Existence of tortious claims not a ground to permit a party to wriggle out of arbitration, Delhi HC

The Delhi High Court has held that existence of a tortious claim for exemplary damages would not be a ground to permit any party to wriggle out of an arbitration clause in a contract..“If such a course of action is permitted, then in each and every case, the party to a contract containing an arbitration clause could escape arbitration by claiming that it is seeking damages under torts or claiming punitive damages”, the Court said..Since an arbitral tribunal has all the trappings of a civil court, it has the power to grant all forms of injunctions and damages, it added..The judgment was passed by a Single Judge Bench of Justice Prathiba M Singh in a suit seeking compensation, punitive damages, and other relief against the defendant subsequent to the termination of a ‘Collaboration Agreement’..The plaintiff, Krishan Gopa,l had entered into the Collaboration Agreement with the defendant, Parveen Rajput, with respect to a property in Shahdara, Delhi..At the time of the agreement, the property had only a single storey and the defendant had agreed to construct the stilt parking on the ground floor as well as the upper ground floor, first floor, second floor and third floor. In consideration of the said construction, the defendant was to become the owner of only the first floor and second floor..Further, as per the agreement, the defendant had also agreed to pay the plaintiff a sum of Rs.68,80,000. Additionally, in case the construction was not completed within a period of 12 months, the defendant was to pay a penalty of 2% of the total cost of construction per month till possession was handed over to the plaintiff..The defendant did not complete the work and the construction came to a halt after some time. The property was completed out of the plaintiff’s own funds. No payment was made by the defendant..Meanwhile, the defendant entered into an agreement to sell the second floor of the building and received a sum of Rs.46 lakh from a third party..Finally, the plaintiff terminated the agreement and also published a notice for the same in two newspapers..The plaintiff then moved the High Court for compensation and punitive damages against the defendant. He also sought to restrain the defendant from entering the property..The defendant argued that the suit was not maintainable in light of the arbitration clause in the Collaboration Agreement. The plaintiff, on the other hand, vehemently objected to referring the disputes to arbitration on the ground that the present suit pertained to claims of punitive and exemplary damages, which could not be granted by an arbitrator..Damages sought by the plaintiff being in the nature of tortious claims and not arising out of the agreement, the disputes are not arbitrable, the plaintiff stated..It was further argued that since the defendant had already filed the written statement and the affidavit of admission/denial, the right to seek reference to arbitration was waived by him..Observing that for an arbitration clause to be waived, there has to be unimpeachable conduct to this effect by the party waiving such right, the Court held that the defendant had not waived the arbitration clause..“In the present case, when the Plaintiff issued a notice to the Defendant on 19th June, 2018, the Defendant mentioned the arbitration clause in reply to the said notice. Further, on the first date when the Defendant entered appearance in Court, a submission was made to the following effect as recorded in the order dated 4th December, 2018.”.It also held that the termination of the agreement would not annihilate the arbitration clause..Coming to the issue of whether claims of mandatory injunction and damages under torts were arbitrable, the Court noted,.“The agreement is quite detailed, in fact the terms are clear and categorical. The obligations of each of the parties is explicitly provided. In fact, in Clause 19, compensation for delay is also dealt with. The mere fact that the compensation may have been provided for delay in construction does not itself mean that the owner – Plaintiff cannot claim any damages over and above the penalty stipulated. It is for the Plaintiff to raise such claims before the Tribunal which will deal with them in accordance with law.”.The Court stated that the entitlement to exemplary/punitive damages was an issue which would be determined by the Tribunal, as long as the claims/disputes arise in respect of the building which was the subject matter of the Collaboration Agreement..The Court further opined that an arbitral tribunal has all the trappings of a civil court, including the power to award all forms of injunctions and damages, where a case is made out..“The compensation or damages, if any awardable for breach of the collaboration agreement including conduct of the defendant incidental thereto, is liable to be adjudicated in arbitration. There have been instances of cases where arbitrators have awarded damages towards mental tension, agony, harassment etc., and the same has been upheld by this Court..“.While disposing of the suit, the Court thus concluded that the disputes were arbitrable and were liable to be referred to an independent arbitrator..Furthermore, in view of Section 89 CPC and the fact that the plaintiff was an ex-serviceman and a senior citizen, the Court also directed for a refund of the Court fee deposited by him..The plaintiff was represented by Advocates Yashpal Singh and Veronica Shikha Johnson..The defendant was represented by Advocate Ashok Mahajan..Read the judgment:.Bar & Bench is available on WhatsApp. For real-time updates on stories, click here to subscribe to our WhatsApp.