Delhi High Court: Failure to Respond to Legal Notices by a Party Amounts to Non-Participation in Negotiation Process

Petitioner: M/S. Breakthrough Concepts

Respondent: M/S. Atrix group of restaurants & Anr.

Court: Hon’ble High Court of Delhi

Date: March 5, 2023

Coram: HON’BLE MR. JUSTICE DINESH KUMAR SHARMA

Citation: ARB.P. 1068/2023

FACTS:

1. On the 26th of May 2017, a franchise agreement was executed between M/S Kaur Cookies Ltd. and Respondent No.1 through Respondent No. 2. Subsequently, M/S Kaur Cookies Pvt. Ltd. underwent a transfer to M/S Breakthrough Concepts via a deed of assignment, a fact uncontested by the Respondents.

2. The Respondents initiated a request for modification of the royalty and management fee, attributing the necessity for amendment to the adverse impacts of the COVID-19 Consequently, the Royalty and Management Fee were adjusted to Rs.1 lakh per month.

3. Despite the revised terms, the respondents failed to adhere to timely payment As of February 2021, an outstanding due of Rs.11,43,378.33 existed.

4. The Petitioner diligently communicated and solicited respondent No. 1 to settle the entire outstanding liability, yet such requests were met with disregard.

5. In pursuit of resolution, the Petitioner dispatched four legal notices on the dates 07.2022, 01.09.2022, 31.05.2023, and 07.07.2023. Subsequently, the arbitration clause was activated via a notice dated 31.05.2023.

ISSUE:

The court was approached under Section 11 (5) & (6) of the Arbitration and Conciliation Act, 1996 seeking the appointment of an Arbitral Tribunal comprising of a Sole Arbitrator to adjudicate the disputes inter se the parties. The main issue is the alleged breach of a franchise agreement, including non-payment of outstanding dues, and a dispute over the activation of the arbitration clause with the respondents objecting to procedural compliance.

JUDGEMENT:

The High Court noted the Petitioner’s consistent sending of demand notices, which received no response from the respondents and found that the Petitioner earnestly pursued resolution. According to the court, this demonstrated the petitioner’s sincere effort to work out a solution without turning to the legal system.

The High Court concluded that it is essential to comprehend the term “negotiation” in a pragmatic context when interpreting it. As a result, for the Negotiation to be successful, there must be reciprocal communication between the people involved.
Conversely, the respondent’s lack of reaction indicates that they did not actively engage in the bargaining process.

The High Court stressed that its duty is restricted to finding the existence of an arbitration agreement, even while it acknowledged its limited jurisdiction under Sections 11(5) and (6) of the Arbitration & Conciliation Act, 1996.

In this case, the Court decided that it was permissible to send the subject to arbitration where the parties acknowledged the existence of an arbitrable dispute and an agreement between them.