Telangana High Court
Yakkanti Adinarayana Reddy vs M/S Vaishnavi Estates And Developers on 12 July, 2024
THE HON'BLE SMT JUSTICE MOUSHUMI BHATTACHARYA
AND
THE HON'BLE SMT JUSTICE M.G.PRIYADARSINI
C.R.P.NO.1516 OF 2024
ORDER:
(Per Hon'ble Justice Moushumi Bhattacharya)
This Civil Revision Petition arises out of an order passed
by the Trial Court dated 15.04.2024 referring the parties to
arbitration. The order was passed in an application filed by the
respondents (defendants) under section 8(1) of The Arbitration
and Conciliation Act, 1996. The plaintiff filed a Suit for
dissolution of partnership in the Trial Court.
2. The Trial Court relied on the written statement filed by
the respondents and was of the view that a separate application
was not required to be filed under section 8(1) of the 1996 Act
for referring the parties to arbitration.
3. Learned counsel appearing for the petitioners (plaintiff in
the Trial Court) refers to certain admitted dates and submits
that the application under section 8(1) of the 1996 Act was filed
more than 10 years after the respondent No.1/defendant No.1's
written statement in the Suit.
4. Learned counsel appearing for the respondents urges, on
the other hand, that the respondents (defendant Nos.1-4, 6-8
and 10) had referred to the arbitration clause in their written
statement which alone should have been held to be sufficient for
referring the parties to arbitration.
5. Notwithstanding the fact that both the parties have
primarily referred to the merits of the Suit and the defence
raised in the written statement, the only question which falls for
adjudication before us is whether the respondents complied
with the statutory mandate of section 8(1) of the 1996 Act in so
far as filing of an application for referring the parties to
arbitration within the window contemplated in section 8(1) of
the said Act. We must also mention that an appeal under
Section 37(1) of the 1996 Act does not lie from an order referring
the parties to arbitration under Section 8 of the Act.
6. The admitted dates which are relevant to answering the
question are as follows:
7. The petitioner filed a Suit for Dissolution of Partnership
and for appointment of Receiver for managing the partnership
business on 17.09.2012. The respondent No.1 filed its written
statement on 20.02.2013. The Suit was renumbered after
bifurcation of the State as O.S.No.841 of 2022. The
respondents thereafter filed the application for referring of the
parties to Arbitration on 21.12.2023.
8. Hence, it is undisputed that the application was filed
more than 10 years after the filing of the written statement.
9. Section 8(1) of The Arbitration and Conciliation Act, 1996,
was inserted in the Act w.r.e.f. 23.10.2015 and casts a statutory
mandate on a judicial authority to refer the parties to
arbitration on an application being made before it, provided the
application is made "not later than the date of submitting the
first statement on the substance of the dispute...".
Section 8(1), post-substitution, 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
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."
The changes inserted in section 8(1) are not relevant for
the purpose of the present adjudication.
10. The mandate on the judicial authority however is absolute
in the sense that the party to an arbitration agreement, or any
person claiming through or under him/her, must file an
application for referring the parties to arbitration on or before
filing of the "first statement" as a substantive response to the
dispute. On such application being made, the judicial authority
would be divested of any discretion in the matter and would be
under an obligation to refer the parties to arbitration regardless
of any judgment, decree or order of the Supreme Court or any
other Court. The reference would be subject to the existence of
a valid arbitration agreement between the parties.
11. Section 8(2) of the 1996 Act requires the party/person
making an application to file the original Arbitration Agreement
or a duly certified copy of the same to be filed along with the
application under section 8(1) of the 1996 Act.
12. Section 8(1) of the 1996 Act forms the issue before us i.e.,
whether the Trial Court correctly referred the parties to
arbitration by allowing the respondents' application under
section 8(1) notwithstanding the admitted fact of the
respondents filing the said application on 21.12.2023 after filing
the written statement on 20.02.2013. In essence, the
respondent filed the application under section 8(1) after filing
the first statement to the merits of the dispute.
13. Since the "first statement" being equated to the written
statement filed in a Suit is judicially settled, we only propose to
deal with the issue of whether the parties can be referred to
arbitration without a formal application being made in that
regard.
14. The Trial Court held in the impugned order that no formal
application is required under section 8(1). We find this view to
be erroneous for the following reasons.
15. First and foremost, section 8(1) uses the words "so
applies" which would mean that a party is required to make a
formal application for referring the parties to arbitration.
16. The other indications bolstering our view are:
(i) The implied timeline fixed in section 8(1) presumes
filing of an application and for the application to be made
before filing of the first statement to the dispute.
(ii) Construing the words "so applies" in section 8(1) in
any other manner would render the express time-frame
completely meaningless.
(iii) Further "so applies" indicates a positive act, not an
act lost or merged with the first statement to the dispute.
(iv) Section 8(2) refers to "the application" in section
8(1) and the requirement of filing such application in
proper form.
17. Second, the Trial Court accepted the respondent's
reference to the arbitration agreement in the written statement
as being sufficient for the purpose of section 8(1) of the 1996
Act.
18. We disagree with the above finding.
19. The requirement of filing a separate application under
section 8(1) is distinct to and independent of the first statement
to the substance of the dispute. This has already been
discussed above. Second, a reference to the arbitration clause
in the written statement, simpliciter, does not satisfy the rigour
of section 8(1) in terms of making a separate application for
referring the parties to arbitration. We rely on the framing of
section 8(1) and the specific words used therein, particularly the
words "so applies".
20. We find that the respondent No.1 referred to the
arbitration clause in the written statement and objected to the
maintainability of the Suit. However, the objection would not
absolve the respondent No.1 from the discipline of filing an
application under section 8(1). The respondent No.1 obviously
acquiesced and took the timeframe of section 8(1) for granted by
making an application after 10 years.
21. We also find it strange that the Trial Court dwelt at length
on the written statement mentioning the arbitration clause
when it had the application under section 8(1) before it, based
on which the impugned order was pronounced. The Trial
Court's reasoning that no progress was made in the Suit or that
the Suit being ideally-suited to arbitration are irrelevant to the
issue of whether the parties should be referred to arbitration
under section 8(1) of the 1996 Act.
22. We should also add that there is a salutary purpose to the
timeline contemplated under section 8(1) of the 1996 Act. The
requirement of the party/person making an application for
referring the parties to arbitration before answering to the
merits of the dispute signifies that the party objects to the
jurisdiction of the Court at the very first instance. Therefore,
the party raising the objection and refusing to submit to the
jurisdiction of the Court on the ground of a valid arbitration
agreement covering the entirety of the dispute must act with
diligence and promptitude. The party cannot file a substantive
written/first statement on the merits of the dispute, sit back
and only thereafter apply to the Court for referring the parties to
arbitration. It is a matter of firmness of purpose and of electing
the forum without blowing hot and cold.
23. In Sharad P. Jagtiani v. M/s. Edelweiss Securities
Limited 1, a Division Bench of the Delhi High Court relied on the
preliminary objection raised in the written statement pertaining
to the arbitration agreement and held that the same can be
treated as an application under section 8(1) of the 1996 Act.
Sharad P. Jagtiani's case was recently followed by a Single
Bench of the Delhi High Court in Madhu Sudan Sharma v.
Omaxe Ltd. 2, where the Court held that the requirement of
making an application under section 8(1) is more a requirement
of form than of substance and the more relevant issue was
1 2014 SCC Online Del 949 : (2014) 208 DLT 487 : (2014)2 Arb LR 136
2 2023 SCC Online Del 7136
whether there existed a valid arbitration agreement between the
parties.
24. This Court respectfully disagrees with the view taken by
the Delhi High Court in Sharad P. Jagtiani and Madhu Sudan
Sharma on the construction of section 8(1) of the Act and also to
the view that the jurisdiction of a Civil Court is obliterated the
moment the arbitration agreement is brought to its notice in the
written statement without the necessity of a formal application
under section 8(1).
25. The construction of section 8(1) and the necessity for
making a formal and separate application for referring the
parties to arbitration has already been discussed above. We are
of the view that a Court being denuded of jurisdiction is no
small matter and must be premised on a positive act by a party
to an agreement to divest the Court of its jurisdiction. The
ousting of jurisdiction cannot be for the asking or taken lightly
and certainly not be made at any point of time circumventing
the rigour of section 8(1) of the 1996 Act. Permitting a party to
raise the bogey or boon of arbitration at any point of time
without the sanctity of time-limits or form would result in
thwarting of processes and disruption of procedure. The
resulting uncertainty would be inimical to the quietus which is
the end-point of any action filed in a Court of law.
26. In any event, an absolute proposition in favour of
reference to arbitration which is entirely dependent on the
choice of party with regard to the timing or form is fraught with
unjust consequences including abuse of process.
27. Whether the facts in the dispute are amenable to
arbitration is not relevant for a decision in section 8(1) of the
1996 Act. The referral Court has only to see whether the
statutory indicators/requirements have been satisfied by the
party who brings an application to the Court under section 8(1)
of the 1996 Act for referring the parties to arbitration.
28. In the facts of the present case, the respondents have
failed on this count. The respondents/defendants have made
that application not only at an extremely belated stage but
clearly after filing of the first statement, which is the written
statement filed before the Trial Court. We hence do not find any
reason to accept the arguments made on behalf of the
respondents. This is purely on a question of law.
29. We accordingly set aside the impugned order dated
15.04.2024 and allow the Civil Revision Petition.
30. C.R.P.No.1516 of 2024 is allowed and disposed of in view
of the above reasons. The impugned order dated 15.04.2024 is
accordingly set aside.
Miscellaneous applications if any pending shall stand
closed. There shall be no order as to costs.
_________________________________
MOUSHUMI BHATTACHARYA, J
_______________________
M.G.PRIYADARSINI, J
12th July 2024
RRB/BMS
