Subsequent Agreements prescribing Arbitration do not bind parties when MOU forming basis of claim does not contain Arbitration clause

In the matter of M/s Soben Contract and Commercial Ltd. Versus M/s Qonquests Technical Solutions Pvt. Ltd. and others (FAO COM 3/2021) decided on 04.11.2022 by the Hon’ble Punjab and Haryana High Court.

FACTS: In the present case, a MOU was signed between the Appellant and Respondent No. 1 dated 17.03.017. It was contended by the Appellant before the District Judge that the Consulting Agreements and Purchase Orders in pursuance to the MOU contains an Arbitration clause which forms the basis of claim of the Respondent No. 1/ Plaintiff however, the same was opposed by the Plaintiff before the District Judge and they relied on the MOU for substantiating their claims which had no arbitration clause. The District Judge rejected the Appellants application under Order VII Rule 11 (d) of the CPC read with Section 8 of the Arbitration & Conciliation Act, 1996 for rejection of the plaint

ISSUE: Whether subsequent agreements can be looked into for reference to Arbitration when the Agreement forming the basis of claim by a Plaintiff has no Arbitration clause.

OBSERVATIONS: The court noted that the working relationship of the parties in the present case was governed by the Memorandum of Understanding dated 17.03.2017. The court further noted that the basis for working relationship governing the conduct between the parties was the Memorandum of Understanding and not the subsequent purchase orders.

The Court further observed that the dispute and the claims which have been made in the civil suit when do not flow from the Purchase Orders or Consulting Agreements, cannot be made the basis for rejection of the suit and similarly, the question of separation of the claims does not arise as has been enunciated in the landmark decision of the Apex Court in Sukanya Holdings vs Jayesh H Pandya. Further, as the claim was based upon an agreement, in which there is no arbitration clause, the same would not bound the parties to be referred to Arbitration.

Hence, it was held that where the claim of a party to an agreement is based upon a Memorandum of Understanding which does not contain an arbitration clause, the Court is not required to refer the matter merely because the subsequent Agreements executed by the parties contemplate arbitration.