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Xero Degrees Cafe Pvt Ltd vs. D.K Mehta and Sons & Ors.

Arbitration Petition · 2026:DHC:7720Decided 2 Sept 2026New Delhi Bench
ARB.P. 1322/2025CNR: DLHC010616382025
Justice Sachin Datta

Background

The petitioner, owner of the "Xero Degrees" café brand, had granted a franchise to a partnership firm to run an outlet in Punjab. It alleged the franchisee transferred the outlet to a fourth party without permission, continued using its brand name without authority, and owed over Rs. 39 lakh in unpaid royalty. The petitioner sought appointment of a sole arbitrator under the franchise agreement's arbitration clause.

Decision Breakdown

The Court found a valid arbitration agreement existed between the petitioner and the original franchisee, and that the respondents had failed to respond to the arbitration notice or propose their own arbitrator. Regarding the fourth party (to whom the outlet was allegedly transferred without consent), the Court held that whether this non-signatory could be bound by the arbitration clause is a complex factual question best left for the arbitrator to decide, not the referral court. It therefore appointed a sole arbitrator to hear all the disputes, leaving open the question of the fourth party's status in the arbitration.

Lesson Learnt

Courts asked to appoint an arbitrator generally do only a light-touch review of whether an arbitration agreement exists; harder questions, like whether someone who never signed the contract can still be dragged into the arbitration, are for the arbitrator to work out.

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