Does An Application For Leave To Defend Amount To “First Statement On Substance Of Dispute” u/s 8 Arbitration Act? Plea Before SC Asks [Read Petition]

The Supreme Court on Monday issued notice on a Special Leave Petition seeking a clarification on the question whether an application for leave to defend in a Summary Suit under Order 37 Rule 3(5) of the Code of Civil Procedure, 1908 amounts to “first statement on substance of the dispute” under Section 8 of the Arbitration and Conciliation Act, 1996

The notice was issued by a Bench comprising Justice Kurien Joseph and Justice S.K. Kaul on a petition filed by Haier Telecom (India) Private Limited, challenging a judgment passed by the Bombay High Court in April this year. Haier was represented by Senior Advocate Dhruv Mehta, along with Advocates Udayaditya Banerjee and Durgesh Kulkarni.  The respondent, Drive India Enterprise Solutions Limited was represented by Senior Advocate A.M. Singhvi.

The High Court had rejected Haier’s application under Section 8 of the Act on the ground that Haier had already filed an application seeking leave to defend. Haier now points out that there exists a divergence of views taken by the Madras High Court, Delhi High Court and Bombay High Court on the issue.

It submits that the Madras High Court, in G. Rajarajan v. AIG Consumer Financial Services (India) Ltd., had ruled that an application seeking leave to defend in a summary suit does not amount to a 'first statement' under Section 8 of the Arbitration Act. The Delhi High Court had ruled the contrary in the case of Anis Ahmad v. Hongkong & Shanghai Banking Corpn.

The petition in fact points out that there is a divergence of view on the issue between two co-ordinate benches of the Bombay High Court as well. It then asserts, “In view of such divergence of opinion between different High Courts, this is an appropriate case for this Hon’ble Court to issue an authoritative pronouncement on this important question of law which shall have nation-wide implication.”

Factual Matrix

On merits, the two agreements under which Drive India has based its claim in the pending Commercial Summary Suit are a Product Purchase Agreement dated 15.04.2010, and a Logistics Agreement dated 5.02.2010 as amended vide Addendum Agreement dated 2.07.2011. Rejecting its application under the Arbitration Act, the High Court had however directed it to deposit Rs. 50 crores out of the claimed amount of Rs. 54,46,31,354.92/-.

Haier now points out that Drive India had, on an earlier occasion, filed an application under Section 9 of the Arbitration Act, and had obtained an order in December, 2011. It then asserts that the existence of an arbitration agreement between the parties is an admitted position. It further seeks a stay of the proceedings in the summary suit, pointing out that otherwise it would be compelled to either deposit Rs.50 crores or suffer a decree.

Questions of law

The petition asserts that an application for leave to defend under Order 37 Rule 3 is not a statement on the merits of the case, but is an enquiry by the Court to see if there exists a triable issue.

“It is submitted that at the stage of grant of leave to defend the Court does not enter the controversy on merits. It merely decides whether the defendant has made out a triable case or not. In such a situation this application seeking leave to defend cannot be deemed to be a ‘statement on the merits’ of the case, as mentioned in Section 8 of the Arbitration Act,” it explains.

The petition then raises the following questions of law:

• WHETHER an application seeking leave to defend in a summary suit under Order 37 Rule 3 is a ‘first statement on merits’ in terms of Section 8 of the Arbitration Act?


• WHETHER the ratio in the case of Defiance Knitting Industries (P) Ltd. v. Jay Arts, (2006) 8 SCC 25, wherein it is held that while adjudicating an application seeking leave to defend the court ought not to go into the merits of the claim and only see if a triable issue is made out, applies to the facts of the present case?


• WHETHER, in terms of the decision of this Court in the case of Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275, wherein it has held that the expression ‘first statement of the dispute’ means a statement which goes into the main proceedings, an application seeking leave to defend under Order 37 Rule 3 can be considered to be such a ‘first statement’


• WHETHER in view taken by the Madras High Court in the case of G. Rajarajan v. AIG Consumer Financial Services (India) Ltd., 2012 SCC OnLine Mad 2717, filing of leave to defend can be construed to be a ‘first statement on merits’ under Section 8 of the Arbitration Act?