Case Note & Summary
This judgment pertains to an interim application filed by the defendants in a commercial summary suit seeking reference of the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The plaintiffs had filed the suit for recovery of Rs.1,24,08,764.54 based on a memorandum of understanding (MOU) dated 22 July 2014 and negotiable instruments. According to the plaintiffs, they collectively advanced an initial investment of Rs.35 lakhs to defendant no.1’s projects, and the MOU provided for repayment with interest at 33% per annum. Defendants paid interest until December 2015. Subsequently, plaintiffs nos.2 and 3 advanced an additional Rs.19 lakhs against bills of exchange. Defendants drew cheques which were dishonoured, leading to the suit. The defendants entered appearance and the plaintiffs took out a summons for judgment. The defendants then filed the interim application asserting that the transaction was an investment evidenced by the MOU, which contained an arbitration clause. The clause provided that any dispute relating to the MOU would be referred to arbitration under the Arbitration and Conciliation Act, 1996. The defendants thus sought reference under Section 8. The plaintiffs resisted the application on two main grounds. First, they contended that there were multiple transactions between the parties, resulting in five suits, and referring only this dispute might lead to conflicting decisions. Second, and more importantly, they argued that the subsequent loan of Rs.19 lakhs was advanced against bills of exchange and was not covered by the MOU. Therefore, referring the entire suit to arbitration would either require bifurcation of the subject matter—referring part to arbitration and retaining part in court—or referring a dispute not governed by the arbitration clause. They relied on the Supreme Court’s decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, which held that where a suit includes claims outside the arbitration agreement and involves parties not bound by it, the court cannot split the cause and refer only part to arbitration. The plaintiffs also highlighted that they are senior citizens and would face undue delay if the matter were referred. During the hearing, the defendants’ counsel stressed that the arbitration clause in the MOU was undisputed for the initial Rs.35 lakhs advance and must be given effect. The plaintiffs’ counsel countered that despite the clause, the peculiar facts involving multiple suits and the impermissibility of bifurcation necessitated the court’s continued jurisdiction. The judgment extract ends abruptly during the court’s recounting of the Sukanya Holdings case and does not state the final decision. Therefore, the court’s ruling, reasoning, and any directions remain unknown. The incomplete text does not reveal whether the application was granted or dismissed.
Headnote
The judgment text provided is incomplete; no headnote can be extracted.
Issue of Consideration
Whether the suit dispute should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, given the arbitration clause in the MOU and the claim for an amount not entirely covered by the MOU.
Case Details
2020 LawText (BOM) (01) 107
Summons for Judgment No. 71 of 2019 in Commercial Summary Suit No. 1111 of 2019 with Interim Application No. 1 of 2019
Mr. Narayan Sahu i/b Adv. Shrinath Kamta Dubey for plaintiffs; Mr. Saurab Oka for defendants/applicants
Shree Tirupati Greenfield (Shree Tirupati Greenfield Developers) & Ors.
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Nature of Litigation
Commercial summary suit for recovery of money based on memorandum of understanding and negotiable instruments; with an interim application by defendants seeking reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
Plaintiffs sought recovery of Rs.1,24,08,764.54 with interest; defendants sought stay of suit and reference to arbitration.
Filing Reason
Cheques issued by defendants towards repayment of investment were dishonoured; defendants contended the dispute fell within arbitration clause in the MOU.
Issues
Whether the suit dispute should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, given the arbitration clause in the MOU dated 22 July 2014.
Whether the court can refer part of the dispute covered by the arbitration agreement while retaining the part not covered, contrary to the principle against bifurcation.
Whether the existence of multiple suits between the parties and the plaintiffs' senior citizen status should influence the decision to refer to arbitration.
Submissions/Arguments
Defendants argued that the MOU contains a valid arbitration clause, the suit claim is covered, and therefore the court must refer the parties to arbitration under Section 8.
Plaintiffs argued that the subsequent loan of Rs.19 lakhs was not covered by the MOU, referring part of the dispute would entail impermissible bifurcation, and relied on Sukanya Holdings to oppose reference.
Plaintiffs also highlighted multiple transactions leading to five suits and that they are senior citizens and would suffer delay in arbitration.
Judgment Excerpts
The defendants have contended that the transaction between the parties was of an investment in the project which was being developed by the defendants. The transaction was evidenced by the MOU. Apart from the other terms, the MOU contains an arbitration clause, which reads as under: ...
The plaintiffs have resisted the application by filing an affidavit in reply. It is averred that there was a series of transactions between the plaintiffs and the defendants. As of now, five suits have been instituted against the defendants by the plaintiffs and other investors. Some of the transactions are not covered by Memorandum of Understanding, though forming part of one and the same bargain. In the case at hand, the subsequent loan of Rs. 19 lakhs is not covered by the MOU.
The relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement", Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration a...
Procedural History
Plaintiffs filed Commercial Summary Suit No. 1111 of 2019 for recovery of Rs.1,24,08,764.54. Defendants entered appearance. Plaintiffs took out Summons for Judgment No. 71 of 2019. Defendants filed Interim Application No. 1 of 2019 seeking reference of the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The court heard the application on 10th January 2020.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 8, 5
