Section 8 Of A&C Objection Taken In Application For Grant Of Leave To Defend The Suit Cannot Be Considered Belated: Delhi High Court

The bench of Justice C. Hari Shankar held that in terms of Section 8 of the A&C Act an application to refer the dispute to arbitration has to be made not later than submitting the first statement on the substance of the dispute. It held that the first statement on the substance of the dispute is the written statement, ergo, a Section 8 application can be made with or before the filing of the written submission.

The Court held that an application for leave to defend the suit is a step prior to the filing of the written submission, therefore, the objection taken under the said application cannot be considered to be belated.

Facts

An MOU was executed on 2 May 2005, between the appellants and the respondent, involving the acquisition of 29 bighas of land owned by the respondent. The MOU included provisions stating that if the appellants failed to obtain the necessary permissions for the land, the MOU could be terminated by the respondent. In such a case, the appellants were obliged to refund the amount paid by the respondent, along with other associated charges.

Subsequently, the respondent filed a lawsuit (CS (OS) 890/2008) against the appellants under Order XXXVII of the CPC, seeking to recover the amount paid along with interest, totaling ₹ 87,42,500/–. The appellants applied for leave to defend the suit, contending that several issues needed consideration, including whether the suit was maintainable due to the existence of an arbitration agreement in the MOU.

In response, the respondent disputed the appellants' claims and argued that the suit was maintainable under the Arbitration & Conciliation Act, 1996. The court granted conditional leave to the appellants to defend the suit, with specific conditions.

The appellants furnished alternative solvent security for leave to contest the suit, but the court considered this submission to be out of the specified timeframe. Consequently, the court decreed the suit in full on 10 July 2012. The appellants appealed this decision, which was ultimately allowed by the Division Bench, with certain costs.

Throughout the legal proceedings, the appellants continued to assert that the suit was not maintainable due to the arbitration agreement in the MOU, invoking Section 8 of the 1996 Act. However, the court did not consider this objection, and the suit was decreed in a final judgment dated 15 July 2019. The Court held that the objection was raised belatedly and not in terms of Section 8 of the Act. Aggrieved thereby, the appellant challenged the impugned order/decree under Section 96 of CPC.

Grounds of Appeal

The appellant challenged the impugned order/decree on the following grounds:

• Section 8 of the 1996 Act requires the party to request arbitration "not later than when submitting the first statement of the substance of the dispute."
• The appellants contended that they raised a Section 8 objection, both in the written statement filed after the Division Bench's order and in their initial application for leave to defend the suit. They cited court judgments like Sharad P. Jagtiani v. Edelweiss Securities Ltd, Alok Kumar Lodha v. Asian Hotels (North) Ltd, and Parasramka Holdings Pvt. Ltd to support their argument.
• In rejoinder, the appellants argued that the plea of waiver was unfounded, as the impugned order acknowledged their objection to the suit's continuation despite the existence of an arbitration agreement, which was also raised in their written statement.

The respondent made the following counter-arguments:

• The plea predicated on Section 8 of the A&C Act has to be raised before the submission of the first statement on the merits of the cases, however, the appellant raised it belatedly.
• Section 8 objection can only be raised by making a separate application and mere mention of it under the written submission or in the application for leave to defend would not suffice the requirement of Section 8.
• Even if the objection initially raised sufficed, subsequent actions by the appellants, such as contesting the suit and allowing it to proceed to trial and judgment, constituted a waiver and abandonment of their right to invoke Section 8. Section 4 of the 1996 Act supports this argument.

Analysis by the Court

Firstly, the Court examined the issue that whether the plea regarding the lack of jurisdiction due to presence of arbitration was raised belatedly. It observed that the plea was raised by the appellant in its application under Order XXXVII Rule 3(5) for leave to defend the suit.

The Court held that an objection regarding non-maintainability of the suit due to the presence of the arbitration agreement cannot be considered to be raised belatedly in terms of Section 8 of the A&C Act when it was taken in the application under Order XXXVII Rule 3(5) for grant of leave to defend the suit.

The Court held that in terms of Section 8 of the A&C Act an application to refer the dispute to arbitration has to be made not later than submitting the first statement on the substance of the dispute. It held that the first statement on the substance of the dispute is the written statement, ergo, a Section 8 application can be made with or before the filing of the written submission.

The Court held that an application for leave to defend the suit is a step prior to the filing of the written submission, therefore, the objection taken under the said application cannot be considered to be belated.

Next, the Court examined the issue regarding the necessity of making a separate application under Section 8 of the A&C Act. It observed that the appellant had specifically extracted the arbitration clause in its written submissions and argued that the suit was not maintainable due to the presence of the arbitration clause in terms of Section 5 and 8 of the A&C Act.

The Court held that once a party has duly taken objection to the jurisdiction of the Court to entertain the suit due to the presence of the arbitration clause between the parties in its written statement, it would be sufficient compliance of Section 8 of the A&C Act and there is no need for a separate application.

The Court held that once an arbitration clause has been extracted by a party in its written submission to object to the jurisdiction of the Court, the mere fact that the party did not separately request that the dispute between the parties be referred to arbitration, would be of little consequence.

It held that once the arbitration clause had been extracted, it would be too hyper technical to hold that, for want of a separate request to refer the dispute between the parties to arbitration, there was no compliance with Section 8(1) of the 1996 Act.

Next, the Court dealt with the issue regarding the waiver. It held that a party cannot be deemed to have waived off its right to arbitration merely because it continued to contest the suit when it had specifically raised objection to the maintainability of the suit due to the presence of the arbitration agreement.

Accordingly, the Court set aside the impugned order and directed the parties to initiate arbitral proceedings.

Case Title: Madhu Sudan Sharma v. Omaxe Ltd, RFA 823/2019

Date: 06.11.2023

Counsel for the Appellant: Mr. J. Sai Deepak, Mr. Vineet Sinha, Mr. Arpit Dwivedi and Mr. Avinash Sharma, Advs.

Counsel for the Respondent: Mr. Ramesh Singh, Sr. Adv. with Mr. Shalabh Singhal and Ms. Neha Chaturvedi, Advs.

Click Here To Read/Download Order