Telangana High Court: Mere Use Of 'May' In Ancillary Agreement's Arbitration Clause Won't Defeat Main Agreement's Clear Intention To Arbitrate
The Telangana High Court allowed the Arbitration Application filed under Sections 11(5) and (6) of the Arbitration and Conciliation Act.
Justice K Lakshman, Telangana High Court
The Telangana High Court has explained that in interconnected agreements, if the ‘mother’ agreement clearly and unequivocally refers disputes to arbitration, then the mere use of "may" in an ancillary agreement's arbitration clause will not defeat the intention to arbitrate.
The Court allowed the Arbitration Application filed under Sections 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (the Act). The Court appointed a sole arbitrator to adjudicate the claims of the parties.
A Single Bench of Justice K Lakshman held, “Therefore, in case of interconnected agreements, where the mother agreement clearly and unequivocally refers the disputes to arbitration, mere use of ‘may’ in the arbitration clause of one of the ancillary agreements will not defeat the intention to arbitrate.”
Senior Advocate Sunil B.Ganu appeared for the Applicant, while Senior Advocate Avinash Desai represented the Respondents.
Brief Facts
The issue before the Court was whether a valid arbitration agreement existed between the parties, and specifically, whether clause 39 of the main agreement was applicable. The main agreement, was for the development of plots. Subsequently, a Joint Development Agreement (JDA) was executed between the parties, which pertained to the development of the same plots within the same project.
Court’s Reasoning
The High Court explained, “At this stage, this Court, would like to address the submission of the Respondents regarding the usage of the word ‘may’ in the arbitration clause of the agreement to sale. Where intention to arbitrate is unclear and where there is no definite arbitration clause, the parties cannot be referred to the arbitral process. However, where the intention to arbitrate is clear, the courts are duty bound to enforce such an intention. In the present case, the intention to arbitrate is quite clear when both the MoU and the agreement of sale dated 01.07.2020 are read together. In fact, this Court holds that they are supposed to be read together. Both the agreements were entered into for the same purpose of development of a real estate project. Further, the subject land in both the agreements is the same. It can also be seen that the agreement of sale refers to the MoU and stipulates that part of the sale consideration (Rs. 2 crore) had to be paid on the date of the MoU. Both the agreements form part of the same transaction.”
The Bench referred to the Supreme Court’s decision in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan (1999), wherein it was held that “where interconnected agreements are involved and the clauses in the agreements are distinct, the courts shall follow the clause in the main agreement. In the present case, the MoU is the main agreement and the agreement of sale is an ancillary agreement. The same forms part of the ‘transaction documents’ to be executed under the MoU.”
Consequently, the Court ordered, “In light of the aforesaid discussion, this Court holds that a valid arbitration agreement exists between the parties…In result, the present arbitration application is allowed.”
Accordingly, the High Court allowed the Application.
Cause Title: Urbanwoods Realitty LLP v. Uma Rastogi (died) & Anr. (ARBITRATION APPLICATION No.41 OF 2023)
Appearance:
Applicant: Senior Advocate Sunil B.Ganu; Advocate Manjari S.Ganu
Respondents: Senior Advocate Avinash Desai; Advocate Vadeendra Joshi