Royal Orchid Associated Hotels Private Ltd. v. Kesho Lal Goyal (2020) - Extent of Arbitration Clause & Revocability of Agency


Court :
Delhi High Court

Brief :
The judgment, basically deals with two aspects of law, one being the extent of the arbitration clause and the other being the revocability of agency. The court emphasized on the extent of section 202 and 221 of Indian contract act, and also interpreted the arbitral clause, keeping in mind the intention of the parties. The petition was dismissed as the petitioners failed to form any case for their arguments.

Citation :

JUDGEMENT SUMMARY: Royal Orchid Associated Hotels Private Ltd. v. Kesho Lal Goyal

  • DATE OF JUDGEMENT:3rd November 2020
  • JUDGES: HON'BLE MR. JUSTICE V. KAMESWAR RAO
  • PARTIES: Royal Orchid Associated Hotels Private Ltd (Petitioner) v. Kesho Lal Goyal (Respondent)

SUBJECT

The judgment, basically deals with two aspects of law, one being the extent of the arbitration clause and the other being the revocability of agency. The court emphasized on the extent of section 202 and 221 of Indian contract act, and also interpreted the arbitral clause, keeping in mind the intention of the parties. The petition was dismissed as the petitioners failed to form any case for their arguments.

OVERVIEW & FACTS

Kesho lal goyal, the respondent was a hotelier in Uttarakhand who contracted the petitioner Royal orchid associated Hotels pvt ltd which was a company experienced in managing and operating hotels. They had a formal contract, with provisions entailing the optional arbitral clause and jurisdiction clause to entail Delhi as the judicial jurisdiction. The issue arose when on 31 July 2020 the respondent sent a notice to the petitioner as to terminate the contract due to the inability of the petitioner to maintain the minimum 15% revenue as mentioned in their contact. The clause was that in case the petitioner is unable to provide a minimum revenue of 15% per annum for 3 consecutive years the respondent had a right to terminate the contract.

There was also a lock in period of 5 years for this 15 year contract, during the lock in period, either parties cannot terminate the contract. The question for discussion was the beginning date of this lock in period, according to the petitioner may 2017 should have been the date as the hotel began its operation on May 2017, while according to the respondent May 2015 must have been the effective date as on that date they contracted the petitioner and the petitioner started their work.

The petitioner after receiving the notice to terminate this contract, filed this case and prayed that the hotel and its belongings would be under their possession under section 221 of Indian contract act as they were an agent whose interest lied in the subject of agency and hence the agency was not revocable as per section 202 of Indian contract act.

IMPORTANT PROVISIONS

Section 202 in The Indian Contract Act, 1872

Termination of agency, where agent has an interest in subject-matter. —Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. —Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Section 221 in The Indian Contract Act, 1872

Agent’s lien on principal’s property. —In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him. —In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him."

ANALYSIS OF THE JUDGEMENT

After giving due weightage and analysing the citations provided by both the parties, the court dismissed the petition and held that the petitioners did not have any case.

On the issue of the date of enforcement of the contract or the effective date the court held that may 2015 was the effective date has both the parties intended that date to enforce the contract as the petitioners took a payment of 15,00,000 to start their designing and organizing labour and management. In order to ensure that their efforts do not go into waste the petitioners took the advance which makes it clearly evident that may 2015 was the effective date, and since the respondents terminated the contract on 31 July 2020 which was after the expiry of the lock in period of 5 years, hence was valid.

Now as to the applicability of section 202 of contract act which makes an agency contract irrevocable in a case when the agent has an interest in the subject matter beforehand. But in this case the court held that section 202 was not applicable as to the fact that the petitioners were only given a managerial fee which made their interest lie after the fulfilment of the contract hence the contract was revocable.

Therefore the petition was dismissed.

 

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SHIVEK J.
on 25 February 2021
Published in Others
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