Mere Existence Of Arbitration Clause In Agreement Does Not Oust Jurisdiction Of Civil Court To Entertain Suit: Gauhati High Court

Brief Facts

An agreement was entered into between the plaintiffs and the defendants under which the defendants undertook to construct flats for the plaintiffs. The plaintiffs requested the defendants to hand over the flats but no response was received.

Thereafter, the plaintiffs served a legal notice on the defendants asking them to deliver the flats within 3 months. The defendants assured the plaintiffs to deliver within this time period but failed to deliver. Hence a suit for specific performance of contract was filed.

The plaintiffs also filed an application under order 39 Rules 1 & 2 seeking an ad interim mandatory injunction which was allowed and the defendants were directed to complete the suit property and hand over the same within 3 months. In reply to this application, the appellants filed a petition under Order 7 Rule 11 and sections 5 and 8 of the Arbitration Act requesting the matter to be referred to arbitration.

Opposing the above petition, the plaintiffs argued that essentials of being a valid arbitration agreement are not fulfilled by the arbitration clause mentioned in the agreement. It was also contended that the choice being left open to the parties to have settled dispute through arbitration is not equivalent to the parties mutually agreeing that they shall refer themselves to arbitration and thereby prayed for dismissal of application.

After hearing both the parties, the court rejected the prayer of the appellants.

Contentions:

The appellants argued that the court while passing the impugned order ignored clause 23 of the agreement wherein it is clearly mentioned that any dispute arising out of this deed shall only be mutually resolved in a spirit of good faith, in exceptional cases, it will be resolved by arbitration as per law within the exclusive jurisdiction of Tinsukia.

It was also argued that section 8 of the Act is peremptory in nature therefore in case there is an arbitration clause in the agreement, it is obligatory for the court to refer the matter to arbitration.

Per contra, the respondents submitted that it cannot be said that once it is found that the contract between the parties contains arbitration clause, jurisdiction of the civil court stands ousted automatically and is barred explicitly and that to take benefit of arbitration clause.

It was also argued that since ingredients of arbitration clauses is not available in the agreement to sale and as such the instant appeal is not tenable under the law and the civil court has jurisdiction to try the relevant suit. Mere use of word “arbitration clause” in the agreement does not oust the jurisdiction of civil court.

Observations:

The court noted that in S.Vanathan Muthuraja vs. Ramalingam @ Krishnamurthy Gurukkal & Ors., (1997) the Supreme Court held that when a legal right is infringed, a civil suit would lie unless entertainment of such suit is specifically barred. The normal rule is that a civil court would have jurisdiction to entertain all suits of a civil nature except those whose cognizance is either explicitly or by implication is barred.

It also relied on the Supreme Court judgment in ITI Ltd. vs. Siemens Public Communications Network Ltd., (2002) where it was held that application of the code is not specifically prohibited when it comes to proceedings arising out of the Act before the court.

In the above judgment, the Supreme Court further observed that “the jurisdiction of the civil court to which a right to decide a lis between the parties has been conferred can only be taken by a statute in specific terms and such exclusion of right cannot be easily inferred because there is always a strong presumption that the civil courts have the jurisdiction to decide all questions of civil nature.”

The court further observed that similarly the Rajasthan High Court in Mahesh Kumar vs. RSRTC (2006) held that mere existence of an arbitration clause does not bar the jurisdiction of a civil court to entertain a suit automatically. It was also held that it cannot be presumed that the civil court would not have jurisdiction to entertain the suit just because there is a contract between the parties for referring the dispute to an arbitrator.

In light of the above discussion, the court concluded 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 appeal was dismissed.

Case Title: M/S J.M.B. CONSTRUCTION AND 2 ORS. VERSUS DR. SOMESH DHAR AND 3 ORS.

Case Number:Arb.A./8/2024

Judgment Date: 30/01/2025

Advocate for the Petitioner : MR. BHASKAR DUTTA, SENIOR ADVOCATE, MS L RONGPIPI,MR JITENDRA DAS,MR. SAILENDRA DEKA

Advocate for the Respondent : MR. A K GUPTA (FOR CAVEATOR), MR. R K MAHANTA (FOR CAVEATOR),MR. R S MISHRA (FOR CAVEATOR)