Rathi Steel And Power Limited vs Shri Ram Lime Products Pvt. Ltd
2021 Latest Caselaw 6916 Raj

             HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
                              JODHPUR
                      D.B. Civil Misc. Appeal No. 250/2019

        Rathi Steel And Power Limited, A-3, Industrial Area, South Of
        G.t. Road, Ghaziabad - 201009 (U.p.)
                                                                          ----Appellant
                                           Versus
        Shri Ram Lime Products Pvt. Ltd., Having Office At 39-A, Shree -
        Kunj, Dharam Narayan Ji Ka Hatta, Paota, Jodhpur. Rajasthan -
        342006
                                                                        ----Respondent


        For Appellant(s)         :     Mr. Ashish Khurana through V.C.
                                       Mr. P.S.Chundawat.
        For Respondent(s)        :     Mr. Prateek Gattani.
                                       Mr. Falgun Buch.


                  HON'BLE MR. JUSTICE SANGEET LODHA
                   HON'BLE MR. JUSTICE ARUN BHANSALI
                                        Judgment

       PER HON'BLE ARUN BHANSALI, J.

10/03/2021

REPORTABLE

This appeal under Section 37 (a) of the Arbitration and

Conciliation Act, 1996 ('the Act') read with Section 13 of the

Commercial Courts Act, 2015 ('the Act, 2015') is directed against

the order dated 15/11/2018 passed by the Commercial Court,

Jodhpur, whereby, the application filed by the appellant under

Section 8 of the Act has been rejected.

The suit was filed by the respondent against the appellant

and its Directors for recovery of sum of Rs.71,26,096/- before the

District Judge, Jodhpur (Metro), which was initially transferred to

the court of Addl. District Judge No.2, Jodhpur (Metro).

(2 of 8) [CMA-250/2019]

On being served with the summons in the suit, an application

was filed by the appellant - company under Section 8 of the Act

seeking reference of the parties to arbitration in view of existence

of arbitration clause between the parties.

Reply to the application was filed by the respondent-plaintiff

contesting the application filed by the appellant-defendant. It was

alleged that the documents filed with the application were

concocted and no such purchase orders were issued to the

defendant company. Along with the reply, original purchase orders

were produced and it was claimed that on the back of said

purchase orders, there were no conditions printed including the

arbitration clause.

Further submissions have been made that there was huge

difference between the purchase orders produced by the appellant

and those produced by the respondent and as such, in absence of

any arbitration clause between the parties, the matter cannot be

referred to the arbitrator.

Later on, suit came to be transferred to the Commercial

Court, Jodhpur by order of the District Judge, Jodhpur (Metro)

dated 12/9/2018. After hearing the parties, the Commercial Court

by its impugned order dated 15/11/2018 rejected the application

under Section 8 of the Act.

Learned counsel for the appellant submitted that the

Commercial Court was not justified in rejecting the application.

Submissions were made that as the purchase orders produced by

the appellant contain the arbitration clause between the parties, in

view of the mandatory provisions of Section 8 of the Act, it was

incumbent on the Commercial Court to refer the parties to

(3 of 8) [CMA-250/2019]

arbitration, failure to refer the parties, is contrary to the mandate

of law and, therefore, the order impugned deserves to be quashed

and set aside.

Further submissions were made that the Commercial Court

on the one hand observed that the defendant must take all its

objections in the written statement and, thereafter, after framing

of the issues the same would be decided on merits after evidence

is led by the parties and on the other hand rejected the

application, which is contradictory in nature and, therefore, the

order impugned deserves to be set aside.

Learned counsel for the respondent vehemently opposed the

submissions. It was submitted that the Commercial Court rightly

rejected the application inasmuch as absolutely incorrect

averments were made in the application filed under Section 8 of

the Act accompanied with concocted documents. The original

purchase orders did not indicate any conditions as claimed, which

purchase orders were produced before the court and in absence of

any arbitration clause between the parties, the application was

liable to be rejected and, therefore, no interference is called for in

the order impugned and the appeal deserves to be dismissed.

We have considered the submissions made by learned

counsel for the parties and have perused the material available on

record as well as the record, which was summoned from the

Commercial Court.

The plaintiff filed the suit for recovery in which the present

application under Section 8 of the Act was filed along with the

copies of purchase orders inter alia indicating that the terms and

conditions of purchase includes arbitration clause between the

(4 of 8) [CMA-250/2019]

parties and, therefore, the dispute raised by the plaintiff in the suit

deserves to be referred to arbitration.

As noticed hereinbefore, the respondent-plaintiff filed reply

to the application and made allegations that the purchase orders

annexed with the application were concocted and that the original

purchase orders issued to the plaintiff did not contain any terms

and conditions of purchase, as alleged, and in absence of any

arbitration clause between the parties the matter cannot be

referred to the arbitrator and, therefore, the application deserves

dismissal. The Commercial Court, in its impugned order came to

the conclusion that at the stage of considering the application, this

fact cannot be decided as to whether the terms and conditions as

indicated in the purchase orders relied on by the defendant exist

or not and in case the said aspect is decided, the same would

affect the final outcome of the suit and, therefore, indicated as

under:

",slh fLFkfr esa bl izkjfEHkd Lrj ij ;g vkns"k fn;k tkrk gS fd izfroknh i{k tokcnkok ds tfj;s viuh leLr vkifÙk;ka j[kdj izdV djsaA rRi"pkr U;k;ky; }kjk fook|d cuk;k tkdj fof/kuqlkj mudk xq.kkoxq.k ij ckn lk{; fuLrkj.k djsxkA"

Whereafter, after making a passing reference to the

judgments cited by the parties passed the following order:

"mi;qZDr foospu ds ifjizs{; esa bl Lrj ij [email protected] i{k dk ;g izkFkZuki= vkns"k 8 ¼1½ e/;LFkrk ,oa lqyg vf/kfu;e] 1996 [kkfjt fd;k tkrk gSA"

The provisions of Section 8 of the Act, insofar as relevant for

the present controversy, reads as under:

"8. Power to refer parties to arbitration where there is an arbitration agreement.--(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the

(5 of 8) [CMA-250/2019]

arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists."

(emphasis supplied)

A perusal of the above provision reveals that in case if a

party to the arbitration agreement applies not later than the date

of submitting his first statement on the substance of the dispute,

the judicial authority before which an action is brought, shall refer

the parties to arbitration. The only exception provided is if the

authority finds that prima facie no valid arbitration agreement

exists.

Recently, the larger bench of Hon'ble Supreme Court in Vijay

Drolia & Ors. Vs. Durga Trading Corporation : 2020 (4) DNJ (SC)

1368, while dealing with the said provision, inter alia observed as

under:

"86. The courts at the referral stage do not perform ministerial functions. They exercise and perform judicial functions when they decide objections in terms of Sections 8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the parties to arbitration, if the action brought is the subject of an arbitration agreement, unless it finds that prima facie no valid arbitration agreement exists. Examining the term 'prima facie', in Nirmala J. Jhala v. State of Gujarat and Another, (2013) 4 SCC 301, this Court had noted:

"48. A prima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were to be believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence."

Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the arbitral tribunal. It is restricted to the subject matter of the suit

(6 of 8) [CMA-250/2019]

being prima facie arbitrable under a valid arbitration agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, referral court without getting bogged-down would compel the parties to abide unless there are good and substantial reasons to the contrary.

87. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non- arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration agreement exists or the disputes/subject matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts......."

The Court dealt with the aspect of 'prima facie' and laid

down that the 'prima facie' case means that assertions on these

aspects are bona fide and that the purpose of prima facie review

at the reference stage is to cut the deadwood and trim off the side

branches in straight forward cases where dismissal is barefaced

when on the facts and law the litigation must stop at the first

stage.

It was further observed that only when the court is certain

that no valid arbitration agreement exists or the dispute/subject

matter are not arbitrable, the application under Section 8 would

be rejected.

Once the application under Section 8 of the Act has been

filed and the same is contested, the decision on the said

application cannot be postponed to a future date for the court to

frame issues, seek evidence along with other issues and decide

the same at the final stage inasmuch as the provisions requiring

reference to arbitration are mandatory in nature with the

(7 of 8) [CMA-250/2019]

exception where prima facie no valid arbitration agreement exists,

therefore, at the stage of application under Section 8 of the Act

itself the judicial authority is required to determine the existence

of a valid arbitration agreement.

It may be noticed at this stage that the exercise of power

under Section 8 of the Act and its determination cannot be

compared with decision/determination of an application under

Order VII Rule 11 CPC, wherein, only the plaint

averments/documents filed with the plaint can be looked into.

While determining the application under Section 8 of the Act, the

reply to the application and the documents tagged therewith can

very well be looked into by the court for making the requisite

determination and as the determination is required to be made

'prima facie' and as has been laid down by Hon'ble Supreme Court

the prima facie examination is not full review but a primary first

review to weed out manifestly and ex-facie non-existent and

invalid arbitration agreements and non-arbitrable disputes, the

Commercial Court fell in error in not determining the issue prima

facie and leaving it to a future date, after the parties lead

evidence.

Besides the above, while on the one hand the court postpone

the decision on the issue to a future date, in almost same breath

rejected the application filed by the defendant-appellant, which

action also cannot be countenanced.

In view of the above discussion, the appeal is allowed. The

order dated 15/11/2018 passed by the Commercial Court, Jodhpur

is set aside. The matter is remanded back to the said court for re-

(8 of 8) [CMA-250/2019]

determining the application on merits in view of the observations

made hereinbefore.

The parties shall appear before the Commercial Court,

Jodhpur on the date already fixed by it.

It is expected of the Commercial Court, Jodhpur to hear and

decide the application expeditiously.

No order as to costs.

                                   (ARUN BHANSALI),J                                      (SANGEET LODHA),J




                                    11-baweja/-









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