Section 8 Of A& C Act Is Compiled On Filing Application Under O. 7 Rule 11, Informing About Arbitration Clause: Telangana High Court

Brief Facts:

The matter pertained to an agreement entered between M/s Naolin Infrastructure Private Ltd. (“Applicant”) and M/s Kalpana Industries (“Respondent”), which included an arbitration clause. Subsequently, a dispute emerged under the agreement, prompting the Applicant to issue a notice. The Respondent responded later on, but the Applicant did not progress further. Concurrently, the Respondent initiated a civil suit, seeking the recovery of Rs. 63,75,356/- along with interest. In response, the Applicant filed an application under Order VII Rule 11 of the Code of Civil Procedure, 1908 (“CPC”). The Commercial Court rejected this application in 2022. The Applicant appealed this decision in Telangana High Court (“High Court”). Meanwhile, the appeal was pending before the appellate court, the Applicant filed an application in the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seeking the appointment of an arbitrator.

The Respondent contended that a civil suit was filed in February 2020, and after the rejection of the application under Order VII Rule 11 of CPC, the Applicant submitted a written statement on 16.05.2022. The Respondent contended that the Applicant failed to take action as required under Section 8(1) of the Arbitration Act, resulting in the forfeiture of the right to file the application under Section 11(6) of the Arbitration Act.

Observations by the High Court:

The High Court noted that the essence of Section 8(1) of the Arbitration Act is to bring to the notice of the court the existence of an arbitration agreement between the parties involved. Referencing the decision of the Supreme Court in the case of Sundaram Finance Ltd. vs Abdul Samad [AIR 2018 SC 965], the High Court held that once an application is made under Section 8 of the Arbitration Act, the approach of the civil court should not centre around jurisdiction but rather on whether its jurisdiction has been ousted. It stressed the importance of adhering to the procedures outlined in special statutes, stating that general law should yield to special law. Further, it held that failure to do so could delay dispute resolution and exacerbate the complexity of grievances.

Section 8(1) of the Arbitration Act:

“S 8(1): A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”

The High Court held that the requirement outlined in Section 8(1) of the Arbitration Act was satisfied by the filing of the application under Order VII Rule 11 of CPC, thereby bringing to the court's attention the existence of the arbitration agreement. Moreover, it noted that the Applicant didn't subject itself to the jurisdiction of the court. Consequently, the High Court rejected the contention that the Applicant had not complied with Section 8(1) of the Arbitration Act.

Acknowledging the dispute between the parties, which necessitates resolution in accordance with the agreement they entered into, the High Court held that the Applicant was entitled to invoke Section 11(6) of the Arbitration Act. Hence, it appointed Justice P. Naveen Rao as the sole arbitrator to adjudicate the dispute between the parties, ensuring a method of resolution consistent with their agreement.

Case Title: M/s Naolin Infrastructure Private Ltd. vs M/s Kalpana Industries

Case Number: Arbitration Application No.162 of 2023

Advocate for the Applicant: P. Pratap

Advocate for the Respondent: Damodar Mundra

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