In case of doubt over existence of valid arbitration agreement, dispute must be sent to arbitration: Delhi High Court

The Delhi High Court has said that for not referring a dispute to arbitration, a prima facie case of non-existence of valid arbitration agreement has to be made out (Knowledge Podium Systems vs SM Professional Services)..When there is doubt with respect to such non-existence, the court has to refer the matter to arbitration, the High Court ruled..The order was passed by a single-judge Bench of Justice Jayant Nath while dealing with a suit for recovery of Rs 2.5 crore in connection with a lease deed between the plaintiff and the defendant..The defendant had leased a property to the plaintiff on certain conditions, pursuant to which the plaintiff deposited an interest-free refundable deposit of Rs 1,90,14,720. .As per the plaintiff, a fresh agreement was arrived at between the parties in respect of use and occupation of the premises and maintenance with effect from April 2018. .After it became commercially unviable for the plaintiff to retain the rented premises, the plaintiff initiated negotiations with the defendant for reduction of rentals and maintenance with effect from April 2019..However, even before the plaintiff could formally terminate the agreement and remove its movables, the defendant took the possession of the premises. .While the plaintiff sought refund of the remaining interest-free refundable security deposit and movables, the defendant moved an application under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the dispute to arbitration..The defendant stated that the lease agreement contained arbitration clauses and hence, the application under Section 8 should be allowed. .The plaintiff contended that there was a novation of lease deed which stood superseded and novated in view of the fresh agreement of 2018 which did not contain any arbitration agreement..In response, the defendant claimed that the lease deed remained unchanged as the fresh agreement was only with respect to certain updated conditions, and the parties remained bound by the arbitration agreement..The Court noted that in the present case, the original lease deed undoubtedly provided for settlement of disputes through arbitration. .However, with respect to novation of contract, the Court observed, ."A novation takes place only when there is a complete substitution of a new contract in place of the old. Do the facts of the present case warrant a conclusion that there was a novation of contract? I may first see the scope of Section 8 of the Arbitration Act.".Perusing Section 8 and the Supreme Court's decision in Vidya Drolia and Ors. vs. Durga Trading Corporation, the Court stated that for rejection of a Section 8 application, a party has to make out a prima facie case of non-existence of valid arbitration agreement, by summarily portraying a strong case. ."But when in doubt, the court has to refer the matter to arbitration. The court should refer the matter if the validity of the arbitration agreement cannot be determined on a prima facie basis.".In the present case, the Court opined, it could not be prima facie said that there was a completely new contract and that the old registered lease deed had been novated. .Stating that the issue would require deeper consideration and was best left to the arbitral tribunal, the Court decided to allow the application under Section 8..The court accordingly appointed former Delhi High Court Judge, Justice GS Sistani as the sole arbitrator to adjudicate the dispute between the parties. .Advocates Shyam Kapadia, Vikram B Trivedi, SR Trilokchandani, Priya Diwadkar, Kartik Nagarkatti appeared for the plaintiff. .Advocates Saurav Agrawal, Madhav Misra, Harshavardhan Singh Rathore appeared for the defendant. .[Read Order]