In Interconnected Agreements, Use Of Word 'May' Does Not Defeat Clear Intention To Arbitrate In Main Agreement: Telangana High Court

The Telangana High Court bench of Justice K. Lakshman has held that in case of interconnected agreements, where the mother agreement clearly and unequivocally refers the disputes to arbitration, mere use of 'may' in the arbitration clause of one of the ancillary agreements will not defeat the intention to arbitrate. Brief Facts: This application has been filed under section 11(6) of the Arbitration Act seeking an appointment of an Arbitrator. The Applicant, a developer, entered into an MoU dated 01.07.2020 with the Respondents, owners of 2 acres of land in Khajaguda Village, for a joint real estate development project. Under the MoU, the Respondents were to receive 2,10,000 sq. ft. of constructed area and a refundable security deposit of ₹10 crores. A sale agreement was also executed on the same date, fixing the total consideration at ₹80 crores, payable in installments. The Applicant claims that due to the time required for approvals and NOCs, both parties informally agreed to relax the MoU timelines. As of 01.01.2023, the Applicant had paid ₹13.52 crores. Upon learning that the Respondents were negotiating with third parties, the Applicant filed a petition under section 9 of the Arbitration and Conciliation Act, 1996, resulting in a temporary injunction on 19.08.2024. An arbitration notice was subsequently issued on 10.01.2023, invoking the dispute resolution clauses in the MoU and sale agreement. In Reply, the Respondents contended that as the MoU and the agreement of sale stood terminated due to efflux of time, the arbitration clause also stood terminated. Therefore, according to them, the arbitration clause under the said agreements could not have been invoked. Objections were also raised by them regarding the insufficient stamping of the MoU and the agreement of sale dated 01.07.2020. According to them, as these agreements are improperly stamped, the arbitration clause cannot be enforced. Observations: The court noted that the Supreme Court in Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899, In re held that the Referral Court at Section 11 stage should not examine or impound an unstamped or insufficiently stamped instrument, but rather leave it for the determination by the Arbitral Tribunal. Any objections in relation to the stamping of the agreement fall within the ambit of the Arbitral Tribunal. It further noted that in SBI General Insurance Co. Ltd. v. Krish Spinning the Supreme Court held that with the enactment of the Arbitration and Conciliation Act, 1996, the doctrine of separability was expressly recognized. In National Agricultural Coop. Marketing Federation of India Ltd. v. Gains Trading Ltd. the Supreme Court held that an arbitration agreement survives even if the main contract is terminated. The core principle is that the arbitration clause is independently agreed upon by the parties to resolve disputes arising. Based on the above, the court held that the referral court only has to see whether a prima facie arbitration agreement exists. The issues whether the agreement stood terminated and consequently, whether the arbitration clause stood terminated is a question to be decided by the arbitral tribunal. It held that “prima facie, an arbitration agreement exists between the parties. The issue of termination of the MoU and the agreement of sale by efflux of time cannot be decided by this Court and is left open for the arbitrator to decide. Further, the effect and interpretation of the Indemnity Bond dated 13.01.2023 is also open for the parties to raise before the arbitral tribunal.” Relying on the Supreme Court judgment in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, the court held that where multiple interconnected agreements exist with distinct clauses, courts generally give primacy to the clause in the principal agreement. In the present case, the MoU serves as the main agreement, while the agreement of sale is ancillary and constitutes part of the 'transaction documents' contemplated under the MoU. Accordingly, the terms of the MoU, including its dispute resolution clause, would govern. Accordingly, the present application was allowed. Case Title: Urbanwoods Realty LLP vs Mrs. Uma Rastogi & Another Case Number: ARBITRATION APPLICATION No.41 OF 2023 Judgment Date: 09/06/2025 Mr. Sunil B. Ganu, learned senior counsel representing Mrs. Manjari S. Ganu, learned counsel for the Applicant and Mr. Avinash Desai, learned senior counsel representing Mr. Vadeendra Joshi, learned counsel for 2nd Respondent. Click Here To Read/Download The Order

In Interconnected Agreements, Use Of Word 'May' Does Not Defeat Clear Intention To Arbitrate In Main Agreement: Telangana High Court

Mohd Malik Chauhan

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