The High Court for the State of Telangana has allowed an arbitration application under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, holding that a prima facie arbitration agreement exists between Urbanwoods Realty LLP and the respondents in a joint development dispute. Justice K. Lakshman appointed former Andhra Pradesh High Court judge, Justice V.V.S. Rao, as the sole arbitrator to adjudicate the matter.
Background
The applicant, Urbanwoods Realty LLP, and the respondents had entered into a Memorandum of Understanding (MoU) dated 01.07.2020 and an Agreement of Sale on the same date for the joint development of land situated at Khajaguda Village, Serilingampally Mandal, Ranga Reddy District. As per the MoU, the landowners were entitled to 2,10,000 sq. ft. of constructed area and a refundable security deposit of ₹10 crores. Under the Agreement of Sale, the total sale consideration was ₹80 crores, to be paid in phases.
Urbanwoods contended that it had paid ₹13.52 crores by 01.01.2023 and had been diligently pursuing necessary approvals. Upon learning that the respondents were attempting to enter into agreements with third parties, the applicant filed an application under Section 9 of the Arbitration Act, which was allowed on 19.08.2024, granting a temporary injunction.
On 10.01.2023, Urbanwoods invoked arbitration clauses from both the MoU and the Agreement of Sale, citing disputes. The respondents replied on 13.01.2023, claiming both agreements had terminated by efflux of time and that the arbitration clauses were no longer enforceable. They also relied on an Indemnity Bond dated 13.09.2022, which stated that the original MoU had been terminated and new terms were to be discussed.
Respondents’ Objections
The respondents raised several objections:
- That the agreements were insufficiently stamped.
- That the arbitration clause in the Agreement of Sale used the word “may”, indicating a non-mandatory arbitration.
- That the agreements, having been terminated, rendered the arbitration clause unenforceable.
They relied on decisions such as WAPCOS Ltd. v. Salma Dam JV, (2020) 3 SCC 169, and Wellington Associates Ltd. v. Kirit Mehta, (2000) 4 SCC 272.
Court’s Observations
The Court rejected the stamping objection, relying on the Constitution Bench decision in Interplay Between Arbitration Agreements under Arbitration Act, 1996 & Stamp Act, 1899, In re [(2024) 6 SCC 1], which held that stamping issues are to be decided by the arbitral tribunal and not at the Section 11 stage.
On the termination argument, the Court held:
“It is trite law that an arbitration clause is a separate agreement in itself. The termination of the substantive contract will not automatically terminate the arbitration agreement.”
The Court referred to SBI General Insurance Co. Ltd. v. Krish Spinning [2024 SCC OnLine SC 1754] and emphasized the doctrine of separability and limited scope of Section 11 inquiry.
Regarding the use of “may” in the arbitration clause, the Court held that both the MoU and Agreement of Sale must be read together as they were part of the same transaction. The MoU contained a definitive arbitration clause and was the principal agreement, with the Agreement of Sale being ancillary. The Court cited Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan [(1999) 5 SCC 651] to support this view.
Decision
The Court concluded:
“In light of the aforesaid discussion, this Court holds that a valid arbitration agreement exists between the parties.”
Accordingly, it allowed the arbitration application and appointed Justice V.V.S. Rao, former Judge of the erstwhile High Court of Andhra Pradesh, as the sole arbitrator
Case Title: Urbanwoods Realty LLP vs Mrs. Uma Rastogi (Died) & Another
