Once Party Submits Itself To Jurisdiction Of Court And Abandons Section 8 Application, Cannot Seek Reference u/s 8: Delhi High Court

Brief Facts:

The Defendant No.1 field an application in Delhi High Court under Section 5 and Section 8 read with Section 42 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the referral of the civil suit to arbitration. The Plaintiff instituted the suit for the recovery of Rs. 4,90,26,208/-, claiming to be a Private Limited Company engaged in providing various services related to petroleum and oil field operations, primarily in Assam. Defendant No.1, a wholly owned subsidiary of M/s China Petroleum Technology and Development Corporation, is involved in manufacturing and supplying equipment and technology for petroleum operations and petrochemical plants.

Defendant No.2, along with Assam Company Limited, was awarded a contract on February 23, 2001, for exploring, extracting, and producing crude oil from the Amguri Oil Field in Assam. An Agreement dated May 5, 2004, was entered into between the Plaintiff, Defendant No.2, and Assam Company Ltd. for joint operations under the Production Sharing Contract. Defendant No.2 identified a mobile drilling rig package owned by Defendant No.1, leading to a Memorandum of Understanding dated November 12, 2004, between Defendant No.1 and Defendant No.2.

The Plaintiff alleged that although the initial contract was for conducting workover operations and servicing the oil fields, it was later expanded to include drilling operations due to the identification of Defendant No.1's rig. A Lease Agreement dated November 4, 2004, was entered into between the Plaintiff and Defendant No.1, but the Plaintiff asserted that it essentially constituted an agreement between Defendant No.1 and No.2, with the Plaintiff merely acting as an agent or facilitator.

Disputes arose between the parties, leading the Plaintiff to file a suit seeking damages and compensation totaling Rs. 4,33,04,246/- along with interest. Defendant No.1, in response, filed an application under Section 8 of the Arbitration Act, contending that the suit should be dismissed and the parties referred to arbitration as per the arbitration clause between them.

Observations by the High Court:

The High Court noted that there existed an Agreement between the Plaintiff and Defendant No.1 dated November 4, 2004, which contained an Arbitration clause. Additionally, it acknowledged that Defendant No.1 had previously filed an application under Section 9, which led to orders being made with the consent of the parties. Subsequently, the Plaintiff filed the civil suit in March 2006, seeking recovery from both Defendant No.1 and Defendant No.2.

Section 8 of the Arbitration Act empowers a judicial authority to refer parties to arbitration if there is an arbitration agreement, unless it finds prima facie that no valid arbitration agreement exists.

The Plaintiff contended that despite the Defendant filing an application under Section 8, the Defendant subsequently submitted itself to the jurisdiction of the Court. Thus, the Plaintiff argued that there could be no reference to arbitration. The High Court referred to its decision in SPML Infra Ltd. v. Trisquare Switchgears (P) Ltd. In this case, the Coordinate Bench of the High Court held that there exists a framework of time within which an application under Section 8(1) of the Arbitration and Conciliation Act, 1996 must be pursued. Consequently, if a party fails to pursue such an application within the allotted time, it forfeits its right to apply under Section 8(1) of the Act. Therefore, it held that once a defendant submits itself to the jurisdiction of the Court and abandons its application under Section 8, it cannot subsequently seek referral of the disputes to arbitration under Section 8 of the Arbitration Act.

Furthermore, the Plaintiff emphasized that resorting to Section 9 of the Arbitration Act does not preclude the Plaintiff from filing a Civil Suit. The High Court held that Section 8 of the Arbitration Act merely provides an option for the Defendant to seek referral of the dispute to arbitration before submitting to the jurisdiction of the Court. However, even if there exists a valid Arbitration Clause, the Defendant may choose to continue with the trial before the Court.

In the present case, although the Defendant initially filed an application under Section 8 on 11.03.2006, it subsequently abandoned it and failed to pursue it further. Instead, the Defendant sought time to file a Written Statement, which it ultimately failed to submit within the allotted time. This conduct led the High Court to held that the Defendant had submitted itself to the jurisdiction of the Court. Additionally, it held that an Order under Section 9 was passed previously, but the notice of invocation of arbitration had not been given within the stipulated timeframe. Therefore, the Defendant had the opportunity to invoke arbitration at that stage or seek referral of the disputes to arbitration under Section 8 in the present suit. However, due to its submission to the jurisdiction of the Court by seeking time to file the Written Statement, the Defendant's application under Section 8 was dismissed.

Case Tite: M/S. Assam Petroleum Ltd. & Ors Vs M/S. China Petroleum Technology Dev. Corp. & Ors

Citation: 2024 LiveLaw (Del) 344

Case Number: CS(COMM) 1266/2016, CC(COMM) 33/2018, I.A. 8880/2009, I.A. 3428/2010.

Advocate for the Petitioner: Ms. Dharitry Phookan and Ms. Lanutula, Advocates.

Advocate for the Respondent: Mr. Tushar Bhardwaj, Advocate.

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