Delhi High Court Declines to Restrain Encalm Hospitality From Serving Dreamfolks’ Clients, Holds Agreement Did Not Confer Exclusivity
Safiya Malik
The High Court of Delhi Single Bench of Justice Amit Bansal declined to enforce a restraint sought against Encalm Hospitality Private Limited, holding that its lounge services arrangement with Dreamfolks Services Limited did not create exclusivity between Dreamfolks and its clients. The Court noted that the agreement permitted clients to maintain parallel arrangements and therefore Encalm’s dealings through third-party providers were not in breach. It further recorded that even if the termination of the contract was disputed, the remedy available would be compensation. Disposing of the petition under Section 9 of the Arbitration and Conciliation Act, the Bench directed Encalm to maintain records of transactions with the entities concerned.
The petitioner, DreamFolks Services Ltd., is engaged in the business of providing travel and lifestyle services to organizations worldwide, facilitating lounge access, meet and assist, airport transfers, food and beverages, spa services, transit hotels, nap rooms, and other amenities. The respondent, Encalm Hospitality Pvt. Ltd., operates and manages airport lounges under licenses obtained from airport authorities.
An Agreement dated 26 July 2022 was executed between the parties. Under this Agreement, the respondent was to provide access to its lounges to customers of the petitioner’s clients, including major banks, through the petitioner’s proprietary point-of-sale system. The petitioner paid the respondent for these services and recovered amounts from its clients, retaining a margin.
The Agreement had a tenure of five years but was terminable earlier by either party with ninety days’ written notice. On 4 August 2025, the respondent issued such a termination notice, which the petitioner challenged. The petitioner alleged breach of the Agreement by the respondent, asserting that Encalm had begun directly engaging with the petitioner’s clients, including ICICI Bank, Axis Bank, Yes Bank, and American Express, thereby causing significant business losses. Reliefs sought included interim injunctions restraining Encalm from dealing directly or indirectly with petitioner’s clients, cessation of operations with certain banks, and disclosure of accounts.
The respondent denied the allegations, contending that the petitioner’s agreements with banks were non-exclusive and that banks had similar arrangements with multiple service providers. It was asserted that the respondent was not directly dealing with the petitioner’s clients but was instead engaging with them through independent third-party service providers on a principal-to-principal basis.
The petitioner relied on Clause 4.4 of the Agreement, which stated: “LOUNGE OPERATOR agrees that it would not do direct business with the Clients of DreamFolks either directly or through representatives during the subsistence of this Agreement in relation to Services rendered by LOUNGE OPERATOR under the scope of this Agreement.” It was contended that “representatives” included third-party service providers. The respondent maintained that third-party providers were independent entities and not its representatives.
The Agreement also contained Clause 11, permitting termination with ninety days’ notice or requiring compensation equivalent to three months’ average invoice amount if termination occurred without notice. The Agreement included an arbitration clause designating New Delhi as the seat of arbitration.
The Court recorded: “LOUNGE OPERATOR shall provide its Services to the Customers on non-exclusive basis and on terms as recorded between DreamFolks and LOUNGE OPERATOR in this Agreement & it’s annexures.” The Court further noted Clause 4.4, which barred direct dealings with petitioner’s clients during the Agreement.
The Court stated: “At the outset, I may note that the Agreement does not contain a list of the petitioner’s Clients, nor does the Agreement stipulate that the Clients of the petitioner are its exclusive Clients.” It recorded that the petitioner had filed only the first pages of agreements with ICICI Bank, Axis Bank, Yes Bank, and American Express, which did not establish exclusivity.
The Court observed: “This letter, at least on a prima facie stage, suggests that the aforesaid entities, i.e. Axis Bank and ICICI Bank may be having agreements with other entities even though their contract with the petitioner is still valid.”
Addressing the respondent’s contention, the Court noted: “It is submitted that the respondent’s agreements with the third parties are on a principal-to-principal basis, and the said third parties are not the agents or the representatives of the respondent. Thus, the said third parties cannot, in any manner, be construed as ‘representatives’ of the respondent in terms of Clause 4.4 of the Agreement.”
It stated: “The petitioner has failed to place on record any material to show that there is an exclusivity between the petitioner and its Clients.” It concluded: “Therefore, 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.”
On the enforceability of negative covenants, the Court stated: “There is no cavil with the proposition that the Court can specifically enforce a negative covenant contained in the contract. However, in the present case, at least at a prima facie stage, the Court cannot come to the conclusion that the respondents have breached the negative covenant.”
The Court distinguished the Division Bench judgement in Global Music Junction Pvt. Ltd. v. Shatrughan Kumar, noting: “In the present case, there is no such explicit clause in the Agreement between the parties restricting the respondent from entering into agreements with third-party service providers or a new vendor.” It further observed: “A combined reading of Clauses 11.1 and 11.2 of the Agreement makes it obvious that even if termination by the respondent is held to be unlawful, the remedy for the petitioner would be monetary compensation.”
Justice Bansal concluded: “Therefore, in my considered view, the interest of the petitioner is adequately addressed by the directions passed by this Court on 28th August, 2025, by directing the respondent 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.”
“Accordingly, the petition was disposed of while reiterating the directions passed by this Court on 28th August,2025. Needless to state, any observations made herein are only for the purpose of adjudication of the aforesaid petition and would have no bearing on the final outcome of the arbitration proceedings.”
Advocates Representing the Parties
For the Petitioners: Mr. Amit Sibal, Senior Advocate, Mr. Pavan Narang, Senior Advocate with Mr. Mayank Bhargava, Mr. Abhishek Batra, Vinamra Kopahira, Mr. Ankit Handa, Ms. Suditi Batra, Mr. Rajdeep Saraf and Mr. Himanshu Sethi, Advocates.
For the Respondents: Mr. Rajiv Nayar, Senior Advocate with Mr. Anirudh Bakhru, Mr. N.S. Ahluwalia, Mr. Deepak Chawla, Mr. Adhish Sharma and Mr. Nitin Pandey, Advocates.
Case Title: DreamFolks Services Ltd. v. Encalm Hospitality Pvt. Ltd.
Neutral Citation: 2025: DHC:8144
Case Number: O.M.P.(I) (COMM.) 351/2025
Bench: Justice Amit Bansal
