Allahabad High Court Affirms Termination Of Arbitral Proceedings Against Decathlon For Lucknow Premises Under Section 16(2) Of The Arbitration Act

Allahabad High Court Affirms Termination Of Arbitral Proceedings Against Decathlon For Lucknow Premises Under Section 16(2) Of The Arbitration Act

The Allahabad High Court has affirmed the termination of arbitral proceedings by the sole arbitrator under Section 16(2) of the Arbitration and Conciliation Act, 1996. The decision was based on the absence of an arbitration agreement between the petitioners, who claimed ownership of a portion of the premises in question, and M/s Decathlon Sports India Private Ltd.

Section 16 of the Arbitration and Conciliation Act, 1996, grants authority to the arbitral tribunal to determine its own jurisdiction and address matters concerning the existence of an arbitration agreement. Sub-section (2) of Section 16 stipulates that any challenge to the jurisdiction of the arbitral tribunal must be raised before filing a statement of defense. Additionally, it clarifies that participating in proceedings to appoint an arbitrator does not prevent a party from later contesting the jurisdiction of the arbitrator or the arbitral tribunal.

Justice Subhash Vidyarthi ruled that the transfer of property to the petitioners by M/s Rohtas Projects Limited contradicted the lease deed previously executed by Rohtas in favor of Decathlon. Consequently, the petitioners, who are purported subsequent purchasers, did not inherit Rohtas' position to invoke the arbitration agreement between Rohtas and Decathlon.

In 2017, M/s Rohtas Projects Limited entered into a lease agreement with M/s Decathlon Sports India Private Ltd. for a space measuring 21,825 square feet (equivalent to 2,028 square meters) at Plot No. TC-G 4/4 within Rohtas Presidential Arcade, located in Vibhuti Khand, Gomti Nagar, Lucknow, for a duration of 20 years.

The petitioners, private persons, asserted that they had acquired portions of the land in question from M/s Rohtas Projects subsequent to its lease agreement with Decathlon. They filed an application under Section 11 before the Allahabad High Court, contending that once Rohtas had allotted the property to them, they sought its transfer from Decathlon after settling all outstanding dues. Due to Decathlon's failure to settle its rental obligations, the petitioners issued a notice to Decathlon regarding the termination of the tenancy agreement.

During the arbitral proceedings, Decathlon submitted an application under Section 16(2) of the Arbitration Act, seeking the dismissal of the proceedings due to a lack of jurisdiction. Additionally, Decathlon requested a stay on the arbitral proceedings, citing the imposition of a moratorium against Rohtas under Section 14 of the Insolvency and Bankruptcy Code, 2016. Decathlon argued that the Insolvency and Bankruptcy Code, 2016, had overriding authority over the Arbitration Act by virtue of Section 238 of the Code.

In its application under Section 16(2), Decathlon contended that there existed no arbitration agreement between the private individuals and Decathlon, thus precluding the invocation of arbitration proceedings by the former. Decathlon argued that the arbitration agreement between Rohtas and Decathlon could not be enforced without Rohtas being made a party to the arbitration.

The petitioners contended that the application under Section 16(2) should be dismissed since objections regarding the moratorium had already been addressed by the High Court during the arbitrator's appointment. They argued that only matters concerning insolvency fell under the jurisdiction of the National Company Law Tribunal (NCLT), whereas disputes between the petitioners and Decathlon concerning tenancy, possession, and dues were to be resolved by the arbitrator.

The sole arbitrator granted the application under Section 16(2) based on the moratorium imposed by the NCLT, concluding that it lacked the authority to adjudicate upon the rights and obligations of the parties, thus lacking jurisdiction for arbitration. This decision was upheld by the Commercial Court under Section 13(1A) of the Commercial Court Act, 2015, in conjunction with Section 37 of the Arbitration and Conciliation Act, 1996.

The Commercial Court determined that despite the conclusion of the moratorium, ongoing proceedings before the NCLT had resulted in the cancellation of the lease in favor of Decathlon, and the outstanding rent had been settled by Decathlon. Consequently, the Commercial Court reasoned that no cause of action remained for the private individuals.

The petitioners contested the rulings of both the sole arbitrator and the commercial court, citing that the arbitration proceedings had commenced two years after the imposition of the moratorium and that the moratorium period had ended before the issuance of the order under Section 16(2). They argued that the application had solely sought a stay on the arbitral proceedings until the conclusion of the moratorium, yet the sole arbitrator prematurely terminated their mandate.

The counsel for the petitioners contended that under Section 109 of the Transfer of Property Act, the petitioners had assumed the legal position of Rohtas since the property had been sold to them. In response, the counsel for the respondents argued that no sale deed had been executed in favor of the petitioners and no physical possession of the property had been transferred to them.

The Court noted that the lease deed explicitly stated that a sale deed for the petitioners' plots had been executed concurrently with the lease deed with Decathlon and that the sale of such property would not disrupt Decathlon's peaceful possession.

According to Section 109 of the Transfer of Property Act, in the absence of any contrary agreement, if the lessor transfers the property, the transferee assumes the rights of the lessor.

However, the Court observed that there was a specific agreement to the contrary between the lessor, Rohtas, and the lessee, Decathlon, which prohibited the transfer of any part of the leased property without the prior permission of Decathlon.

Consequently, the Court ruled that since the transfer of property to the petitioners, private individuals, was conducted in violation of the lease deed between Rohtas and Decathlon, the petitioners had not succeeded to the rights of Rohtas to be able to invoke the arbitration agreement within the lease deed.

The Court held that “the jurisdiction of this Court under Article 227 of the Constitution of India is supervisory jurisdiction, which should be exercised to prevent injustice being caused to a party, but where the order under challenge in the petition under Article 227 of the Constitution of India does not cause any injustice to any of the parties, this Court will not exercise its discretion in such a case.”

As a result, the petition contesting the order terminating the arbitration proceedings and the subsequent decision of the Commercial Court were dismissed.