First it lost its customer’s documents, then it lost the case.
After Shri Chand Construction and Apartment Pvt Ltd repaid the money it borrowed from Tata Capital Housing Finance, it wanted back the property documents it had given the financier as security. But Tata Capital Housing had lost them. Chand Construction sued Tata Capital Housing before the Delhi High Court for damages, saying that the lost documents delayed resale of the property and also fetched lower value.
Tata Capital Housing said it could not be sued before the High Court, because as per the agreement, any dispute would have to be taken to arbitration.
But then, unluckily for Tata Capital Housing, the agreement also had ‘an opt-out clause’ under which Tata Capital Housing could opt out of arbitration. Notably, this option was not available to the other party.
The Delhi High Court said this was not a valid arbitration agreement at all, in the first place. It lacked the essential element of an arbitration agreement — “mutuality”.
The point of mutuality seems trite law, but the issue is not so clearly open-and-shut. Writing in Mondaq, advocates Alok Jain and Tvisha Desai say that this issue is not new and that courts have taken a different approach too. The flipside is the point that both parties agreed to the ‘opt-out clause’, so ‘mutuality’ would kick-in only when a dispute is actually referred to arbitration.
“Were this issue to travel to the Supreme Court, considering the trend of the Supreme Court decisions wherein the unilateral right of appointment of an arbitrator has been invalidated it would be likely that the scales tip in favour of mutuality. This may bode well for balancing bargaining power in respect of dispute resolution clauses in India but end up diminishing the notion of party autonomy to some extent,” Jain and Desai say.