Delhi High Court declines to pass restraining order against Encalm in DreamFolks lounge dispute case

The Delhi High Court recently dismissed DreamFolks Services' petition seeking interim directions to restrain Encalm Hospitality from entering into or executing arrangements with its banking clients during the pendency of a dispute between them [Dreamfolks Limited Vs Encalm Hospitality].

DreamFolks, a listed entity providing travel and lifestyle services to banks and corporates, had entered into a five-year agreement with Encalm on July 26, 2022. Under this arrangement, Encalm was to operate airport lounge access for customers of banks such as ICICI Bank, Axis Bank, Yes Bank and American Express through DreamFolks’ proprietary platform.

On August 4, Encalm issued a 90-day termination notice. DreamFolks alleged breach, contending that Encalm continued to deal directly or indirectly through third-party service providers, with its banking clients during the notice period.

On September 16, Justice Amit Bansal, disposed of DreamFolks' Section 9 petition under the Arbitration and Conciliation Act, 1996, stating that the company failed to demonstrate exclusivity in its relationships with the clients.

“It appears that the petitioner’s Clients are free to have similar agreements with other third-party service providers,” the Court observed, adding that “on a prima facie view, there is no bar upon the respondent to provide services to the Clients of the petitioners through third-party service providers," the Court said.

Encalm had argued that DreamFolks’ arrangements with banks were non-exclusive.

The company's counsel stressed that “nothing has been placed on record by the petitioner to show that the said entities/banks are the exclusive Clients of the petitioner” and that Encalm’s contracts with independent service providers were on a principal-to-principal basis.

Justice Bansal agreed, noting that DreamFolks had only filed the first pages of its agreements with the banks.

“The petitioner has failed to place on record any material to show that there is an exclusivity between the petitioner and its Clients,” the Court said.

Distinguishing the precedent cited by DreamFolks (Global Music Junction v. Shatrughan Kumar), Justice Bansal observed that in the present case, there was no such explicit clause in the agreement by which the respondent could be restrained from entering into agreements with third-party service providers or a new vendor.

The Court further said that considering the termination clause, even if termination by the respondent is held to be unlawful, the remedy for the petitioner would be monetary compensation.

Hence, it reiterated the earlier directions issued on August 28 and directed Encalm to maintain complete records of accounts in respect of all transactions entered into by the respondent with the 21 banks/entities mentioned in the petition.

The petition was accordingly disposed of with the Court clarifying that its findings were limited to the interim stage and would not affect the arbitral proceedings.

DreamFolks was represented by Senior Advocates Amit Sibal and Pavan Narang with advocates Mayank Bhargava, Abhishek Batra, Vinamra Kopahira, Ankit Handa, Suditi Batra, Rajdeep Saraf and Himanshu Sethi.

Encalm was represented by Senior Advocate Rajiv Nayar, Advocate Anirudh Bakhru and a team from Khaitan & Khaitan comprising Ashutosh Khaitan (Managing Partner), Navpreet S Ahluwalia (Senior Partner), Deepak Chawla (Partner), Adhish Sharma (Partner), Nitin Pandey (Principal Associate).

[Read Judgment]