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The International Court of ARBITRATION


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11 March 2024

In a recent ruling, the Delhi High Court, through Justice Sharma, emphasized the essence of communication in negotiation processes. The Court highlighted that a party failing to respond to legal notices cannot be considered as actively participating in negotiations. Consequently, Justice Sharma referred the matter to an arbitral tribunal for resolution.

The case at hand revolves around a franchise agreement executed on 26th May 2017 between M/s Kaur Cookies Pvt. Ltd. and Respondent No.1, facilitated by Respondent No. 2. Following this, M/s Kaur Cookies Pvt. Ltd. underwent a transfer to the petitioner through a deed of assignment.

The petitioner alleged that despite accommodating the respondents' request for modification of royalty and management fees amid the challenges posed by the COVID-19 pandemic, the respondents defaulted on timely payments. By February 2021, they accrued a due amounting to Rs. 11,43,378.33.

In response to persistent non-payment, the petitioner claimed to have reminded and requested Respondent No. 1 to settle their outstanding liability to no avail. Subsequently, the petitioner dispatched four legal notices in an attempt to prompt compliance. However, the respondents remained non-responsive, leading the petitioner to invoke the arbitration clause.

The petitioner approached the Delhi High Court seeking the appointment of a Sole Arbitrator under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996.

In its observations, the High Court noted the petitioner's diligent pursuit of resolution through consistent dispatch of demand notices, all of which went unanswered. This demonstrated the petitioner's sincere efforts to seek resolution before resorting to court intervention.

Interpreting the term 'negotiation,' the Court stressed its pragmatic understanding, emphasizing the necessity of communication between the involved parties for effective negotiation. Here, the respondents' lack of response indicated their failure to actively participate in the negotiation process.

While acknowledging its limited jurisdiction under Section 11(5) & (6) of the Arbitration Act, the High Court emphasized its role in determining the existence of an arbitration agreement. When such agreement and an arbitrable dispute are admitted, the Court deemed it appropriate to refer the matter to arbitration.

Consequently, the High Court referred the disputes to an arbitral tribunal, urging the Delhi International Arbitration Centre to appoint an Arbitrator to adjudicate the disputes between the parties.

The case titled "M/S. Breakthrough Concepts Vs M/S. Atrix Group Of Restaurants & Anr." was heard under Case Number ARB.P. 1068/2023. Mr. Ansh Singh Luthra, Mr. Harmanpreet Singh Kohli, Ms. Nikhar Luthra, and Mr. Madhav Kumar represented the petitioner, while Mr. Gaurav Prakash Pathak appeared for the respondent.

This ruling underscores the importance of active communication and participation in negotiation processes and reaffirms the judiciary's commitment to facilitating alternate dispute resolution mechanisms.