Mere Existence Of Arbitration Clause In Agreement Does Not Automatically Bar Jurisdiction Of Civil Court: Gujarat High Court

Brief Facts

This Civil Revision Application under section 115 of the CPC has been filed against an order passed by the Additional Senior Civil Judge, Ahmedabad by which an application under section 8 was rejected. The dispute arose from allegations of mismanagement and refusal to share accounts and also the unauthorised sale of the property.

Thereafter, a criminal complaint was also filed against the applicants under sections 406 and 420 of the IPC. After that series of legal actions ensued which included the civil suits and arbitration proceedings.The arbitration clause contained in the Partnership Deed was invoked by the applicants but the respondent No. 1 declined the arbitration request.

Thereafter, an arbitrator was appointed by the court to resolve the disputes. A suit for Cancellation of the sale deed was also filed when the arbitration proceedings were going on. An application under section 8 was filed by the applicants seeking rejection of this suit on the ground that the dispute were subject to arbitration. This application was rejected by the trial court which prompted the applicants to file the present revision application.

The applicants submitted that at the time of execution of the aforesaid partnership deed, a specific clause being Clause No.18 was incorporated that 'in case any dispute arises amongst the partners, they shall not resort to any court of law, but shall settle the dispute among themselves through arbitration in accordance with the subject to the provisions of the Indian Arbitration Act, 1940 as modified and amended from time to time'.

They also submitted that the respondent No.1 herein instituted a suit against them before the trial court, seeking cancellation of the sale deed for the transaction that had taken place on behalf of the partnership firm and, therefore, when there is a specific clause in the Partnership Deed for resolution of the dispute between the partners through arbitrator, which is very much in existence in the partnership deed, the suit instituted by the respondent No.1 herein is not maintainable in the eye of law.

They also argued that during the pendency of the petition before this Court, seeking appointment of Arbitrator, and after filing reply therein, the respondent No.1 despite the fact that petition seeking appointment of arbitrator is pending, instituted a suit being Civil Suit No.69 of 2015 solely with a view to stall the Arbitration Proceedings.

On the other hand, it is the case of the respondents that as per the provisions of the Arbitration Act, if Section 8 application is not considered by the trial court, then the remedy provided in law is to file an appeal, and the applicants, instead of preferring the appeal, have filed the present revision application and, therefore, the same is not maintainable in the eye of law.

They also submitted that the the prayer as sought for in the suit is to cancel the sale deed as being null and void executed on false and fabricated documents, which is totally different than the issue involved in the Arbitration Proceedings pending before the Arbitrator.

Observations:

The court at the outset noted that in S.Vanathan Muthuraja vs. Ramalingam @ Krishnamurthy Gurukkal & Ors., (1997) the Supreme Court has held that “ the normal rule of law is that civil courts have jurisdiction to try all suits of civil nature except those of which cognizance is either expressly or by necessary implication excluded.”

“The rule of construction being that every presumption would be made in favour of the existence of a right and remedy in a democratic set up governed by rule of law and jurisdiction of the civil courts is assumed. The exclusion would, therefore, normally be an exception. Courts generally construe the provisions strictly when jurisdiction of the civil courts is claimed to be excluded.”

It further observed that in ITI Ltd. vs. Siemens Public Communications Network Ltd.,(2002), considering the relevant provisions of the Arbitration Act, 1996, the Supreme Court has observed that there is no express prohibition against the application of the Code to a proceeding arising out of the Act before a civil court, and therefore that being so, by inference it cannot be held that the Code is not applicable.

In Mahesh Kumar vs. RSRTC, 2006 the Rajasthan High Court has specifically held that mere existence of arbitration clause in the agreement does not bar jurisdiction of the civil court automatically. It is held that it cannot be presumed that the civil court would not have any jurisdiction to entertain the suit only because that there is contract for referring the dispute to arbitrator, the court added.

In light of the above discussion, the court observed that “ the contention on behalf of the original defendant Nos.1 to 9 that in view of agreement providing for resolving the dispute inter se between the partners only by arbitration, the jurisdiction of the civil court would be barred and/or ousted cannot be accepted more particularly when there is no specific provision in the Arbitration Act excluding the jurisdiction of the civil court in a case where the dispute is to be referred to the arbitration.”

Finally, the court observed that merely because there is an arbitration clause provides for referring the dispute and the claim to the arbitration, the civil court's jurisdiction is not barred but the same is subject to Section 8 of the Arbitration Act, 1996.

Accordingly, the present application was dismissed.

Case Title: DEVSHIBHAI GOVINDBHAI LIMBANI & ORS. Versus DHAVALBHAI BHOGILAL VYAS & ORS.

Case Number: R/CIVIL REVISION APPLICATION NO. 123 of 2019

Judgment Date: 10/12/2024