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.