Delhi HC Declines To Restrain Encalm Hospitality From Doing Business With Clients Of Dreamfolks Services, Says No Mandate Of Exclusivity

The Delhi High Court Bench of Justice Amit Bansal refused to enforce a negative covenant against Encalm Hospitality Private Limited holding that its agreement with Dreamfolks Services Limited did not mandate exclusivity between the latter and its clients and thus Encalm was not in violation of the Agreement. Facts The present petition was filed under Section 9 of the Arbitration Act (ACA) whereby the Petitioner sought to enforce a negative covenant contained in the parties' Agreement and directions to restrain Encalm's ongoing business operations following termination of the Agreement. Dreamfolks Services Limited i.e. the Petitioner is engaged in the business of providing travel and lifestyle services to various organizations across the globe. Encalm Hospitality Private Limited i.e. the Respondent is engaged in the business of acquiring licenses from airport authorities for managing, operating and running the lounges which includes lounges at the Delhi, Goa and Hyderabad airports. The parties entered into an agreement dated 26.07.2022 whereby the Respondent agreed to provide services to the Petitioner and its customers by granting access to the customers to the services at the lounges operated by the Respondent. The term of the agreement was for 5 years, though the parties had a right to terminate the Agreement earlier. On 04.08.2025, the Respondent issued a notice of termination to the Petitioner giving a 90 days' notice to the Petitioner for termination of the Agreement. It is the case of the Petitioner that the Respondent breached the provisions of the aforesaid Agreement by doing business directly with the Petitioner's Clients. It was submitted that the said breach on the part of the Respondent has resulted in a significant downfall of the Petitioner's business volumes. Accordingly, the present petition was filed seeking a direction against the Respondent restraining them from entertaining/ providing services to the Clients of the Petitioner in breach of the terms of the aforesaid Agreement. The petition was heard on 28.08.2025, wherein it was put to the counsel if the parties can be referred for arbitration and the present petition could be converted into a petition under Section 17, ACA. Contentions The Counsel for the Petitioner argued that the respondent was bound to comply with the terms of the Agreement during the notice period of 90 days. Therefore, the Respondent, during the notice period of 90 days, could not deal with the Petitioner's Clients either directly or indirectly. The Counsel for the Respondent submitted that the Petitioner had a non-exclusive contract with its Clients and the said Clients have similar arrangements with various third-party entities. The Petitioner had failed to disclose the full agreement entered into with its Clients, which would disclose that the arrangement with the Petitioner was a non-exclusive one. Observations The Court observed that the Petitioner placed reliance on Clause 4.4 of the Agreement to contend that the Respondent could not do business with the Clients of the Petitioner either directly or through representatives during the subsistence of the Agreement. The stand taken by the Petitioner was that “representatives” would include other third-party service providers. Further, the obligation would continue during the notice period of 90 days beginning from 04.08.2025, which the Respondent was required to honour. The Court observed that the Agreement did not contain a list of Petitioner's clients nor did the Agreement stipulate that the Clients of the Petitioner were its exclusive Clients. The Court held that while the Petitioner had enumerated in the petition that ICICI Bank, Yes Bank, Axis Bank and American Express were its clients, however, nothing had been put on record to substantiate that the said entities/banks were its exclusive clients and that they had not entered into similar agreement with other service providers like the Petitioner. The Court pointed out that the Respondent's case was that the aforesaid entities, which were listed by the Petitioner as its Clients, also had similar arrangements with other third parties and in fact, the Respondent was providing services to the said entities through third-party service providers. It was submitted that the Respondent's agreements with the third parties were on a principal-to-principal basis, and the said third parties were not the agents or the representatives of the Respondent. Thus, the said third parties could not, in any manner, be construed as “representatives” of the respondent in terms of Clause 4.4 of the Agreement. Based on the material placed on record, the Court observed that there was nothing to show that there was an exclusivity between the Petitioner and its Clients. It appeared that the Petitioner's Clients were free to have similar agreements with other third-party ...

Delhi HC Declines To Restrain Encalm Hospitality From Doing Business With Clients Of Dreamfolks Services, Says No Mandate Of Exclusivity

Arpita Pande

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