO Rooms were required to pay a ‘Minimum Guarantee’ of renumeration to Respondent every month,

c. The OYO Rooms would be entitled to receive commission on the bookings made for the Hotel through its online Platform,

d. Clause 15 of the MOCA explicitly states that parties entering into the agreement with Oyo Rooms also agree to the ‘Terms and Conditions’ (hereinafter referred as ‘T&C’) outlined on its website.

It is important to note that Clause 15 of MOCA provides a link to the OYO Rooms website for accessing ‘T&C’. Further OYO Rooms has categorized the ‘T&C’ as applicable to various categories of individuals, Clients, Channel Partners including the establishments. These ‘T&C’ encompassed an arbitration agreement as delineated in Clause 14. Therefore, pursuant to Clause 15 of the MOCA, the ‘T&C’ were deemed to be incorporated into the MOCA by reference.

On the failure of OYO Rooms to pay the ‘Minimum Guaranteed’ amount and other incentives payable under the MOCA, the Respondent filed a suit for Recovery before the Learned Commercial Court, New Delhi (hereinafter referred as the ‘Commercial Court’) for a sum amounting to Rs. 9,65,656/- along with future interest at the rate of 24% per annum from August 2019 till realization and damages to the tune of Rs. 4,00,000/-. In response, OYO Rooms filed an Application under Section 8 of the Arbitration & Conciliation Act, 1996 (hereinafter referred as the ‘Act, 1996’) before the Commercial Court.

The Commercial Court dismissed the Section 8 Application and upheld that “an arbitration agreement existed between the parties in terms of Clause 14 of the ‘T&C’ incorporated as a part of the MOCA. However, the said Arbitration Agreement covered only those disputes that concern the "construction", "interpretation," or "application" of any of the provisions of the MOCA. It was further held by the Commercial Court that since the dispute involved in the suit filed by Respondent concerned non-compliance of the terms of the MOCA, the arbitration agreement did not cover the said disputes.”

Thereafter, cross-appeals were filed under Section 37(1)(a) of the Act, 1996¹ impugning order passed by the Commercial Court, the Petitioner filed the appeal being aggrieved by the order to the extent that the arbitration agreement between the parties did not cover the dispute involved. Further, the Respondent has filed the appeal aggrieved by the finding that an arbitration agreement exists between the parties.

The OYO Rooms raise the following objections before the High Court of Delhi that (a) any dispute regarding failure to discharge any obligations under any Clause of MOCA would be covered under scope of ‘application’, (b) the Commercial Court had erred in interpreting the scope of word ‘application’ as like the term ‘interpretation’, (c) the dispute whether a clause was applicable would also include a dispute regarding the performance of the obligation under the said clause, (d). In terms of Clause 15 of the MOCA, the terms and conditions published by OYO Rooms on their website were incorporated as part of the MOCA.

The Respondent in counter made the following submissions before the Appellate Court that (a) Firstly, Clause 14 of the ‘Terms & Conditions’ could not be construed as specifically incorporated in the MOCA, (b) Secondly, the arbitration clause in an agreement could not be inferred by reference unless the agreement specifically mentioned the arbitration clause. (c) Thirdly, the link provided by OYO Rooms for reference did not lead to the said ‘T&C,’ which contained the said arbitration clause. The Arbitration Clause was contained in the terms and conditions relating to ‘Channel Partners. Thus, unless a party selected ‘Channel Partner’ from the menu that opened on clicking the link provided in Clause 15 of MOCA, he would not be taken to the site containing the terms & conditions. Therefore, the Arbitration Clause cannot be read as a part of the MOCA.

The Court observed and upheld that it is apparent from the above, the link to the website for accessing the T&C was provided in Clause 15. Thus, the MOCA expressly referred to the ‘T&C’ as published on OYO Rooms website and set out the link to access the same. It is not disputed that the said link would lead a person clicking the same to OYO Rooms website. Further, OYO Rooms had classified ‘T&C’ as applicable for different classes of persons, which included the 'Channel Partners'. There is no dispute that Respondent Hotel is a Channel Partner of OYO Rooms. Thus, clearly, Respondent was required to consider the ‘T&C’ as applicable to the Channel Partners as incorporated as a part of MOCA. Therefore, by virtue of Clause 15 of the MOCA, the T&C, as applicable to Channel Partners, stood incorporated in the MOCA, by reference.

The Court relied upon the Judgment of the Apex Court in the case of M.R. Engineers & Contractors Private Limited Vs. Som Dutt Builders Limited, Supreme Court of India, Civil Appeal No. 4150 of 2009, Decided on 07.07.2009, Division Bench which explained the difference between reference to another document in a contract and incorporation by reference of another document in a contract.

Para 16 “There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety into the contract. Therefore, when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract.”

The Court further upheld that by applying the aforesaid test in the present case, the entire ‘T&C’ as published on the website, which included the arbitration agreement (Clause 14 of the ‘T&C’) stood incorporated as a part of the MOCA and we are unable to accept that it is beyond the pale of any controversy that the disputes involved in the present suit would fall outside the scope of arbitration agreement.

Disclaimer: This article was first published in the S&A Law Offices - 'Indian Legal Impetus' newsletter in June 2024.