Karnataka High Court
M/S. Akshay Food Park Ltd vs Food Karnataka Limited on 8 April, 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF APRIL, 2024
PRESENT
THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
COMMERCIAL APPEAL NO. 116 OF 2024
BETWEEN:
1. M/S. AKSHAY FOOD PARK LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANEIS ACT, 1956
HAVING ITS REGISTERED OFFICE
AT NO.1091, FIRST FLOOR
SAMPANAPPA TRUST, O.T.C ROAD
BENGALURU-560 002
ALSO AT NO.58/59
KARISHMA FARMS, GUBBALALA
SUBRAMANYA POST
KANAKAPURA POST
BENGALURU-560 061
REP. BY ITS MANAGING DIRECTOR
SRI. M. NARAYANA SWAMY
S/O LATE SRI. B. MUNIYAPPA
[email protected]
9448497402
2. SRI. M. NARAYANA SWAMY
S/O LATE SRI. B. MUNIYAPPA
AGED ABOUT 72 YEARS
NO.58/59, KARISHMA FARMS
GUBBALALA, SUBRAMANYA POST
KANAKAPURA ROAD
BENGALURU-560 061
3. SRI. B.R. NAGABHUSHANA REDDY
S/O LATE SRI. B. MUNIYAPPA
AGED ABOUT 62 YEARS
2
R/AT NO.19, RAMALAXMI NILAYA
SAPTAGIRI LAYOUT
NAGASHETTIHALLY EXTENSION
BENGALURU-560 094
4. SRI. VENKATA KRISHNA REDDY
S/O LATE SRI. VENKATA REDDY
AGED ABOUT 70 YEARS
R/AT NO.142, DEVAMMA COMPOUND
60 FT ROAD, KODIHALLY MAIN
HAL 3RD STAGE
BENGALURU-560 008 ... APPELLANTS
(BY SHRI. P.N. RAJESWARA, ADVOCATE)
AND:
FOOD KARNATAKA LIMITED
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE
AT NO.17, GENERAL K.S. THIMAYYA ROAD
(RICHMOND ROAD)
BENGALURU-560 025
REP. BY ITS MANAGING DIRECTOR
MR. K. MOHAMMED IRFAN ... RESPONDENT
(BY SHRI. KIRAN V. RON AND
SMT. R. SUKRUTA, ADVOCATES FOR C/R)
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION 13(1A) OF
THE COMMERCIAL COURTS ACT, 2015 READ WITH SECTION 37(1)(a)
OF THE ARBITRATION AND CONCILIATION ACT, 1996, PRAYING TO
SET ASIDE, THE ORDER DATED 19.03.2024 ON IA NO.III IN COM.O.S.
NO.504/2023 PASSED BY THE HON'BLE LXXXIV ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE, BENGALURU SOUTH, BENGALURU
(CCH-85) REJECTING I.A.NO.III FILED BY THE APPELLANTS AND
CONSEQUENTLY, ALLOW I.A.NO.III FILED BY THE APPELLANTS IN
COM.O.S. NO. 504/2023 AND PASS SUCH OTHER ORDER/S AS THIS
HON'BLE COURT DEEMS FIT TO PASS UNDER THE FACTS AND
CIRCUMSTANCES OF THE CASE, IN THE INTEREST OF JUSTICE AND
EQUITY.
THIS COMMERCIAL APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT ON 28.03.2024 AND COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN J.,
PRONOUNCED THE FOLLOWING:
3
JUDGMENT
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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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 Limited1 and Gujarat Composite Limited v.
A Infrastructure Limited and Others2 in support of the
contention that a non-signatory to an Arbitration Agreement
cannot seek the reference of the dispute to Arbitration.
9. 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.
(2009) 7 SCC 696
(2023) 7 SCC 193
10. 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.
11. 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.
12. The appeal therefore fails and is accordingly
dismissed.
Pending I.A.No.1/2024 for Stay is hereby dismissed.
Sd/-
JUDGE
Sd/-
JUDGE
cp*
