Dismissed

Colonial Construction Pvt. Ltd. v. Narayanam Nageswar Rao

Telangana HC16 Mar 2021CMA/99/2021

Case brief

AI extract

What is this about?

Appeal against refusal to refer a summary suit for recovery of advances to arbitration. The High Court held that the memorandum of understanding cancelled and novated the earlier agreements of sale, so their arbitration clause did not survive; the subject matter of the suit was not the same as that of the arbitration agreement, and Section 8 of the Arbitration and Conciliation Act, 1996 was not at

What the court decided

AI extract

Colonial Construction Pvt. Ltd. Vs Narayanam Nageswar Rao — Arbitration | Telangana HC (2021)

¶1

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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TUESDAY, THE SIXTEENTH DAY OF MARCH

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TWO THOUSAND AND TWENTY ONE

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PRESENT

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THE HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO AND

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THE HONOURABLE SRI JUSTICE T.VINOD KUMAR

¶7

C.M.A. NO: 99 OF 2021

¶8

Appeal under Section 37 of Arbitration and^{ConciliationAct, 1996 R/w. Section} 96 of CPC against the Judgmenu decree^{in lA No.1065/2017in OS No.173 of 2017} daled 10t1212020 on the file of^{the Court of the XVI AdditionalDistrictand Sessions} Judge -cum- lll Additional Family^{Court, Malkajgiri, Ranga Reddy District.}

¶9

Between:

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Colonial Construction P,t.^{Ltd., Rep.by its Managing DirectorYuvraj Singh} Takur, S/o. Late Raghu Raj Singh^{Takur, Agedabo-ut.51, Years, Occ'Bu-siness,} Reoistered Office a-t 2-2-i5lPt-3,^{Plot No. 1-16, Durgabhai DeshmukColony.} Badh Amberpet, Hvderabad-^{13 (Bharath).}

¶11

z. TJirai Singri tat<Lir,^{S/o. Late-RaghuR9i^Si19.!,^Ta[t1r,.Aged about.S1:y-e.{:t} Occ.^'Busiiess, Registered^{Office at 2-2-251P13, Plot No' 1-'1 6' Durgabnar} Deshmuk colony,^B Jsh^{Amberpet,Hvderabad}

¶12

].rr$i?131,[Rs/DEFENDANTs

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AND

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'l . Narayanam Nageswar Rao, S/o. Late Narasimha lvlurthy, Aged about'^{65 Years'} Occ.^'gusiness, Situated^{at 405,Minar Apartments,Deccan Towers,} Basheerbaoh. Hvderabad^(Bharath).

¶15

2 N;;;";;ilr11iir,tiit. sl,c. Naiavanam^{NageswarRao, Aged about. 30 Years,Occ'} - ejJri'iJ.j, Situateo at 405, Minar Apartments' Deccan Towers, Basheerbagh' Hyderabad (Bharath)'

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...RES'.NDENTS/,LA'NT,FFS

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lA NO: 2 OF 2021

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Petition under Section^{151 of cPCpraying that in the circumstances statedin} the affidavit filed^{herewith,the High court may be pleasedto stay all further} proceedings in o.S.No.173/2017^{pendingon the file of XVI Additional District and} Sessions Judge -cum-^{lll Additional Family court,Malkajgiri, Ranga Reddy District,} till the disposal of^{the present appeal'}

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For the Appellants^{: SRI SHARAD SANGHI,Advocate}

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For the Respondents^:

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The Court delivered the^{following: JUDGMENT}

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THE HONOURABLE SRI JUSTICE M.S. RAMACHANDRA RAO

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AND

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THE HONOURABLE SRI JUSTICE T. VINOD KUMAR

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Civil Miscellaneous Appeal No.99 of 2021

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JL]DGMENT:

¶27

This Civil Miscellaneous Appeal is preferred against order dt.10.12.2020 passed in LA. No.1065 of 20t7 in O.S .No.1 73 of 2017 by the XVI Additional District and Sessions Judge - cum _ III Additional Family Court, Malkajgiri, Ranga Reddy District.

¶28

The appellants herein are defendants in the suit.

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The su it filcd bv the resnondents

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The said suit is a summary suit filed by the respondents /plcintiffs under Order XXXVII of the Code of Civil procedure (CpC) against the appellants/defendants for:

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(i) recovery of a sum of Rs.2,49,50,000/- with interest thereon ar 15Yo pa from the date of suit till realization;

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(ii) Charge on the plaint schedule property till the amount is repaid by the appellants to the respondents;

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(iii) Charge on the lease rentals being paid by rhe tenants of rhe plaint schedule property to the appellanls on the said property;

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(iv) Directing the Sr.rb-Registrar, Malkajgiri, not to enrertain any sale transaction relating to the plaint schedule property ancl

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also direct them not to undertake any registration/lease till the entire dues of the respondents are cleared;

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(u) Directing all the tenants to arrange payments of the monthly rentals to the respondents account only and to forbid the appellants from pledging or mortgaging any of the said property till the dues ofthe respondents is liquidated.

¶38

The 1't appellant is a Company registered under the Company's Act, 1956 of which the 2nd appellant was the Director. The appellants had entered into a Development Agreement - cum - GPA on 28.07.2008 (Document No.3258/2008) with the land owners r.elating to a theater complex situated at Malkajgiri, Hyderabad.

¶39

The respondents contended that the appellants informed the respondents that they have subsequently, entered into an MOU on 20. 10.2010 with the land owners wherein the sharing ratio of the super built up area and other terms and conditions for the execution/completion of the project were agreed upon; that the appellants are entitled for 50%o of the super built up area in all floors except 3'd and 4'i floors and 60Yo of the super built up area in 3'd and 4th floors, which comes to the total area of 55,618 Sq.ft. towards the share of the appellants.

¶40

The respondents contended that they were made to believe the above facts by the appellants and the respondents then entered into two agreements of sale with the appellants on 27.08.2011 for purchase of 35,379 Sq.ft. and 20,339 Sq.ft. respectively of the super built up

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area along with proportionate share in the land in the^proposed complex for Rs.14.04 crores and Rs.9.36 crores respectively, totaling to Rs.23.40 crores.

¶43

The respondents contended that they paid the appellants an advance of Rs.4.61 crores, the receipt of which was also acknowledged by the appellants, and that as per the tems of the agreements entered into between the parties, the appellants have to pay interest on the amounts received from the respondents at 15Yo per annum from the date of payment till the execution and registration of sale deeds in respect of the said property in favour of the respondents.

¶44

According to the respondents, the appellants had agreed to complete the construction of the complex within a period of 18 months from the date of the agreement with a grace period of 3 months and that the appellants were also under obligation to complete the construction and hand over physical possession of the extent of the property agreed and sold by the appellants to the respondents within the time period agreed and stipulated in the above agreements.

¶45

The respbndents contended that the appellants had miserably failed to fulfill the terms of the agreements and failed to complete even the construction of the complex and did not hand over possession of the same to the respondents as per the terms of the agreements.

¶46

It is contended by the respondents that on account of the said facts, the respondents suffered a huge financial loss and

¶47

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inconvenience; there were discussions between the appellants and the respondents and it was mutually agreed by them that the agreements of sale dt.27.0g.2011 would stand canceiled and the appellants should refund the amounts received under the said agreements under a fresh Memorandum of Understanding (for short, ,MOU,) dt.13.12.2013. It is contended by the respondents that under the MOU, the following schedule was fixed for refund of the amounts:

¶50

a) On 13.1 2.2013 Rs.I ,00,00,000/b) On 20.01.2014 Rs. 1,20,00,000/c) On 20.02.2011 Rs. I ,20,00,000/d) On 20.01.20t1 Rs. 1,20,00,000/e) On 20.03.2014 Rs.1 ,20,00,000/-

¶51

It is contended that the respondents had agreed to receive the said arnounts wi.thout any interest if the refunds are made as per the schedule, and it was implied that in default of the appellants paying the amounts agreed, the respondents would also entitred for the said amounts with interest thereon as agreed.

¶52

The respondents alleged that the appellants did not repay the amounts as per the schedule except making part payment of Rs.2,1 1,50,000/- and the balance amount of Rs.2,49,50,000/- was not paid.

¶53

The respondents issued legal notice dt.0g.12.2015 to which the appellants gave a reply notice d1.30.12.2015.

¶54

Thereafter, the respondents filed on 13.12.2016. the suit for recovery of lhis amount with interest at 15o/o per annum from the date

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of the suit^{till realizationafter to the appellantsclaimingthe said} amount with^interest.

¶57

I.A. No.l0 65 of2011

¶58

15" After^{receivingsummons, the appellants filed I'A'No'1065 of} 20lTinvokingSection8oftheArbitrationandConciliationAct' 1996.

¶59

In the said^{application, the appellants contended that though} the agreements of sale^{had been entered into betweenthe respondents} and the appellants on^{27.08.2011,the respondentsneverpaidthe} amounts under the said agreements^{and did not perform their part of} the contract under the agreements.

¶60

t7. They alleged that the respondents exerted^{pressureand under} the threat of coercion, got executed the MOU dt.13.1.2.2013

¶61

¶62

Altematively, according to the appellants, the MOU was executed and the amounts were agreed to be returned without prejudice to the rilhts and contentions of the appellants, and that the same forms part and parcel of the agreements d1.27.08.2011. They then referred to the Arbitration clause containing in Clause 27129 of the agreements dt.27.08.2011 which provided for any dispute or difference arising out of or in connection with the performance or obligations under the agreements shall be resolved by arbitration in terms of the Arbitration and Conciliation Act, 1996 with the place of arbitration at Hyderabad.

¶63

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It is the contention of the appellants that since the respondents are claiming rights under the MOU dt. 13.12.2013, as per the last clause contained therein the said MOU forms part and parcel of the agreements of sale dt.27.08.201 I , and so the arbitration clause is deenred to be subsisting and the parties are governed by the said clause.

¶65

They contended that the respondents in the suit did not disclose about subsistence of the arbitration clause^{in the agreementsof sale dt.} 27.08.2011 and played fraud on the Court

¶66

Other contentions such as MOU^{dt.13.12.2013being} inadmissible under Section 35^{of the Stamps Act and also the} Registration Act, 1908, are^{raised in additionto the suit beingbarred} under Section 8 of the^{Arbitrationand Conciliation Act.}

¶67

1'his application^{was filed on28.8.2017.}

¶68

By that date, no^{application for leave to defendwas filed in} spite of expiry of the^period of^{10 days from the date of service of} Judges' summons in the^suit'

¶69

Counter of resDondents^{in IANo.l065 of 2017}

¶70

Counter affidavit^{was filed in I.A.No.1065 of 2017 by the} respondents^{pointing out that the appellantsdid not enter appearance} within 10 days of service of^{notice;judgment summons werealso} issued to the appellants^{and they received the summonsand did not} file any application^{for leave to defend under Order XXXVI CPC'}

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According to them, the instant application cannot be entertained as they did not file any application for leave to defend rvithin the stipulated time.

¶74

It was also pointed out that in the reply notice dt.30. I 2.201 5 the appellants had admitted that they entered into the MOU and agreed to refund the amounts received by them under the agreements of sale.

¶75

It was, therefore, contended that unless the suit amount was deposited into the Court by the appellants under Order XXXVII CpC, they were not entitled to raise any defence or file IA. No.1065 of 2017 and so the said I.A. has to be dismissed.

¶76

It was also pointed out that the appellants admitted about the execution of MOU in the reply notice dt.30. 12.2015 with their free consent and will and so they were estopped from contending that the MOU was obtained under coercion or under threat.

¶77

They also contended that there is no whisper in the reply notice dt.30.12.2015 given by the appellants about the alleged coercion or threat to their lives etc., while executing MOU and that the said defence was false defence.

¶78

It was then contended that once the MOU was entered into canceling the agreements of sale, and the appellants had agreed to refund the amounts paid by the respondents under the said agreements of sale, the arbitration clause had no relevancy and had become redundant

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They also contended that the dispute arising under the

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agreements of sale is not arbitrable.

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IA No.l064 and 1055 of2017 fil ed bv an pellants

¶83

The appellants had also filed I.A. No. 1064 of 2017 for stay of proceedings of the suit till disposal of the I.A. No.1065 of 2017.

¶84

Apart form that, the appellants had also filed I.A No.1066 of 2017 for rejection of plaint under Order VII Rule 11 CPC.

¶85

The events after filine of IA No.l065 of 2017 and the first order^passed therein

¶86

While these applications were pending, there was a change in the Presiding Officer of the Court of the XVI Additional District and Sessions Judge, Ranga Reddy District at Malkajgiriⁱⁿ June,^2019.

¶87

Thereafter, both parties^were not^ready for^hearing of^I.A No. 1065 of 2017 on 04.07.2019. On 20.08.2019, the appellants^were absent, but the respondents were present. The^{rnatterunderwent} several adjournments thereafter and on^{10.03,2020, the XVI} Additional District and Sessions Judge, Ranga^Reddy District^at Malkajgiri heard the respondents and^{treatedthe appellants as heard} and posted the matter for orders.

¶88

In the meantime, there was lockdown^{imposedby the State and} Central Govemments on^{account of Covid-i9pandemic.}

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31 . On 15.07.2020, the order^{was pronounced in I.A' No.1065 of} 2017, four months after the matter^{was heard and reserved.}

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38.onthesameday,I.ANo.l066of20lTfiledbytheappellants for rejection of^{plaint, invokingorder VII Rule 11 CPC' wasalso} dismissed.

¶93

Consequent to^{the dismissal of I'A'No'i065 of 2017' l'A'} No.1064 of 2017^{was also dismissed.}

¶94

CMANO .392 ot2020

¶95

Challenging the order^{dt.l5.0'7.2020in I.A. No.1065 of 2077,} the appellants filed CMA^{No.392 of 2020 before this Courl} contending that since the^{order was pronounced on 15.07.2020,four} months after the arguments^{were heard on 10.03.2020,and it is not} possible for the Presiding Officer of the Court^{below to rememberthe} contentions raised by the parties after^{lapse ofsuch timeand since the} appellants were also not heard^{on i0.03.2020or on earlier date,the} matter must be remanded back to the^{Courtbelow for hearing and} passing orders afresh.

¶96

rder dt.l2.1 .202 in CMA^No.3 o 20

¶97

After issuing notices to the respondents^{and after hearingboth} sides, the said CMA was allowed on 12.11.2020^{and the order} dt.15.07.2020 in IA No.1065 of 2017 in O,S. No.173 of^{2017 wasset} aside; and the said IA was remanded back to the XVI^Additional District & Sessions Judge, Ranga Reddy District at^{Malkajgirifor} fresh consideling on merits. This Court directed the appellants to appear and argue the matter before the Couft below on 18.11.2020

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and the Court below was dir.ected to hear the respondents and then agarn pass orders on or before 15.12.2020.

¶100

The lmD usnedorder dt. 10.12.2020 in IA No.1065 of 2020,

¶101

AIter remand, the Court below heard both sides and dismissed the I.A. No.1065 of 2017 on 10.12.2020.

¶102

43, After referring to the contentions of both parties and noting that the suit filed was a summary suit for recovery of money with interest at l50h per annum as per tle MOU entered into by the parties after execution of the agreements of sale on 27.Og.2lll, the Cou( below observed that the appellants, having received the judgment summons in the summary suit, did not file any application for leave to defend, but filed I.A No.1065 of 2017 and I.A. No.l 066 of 2017 .

¶103

However, it held that even if leave to defend application was not filed, the application under Section g(i) of the Arbitration and Conciliation Act, 1996, would be maintainable.

¶104

It then took note of the fact that the appellants had filed in November 2020;LA. No.497 of 2020 under Order XXXVII Rule 3 CPC seeking leave to defend unconditionally.

¶105

It then considered the arbitration clause under agreements of sale dt.27.08.2011 and held that the summary suit is not filed basing on such agreements of sale, but it was filed on the basis of the MOU dt.13.12.2013; as per the averments in the MOU, discussions and meetings took place between the parties to the agreements of sale and

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they decided^{to treat the existing agreements of sale dt'27'08 2011 as} inconsequential^{and invalid for the reasons that the termsand} conditions^{had not been entirelymet, and therebythe appellants} agreedtorepaytheamountestimatedtotherespondents/plaintiffs'

¶108

4T.Itthenreferredtothecontentionsoftheappellantsthatthough the agreements of^{sale were cancelled, the arbitrationclause would} survive because the MoU^{is in continuationof the earlieragreements} of sale warranting reference of^{the matter to the Arbitrator,but} rejected the same on the^{groundthat the parties had not agreed that} such arbitration clause would be^part of^{the MOU.}

¶109

It distinguished the decisions cited by the appellants by^pointing out that the existence of the MOU was not disputed by the appellants, that though the obligations under the agreernents of sale were not performed, the appellants did not go for arbitration, but resolved their ditferences with the respondents and agreed to retum the amounts to the respondents. It also noted that in the reply notice given by the appellants, they did not dispute the existence of the MOU or that it was entered into by them with their free consent and will but only in I.A No.1065 of 2017, more than three years after the MOU was executed for the first time, plea of coercion, threat and pressure apart from fraud was raised. It observed that fraud is one of the categories of dispute which are normally treated as non-arbitrable and followed the judgment in A. Ayyasrvamy v. A. Paramasivam and othersr.

¶110

'^{20 r6 (ro)scc386}

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49, It then referred to sub-Sections (1) and (2) of Section of the Arbitration and Conciliation Act, 1996 and held that for a reference to Arbitration, the subject matter of the suit must be same as the subject matter of the agreements of sale, but such was not the case before it because the agreements of sale pertain to purchase of property that was alleged to fall to the share of the appellants in view of the agreement with the original land owners, whereas the subject matter of the suit was based on a Memorandum of Understanding dt.13.12.2013; and the subject matter of the suit is not the same as the subject matter of the agreements of sale; and so it cannot be referred to arbitration before the Arbitrator.

¶113

It also took note of the fact that I.A No.l066 of 2017 filed by the appellants for rejection of plaint under Order VII Rule 11 CPC was dismissed and no Revision had been preferred against it by the appellants and held that since the issue of Section 8 of^{the Arbitration} and Conciliation Act, 1996 was also raised in the said application, the principle of res^judicata will apply.

¶114

Thc rrrcsent ApDla!

¶115

Challenging the same, the^{presentappeal} is^{filed by the} appellants.

¶116

Sri Sharad Sanghi, learned counsel for the^appellants, contended that as per the recitals in the^{MOUdt.13.12.2013, the MOU} formed part and parcel of the agreements of^{sale dt.27.08.2011and} therefore, the arbitration clawe 27129^{containedin the agreements of}

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sale would also become part of the MOU. According to him, the last sentence in the MOU "Please understand that this letter forms part and parcel of our existing agreement with you and will be considered as such" is important and it was not taken note of by the Court below.

¶119

He contended that the appellants had paid entire amount due to the respondents as agreed and there has been a reference in the plaint to the agreements of sale between the parties at several places including the paragraph dealing with rimitation and cause of action; and so, one of the causes of action for filing the instant suit is also the agreements of sale dt.27.08.201 I .

¶120

He reiterated that the arbitration clause in the original agreements of sale dt.27.8.2013 continues to be in fbrce even when the MOU dt.13.12.201I was entered into. According to him rhere was no novation of contract and the trial court erred in holding that the subject matter of MOU dt.l3.l2.2}l3 was not the subject matter of the earlier agreements of sate dt.27.0g.201 l.

¶121

T eco cratio th urt

¶122

From the facts noted above, it is clear that the appellants had entered into agreements of sale with the respondents on 27.0g.2011 agreeing to sell 35,379 sq.ft. and 20,239 sq.ft. of super built up area for Rs.23.40 crores, which the appellants would get pursuant to the Development Agreemenr-cum-GpA dt.2g.07.200g entered into by the appellants with the land owners and under a later MOU dt.20.10.2010

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entered into by them with the originar rand owners of the Theater complex at Malkajgiri, Hyderabad.

¶125

No doubt, Clause 27/29 of the agreements of sale stated that "any dispute or difference arising out of, or in connection with the performance of the obligations under the agreement shafi be resolved by arbitration in terms of Arbitration and Conciliation Act. 1996 and the place of arbitration is Hyderabad, .

¶126

The primary putpose of the agreements of sale was transfer of title of the super built up area rvhich the appellants would get from the land owners under the Development Agreement cum GpA entered into by them with the land owners on 28.07.2008 and the subsequent agreement dt.20. 1 0.20 1 0.

¶127

As per the terms of the agreements of sale, the constn.rction of the complex was to be completed in 18 months with grace period of 3 months and the area offered for sale to the respondents should be handed over within the said period only.

¶128

As per clauses 4 and 3 respectively of the said agreements of sale, the appellant had agreed to pay interest @15% per annum fronl the date of payment till execution and registration of sale deeds in lavour of the respondents.

¶129

The respondents alleged in the summary suit that after the agreements of sale were entered into on 27.08.2011, they had paid Rs.4.6 1 crores as advance, but the appetlants did not fulfill the terms of the agreements and did not complete even the construction of the

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: : l5::

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complex and also did not^{hand over the possessionof the same to the} respondents as^per the terms^{of the agreements.It is their contention} that MOU dtJ3J22013^{was thenentered into betweenthe parties} after deliberations between them.

¶133

The terms of the MOU are set out below:

¶134

"This has reference to the ongoing discussions and meetings held between us till date. lle thank youfor the kind courtesies extended tc,t us tilL date.

¶135

We may inform you that at the last meeting held between us, it was decided to treat the existins asreements of sale dt. 27.08.201 1 and 27.08.201 1 by and between us and your good selves as inconsequential and invalid for reasons that the terms and conditions had not been entirely met, plttting us into great inconyenience and difficulty.

¶136

As a measure of our transparent polices, we are rtleased to commit to^you that the 1mounts^paid by vctu till date on these reements will be r ne re udice. I'he schedule ofpayments envisaged by us is as follows:

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1 . On 1 3.12.201 3 Rs.l ,00,00,000/- (One oore only)

¶138

On 20,01 .2014 Rs. I ,20,00,000/- (One crore twenty lakhs only) 3. On 20.02.2014 Rs. I ,20,00,000/- (One crore twenty lakhs only) 4. On 20.03.2014 Rs. I ,20,00,000/- (One crore twenty lakhs only) [4e may clarify that the amounts pertain to the Juruls remiued to us, and no interest payments are envisaged. Similarly, as a meqsure of our good relations, the inlerest component for the delayed payments on your part is also .foregone.

¶139

In the circumstances, please sign a copy of this letter Lrccepting the Jinality of cancellations to our existing agteements, so that we may take the next step.

¶140

Please under stand that this letter forms oart and pctrcel of our existin^g a reement.t'trith NO u and will be considered as such

¶141

T'he above is been accepted." ( emphasis supplied)

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A reading of the above MOU clearly indicates that the parties had decided ro treat the agreements of sale dt.27.0g.2011 as inconsequential and invalid i.e. that they had decided to abandon the same and treated them as null and void and absolved themselves of the obligations under the said agreements subject to the appellants refunding the amounts as per the schedule mentioned therein.

¶144

It was agreed that if by the dates mentioned in the MOU, the installments of the refunds as stipulated in the MOU are paid, no interest payment would be envisaged.

¶145

Prima facie, in our considered opinion there has been novation of the agreements of sale dt.27.08.2011 by the execution of MOU dt. 1 3. I 2.20 13 between the parlies.

¶146

While the obligation under the agreements of sale^{was for} the appellants to sell the share of built up area of super structure^{in lavour} ol the respondents and pay interest at^{|5o/o per annum on the advatlces} paid till execution of the sale deeds, the obligations under the MOU dt. 1 3. 1 2.20¹ 3, were totally different.

¶147

Firstly, there is no longer an^{obligationon the appellants to} transfer any immovable^{property to the respondents and the obligation} to pay intere sl @ 15% pa on^{the advances receivedwhichwas} contained in the agreements of^{sale dt.27.08.2011was also altered} while stipulating that no interest^{would be paid ifthe agreed} installments of refund^{are paid on specificdates by the appellants' By} implication, according to^{the respondents,the levy of interestthereon}

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was contemplated^{only if thereis defaulton the part of the appellants} in complying with^{the said obligationby the dates specifiedin the} MOU.

¶150

Thus the^terms of^{the MOUdt.13.12.2013 are differentlrom} rhat of the agreements of sale^{dt.27 .8.2011} '^{They havebeen} completely altered

¶151

Therefore, we reject the contention of^{the counselfor the} appellants that there was no novation of^{contract by the execution of} the MOU dt.1.3.12.2013 and that the terms and conditions of^the agreements of sale dt.27.08.201 i continue to survive.

¶152

No doubt, in the last sentence of the MOU it was mentioned^as under:

¶153

" Please understand that this letter forms part and parcel of out existing agreements with you and will be considered as such".

¶154

When the primary intention under the MOU was to invalidate/render void the agreements of sale d1.27.08.201 I between the parties, and thus, the agreernents of sale were rendered ineffective and were abandoned, the question of MOU forming part and parcel of the said agreement does not arise. It does not make sense. The word "existing agreements" used in the last sentence of the MOU therefore has no effect because under the MOU, the agreements of sale

¶155

dt.27.08.2011 had been invalidatel and rendered void and so thev no longer "existed".

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This sentence and the main terms of the MOU are mutuallv contradictory and in our opinion this sentence has to be treated as having no effect at all and would not keep subsisting any obligation under the original agreements of sale d1.27.08.2011 including the arbitration clause contained in clause 27129 thereof.

¶158

69, If the parties really intended any clause such as arbitration clause to subsist even after entering into the^MOU on^13.12.2013, they should have specified it expressly. By^{implication it cannot be} said that only the arbitration clause^{was intended to be made to} survive the invalidatiorVcancellation^{of the agreementsof sale and rrot} all other clauses.

¶159

In this context^{we may refer to Section 8 of the Arbitrationand} Conciliation Act, 1996.^{It states:}

¶160

"8, Pox,er lo refer parties to atbitration n'here^{there is an} arbitro on agreemenl.-l^{(1) A.iudicial authority,before v'hich an} oction is brought in^{o maller which is the subiectof an arbitration} agreemenl shall, if^{a party lo the arbilrationagreemenl or any} person claiming through or^{under him,so appliesnot later than the} date o.f submitling^his frst^{statement on the substanceof the dispute,} then, notwithstanding^{any judgment, decreeor order of the Supreme} Court or any Court,^{refer the parties to arbittation unlessit finds} that prima facie no^{valid arbitrationagreement exists'J}

¶161

(2) The application referred lo^{in sub-section(1) shall notbe} entertained unless it^{is accompaniedby the original arbitration} agreement or^{a dulycertified copy thereof:}

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[Provided^{that u)herethe original albitrationagreemenl or a} certi/ied copy thereof^{is not available with the partyapplyingfor} reference to arhitration^{undersub-section (l), and the said} agreement or certified^{copy is retainedb)'the other} Parly^{to thal}

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: : l9::

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MSR,J & TVK,J cma 99 2021

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agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certifred copy before that Court.J

¶166

(3) Noa'vithstanding that an application has been made unrJer sub_ section (l) and that rhe issue is pending before the judicial ttuthoriry, an arbitration may be cammenced or continued arul an arbitral award made. "

¶167

The original agreements of sale dt.Z7.0g.2}1l containing Arbitration clauses were admittedly produced by the appellants themselves in the Court below. Therefore, sub_Section (2) of the Section 8 of the Arbitration and Conciliation Act was already tulfilled.

¶168

In P. Anand Gajapati Raju vs. p.V.G. Raju2, the Suprerne

¶169

Court held as follows :

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"J. The conditions which are required to be sarisfed uncler sub_ sections (l) and (2) of section g before the court can exercise its power are :

¶171

( 1) there is an orbilration qgreement ,

¶172

@ a party to the agreement brings an action in the court agains! the olher party ;

¶173

@ subject-matter of the action is the same as the subject_matrer of the arbitration agreement;

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(4) the other party moves the Court for referring the parties to arbitration before it submits its first statement on the substance oJ.the dispute.^"

¶175

t 1zooo.1+ s.c,c. s:e

¶176

ctra 99 202 t

¶177

Thus, for application of Section g, subject matter of the suit ought to be the same as the subject matter of the arbitr.ation agreement. If not, Section g cannot be invoked and the Civil Court cannot be stopped from hearing the suit.

¶178

In our opinion, in the instant case, the prerequisites lor an application under section 8 of the Arbitration and conciliation Act are not fulfilled. Consequently, the Civil Court has jurisdiction to entertain the suit and application under Section g of the Arbitration and Conciliation Act has to be rejected.

¶179

Though counsel for appellants sought to rely on the judgment in Hema Khatter and another vs. Shiv Khera3, there is a finding of fact in that case that the oral agreement between appellant no.2 and respondent was substituted in place of the prior written agreement dt.06.06.2009, that it contained a clause for arbitration, and the same clause for arbitration would also be applicable to the oral agreement; and the subject matter of the suit was same as the subject rratter of the arbitration agreement and the prerequisites for an application under Section 8 were fulfilled, unlike in the instant case. In that context, an observation was made that if an agreement is terminated by one party on account of breach committed by the other, merely because agreement has come to an end by its termination, the arbitration clause does not perish.

¶180

These observations cannot be read out ofcontext and applied to the instant case where there was no oral agreement subsequent to the '^{(zon)t s.c.c. 7l6}

¶181

..1r,, MSR.J &^TVK.J cr:,a 99 2021

¶182

written MOU^{and specifically no palticularclause in the cancelled} agreements of sale^{dt.27.08.2011 were madeparl of the MOU'}

¶183

In Today Homes^{and InfrastructurePvt. Ltd. vs' Ludhiana} Improvement Trust and^{anotheracited by the counselfor} appellants, the Supreme Court^{held that notwithstandingthe main} agreement itself being declared^{void, the arbitration agreernent would} stand independent of the main^{agreementand did not necessarily} become otiose, even if the main agreement, of^{which it is a part, is} declared void.

¶184

But, in the instant case, the main agreements dt.27.08.2011^are not void and the subsequent MOU dt.13.12.2013 entered into between the parties novated/substituted the initial contracts^{dt.27.8.2011 for the} purchase and sale of property into a contract for repayment of the received amount. Therefore, the principle laid down in this^decision also does not apply.

¶185

The decision in Shakti Concrete Industrial Ltd. and others vs. HBL Power Systems Ltd. and otherss, cited by the counsel for the appellants, also does not apply because in that case the original agreement was entered into by the parties on 30.09.2009 which provided for arbitration, but there was a supplementary agreement dt.13.03.2010 which contained a special clause that "parties hereto agree that this supplementary agreement shall constitute an integral part of the original agreement".

¶186

' iu^{o+-.isscc os} 5MANU/T1.i()l87/2o2o

¶187

cna_99 2O2t

¶188

Unlike in the instant case, in that case there was only a modification in the suppiementary agreement of the number of shares to be sold as agreed in the original agreement.

¶189

In the instant case, the parties had cancelled the original agreements dt.28.07.2011 in toto and entered into the MOU for refund of the amounts paid by the respondents to the appellants during the subsistence of the original agreements dl.2g.O7.2lll; and stipulated new timelines for the appellants to make refund to the respondents without interest.

¶190

Thus, the MOU d1.13.12.2013 totally replaced the original agreements of sale dt.28.07 .2011 and it was not a mere rnodifications of the said agreements. There was a new contract between the parties under the MOU dt.13.12.2013 for payment by the appellants to the respondents instead of sale of immovable property. So, this decision is also distinguishable.

¶191

78, Even the decision in Avinash Hi-Tech City 2 Society and others vs. Boddu Manikya Malini and another6 has no application because in the said case the question was whether the arbitration clause l9 of the Addendutn would also bind the appellant^{no.1 which} was a co-developer, and a finding of fact^{was recorded that it binds} the developers, owners, societies^{and the originalowners andeven} subsequent societies formed.^{Its factsare entirely distinguishableand} the principle therein is not attracted^{to the instantcase.}

¶192

u (20r9) 8 scc 666

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MSR,I^{& TVK,J} cffB-99 J02l

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..)1.'

¶195

7g.^{The clausein the MoU stating that 'this letter forms partand} parcel of^{our existingagreementswith you" can also be lookedat} from another^{angle' Clawe25127 of the Agreement of sales} ddt.2T.0s.20llprovides,thattheagleement.maybeamended, modified^{or supplementedonly by a written instrument'' As the} parties have arrived^{at an understandingthat the existingagreements} of sale would^{be 'inconsequentialand invalid',and committedto} retum the amounts^{specified therein, the parties desiredthat by} accepting to the^{terms of MoU, termed as letter', 'flrnality of} cancellations to our^{existing agreements',can be achieved' The} cancellation of agreement of^{sale underthe Mou-letter,cannot} therefore be construed as^{a mereamendment or modification,whereby} the clause relating to reference^{to Arbitration in case of dispute, can} be said to sulive.

¶196

On the other hand, the endeavour of the^{paftiesin entering into} MoU-letter, appears to resolve the dispute by arriving at^an understanding, without taking recourse to Arbitration, as a^prudent business decision. Thus, it can safely be construed that the pafties desired to make the said MoU-letter as pafi and parcel of the agreement of sa1e, only for the limited purpose of giving effect to cancellation thereby relieving the parties from performing their respective obligations, except for the payment and receipt of n-ronetary consideration specifi ed therein.

¶197

¶198

cma 99 2021

¶199

The decision in Vidya Drolia and others vs. Durga Trading corporationT considered the question'wether randrord-tenant disputes governed under the provisions of the TransJbr of property Act, 1882 are arbitrable or not?,, and concluded that such disputes are arbitrable. It also held that even if allegations of fraud are made, the same can be subject matter for arbitration. It held :

¶200

"229. Befrn'e we parl. the conclusions reachetl, wirh resoecr to question no. l, are ;

¶201

a Sections 8 and 1l of the Act have the same ambit with r esp e c t t o j udic ial int er"fe r e nc e.

¶202

b. Usuallv , s ubiect motter arbitrabilitv cannot be decided at the st of Sections 8 or 11 of the Act, unless it is t clear case o deadwood.

¶203

c The Court, under Sections 8 and I 1, has to refer a ma er to arbitration or to appoint an arbitrator, as the case ma)t be, unless a partlt has established a prima facie (summarv ndinps) case of non-existence of t,alid arbitration

¶204

apretment. bv sumtnarily^portr ctying a stronp case that he is entitled to such a finding.

¶205

d. The Court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima

¶206

.facie^{basis, as laid down above, i.e.,} 'when in doub do re.{er^'.

¶207

e. The scope ofthe Court to examine^{the prima} facie^vaLidityof an orbitration agreement includes^only;

¶208

i) Whether the arhitralion agreement^{was in writing?} Or

¶209

i, Wheth.er the arbitration^{agreementwas contained} in exchange of letters,^{telecommuntcationetc.?}

¶210

' 12020;^{SCCOnlineI 0l 8 ( S.c.)}

¶211

.'rt.. MSR,J^{& TVK,J} cma-99²⁰²¹

¶212

Ilhether^{the core contractual ingredients qua the} Ii, arbitration^{agreementv)ere fulfrlled?} ir) n rare cca /',lS whether t s ec^-mLlter dis ELS bitr le?^" (emphasis suPPlied)

¶213

Thus, the^{SupremeCourt held that normally subject-matter} arbitrability^{cannot be decided at the stage of Section 8 or 11 of the} Act, unless it is a^{clearcase of dead-wood,i'e', when there is no} doubt that the subiect-matter^{is non-arbitrable'}

¶214

ln our considered^{opinion, the instant case falls in the above} category and consequently^{we hold that applicationunder Section8 of} the Arbitration and Conciliation Act,^{1996 filed by the appellantsis} misconceived and the same was rightly dismissed by the Court^below'

¶215

We therefore do not find any merit in the Appeal, and it is accordingly dismissed.

¶216

As a sequel, miscellaneous petitions pending if any, in this

¶217

Civil Miscellaneous Appeal, shall stand closed.

¶218

¶219

¶220

Sd/.K.SREENIVASA RAO JOINT REGISTRAR //TRUE COPYII Gb SECTION OFFICER

¶221

I The XVI Additionar District and. sessions Judge-cum- ,r Additionar Famiry court, Ranga Reddy District at Marr<a1grrr. 2 9n" 99^{to Sri Sharad Sanghi,Tdvocate(OPUC)} 3 Two CD Copies K

¶222

¶223

HIGH^GOURT

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DATED:^{1 6 103t2021}

¶225

/%<br>((f o1 iutr 2021 ,l
.'.'/

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JUDGMENT

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CMA.No.99^o12021

¶228