M/s Avinash Hitech City 2 Society & Ors. v. Boddu Manikya Malini & Anr. Etc.
Background
Landowners near Hyderabad had developed land into an integrated complex through development agreements with a developer, and the owners later organized themselves into societies, including the appellant society. A dispute arose between the appellant society and some member-owners (the respondents) over the sharing of lease rent collected from a commercial building, and the owners sought to resolve it before the District Judge under the Societies Registration Act rather than through arbitration. The appellants argued that an arbitration clause (Clause 19) in an Addendum to the Supplementary Development Agreement required the dispute to go to arbitration instead, but both the District Judge and the High Court had rejected this and refused to refer the matter to an arbitrator.
Decision Breakdown
The Supreme Court held that the dispute over sharing of rental income was directly connected to and arose out of the Development Agreements, Supplementary Development Agreements, and the Addendum between the parties, and therefore fell within the scope of the arbitration clause (Clause 19). The Court found that both the High Court and the District Judge had erred in reading Clause 19 too narrowly and in refusing to refer the dispute to arbitration. It allowed the appeals, quashed the High Court's and District Judge's orders, and directed that the dispute between the respondents and appellants be referred to arbitration as per Clause 19.
Lesson Learnt
When parties have agreed to an arbitration clause covering disputes "arising out of, in connection with, or relating to" an agreement, courts will read that clause broadly, and a dispute connected to the underlying contractual relationship (even if filed under a different statute) should ordinarily be sent to arbitration rather than litigated in court.