S. 8 Application Filed Along With The Written Statement In Suit; Can’t Be Presumed That Party Waived Its Right To Refer Dispute For Arbitration: Calcutta High Court Reiterates

The Calcutta High Court has ruled that it is the duty of the defendant to file the application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking arbitral reference, before filing the first statement in a suit. However, the court remarked that filing of a Section 8 application along with the written statement cannot lead to any presumption that the defendant has waived its right of referring the dispute for arbitration.

The bench of Justice Bibhas Ranjan De further held that a document which is not duly stamped, or being compulsorily registerable is not registered, cannot be acted upon by the Court.

The court was dealing with a development agreement containing an arbitration clause, which was not registered. The Trial Court had allowed the defendant’s Section 8 application and referred the parties for arbitration.

The bench ruled that since the development agreement was compulsorily registerable, the Trial Judge ought to have impounded the development agreement prior to acting upon the same and referring the parties for arbitration. The court thus directed the Trial Judge to re-hear the Section 8 application after completing the due process of impounding the development agreement.

Section 8 of the A&C Act deals with the power of a judicial authority to refer the parties to arbitration where the matter brought before it is the subject matter of an arbitration agreement. Section 8 provides that a party to the arbitration agreement must apply for arbitral reference not later than the date of submitting his first statement on the substance of the dispute before such judicial authority.

The petitioner, Nemai Chandra Roy Karmakar, entered into a development agreement with the opposite party, Sarada Construction, to develop a multi storied building on the property owned by the petitioner. A Registered General Power of Attorney was also executed between the parties.

Alleging failure on the part of the opposite party to perform its obligations in terms of the agreement, the petitioner cancelled the registered power of attorney by a deed of cancellation.

Subsequently, the opposite party took possession of the land and restrained the petitioner from entering the suit property. The petitioner, thereafter, filed a Title Suit before the District Court against the opposite party.

The opposite party, who was the defendant before the lower court, filed an application under Section 8 of the A&C Act along with the written statement, before the Trial Judge. The defendant sought to refer the dispute to arbitration in terms of the arbitration clause contained in the development agreement. The application was allowed by the Trial Judge who referred the dispute to arbitration and stayed the Title Suit.

The petitioner challenged the order of the Trial Judge by filing a revision petition before the Calcutta High Court. It pleaded that the development agreement was required to be compulsorily registered. Since it was not registered by the parties, the document was liable to be impounded.

It further argued that the Section 8 application should have been filed by the defendant before submission of the first statement on the substance of the dispute, in terms of the scheme of the Act.

Per contra, the opposite party/defendant, Sarada Construction, claimed that it had filed the written statement along with the Section 8 application on the same day, showing inclination to participate in the arbitral proceedings.

The court remarked that through various judicial precedents, it is clear that where there is a valid arbitration clause and a party to the dispute notifies the judicial authority regarding the same, then nobody can stop the party from taking their matter to arbitration.

Referring to Section 8 of the A&C Act, the bench, however, observed that the judicial authority can refuse the Section 8 application on two grounds. Firstly, if the party has waived his right to invoke the provision before submission of the first statement regarding the dispute; secondly, when there is no contract concluded between the parties or the contract is illegal or non-existent.

Perusing the facts of the case, the court reckoned that it was not disputed that the development agreement between the parties containing the arbitration clause, was not a registered document.

Referring to the Supreme Court’s decision in Sms Tea Estates Private Limited vs. Chandmari Tea Company Private Limited, (2011) 14 SCC 66, the court noted that in case the contract containing the arbitration agreement is compulsorily registerable and the same is not registered, the Court can consider the objection raised by a party regarding the invalidity of the arbitration agreement and decide the issue before proceeding to appoint an arbitrator.

While further observing the decision of the top court in M/s. N.N. Global Mercantile vs. M/s. Indo Unique Flame Ltd. & Ors. 2023 SCC OnLine SC 495, the court said that a document which is not duly stamped, or being compulsorily registerable is not registered, cannot be acted upon by the Court.

“In our case, admittedly, the development agreement was not registered. Therefore, Learned Trial Judge ought to have pried into the track of impounding the development agreement prior to act upon the same,” the bench ruled.

With regard to filing of the Section 8 application, the bench said that it is the duty of the defendant to file the Section 8 application before filing the first statement in the suit.

The court noted that in Balasundarma Nagarajan vs. Mohan Kumar Thakur, 2020 SCC OnLine KAR 3434, it was held by the Karnataka High Court that the filing of Section 8 application along with the written statement cannot lead to an inference that the defendant had submitted to the jurisdiction of Civil Court and had waived its right to seek for reference to arbitration. The same view was taken in Lindsay International Pvt Ltd and Ors. vs. Laxmi Niwas Mittal and Ors. 2020 SCC OnLine Cal 1658 and in Parasramka Holdings Pvt. Ltd. vs. Ambience Private Ltd. & Anr. 2018 SCC OnLine Del 6573, by the Calcutta and the Delhi High Court, respectively.

“In the aforesaid view of the matter, I am unable to hold that filing of an application under Section 8 of the Act, 1996 along with the written statement can lead to any presumption that opposite party/defendant waived his right of referring the dispute for arbitration,” the court concluded.

The court thus directed the Trial Judge to re-hear the Section 8 application after completing the due process of impounding the development agreement and also directing the opposite party/defendant to pay the deficit stamp, if not paid.

Case Title: Nemai Chandra Roy Karmakar alias Nemai Roy vs. Sarada Construction

Dated: 19.05.2023

Counsel for the Petitioner: Mr. Arnab Roy, Adv. Mr. Satyam Mukherjee, Adv. Ms. Ishita Kundu, Adv

Counsel for the Opposite Party: Mr. Ashim Kumar Roy, Adv. Mr. Ashok Kumar Roy, Adv. Mr. Anirban Roy, Adv.

Click Here To Read/Download Judgment