Invoking Section 8(1) Of Arbitration And Conciliation Act, 1996, Formal Application Is Required, Averment In Written Statement Not Enough

The case arose from a Civil Revision Petition challenging a trial court order that had referred parties to arbitration based on an application filed more than 10 years after the defendant's written statement. The Division Bench of Justice Moushumi Bhattacharya and Justice M.G.Priyadarsini found this delay unacceptable and set aside the trial court's order, reasoning that Section 8(1) mandates a separate, formal application for arbitration referral, which must be made before or alongside the first substantive response to the dispute.

The Bench noted:

“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."

Background:

The petitioners (plaintiffs in the trial court) argued that the application under Section 8(1) was filed more than a decade after the respondent's written statement, contravening the statutory timeline. They contended that this delay rendered the application inadmissible. Conversely, the respondents (defendants) maintained that referring to the arbitration clause in their written statement should have been sufficient grounds for the court to refer the parties to arbitration. They argued that a separate application was unnecessary when the intention to arbitrate was clearly expressed in the pleadings.

The Bench did not agree with the arguments advanced by the respondent.

It emphasized that the phrase "so applies" in Section 8(1) necessitates a formal application. The court outlined multiple reasons supporting this view: the implied timeline in Section 8(1) presumes the filing of an application; construing "so applies" otherwise would render the express timeframe meaningless; the phrase indicates a positive act distinct from the first statement on the dispute; and Section 8(2) explicitly refers to "the application" mentioned in Section 8(1).

Furthermore, the court stressed the importance of the timeline in Section 8(1), noting that it serves a crucial purpose. It requires parties objecting to the court's jurisdiction based on an arbitration agreement to do so promptly and diligently. The court observed that allowing parties to invoke arbitration at any time without adhering to statutory time limits could lead to procedural disruptions and uncertainty in legal proceedings.

“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.”

In its decision, the High Court respectfully disagreed with contrary views expressed by the Delhi High Court in Sharad P. Jagtiani v. M/s. Edelweiss Securities Limited and Madhu Sudan Sharma v. Omaxe Ltd wherein it was held that preliminary objections raised in a Written Statement can be treated as an arbitration application. It asserted that ousting a civil court's jurisdiction is a serious matter that must be based on a positive act by a party, not merely mentioning an arbitration clause in the written statement.

While allowing the Revision, the court emphasized that it is not important whether the facts of the dispute are amenable to arbitration is not for a decision under Section 8(1). And that, the referral court's role is limited to examining whether the statutory requirements have been satisfied by the party bringing the application.

“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.”

C.R.P.NO.1516 OF 2024

Yakkanti Adinarayana Reddy vs. Yakkanti Adinarayana Reddy

Counsel for petitioner: V Jagapathi

Counsel for respondent: k. Rajashekar