Arti Jethani vs Daehsan Trading (India) Pvt Ltd & ...
2010 Latest Caselaw 2588 Del

         THE HIGH COURT OF DELHI AT NEW DELHI
%                     Judgment Reserved on: 9th May, 2011
                      Judgment Pronounced on: 16.05.2011

+           CS(OS) No. 1296/2010

ARTI JETHANI                                  .....Plaintiff

                            - versus -

DAEHSAN TRADING (INDIA) PVT LTD & ORS..Defendant

Advocates who appeared in this case:
For the Plaintiff:      Mr. Sharad Chandra, Adv.
For the Defendant:      Mr. Sanjoy Kr. Ghosh and
                        Ms. Rupali S. Ghosh, Advs.

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1.

Whether Reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in Digest? Yes

V.K. JAIN, J

IA No.4272/2011 (u/S. 8 of Arbitration and Conciliation Act)

1. This is a petition under Section 8 of Arbitration

and Conciliation Act, 1996 (hereinafter referred to as the

Act) for referring the disputes raised by the plaintiff for

arbitration, in terms of the arbitration agreement between

the parties.

2. A perusal of the record would show that on suit

summons being served on them, the defendants appeared

through counsel on 04th January, 2011 and it was directed

that the written statement be filed within the prescribed

period. The matter was adjourned to 02nd May, 2011. The

written statement was filed on 25th January, 2011.

Replication to the written statement was filed on 14th

February, 2011. In replication, the plaintiff relying upon

the decision of Supreme Court in Sukanya Holdings Pvt.

Ltd. vs. Jayesh H. Pandya and Anr. AIR 2003 SC 2252,

stated that the defendants having already filed Written

Statement and no application under Section 8 of the Act

having been filed, the matter was not required to be referred

to the arbitral tribunal. The application under

consideration came to be filed on 22nd February, 2011.

3. A careful analysis of Section 8 of Arbitration and

Conciliation Act, 1996 would show that the following

conditions are required to be fulfilled before the Court can

refer the matter to arbitration;

(a) the dispute between the parties should be

subject matter of an arbitration agreement;

(b) one of the parties to the suit should apply for

referring the parties to arbitration;

(c) the application should be filed on or before

submitting first statement on the substance of

the dispute and;

(d) the application should be accompanied by the

original arbitration agreement or its certified

copy.

4. In the case before this Court, the application

under consideration having not been filed on or before filing

of written statement, but having been filed about four weeks

after the written statement had been filed and after 8 days

of filing of replication, one of the pre-requisite conditions for

referring the parties to arbitration under Section 8 of

Arbitration and Conciliation Act does not stand fulfilled in

this case.

5. In Sukanya Holdings (supra), Supreme Court,

while interpreting Section 8 of the Act, inter alia, observed

as under:

"Further, the matter is not required to be referred to the arbitral Tribunal, if-(1) the parties to the arbitration agreement have no filed any such application for referring the dispute to the arbitrator; (2) in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the

original arbitration agreement or duly certified copy thereof."

It is true that in the above-referred case, the

application under Section 8 of Arbitration and Conciliation

Act appears to have been filed before the written statement

was filed and, therefore, the question as to whether such an

application can be filed after the written statement has

already been filed, did not directly come up for

consideration in this case, but, the above-referred

observations made by the Court do support the view that

such an application cannot be filed after the first statement

on the substance of the dispute has been filed by the

applicant.

6. The contention of the learned counsel for the

applicant is that since the defendant had already pleaded in

the written statement that there is an arbitration agreement

between the parties and, therefore, this Court has no

jurisdiction to adjudicate the instant suit, it is evident that

the applicants did not submit to the jurisdiction of the Civil

Court and, therefore, the application is maintainable even

after filing of the written statement.

7. In my view, if the Court accepts the contention that

an application under Section 8 of the Act can be filed even

after the first statement on substance of the dispute

between the parties has already been filed, this would not

only be contrary to the express provisions of law but, would

also defeat the very purpose behind stipulating that such an

application needs to be filed not later than submitting the

first statement on the substance of the dispute. If such an

application is entertained after filing of the first statement, it

would be possible for a party to the suit to first allow the

trial to proceed by not filing the application by the stage

stipulated in the Act and then come to the Court at a much

later stage when the trial is substantially complete and seek

reference of the dispute to arbitration. It is true that in the

case before this Court the trial has not commenced as yet,

but if the interpretation sought to be given by the learned

Counsel for the applicants/defendants is accepted, it would

be open to a party to the suit to file such an application

even after the trial has commenced.

8. The question as to whether a defendant who pleads

arbitration agreement in the Written Statement, but does

not file an application under Section 8 of the Act, on or

before filing of the Written Statement has come up before

other High Courts in some cases. In K.Jayakumaran Nai

vs. Vertex Securities Ltd. AIR 2005 Ker. 294, the

defendant filed Written Statement raising a contention that

there was an arbitration agreement between the parties.

After framing of issues he filed an application seeking

reference of the dispute for arbitration. The High Court

noted that Section 8 of the Act clearly provides that the

application had to be made not later than submitting the

first statement whereas the application before it had been

filed after the issues were framed. The Court expressly

rejected the contention that since the matter had been

raised in the Written Statement that was enough. While

doing so the Court noted that the Written Statement

contained no prayer for referring the matter for arbitration.

In West Bengal State Electricity Board and Ors.

Vs. Shanti Conductors Private Ltd. AIR 2004 Gau 70, the

defendants filed Written Statement indicating that the

dispute which had arisen between the parties and led to

institution of the suit, was covered by arbitration clause.

After submitting the Written Statement on 22.9.2000 the

defendants filed an application under Section 8 of the Act

on 7.11.2000 seeking reference of the dispute to the

arbitration. The trial Court having rejected the application

the matter was agitated by the defendant before the High

Court and it was contended that in the plaint itself the

plaintiff had admitted the existence of the arbitration clause

and the Written Statement also indicated about its existence

and therefore the Court below had taken a misconceived

view of law as to its jurisdiction. Rejecting the contention,

the High Court interalia held as under:

In the case at hand, the application under Section 8 was made by the defendants after the written statement stood submitted. Hence, this application was not maintainable. The fact that the existence of the arbitration clause was admitted in the plaint or asserted in the written statement is immaterial inasmuch as the Court, under Section 8, can refer for arbitration a dispute pending in a civil suit only when the party or parties concerned make application for getting the dispute referred to arbitration. If despite existence of arbitration clause, the parties choose to contest the suit, the powers under Section 8 cannot be invoked.

9. The learned Counsel for the defendants has relied

upon the decision of the Supreme Court in Rashtriya Ispat

Nigam Ltd. & Anr. vs. Verma Transport Co. (2006) 7 SCC

275. In the case before Supreme Court, a suit seeking

permanent injunction against blacklisting the defendant or

terminating the contract was filed. The trial Court directed

the parties to maintain status quo. The

appellants/defendants sought time to file Written

Statement. They also filed a rejoinder to the counter

affidavit of the application for injunction, wherein they took

a specific plea that the subject matter of the suit being

covered by arbitration agreement, it was not maintainable.

On 7.6.2002 they filed an application under Section 8 of the

Act which was rejected by the trial Court on the ground that

the process of the suit had already begun and the

defendants had already entered into a defence of the suit

and had thereby subjected themselves to the jurisdiction of

this Court. A revision application filed by the defendants

having been rejected by the High Court, the matter was

taken to Supreme Court. The Supreme Court noted that

under Section 8 of the Act, the power to refer the dispute for

arbitration has to be exercised, if a party so applies not later

than when submitting his first statement on the substance

of the dispute. The Court referred to its decision in Food

Corporation of India v. Yadav Engineer & Contractor

(1982) 2 SC 499 where it had opined that interlocutory

proceedings are only incidental proceedings to the main

proceedings and therefore any step taken in interlocutory

proceedings does not come within the purview of the main

proceedings. The Court then interalia observed as under:

36. The expression "first statement on the substance of the dispute" contained in Section 8(1) of the 1996 Act must be contradistinguished with the expression "written statement". It employs submission of the party to the jurisdiction of the judicial authority. What is therefore needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived its right or acquiesced itself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the 1996 Act, may not be held wholly unmaintainable.

In paras 38 & 39 of the judgment, the Supreme

Court interalia observed as under:

38. x x x In view of the changes brought about by the 1996 Act, we are of the opinion that what is necessary is disclosure of the entire substance in the main proceeding itself and not taking part in the supplemental proceeding.

39. By opposing the prayer for interim

injunction, the restriction contained in sub- section (1) of Section 8 was not attracted. Disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that substance of the dispute has already been disclosed in the main proceeding. Supplemental and incidental proceedings are not part of the main proceeding. They are dealt with separately in the Code of Civil Procedure itself. Section 94 of the Code of Civil Procedure deals with supplemental proceedings. Incidental proceedings are those which arose out of the main proceedings. In view of the decision of this Court in Food Corporation of India, the distinction between the main proceeding and supplemental proceeding must be borne in mind.

In para 42 of the judgment, the Court interalia

observed as under:

42. Waiver of right on the part of a defendant to the lis must be gathered from the fact situation obtaining in each case. In the instant case, the court had already passed an ad interim ex parte injunction. The appellants were bound to respond to the notice issued by the Court. While doing so, they raised a specific plea of bar of the suit in view of the existence of an arbitration agreement. Having regard to the provisions of the Act, they had thus, shown their unequivocal intention to question the maintainability of the suit on the aforementioned ground.

The facts of this case however, are altogether

different. In this case, the defendants have already filed

their Written Statement and have thereby disclosed their

entire defence and that has been done in the main

proceedings itself, not in the supplemental proceedings. Of

course, the application under Section 8 of the Act would be

maintainable if the applicant has not filed his first

statement on the substance of the dispute, but when the

Written Statement is filed, it can hardly be disputed that the

applicant has submitted not only the first but whole of his

statement on the dispute between the parties. To hold such

an application to be maintainable, even after filing of the

Written Statement would be contrary to the provisions

contained in Section 8 of the Act. Mere disclosure of

arbitration agreement in the Written Statement and

claiming that Civil Court has no jurisdiction to try the suit

would be of no consequences unless the Written Statement

itself contains a prayer for referring the dispute for

arbitration. In the case before this Court, though the

defendants claimed that there is arbitration agreement

between the parties and Civil Court has no jurisdiction in

the matter, no prayer was made in the Written Statement to

refer the disputes between the parties for arbitration.

10. The learned Counsel for the applicants/defendants

has also referred to Hindustan Petroleum Corporation

Ltd. vs. Pinkcity Midway Petroleums (2003) 6 SCC 503.

It appears from para 8 of the judgment that in this case, the

application under Section 8 of the Act along with a copy of

the arbitration agreement, was filed by the

appellant/defendant in reply to the suit summons. There is

nothing in the judgment to indicate that Written Statement

had been filed before filing the application under Section 8

of the Act. Therefore, this judgment is of no help to the

defendants before this Court.

11. No one can dispute that a Civil Court has no

jurisdiction to entertain the suit after application under

Section 8 of the Act is filed but this would be subject to the

application otherwise being in conformity with the

requirements of the said Section. The jurisdiction of the

Civil Court is not ousted on account of an arbitration

agreement between the parties. It is ousted because of an

application filed under Section 8 of the Act provided it

otherwise confirms to the requirements laid down in the

Section.

12. The learned Counsel for the defendants/applicants

also relied upon Agri Gold Exims Ltd. vs. Sri Lakshmi

Knits & Wovens & Ors. (2007) 3 SCC 686 and decision of

this Court in M/s Everest Electric Works v. M/s

Himachal Futuristics Communications Ltd. IA No.

4438/2003 in CS(OS) No. 2400/2001 decided on

11.8.2004. Neither of these judgments applies to the facts

of the case before this Court. In neither of the cases, the

Court was called upon to deal with a situation where

application under Section 8 of the Act is filed after filing of

the Written Statement.

For the reasons given in the preceding paragraphs

the application is hereby dismissed.

CS(OS) No. 1296/2010

The matter be listed before the Joint Registrar on

30th May, 2011for admission/denial of the documents and

before this Court on 16th November, 2011for framing of

issues.

(V.K. JAIN) JUDGE May 16, 2011 vn/bg