Agreements Containing Arbitration Clause Not Interconnected: Telangana HC Upholds Dismissal Of Application Seeking Rejection Of Plaint

The High Court was considering an appeal filed under Section 13 of the Commercial Courts Act, 2015 read with Section 37 of the Arbitration and Conciliation Act, 1996 against the order of 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 was dismissed.

The Division Bench of Chief Justice Alok Aradhe & Justice J. Sreenivas Rao asserted, “...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.”

Advocate Prasen Gundavaram represented the Appellant while Advocate Manjari S. Ganu represented the Respondent.

The Plaintiff Company had entered into an operational lease agreement with defendant No.1 company in respect of 30 nos. of Volvo FMX 460 33 Cu.M Coad Body Tippers. 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 for almost one year. Subsequent thereto, the plaintiff and defendant No.1 entered into Memorandum of Understanding (MOU) in furtherance of the operational lease agreement whereby the original operational lease agreement was modified/revised.

Despite repeated demands, defendant No.1 did not perform any part of the obligations. The plaintiff later filed a commercial suit 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 and Rs.33,41,069 towards initial capital investment and other expenses in respect of the joint venture agreement. The defendant No.1 filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 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, the Commercial Court didn’t have the jurisdiction to adjudicate the dispute as well as bar under Section 8 of the Act as there was valid arbitration clause in the agreement existing between the parties. However, the same was rejected and the defendant approached the High Court.

One of the arguments raised by the plaintiff was that the operational lease agreement and the joint venture agreement were not interconnected and both were different agreements.Insofar as joint venture agreement was concerned, it was an independent agreement in respect of works which were already awarded to defendant No.1 at the Mines of Mahanadi Coal Fields.

The Bench noted 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 and MOU. However, the said documents did not contain arbitration clause and basing upon the arbitration clause enumerated in the joint venture agreement, defendant No.1 was 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.

Reference was made to the judgment in Ameet Lalchand Shah and others v. Rishabh Enterprises and another (2018) 15 SCC 678 wherein the Apex 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.

The Bench further made it clear that in the subject matter operational lease agreement and joint venture agreement were not interconnected. The operational lease agreement was pertaining to leasing of 30 x Volvo FMX 460 19 Tippers (33 CUM coal body) for an amount of 91,57,161 and for a term of 34 months and whereas the joint venture agreement in respect of works which were awarded to defendant No.1 in Lakhanpur, Odisha at the Mines of Mahanadi Coal Fields.

Reliance was also placed upon Mustigulla @ Namaswamy Hemanth Kumar v. Abhaya Infrastructure Pvt. Ltd. And others 2016 (6) ALD 598 (DB), wherein the Division Bench of erstwhile High Court for the States of Telangana and Andhra Pradesh held that rejection of plaint on the ground of res judicata, cause of action, under valuation, limitation have to be decided on trial but the same cannot be a ground for rejection of plaint, especially when the parameters of Order VII Rule 11 of C.P.C. are not satisfied.

Thus, finding no illegality or irregularity or jurisdictional error in the impugned order passed by the Commercial Court in dismissing the application filed by defendant No.1 to reject the plaint filed by the plaintiff, the Bench dismissed the Commercial Court Appeal.

Cause Title: PSM Energy Pvt. Ltd v. ZAM Engineering and Logistics Pvt. Ltd [COMMERCIAL COURT APPEAL No.20 OF 2024]

Appearance:

Appellant: Advocate Prasen Gundavaram

Respondent: Advocate Manjari S. Ganu

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