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ASPIRE INVESTMENTS PRIVATE LTD. V. NEXGEN EDUSOLUTIONS PRIVATE LTD. MANU/DE/2947/2009

 ASPIRE INVESTMENTS PRIVATE LTD. V. NEXGEN EDUSOLUTIONS PRIVATE LTD. MANU/DE/2947/2009

FACT

  • The defendant, Nexgen Edusolutions Private Ltd., is in the educational services sector and entered into a lease agreement with the plaintiff, Aspire Investments Private Ltd., for certain premises located in Delhi.
  • The lease agreement was executed on March 27, 2008, for a period of ten years, starting from June 15, 2008, to June 14, 2018 and the monthly rent for the premises was fixed at Rs. 1,50,000.
  • On November 13, 2008, the defendant issued a notice seeking to appoint its nominee as an arbitrator in accordance with Clause 8 of the lease agreement.
  • The plaintiff responded to the arbitration notice on January 29, 2009.
  • The defendant filed a written statement on April 15, 2009, and subsequently filed an application under Section 8 of the Arbitration & Conciliation Act, 1996, on April 18, 2009, seeking reference of the matter to arbitration.
  • The plaintiff opposed the application, arguing that the arbitration agreement, being part of the unregistered and unstamped lease agreement, cannot be relied upon for arbitration.
  • Hence, the present case before the High Court.

ISSUE

  • Whether the arbitration agreement in an unregistered lease deed can be relied upon by the defendant for arbitration proceedings under Section 8 of the Arbitration Act.

RULE

  • An arbitration agreement contained within an unregistered parent contract remains valid and enforceable, and can be invoked even if the parent contract affecting an immovable property is unregistered, as it constitutes a collateral transaction under the proviso to Section 49 of the Registration Act, 1908.
  • As per Section 7 of the Arbitration Act, a valid arbitration agreement is one that parties agree to in writing, whether arising out of a contract or otherwise. The agreement need not be registered or stamped. Therefore, a standalone arbitration agreement does not require registration.

HELD

  • Union of India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362 has observed that an arbitration clause is a collateral term of a contract as distinguished from its substantive terms. An arbitration clause perishes only if the parent contract is void ab initio
  • Damodar Valley v. K.K Kar, (1974) 1 SCC 141: AIR 1974 SC 158, which highlighted that an arbitration clause is considered a collateral term of a contract and survives even if the parent contract is void.
  • The court also mentioned the Division Bench decision in N.I.I.T v. West Star Construction Pvt. Ltd., Arb. P. No. 244/2008 dated 27.04.2009, which upheld the view that an arbitration clause in a lease deed is a collateral term that survives irrespective of registration or stamping.
  • These precedents reinforced the court's conclusion that the arbitration agreement in the unregistered lease deed remained valid and enforceable.
  • The court analyzed whether an arbitration agreement constitutes a collateral transaction.
  • It examined the provisions of the Registration Act and concluded that an arbitration agreement could be considered a collateral transaction.
  • The court held that the arbitration clause in the unregistered lease deed survived, even though the parent contract was not registered.
  • It emphasized that the Arbitration Act takes precedence over the Registration Act and the Indian Stamp Act, 1899, in matters of arbitration.
  • The court rejected any objection regarding the defendant's right to maintain the application under Section 8 of the Arbitration Act.