Telangana High Court
Psm Energy Pvt. Ltd vs Zam Engineering And Logistics Pvt. Ltd on 22 November, 2024
THE HONOURABLE THE CHIEF JUSTICE ALOK ARADHE
AND
THE HONOURABLE SRI JUSTICE J. SREENIVAS RAO
+ COMMERCIAL COURT APPEAL No.20 OF 2024
% Dated 22.11.2024
# PSM Energy Pvt. Ltd.
A Company incorporated under Companies Act.
Having registered office at:-
# 220, MIG Flats, Kautilya Apartments
Plot No.25, Sector -14, Pocket-B
Dwarka, New Delhi 110075
Through its director/Authorized Representative
Shri Ajay Vishwakarma
.... Appellant
VERSUS
$ ZAM Engineering and Logistics Pvt. Ltd.
A Company incorporated under Companies Act.
Having its registered office at 25-12-44 & 45,
Asmagate, Godeyvari Street,
Vishakhapatnam, Andhra Pradesh
Rep. by its Managing Director, Mr. Zafar Hosain
And four others
... Respondents
! Counsel for petitioner : Mr. Prasen Gundavaram
^ Counsel for Respondent No.1 : Ms. Manjari S. Ganu,
< GIST:
> HEAD NOTE:
? CITATIONS:
1. 2018) 15 SCC 678
2. (2021) 9 SCC 732
3. (1998) 7 SCC 184
4. (2006) 3 SCC 100
5. 2016 (6) ALD 598 (DB)
2
THE HON'BLE THE CHIEF JUSTICE ALOK ARADHE
AND
THE HON'BLE SRI JUSTICE J.SREENIVAS RAO
COMMERCIAL COURT APPEAL No.20 OF 2024
JUDGMENT:
(Per the Hon'ble Sri Justice J. Sreenivas Rao)
This appeal under Section 13 of the Commercial Courts
Act, 2015 read with Section 37 of the Arbitration and
Conciliation Act, 1996 has been filed against the order dated
10.06.2024 passed in C.O.S.No.31 of 2021 by the Commercial
Court in the Cadre of District Judge for Trial and Disposal of
Commercial Disputes at Hyderabad, (for short, 'Commercial
Court') by which the application filed by appellant/defendant
No.1 seeking rejection of the plaint under Section 8 of the
Arbitration and Conciliation Act, 1996 read with Order VII
Rule 11(a) & (b) read with Section 151 of Code of Civil
Procedure, 1908 (C.P.C.) was dismissed.
2. Heard Sri G. Vidya Sagar, learned Senior Counsel
representing Sri Sai Prasen Gundavaram, learned counsel for
the appellant, and Sri Sunil B. Ganu, learned Senior Counsel
representing Ms. Manjari S. Ganu, learned counsel for
respondent No.1.
3. The appellant herein is defendant No.1 and respondent
No.1 herein is the plaintiff in C.O.S.No.31 of 2021. For the
sake of convenience, the parties shall be referred to in this
order as per their ranking in C.O.S.No.31 of 2021.
4. BRIEF FACTS:
i) The plaintiff is a company registered under the
Companies Act, 1956 and it had entered into an operational
lease agreement dated 16.10.2019 with defendant No.1
company in respect of 30 nos. of Volvo FMX 460 33 Cu.M
Coad Body Tippers and the said operational lease agreement
was executed at Gurugram, Haryana. The defendant No.1
defaulted in payment of monthly lease rental of the Volvo
Tippers from the 1st month itself and failed to pay the rents
from November, 2019 to August, 2020. Subsequent thereto,
the plaintiff and defendant No.1 have entered into
Memorandum of Understanding (MOU) in furtherance of the
operational lease agreement on 05.01.2020, whereby the
original operational lease agreement was modified/revised.
As per MOU, defendant No.1 was agreed to pay the rents from
20.01.2020 along with interest @ 13% p.a. as against the rate
of 18% p.a. as per the operational lease agreement dated
16.10.2019. Despite repeated demands, defendant No.1 did
not perform any part of the obligations. Thereafter, defendant
Nos.1 to 3 approached the plaintiff in the month of February
2020 stating that defendant No.1 was independently awarded
works of contract in Odisha and proposed joint venture with
the plaintiff and offered to share 50% of the profits in the
revenue accrued and also to refund the working capital to the
plaintiff and accordingly, the plaintiff and defendant No.1
entered into joint venture agreement dated 21.02.2020.
According to the said joint venture agreement, the plaintiff is
allowed to withdraw an amount of Rs.3 lakhs every month
from the month of January 2020. However, defendant No.1
did not perform any part of the obligations as agreed and the
joint venture agreement dated 21.02.2020 was never acted
upon. As defendant No.1 failed to pay the rents from
November, 2019 to August, 2020, the plaintiff filed
C.O.S.No.31 of 2021 seeking a direction to the defendants to
jointly and severally pay an amount of Rs.10,93,05,243/- in
respect of the Lease Agreement dated 16.10.2019 along with
future interest @ 13% per annum from the date of suit till
realisation and sought another relief directing defendant No.1
to pay an amount of Rs.33,41,069/- being amounts
refundable by them towards initial capital investment and
other expenses in respect of the joint venture agreement
dated 21.02.2020 along with future interest @ 13% per
annum from the date of suit till realisation.
ii) In the said suit, defendant No.1 filed an application in
I.A.No.73 of 2022 under Section 8 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as 'the Act')
read with Order VII Rule 11(a) and (b) of C.P.C. to reject the
plaint on the ground that as per the arbitration clause in the
joint venture agreement dated 21.02.2020, the Commercial
Court is not having jurisdiction to adjudicate the dispute as
well as bar under Section 8 of the Act as there is valid
arbitration clause in the agreement existing between the
parties and also on the ground of cause of action.
iii) The Commercial Court dismissed the said application,
by its order dated 10.06.2024. Aggrieved by the same,
defendant No.1 filed this appeal.
5. Submissions of learned counsel for defendant
No.1/appellant:
5.1. Learned Senior Counsel contended that the plaintiff and
defendant No.1 were entered operational lease agreement
dated 16.10.2019 and MOU dated 05.01.2020 as well as joint
venture agreement dated 21.02.2020. In the joint venture
agreement, there is a specific clause enumerated that if any
dispute arises between the parties, the said dispute has to be
resolved through arbitrator. The plaintiff instead of invoking
arbitration clause filed suit in C.O.S.No.31 of 2021 before the
Commercial Court and the same is not maintainable under
law and also there is no cause of action to institute the suit.
In such circumstances, the Commercial Court ought to have
rejected the plaint.
5.2. He further submitted that as per the provisions of
Section 8 of the Act, the Commercial Court ought to have
rejected the plaint and directed the plaintiff to invoke the
proceedings under the Act by virtue of specific arbitration
clause enumerated in the joint venture agreement dated
21.02.2020 and the Commercial Court is not having
jurisdiction to adjudicate the suit proceedings.
5.3. In support of his contention, he relied upon the
following judgments:
1. Ameet Lalchand Shah and others v. Rishabh
Enterprises and another 1;
2. Sanjiv Prakash v. Seema Kukreja and
others 2; and
3. Order passed by the Division Bench of this
Court in C.R.P.No.348 of 2024 dated
22.07.2024.
6. Submissions of learned counsel for the
plaintiff/respondent No.1:
6.1. Per contra, learned counsel for the plaintiff submitted
that the operational lease agreement dated 16.10.2019 and
the joint venture agreement dated 21.02.2020 are not inter-
connected and both are different agreements. He further
(2018) 15 SCC 678
(2021) 9 SCC 732
submitted that the operational lease agreement dated
16.10.2019 was executed between the plaintiff and defendant
No.1, whereunder the plaintiff leased out 30 Volvo Tippers to
defendant No.1 for a period of 34 months and MOU dated
05.01.2020 was executed between the parties modifying the
terms of operational lease agreement dated 16.10.2019,
whereunder defendant No.1 agreed to pay the rents from
20.01.2020. Insofar as joint venture agreement dated
21.02.2020 is concerned, it is an independent agreement in
respect of works which were already awarded to defendant
No.1 at Lakhanpur, Odisha at the Mines of Mahanadi Coal
Fields.
6.2. He also submitted that operational agreement and the
MOU do not contain arbitration clause and only joint venture
agreement contains an arbitration clause. Pursuant to the
said clause, defendant No.1 filed Arbitration Application
No.419 of 2022 before the High Court of Delhi seeking
appointment of Sole Arbitrator to resolve the dispute between
the parties and the said arbitration application was allowed,
by its order dated 12.08.2024 referring the dispute under
joint venture agreement dated 21.02.2020 and referred to
arbitration. Aggrieved by the same, defendant No.1 filed
S.L.P. (Civil) Diary No.39966 of 2024 before the Hon'ble
Supreme Court of India and the same was dismissed as
withdrawn on 18.11.2024.
6.3. He further contended that before the Hon'ble Supreme
Court, defendant No.1 specifically raised a ground that even
before execution of joint venture agreement dated 21.02.2020,
the plaintiff and defendant No.1 were carrying out the joint
business by utilisation and operatinalisation of the
equipment/vehicles/ tippers which are the subject matter of
the operational lease agreement. Defendant No.1 further
raised a ground that the High Court of Delhi had erroneously
held that there is no connection between the subject matter of
the operational lease agreement read with MOU and the joint
venture agreement as recorded in its previous order dated
21.03.2023 is contrary to law and the said grounds were not
accepted by the Hon'ble Supreme Court of India and S.L.P.
was dismissed and defendant No.1 is not entitled to raise the
very same ground in the present appeal.
6.4. He further submitted that by virtue of the orders dated
12.08.2024 passed by the High Court of Delhi in Arbitration
Application No.419 of 2022, the plaintiff is not pressing the
relief of recovery of an amount of Rs.33,41,069/- in
C.O.S.No.31 of 2021. He also submitted that the Commercial
Court has rightly dismissed the application filed by defendant
No.1.
Analysis:
7. This Court considered the rival submissions made by
the respective parties and perused the material available on
record. The record discloses that the plaintiff filed suit in
C.O.S.No.31 of 2021 in the month of April, 2021 against the
defendants for recovery of an amount of Rs.10,93,05,243/-
along with interest @ 13 % per annum basing on the
operational lease agreement dated 16.10.2019 and MOU
dated 05.01.2020 and also for recovery of Rs.33,41,069/-
along with interest @ 13% per annum, which was paid to
defendant No.1 pursuant to the joint venture agreement
dated 21.02.2020. The plaintiff specifically pleaded in the
plaint that the plaintiff is having 30 Volvo Tippers and the
representative of defendant No.1 had approached the plaintiff
and agreed to purchase the said Volvo Tippers and the
plaintiff and defendant Nos.2, 3 and 5 met at Park Hyatt
Hotel at Hyderabad on 04.10.2019 and negotiations were
taken place and the plaintiff offered to sell the Volvo Tippers
for Rs.65 lakhs per Tipper excluding Goods and Services Tax
(for short, 'GST') and defendant No.2 approached the finance
company for funding and the finance company did not come
forward to finance and defendant No.2 suggested to enter into
operational lease agreement and the same was entered into
on 16.10.2019 between the plaintiff and defendant No.1 and
the plaintiff agreed to lease 30 nos. Volvo Tippers for a lease
period of 34 months and defendant No.1 agreed to pay the
monthly lease/rent of Rs.77,58,621/- excluding GST as per
the schedule annexed to the operational lease agreement
dated 16.10.2019 and the physical possession of the Volvo
Tippers were handed over to defendant No.1 on 17.10.2019
and defendant No.1 defaulted in payment of monthly lease
rental and requested the plaintiff to defer the commencement
of payment by two months i.e., with effect from 05.01.2010
and subsequently MOU was entered on 05.10.2020 and
defendant No.1 agreed to pay the rents from 20.01.2020 and
in spite of the same, defendant No.1 failed to pay the lease
rentals as assured.
8. The plaintiff further averred that defendant Nos.1 to 3
have approached the plaintiff in the month of February, 2020
stating that defendant No.1 was awarded works contracts in
Odisha and defendant No.1 proposed for joint venture
agreement with the plaintiff and offered to share 50% of the
profits and allowed the plaintiff to withdraw Rs.3,00,000/-
every month from January, 2020 and accordingly the parties
entered into joint venture agreement on 21.02.2020 and
further pleaded that plaintiff paid an amount of
Rs.25,00,000/- to defendant No.1 towards contribution of the
working capital and other amounts. However, defendant No.1
failed to take steps for complying with the obligation under
the joint venture agreement dated 21.02.2020 and also
payment of monthly lease rentals from January, 2020
onwards and the plaintiff has withdrawn from the proposed
joint venture. Thereafter, several communications were
addressed to defendant No.1 and it is also pleaded that the
joint venture agreement was never acted upon.
9. During pendency of the suit in C.O.S.No.31 of 2021,
defendant No.1 filed Arbitration Application No.419 of 2022
before the High Court of Delhi on 25.03.2022 under Section
11 of the Act to refer the dispute to the arbitrator. The said
Arbitration Application was allowed on 12.08.2024 referring
the dispute in respect of joint venture agreement dated
21.02.2020 to arbitrator. Aggrieved by the said order,
defendant No.1 filed S.L.P. (Civil) Diary No.39966 of 2024
before the Hon'ble Supreme Court of India and the same was
dismissed as withdrawn, by its order dated 08.11.2024.
10. The record further reveals that during pendency of the
Arbitration Application No.419 of 2022 before High Court of
Delhi, defendant No.1 filed I.A.No.73 of 2022 invoking the
provisions of Section 8 of the Act read with Order VII Rule
11(a) and (b) read with Section 151 of C.P.C. on 20.07.2022 to
reject the plaint in C.O.S.No.31 of 2021 on the ground of
arbitration clause enumerated in joint venture agreement
dated 21.02.2020, as such the Commercial Court is not
having jurisdiction to entertain the suit and also on the
ground of cause of action.
11. It is relevant to extract the arbitration clause mentioned
in the joint venture agreement dated 21.02.2020 here under:
"Settlement of Disputes by Arbitration:
26. In case of any disputes, question of
controversy arises between the JV Partners to this
Agreement and the same could not be resolved
amicably, then in every case, the matter in dispute
shall be resolved and finally settled in accordance
with the provisions of the Arbitration & Conciliation
Act 1996 as may be amended from time to time over
its re-enactment. The arbitrator shall be mutually
appointed by both parties. The arbitration shall be
taken place at Gurgaon, Haryana, India. All
questions concerning the construction, validity and
interpretation of this Agreement will be governed by
the laws of India, and the courts at New Delhi, India,
shall have exclusive jurisdiction."
12. Pursuant to the above said clause, defendant No.1 has
filed Arbitration Application No.419 of 2022 before the High
Court of Delhi and the same was allowed on 25.03.2022
referring the dispute arose out of a joint venture agreement
dated 21.02.2020 to the arbitrator and also held that there is
"no connect" between the subject matter of the operational
lease agreement read with MOU and joint venture agreement
and the said order has become final.
13. It is pertinent to mention that the plaintiff filed suit for
recovery of an amount of Rs.10,93,05,243/- against the
defendants basing upon the operational lease agreement
dated 16.10.2019 and MOU dated 05.01.2020 and the said
documents do not contain arbitration clause and basing upon
the arbitration clause enumerated in the joint venture
agreement dated 21.02.2020, defendant No.1 is not entitled to
seek rejection of the plaint, especially the operational lease
agreement, MOU and joint venture agreement are not
interconnected and they are different.
14. Insofar as the relief (b) sought by the plaintiff in
C.O.S.No.31 of 2024 for recovery of an amount of
Rs.33,41,069/- arising out of joint venture agreement dated
21.02.2020 is concerned, the plaintiff filed Memo dated
02.11.2024, vide USR.No.106135 stating that by virtue of the
order of the High Court of Delhi in Arbitration Application
No.419 of 2022 referring the dispute between the parties in
respect of joint venture agreement dated 21.02.2020 to the
arbitrator, the plaintiff is not pressing the relief sought in the
suit in C.O.S.No.31 of 2021 for recovery of Rs.33,41,069/-.
15. In Ameet Lalchand Shah (supra), the Hon'ble Supreme
Court held that where multiple agreements are
interconnected and form part of a single commercial
transaction, the presence of an arbitration clause in one or
more agreements can justify referring all disputes, involving
all agreements and parties, to arbitration. This is true even if
some agreements lack an arbitration clause or some parties
are non-signatories, provided the agreements are integrally
connected to achieving the overall purpose of the transaction.
Courts should interpret such commercial arrangements with
a sense of "business efficacy" and not be restricted by
technicalities or allegations of fraud, unless substantial
grounds exist. The Apex Court also held that the averments
in the plaint also prima facie indicate that all the four
agreement are interconnected.
16. In C.R.P.No.348 of 2024, this Court held that petitioner
No.1 and respondent No.1 entered into two sub-lease
agreements, one of which contained an arbitration clause.
Instead of opting for arbitration, petitioner No.1 filed a suit
seeking the recovery of Rs.3,24,74,899/-. In response,
Respondents No.1 and 2 submitted an application under
Section 8 of the Arbitration and Conciliation Act, which the
Commercial Court accepted. The petitioners challenged this
decision, arguing there was no written agreement. The Court,
after examining Clause 11 of the sub-lease agreement, upheld
the Commercial Court's decision, ruling that the dispute
should be resolved through arbitration as per the agreed
terms. The Court found no error in the Commercial Court's
decision, dismissing the revision petition.
17. In Sanjiv Prakash (supra), the Hon'ble Supreme Court
held that in this case the disputes arose regarding a
Shareholders' Agreement (SHA) and a prior Memorandum of
Understanding (MoU) between family members and Reuters,
which included arbitration clauses. The MoU was claimed to
have been superseded by the SHA, which contained a
novation clause (i,e., Clause 28). When disputes regarding
share transfer pre-emptive rights emerged, the appellant
invoked the arbitration clause in the MoU. The respondents
argued that the MoU was void post-1996 due to novation by
the SHA. The Delhi High Court dismissed the Section 11
petition for appointing an arbitrator. On appeal, the Supreme
Court held that the doctrine of kompetenz-kompetenz and
Section 11(6-A) of the Arbitration and Conciliation Act, 1996,
which limits judicial interference at the referral stage to
verifying the existence of an arbitration agreement, leaving
issues of validity and scope to the arbitral tribunal. The Court
emphasized that the novation of a contract affects its
arbitration clause only if explicitly stated, and any deeper
examination of such issues falls under the tribunal's
jurisdiction.
18. The judgements and order in C.R.P.No.348 of 2024
relied upon by the learned counsel for defendant No.1 are not
applicable to the facts and circumstances of the case on the
ground that in the subject matter operational lease agreement
dated 16.01.2019 and joint venture agreement dated
21.02.2020 are not interconnected. The operational lease
agreement is pertaining to leasing of 30 x Volvo FMX 460
Tippers (33 CUM coal body) for an amount of 91,57,161/-
and for a term of 34 months and whereas the joint venture
agreement dated 21.02.2020 in respect of works which were
awarded to defendant No.1 in Lakhanpur, Odisha at the
Mines of Mahanadi Coal Fields.
19. Insofar as the other ground raised by defendant No.1
that there is no cause of action and jurisdiction to file suit
before the Commercial Court, Hyderabad, is concerned, the
plaintiff specifically pleaded at paras 29 and 30 of the plaint
that negotiations between the plaintiff and defendants for
entering into operational lease agreement took place on
04.10.2019 at Park Hyatt Hotel, Hyderabad and Clause 25 of
the operational lease agreement dated 16.10.2019 provides
for Hyderabad as the place of jurisdiction to initiate legal
proceedings in case of disputes between the parties. Basing
on the said pleadings, the Commercial Court has entertained
the suit.
20. In Raptakos Brett & Co. Ltd. v. Ganesh Property 3
and Mayar (H.K.) Ltd. v. Vessel M.V. Fortune Express 4, the
(1998) 7 SCC 184
Hon'ble Apex Court held that though in an application under
Order VII Rule 11 of C.P.C., the Court has to look into the
averments made in the plaint and the documents filed along
with the plaint alone. The Court cannot at that stage look
into the written statement or the documents filed along with
the written statement.
21. In Mustigulla @ Namaswamy Hemanth Kumar v.
Abhaya Infrastructure Pvt. Ltd. And others 5, the Division
Bench of erstwhile High Court for the States of Telangana and
Andhra Pradesh held that rejection of plaint on the ground of
res judicata, cause of action, under valuation, limitation have
to be decided on trial but the same cannot be a ground for
rejection of plaint, especially when the parameters of Order
VII Rule 11 of C.P.C. are not satisfied.
22. For the foregoing reasons as well as the plethora of
judgments, this Court does not find any illegality or
irregularity or jurisdictional error in the impugned order
dated 10.06.2024 passed by the Commercial Court in
(2006) 3 SCC 100
2016 (6) ALD 598 (DB)
dismissing the application filed by defendant No.1 to reject
the plaint filed by the plaintiff.
23. Accordingly, the Commercial Court Appeal is dismissed.
No costs.
Miscellaneous petitions, pending if any, shall stand
closed.
_______________________________
ALOK ARADHE, CJ
_______________________________
J.SREENIVAS RAO, J
Date: 22.11.2024
L.R. copy to be marked
(b/o)
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