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Judgment
Anu Sivaraman, J
This is an appeal preferred under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 read with Section 13(1A) of the Commercial Courts Act, 2015, against the order dated 19.03.2024 of the LXXXIV Additional City Civil and Sessions Judge (CCH-85) rendered in I.A.No.III in Commercial O.S.No.504/2023. The appellants were the defendants in the suit; they had filed the IA seeking for referring the Parties to Arbitration in terms of clause 16.2 of the Joint Venture Agreement dated 30.08.2004, which is referred to in the Loan Agreement dated 23.05.2007. The I.A. was dismissed. Hence, this appeal.
The case of the appellants before the Commercial Court was that Article 1.1.c of the loan agreement dated 23.05.2007 refers to the Joint Venture Agreement dated 30.08.2004. The Memorandum and Articles of Association of the borrower also specifically stated that the Joint Venture Agreement should be read as part and parcel of the Articles of Association. It is contended that the Joint Venture Agreement contained an Arbitration Clause and therefore the parties ought to have been referred to Arbitration.
The learned counsel appearing for the appellants submits that the appellant-company itself had been incorporated in pursuance to the Joint Venture Agreement and the defendants had disputed the liability to pay the amount under the loan agreement and therefore, the dispute having arisen in terms of the Joint Venture Agreement, the parties ought to have been referred for Arbitration. It is further contended that the Joint Venture Agreement provided for setting up of an Agro Food Park at Hiriyur in Chitradurga District with Joint Venture capital to be provided by the plaintiff. A Joint Venture Company was to be incorporated as a Public Limited Company for carrying out the said project. The plaintiff had agreed to invest in the share capital of the Joint Venture Company so as to provide financial assistance for carrying out the project. It was pursuant to the said agreement that the appellant - Company was incorporated and further agreements including the loan agreement which formed the subject matter of the suit was entered into between the parties. It is stated that instead of investing in the share capital of the Joint Venture Company, the plaintiff thereafter advanced an interest free unsecured loan to the Company. It is therefore contended that the Company itself having been incorporated in pursuance to the Joint Venture Agreement, the arbitration clause in the Joint Venture Agreement ought to have been considered as a part of the subsequent agreements entered into between the parties as well.
The plaintiff in the suit contended that the defendants had submitted themselves to jurisdiction of the Commercial Court by seeking time for filing the written statement by making an application under Section 148 of CPC and having submitted themselves to the jurisdiction of the Commercial Court, they were estopped from seeking reference of the dispute to arbitration. Further, it was contended that the Joint Venture Agreement dated 30.08.2004 was executed between the plaintiff and an entity called 'Harsha Seeds and Agro Products Private Limited' and a Supplemental Agreement was entered into between Harsha Seeds and Agro Products Private Limited, the plaintiff as well as defendant No.1, where defendant No.1 undertook the development of the Food Park at Hiriyur in Chitradurga District. It is stated that defendant Nos.2 to 4 were not parties to the Joint Venture Agreement entered into between the plaintiff and Harsha Seeds and Agro Products Private Limited and therefore they could not seek any benefit under the said Joint Venture Agreement. It is further contended that the Joint Venture Agreement was never acted upon by the parties and it was thereafter agreed between the parties that instead of investment in the share capital of the Joint Venture Company, the plaintiff would advance an interest free unsecured loan of Rs.400 lakhs to the 1st defendant company. This was accepted by the defendant and the loan agreement was entered into. When repayment was not made in terms of the agreement, the suit was laid.
Having heard the learned counsel appearing on either side and considering the terms of the Joint Venture Agreement dated 30.08.2004 as well as the loan agreement dated 23.05.2007, the Commercial Court came to the conclusion that the appellants herein were not parties to the Joint Venture Agreement and could not therefore, seek reference of the dispute to Arbitration in terms of the Joint Venture Agreement. It was found that the only document entered into between the plaintiff and the appellants i.e., the first defendant in the case was the loan agreement which did not contain any Arbitration Clause. It was therefore held that the application under Section 8 of the Arbitration and Conciliation Act, 1996 filed on behalf of the defendants was liable to be rejected.
The learned counsel appearing for the appellants submits that the first appellant was an entity, which was formed specifically in terms of the Joint Venture Agreement and its Articles of Association specifically refers to the Joint Venture Agreement and states that the same should be considered as part of the articles of association for all intents and purposes. It is stated that the Food Karnataka Limited had intimated about the conversion of the State grant into an interest free unsecured loan and the defendants were forced to accept the said loan, being left with no option. It is submitted that the Commercial Court ought to have considered the specific provisions of the Articles of Association and the situation in which the defendants was forced to accept the conditions put-forth in the loan agreement and ought to have accepted the contentions of the appellants.
The learned counsel appearing for the respondent/plaintiff would contend that there was no Joint Venture Agreement between the plaintiff in the suit and the first defendant, who was the party only to the loan agreement entered into on 23.05.2007. It is further submitted that apart from the loan agreement, the Directors of the Company had specifically executed a personal deed of guarantee on the same day agreeing to be personally liable for the money advanced in terms of the loan agreement. It is submitted that since the loan agreement did not contain any arbitration clause and since the appellant was not a party to the Joint Venture Agreement, which contains the arbitration clause, the order passed by the commercial Court was perfectly legal and valid.
The learned counsel appearing for the respondent placed reliance on the decision of the Apex Court in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited (2009) 7 SCC 696 and Gujarat Composite Limited v. A Infrastructure Limited and Others (2023) 7 SCC 193 in support of the contention that a non-signatory to an Arbitration Agreement cannot seek the reference of the dispute to Arbitration.
The Apex Court in M.R. Engineers's case (supra), that where an Arbitration clause is provided in a main contract and subsequent contract is entered into between the parties which refers to the main contract but does not contain an arbitration clause, the inescapable conclusion would be that the parties had consciously decided not to make the arbitration clause a part of the subsequent agreement and therefore, the clause in the earlier contract cannot be construed as a incorporation by reference of such clause into the subsequent contract.
In Gujarat Composite Limited's case (supra), the Apex Court considered the disputes similar to the one raised herein and held that when there is no doubt about non existence of arbitration agreement in relation to the entire subject matter of the suit and when the substantive reliefs claimed in the suit fall outside the arbitration clause in the original contract, the arbitration clause cannot bind non-parties to the first contract and the partial bifurcation of the suit so as to refer a part of the suit to arbitration is impermissible.
Having considered the contentions advanced on either side, we notice that the Joint Venture Agreement was entered into between the plaintiff and Harsha Seeds and Agro Products Private Limited on 30.08.2004. On 08.10.2004, a Supplemental Agreement was entered into between Harsha Seeds and Agro Products Private Limited and Bangalore Food Technologies and Services Park Limited, which was duly approved by the Food Karnataka Limited. In May 2007, Harsha Seeds and Agro Products Private Limited and Food Karnataka Limited entered into a supplemental Agreement. The Food Karnataka Limited intimated that the State grant would be converted into an interest free unsecured loan. Thereafter, the appellant had entered into a loan agreement on 23.05.2017 with the plaintiff. It appears that in pursuance thereto, deeds of personal guarantee were also executed by the directions. In the above factual situation, we are of the considered opinion that the conclusion arrived at by the Commercial Court that there was no Joint Venture Agreement which contained an arbitration clause which was signed between the plaintiff and the appellants herein is factually correct. The order of the Commercial Court therefore cannot be said to be illegal or perverse.
The appeal therefore fails and is accordingly dismissed.
Pending I.A.No.1/2024 for Stay is hereby dismissed.