Section 8 Application Should Be Filed Within Time Available For Filing Written Statement: Delhi High Court

The Division Bench of Justices Vibhu Bakhru and Amit Mahajan held that the amendment to Section 8 of the A&C Act by the 2015 Arbitration and Conciliation (Amendment) Act cannot be considered in isolation, in view of the fact that the Parliament has also enacted the Commercial Courts Act, 2015, which came into force on the same date as the Arbitration and Conciliation (Amendment) Act, 2015.

The Court observed that by virtue of the amendments made to the Code of Civil Procedure, 1908 by the Commercial Courts Act, the Parliament has curtailed the outer time limit for filing a written statement in a commercial suit. The Court added that the said amendments were made to ensure expeditious adjudication of commercial disputes.

The respondent M/S. Trisquare Switchgears Pvt. Ltd. supplied goods to the appellant M/S. SPML Infra Ltd. and raised invoices. After certain dues of the respondent remained uncleared, the respondent filed a suit for recovery before the Commercial Court. Since the appellant failed to file a Written Statement before the Commercial Court within the specified time, the Commercial Court closed the right of the appellant to file the Written Statement.

Thereafter, the appellant filed an application under Section 8 of the A&C Act before the Commercial Court, relying upon the arbitration clause contained in the Purchase Order, to refer the parties to arbitration. The Commercial Court rejected the application filed by the appellant on the ground that the appellant had filed the said application after the statutory period to file its Written Statement had expired. The Commercial Court observed that the proceedings before the Commercial Court indicated the appellant's intention to participate in the same. Against this, the appellant filed an appeal before the Delhi High Court.

The Court observed that Section 8 of the A&C Act, which deals with the power of the judicial authority to refer the parties to arbitration where there is an arbitration agreement, does not prescribe any specific time for filing an application under Section 8 of the A&C Act for referring the parties to arbitration. The Court added that Section 8 of the A&C Act merely provides that such an application ought to be moved not later than the submission of the first statement on the substance of the dispute.

The Court noted that the expression "first statement on the substance of the dispute" is of wide import. The Court added that it would take within its sweep any statement filed to raise issues regarding the substratum of the matter in dispute, and that in the context of a civil suit, it would include the written statement as required to be presented under Order VIII Rule 1 of the Code of Civil Procedure, 1908 (CPC).

The Court observed that the expression "not later than", as used in Section 8(1) of the A&C Act, makes it clear that a party would not be precluded from applying under Section 8 of the A&C Act simultaneously along with filing of a written statement, or from including such a relief in the written statement. The Court added that a party would, however, forfeit its right to apply under Section 8 of the A&C Act once it has filed the written statement.

The Court ruled that the expression "first statement on the substance of the dispute" would also take within its sweep any other filing, whereby a party evinces its intention to contest the proceedings and subject itself to the jurisdiction of the court or the judicial authority. The Court added that filing of any such statement would indicate the party's intention to abandon the arbitration agreement and that it would preclude the said party to thereafter seek reference of the dispute to arbitration under Section 8 of the A&C Act.

The Court held that though Section 8 of the A&C Act, as it stood prior to 23.10.2015, did not prescribe any time period within which a party must apply under Section 8 of the A&C Act, the scheme of the A&C Act and the provisions of Section 8 of the A&C Act clearly indicate that the application under Section 8 "should be made at the earliest".

Hence, the Court ruled that once the proceedings before the court or the judicial authority have progressed beyond the initial stage, it would no longer be permissible for a party to turn around and seek recourse to arbitration. The Court added that once the proceedings have progressed beyond the stage of completion of pleadings, an application under Section 8 of the A&C Act would not lie.

"It is clear from the scheme of the Act that once the proceedings before the court or judicial authority progress beyond the initial stage, it would no longer be permissible for a party to then turn around and seek recourse to arbitration. A mere delay in making an application under Section 8 of the A&C Act may not be fatal to a party's right; but once the proceedings have progressed beyond the stage of completion of pleadings, such an application would not lie. This is because at that stage, the parties are sufficiently invested in the said proceedings, and it would not be permissible for any party to turn around and apply under Section 8 of the A&C Act."

The Court ruled that the scheme of Section 8 of the A&C Act does not contemplate unravelling concluded proceedings. The Court held that once the right of a party to file the written statement of defence is closed, the proceedings in a suit progress beyond the stage of completion of pleadings, and the defendant cannot then seek a reference to arbitration.

The Court added that though Section 8 of the A&C Act, as it stood prior to 23.10.2015, did not specify any time limit, it did indicate the stage of the proceedings at which a party could apply, that is, before the filing of the first statement on the substance of the dispute. Hence, the Court held that an application under Section 8 could not be filed thereafter.

"Whereas prior to the 2015 Amendment, Sub-section (1) of Section 8 of the A&C Act used the expression "not later than when submitting his first statement on the substance of the dispute". Subsection (1) of Section 8, as substituted, uses the expression "not later than the date of submitting his first statement on the substance of the dispute". The legislative intent to introduce the words "not later than the date of" clearly stipulates a framework of time within which an application under Section 8(1) of the A&C Act can be made.", the Court said.

The Court added that the amendment to Section 8 of the A&C Act cannot be considered in isolation. The Court noted that the Parliament also enacted the Commercial Courts Act, 2015, which came into force on the same date as the Arbitration and Conciliation (Amendment) Act, 2015, that is, with effect from 23.10.2015. The Court observed that by virtue of Section 16 of the Commercial Courts Act, certain provisions of the CPC were amended in their application to any suit in respect of a commercial dispute of a specified value.

By virtue of the amendments made to CPC by the Commercial Courts Act, the Court noted that the Parliament has curtailed the outer time limit for filing a written statement in a commercial suit to 120 days after receipt of summons. The Court observed that the said amendments were made to ensure expeditious adjudication of commercial disputes.

The Court noted that vide the Arbitration and Conciliation (Amendment) Act, 2015, Section 29A of the A&C Act was also introduced, which specifically provides that an arbitral award would be made within a period of twelve months from the date the arbitral tribunal enters upon reference.

The Court further observed that the Supreme Court in the case of Bharat Sanchar Nigam Limited and Anr. v. M/s Nortel Networks India Private Limited (2021) had observed that the A&C Act has been amended twice- in 2015 and in 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously.

"The introduction of the expression "the date of" in the context of the suit would necessarily have to be co-related with the time available or granted for filing of a written statement. The legislative intent of introducing the expression "the date of", when read with the contemporaneous amendments to Order VIII Rule 1 of the CPC by virtue of the Commercial Courts Act, 2015, is quite clear; it is to introduce the precise time frame within which an application under Section 8(1) of the A&C Act could be filed.", the Court held.

The Court ruled that a written statement would also fall within the sweep of expression "statement on the substance of the dispute" as used in Section 8(1) of the A&C Act.

Thus, the Court held that if a party fails to file an application under Section 8(1) of the A&C Act for referring the parties to arbitration within the time available for filing the first statement on the substance of the dispute, which would include a written statement in the context of a suit, the party would forfeit its right to apply under Section 8(1) of the A&C Act.

The Court overruled the decision rendered by the Single Judge of the Delhi High Court in the case of Hughes Communications India Ltd. and Ors. v. Union of India (2018), wherein the Single Judge had held that Section 8 of the A&C Act cannot be read to mean that an application under Section 8(1) of the A&C Act would not lie after the right to file the written statement has been closed.

The Court thus upheld the order passed by the Commercial Court that the right of the appellant to file an application under Section 8(1) of the A&C Act stood closed. Hence, the Court dismissed the appeal.

Case Title: M/S. SPML Infra Ltd. versus M/S. Trisquare Switchgears Pvt. Ltd.

Citation: 2022 LiveLaw (Del) 634

Dated: 06.07.2022 (Delhi High Court)

Counsel for the Appellant: Mr Shashank Khurana, Mr Parag Chaturvedi and Mr. Sanket Khandelwal, Advocates.

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