Negotiation Requires Active Communication Between Parties, Non-Responsive Party Not Actively Participating: Delhi High Court Refers Matter To Arbitration

Brief Facts:

The matter pertained a franchise agreement forged on 26.05.2017 between M/s Kaur Cookies Pvt. Ltd. and Respondent No.1, facilitated by Respondent No. 2. Subsequently, M/s Kaur Cookies Pvt. Ltd. underwent a transfer to the Petitioner, through a deed of assignment.

The Petitioner contended that the Respondents approached them for a modification of the royalty and management fee, a request the Petitioner accommodated amidst the challenges posed by the COVID-19 Pandemic, reducing the fees to Rs.1 lakh per month. Despite this, the Respondents allegedly defaulted on timely payments, accumulating a due of Rs.11,43,378.33 by February 2021.

In response to persistent non-payment, the Petitioner claimed to have reminded and requested Respondent No. 1 to settle their outstanding liability, with no positive response. The Petitioner asserts that four legal notices, were subsequently dispatched in an attempt to prompt compliance. Despite these efforts, the Respondents allegedly remained non-responsive. Consequently, the Petitioner invoked the arbitration clause. The Petitioner approached the Delhi High Court (“High Court”) and filed applications under Section 11 (5) & (6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the appointment of a Sole Arbitrator to address the disputes between the parties

Observations by the High Court:

The High Court held that the Petitioner diligently pursued resolution by consistently dispatching demand notices to the Respondents, all of which went unanswered. It held that this showed the Petitioner's earnest attempt to seek a resolution before resorting to court intervention. In interpreting the term 'negotiation,' the High Court held that it is imperative to understand it in a pragmatic context. Negotiation necessitates communication between the involved parties, and for it to be effective, it must be a reciprocal exchange.

Here, the Respondents failed to actively participate in the negotiation process, as evidenced by their lack of response. The High court, while acknowledging its limited jurisdiction under Section 11(5) & (6) of the Arbitration Act, emphasized that its role is confined to determining the existence of an arbitration agreement. It held that where an agreement between the parties and an arbitrable dispute are admitted, the court should deem it appropriate to refer the matter to arbitration.

Consequently, the High Court referred the disputes to an arbitral tribunal. The Delhi International Arbitration Centre was urged to appoint an Arbitrator to preside over and adjudicate the disputes between the parties.

Case Title: M/S. Breakthrough Concepts Vs M/S. Atrix Group Of Restaurants & Anr.

Citation: 2024 LiveLaw (Del) 264

Case Number: ARB.P. 1068/2023.

Advocate for the Petitioner: Mr. Ansh Singh Luthra, Mr. Harmanpreet Singh Kohli, Ms. Nikhar Luthra and Mr. Madhav Kumar

Advocate for the Respondent: Mr.Gaurav Prakash Pathak

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