Filing Application U/S 8 Of Arbitration Act Before Statement On Substance Of Dispute Doesn't Waive Right To Invoke Arbitration Clause: Karnataka HC

Brief Facts:

The respondents had filed a suit seeking inter alia (i) a Declaration that the “deed of arrangement and confirmation” is null and void for want of majority decision of partners of M/s. Astro Land Developers (Respondent No. 3) (ii) A declaration that Respondent No. 3 has absolute ownership of the schedule property; and (iii) Injunction restraining Appellant from developing, alienating, or creating any encumbrances on the schedule property.

The appellant filed an application under Section 8 of the Act seeking a direction to refer the parties to arbitration in accordance with the arbitration clause in the partnership deed.

The appellant contended that the Respondents had filed the suit without invoking the agreement, which makes the suit unsustainable. The Respondents filed objections stating that the Appellant had conceded to the jurisdiction of the court by filing a written statement. The application was filed without the arbitration agreement. Filing the written statement was a waiver of the arbitration clause. Thus, there was no bar on the Civil Courts exercising jurisdiction.

The Trial Court held that under Section 8, a party must invoke arbitration no later than the date of submitting its statement on the substance of the dispute. The appellant filed the Section 8 application on the same day as the written statement. The Trial Court in the impugned order held that the Appellant cannot invoke Section 8.

The Appellant filed the Appeal praying to set aside the impugned order and to allow the Section 8 Application.

Contentions of the Parties:

Counsel for the Appellant contended the Trial Court failed to understand that the parties are governed by the arbitration agreement. Reliance was placed upon the Judgment of the Court in Pricewaterhouse Coopers Service vs. Mr. Mohan Kumar Thakur and judgments of the Supreme Court in Rashtriya Ispat Nigam Limited and Anr. vs. Verma Transport Company and P. Anand Gajapathi Raju and Ors. vs. P.V.G. Raju (Dead) and Ors.. In these judgments, the Court held that the term 'not later than' used in Section 8(1) of the Act permits the filing of an application seeking reference of the parties along the written statement and the filing of the written statement and application for reference under Section 8 simultaneously cannot lead to an inference that the Appellant had submitted to the jurisdiction of the Civil Court and had waived its right to seek for reference to arbitration under Section 8. In similar set of facts, the Court had set aside the order of the Trial Court and remanded the matter to the Trial Court for fresh consideration.

Per contra, Counsel for Respondents contended that the Trial Court gave reasons for concluding that by filing the written statement, the Appellant had abandoned the power conferred by the Act by not referring the dispute to the arbitrator.

Observations:

At the outset, the court referred to P. Anand Gajapathi Raju and Rashtriya Ispat Nigam Limited, where it was observed that the expression “first statement on the substance of the dispute” contained in Section 8 (1) of the Act must be contradistinguished with the expression “written statement”.

The court observed that if an application under Section 8 is filed before submitting the first statement on the substance of the dispute, the party cannot be deemed to have waived its right to invoke the arbitration clause. The court held that the same cannot lead to an inference that the Appellant had submitted to the jurisdiction of the Civil Court and had waived its right to seek for reference to arbitration under Section 8. The court noted the Legislature has used the term 'not later than' consciously and deliberately to convey that a party is required to apply for reference to arbitration at the earliest point in time.

The court allowed the appeal and set aside the impugned order. It remanded the matter to the Trial Court to consider the application filed invoking Section 8 of the Act afresh on merits.

Case Title: Sri R. Nataraj vs. Smt. R. Punitha & Ors.

Case Number: M.F.A. No.6586 of 2024 (AA)

Date of Judgment: 23.11.2024