No Provision Under Arbitration Act To Spilt Parties Or Refer Part Of Subject Matter To Arbitration, Delhi High Court Dismisses S. 8 Petition

Section 8 of the Arbitration and Conciliation Act, of 1996 deals with the "Power to refer parties to arbitration where there is an arbitration agreement." According to this section, a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement shall if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

Brief Facts:

The Plaintiff filed a suit for partition, possession, permanent injunction, and mandatory injunction of a disputed property. In response, the Defendant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in the court seeking the dismissal of the suit before the Delhi High Court (“High Court”) and argued that there is an Arbitration Clause within the 'Agreement to Sell'.

The Defendant contended that the Plaintiffs entered into an Agreement to Sell which included an Arbitration Clause in Clause 16. Additionally, it asserted that since September 2015, the Defendants have peacefully possessed 450 sq yards of the property. As the suit pertained to partition and possession of this portion, the Defendant argued for the dismissal of the suit and referral of parties to arbitration.

In response, Plaintiff argued that the suit was filed not only against Defendant No. 1 to 4 but also against Defendant No. 5, which was not a signatory to the arbitration agreement.

Observations by the High Court:

Upon examination of the Plaintiff's pleadings, the High Court noted that substantial claims were directed towards Defendant No. 5. Notably, Defendant No. 5 neither stood as a signatory to the Agreement to Sell nor is a party to the Arbitration Clause contained therein.

The High Court held that under the Arbitration Act, there exists no provision permitting the division of parties and the referral of only a portion of the subject matter to arbitration. The High Court referred to the decision of the Supreme Court in Gujarat Composite Limited vs. A Infrastructure Limited & Ors, 2023 LiveLaw (SC) 384, and held that there is a requirement for a correlation between the subject matter of the suit and the arbitration agreement. It held that where a suit encompasses matters outside the arbitration agreement and involves parties not party to the said agreement, Section 8 of the Arbitration Act does not apply.

Furthermore, the High Court referred to the decision of the Supreme Court in Cox and Kings Ltd. v. SAP India Pvt. Ltd., 2023 LiveLaw (SC) 1042, and held that it was inapplicable to the present circumstances since Defendant No. 5 was a distinct entity without any contractual relationship with the Plaintiff.

Consequently, the High Court dismissed the application under Section 8 of the Arbitration Act.

Case Title: Sharad Gupta & Ors Vs Shri Vinayak Infraland Pvt. Ltd. & Ors

Citation: 2024 LiveLaw (Del) 398

Case Number: CS (COMM) 266/2023

Advocate for the Plaintiff: Mr Sanjeev Bahl with Mr Rahul Malhotra and Ms Shruti Gupta

Advocate for the Defendant: Mr Arvind Dhingra & Gitesh Chopra (for D-5); Ms. Gurkamal Hora Arora (for D-1 and 2)

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