When Multiple Agreements Are Not Interconnected, Arbitration Clause In Any One Agreement Can't Justify Referring All Disputes To Arbitration: Telangana HC

The Telangana High Court bench of Chief Justice Alok Aradhe and Justice Sreenivas Rao, affirmed that where multiple agreements are interconnected and form part of a single commercial transaction then only the presence of an arbitration clause in one or more agreements can justify referring all disputes, involving all agreements and parties, to arbitration. This is true even if some agreements lack an arbitration clause. In this case, the court found that agreements were not interconnected.

Brief Facts

This appeal under Section 13 of the Commercial Courts Act, 2015 read with Section 37 of the Arbitration and Conciliation Act, 1996 has been filed against the order dated 10.06.2024 passed in C.O.S.No.31 of 2021 by the Commercial Court by which the application filed by appellant/defendant No.1 seeking rejection of the plaint under Section 8 of the Arbitration and Conciliation Act, 1996 read with Order VII Rule 11(a) & (b) read with Section 151 of Code of Civil Procedure, 1908 (C.P.C.) was dismissed.

Plaintiff had entered into an operational lease agreement dated 16.10.2019 with defendant No.1 company in respect of 30 Volvo Tippers and the said operational lease agreement was executed at Gurugram, Haryana. The defendant No.1 defaulted in payment of monthly lease rental of the Volvo Tippers from the 1st month itself and failed to pay the rents from November, 2019 to August, 2020.

Subsequent thereto, the plaintiff and defendant No.1 have entered into Memorandum of Understanding (MOU) in furtherance of the operational lease agreement on 05.01.2020, whereby the original operational lease agreement was modified/revised. But,defendant continued to default.

Thereafter, defendant Nos.1 to 3 approached the plaintiff in the month of February 2020 stating that defendant No.1 was independently awarded works of contract in Odisha and proposed joint venture with the plaintiff and offered to share 50% of the profits in the revenue accrued and also to refund the working capital to the plaintiff and accordingly, the plaintiff and defendant No.1 entered into joint venture agreement dated 21.02.2020. But this agreement was not acted upon.

The plaintiff filed C.O.S.No.31 of 2021 seeking a direction to the defendants to jointly and severally pay an amount of Rs.10,93,05,243/- in respect of the Lease Agreement dated 16.10.2019 along with future interest @ 13% per annum from the date of suit till realisation and sought another relief directing defendant No.1 to pay an amount of Rs.33,41,069/- being amounts refundable by them towards initial capital investment and other expenses in respect of the joint venture agreement dated 21.02.2020

Defendant No.1 filed an application in I.A.No.73 of 2022 under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') read with Order VII Rule 11(a) and (b) of C.P.C. to reject the plaint on the ground that as per the arbitration clause in the joint venture agreement dated 21.02.2020, the Commercial Court is not having jurisdiction to adjudicate the dispute as well as bar under Section 8 of the Act as there is valid arbitration clause in the agreement existing between the parties and also on the ground of cause of action.

Contentions

The Defendant No. 1/appellant submitted that in the joint venture agreement, there is a specific clause enumerated that if any dispute arises between the parties, the said dispute has to be resolved through arbitrator. The plaintiff instead of invoking arbitration clause filed suit in C.O.S.No.31 of 2021 before the Commercial Court and the same is not maintainable under law and also there is no cause of action to institute the suit.

Per contra, Plaintiff/the respondent submitted that the operational lease agreement dated 16.10.2019 and the joint venture agreement dated 21.02.2020 are not interconnected and both are different agreements and that the operational lease agreement dated 16.10.2019 was executed between the plaintiff and defendant No.1, whereunder the plaintiff leased out 30 Volvo Tippers to defendant No.1 for a period of 34 months.

That Insofar as joint venture agreement dated 21.02.2020 is concerned, it is an independent agreement in respect of works which were already awarded to defendant No.1 at Lakhanpur, Odisha at the Mines of Mahanadi Coal Fields.

That operational agreement and the MOU do not contain arbitration clause and only joint venture agreement contains an arbitration clause. Pursuant to the said clause, defendant No.1 filed Arbitration Application No.419 of 2022 before the High Court of Delhi seeking appointment of Sole Arbitrator to resolve the dispute between the parties and the said arbitration application was allowed.

Court's Analysis

The court noted that in pursuance of arbitration clause contained in the joint venture agreement defendant No.1 has filed Arbitration Application No.419 of 2022 before the High Court of Delhi and the same was allowed on 25.03.2022 referring the dispute arose out of a joint venture agreement dated 21.02.2020 to the arbitrator and

The court also noted that the Delhi High Court also held that there is “no connect” between the subject matter of the operational lease agreement read with MOU and joint venture agreement and the said order has become final

It is pertinent to mention that the plaintiff filed suit for recovery of an amount of Rs.10,93,05,243/- against the defendants basing upon the operational lease agreement dated 16.10.2019 and MOU dated 05.01.2020 and the said documents do not contain arbitration clause and basing upon the arbitration clause enumerated in the joint venture agreement dated 21.02.2020, defendant No.1 is not entitled to seek rejection of the plaint, especially the operational lease agreement, MOU and joint venture agreement are not interconnected and they are different, the court noted.

The court noted that in Ameet Lalchand Shah and others v. Rishabh Enterprises and another, 2018 the Supreme Court has held that where multiple agreements are interconnected and form part of a single commercial transaction, the presence of an arbitration clause in one or more agreements can justify referring all disputes, involving all agreements and parties, to arbitration. This is true even if some agreements lack an arbitration clause or some parties are non-signatories, provided the agreements are integrally connected to achieving the overall purpose of the transaction.

Based on the above, the court observed that operational lease agreement dated 16.01.2019 and joint venture agreement dated 21.02.2020 are not interconnected. The operational lease agreement is pertaining to leasing of Volvo Tippers for an amount of 91,57,161/- and for a term of 34 months and whereas the joint venture agreement dated 21.02.2020 in respect of works which were awarded to defendant No.1 in Lakhanpur, Odisha at the Mines of Mahanadi Coal Fields.

The court further noted that insofar as the other ground raised by defendant No.1 that there is no cause of action and jurisdiction to file suit before the Commercial Court, Hyderabad, is concerned, Clause 25 of the operational lease agreement dated 16.10.2019 provides for Hyderabad as the place of jurisdiction to initiate legal proceedings in case of disputes between the parties. Basing on the said pleadings, the Commercial Court has entertained the suit.

In Raptakos Brett & Co. Ltd. v. Ganesh Property and Mayar (H.K.) Ltd. v. Vessel M.V. Fortune Express, 1998 the Supreme Court has held that in an application under Order VII Rule 11 of C.P.C., the Court has to look into the averments made in the plaint and the documents filed along with the plaint alone. The Court cannot at that stage look into the written statement or the documents filed along with the written statement, the court noted.

The court concluded that for the foregoing reasons as well as the plethora of judgments, no illegality or irregularity or jurisdictional error is found in the impugned order dated 10.06.2024 passed by the Commercial Court in dismissing the application filed by defendant No.1 to reject the plaint filed by the plaintiff.

Accordingly, the present appeal was dismissed.

Case Title: PSM Energy Pvt. Ltd. Versus ZAM Engineering and Logistics Pvt. Ltd.

Case Reference: COMMERCIAL COURT APPEAL No.20 OF 2024

Judgment Date: 22/11/2024

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