Once The Right To Refer The Dispute To Arbitration Is Waived By A Party, It Cannot Be Reclaimed: Karnataka High Court

The Single Bench of Justice Sachin Shankar Magadum held that the right of the party to refer the dispute to arbitration cannot be kept in the sleeve and be used at will.

The respondent Y Satish instituted a suit before the Commercial Court seeking a direction to the petitioner Y Harish to pay a certain sum of money to the respondent.

The petitioner contested the proceedings before the Commercial Court and filed an application under Order 7 Rule 11(d) read with Section 151 of the Code of Civil Procedure, 1908 (CPC) seeking rejection of the plaint filed by the respondent on the ground that it was barred by law. The petitioner submitted before the Commercial Court that the respondent had issued a legal notice invoking the arbitration agreement between the parties. Thus, the petitioner contended that arbitral proceedings had already commenced at the instance of the respondent and hence, the suit before the Commercial Court was not maintainable. Therefore, the petitioner averred that the only recourse available to the respondent was to file an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) for appointment of an arbitrator.

The Commercial Court observed that the petitioner had objected to the appointment of the proposed Sole Arbitrator on the ground that the dispute between the parties did not fall within the arbitration clause. The Commercial Court ruled that the petitioner had waived off its rights and therefore, the Court rejected the application filed by the petitioner. Against this, the petitioner filed a writ petition before the Karnataka High Court.

The petitioner Y Harish submitted before the High Court that since the respondent had issued a legal notice invoking the arbitration clause, therefore, the arbitral proceedings had already commenced and hence, the suit filed by the respondent before the Commercial Court was barred under Section 11 of the Commercials Courts Act, 2015. The petitioner added that the only recourse available to the respondent was to file an application under Section 11 of the A&C Act for appointment of an arbitrator.

The petitioner averred that Section 11 of the Commercial Courts Act imposes a mandatory bar on a Commercial Court from entertaining or deciding any suit relating to a commercial dispute in respect of which the jurisdiction of a Civil Court is expressly or impliedly barred by law.

The respondent Y Satish submitted that the jurisdiction of a Civil Court is ousted only after the matter is referred to arbitration. The respondent averred that if a party does not comply with the mandatory conditions under Section 8 of the A&C Act by filing an application within time, the party is deemed to have waived its right to seek reference of the dispute to arbitration.

The respondent contended that the petitioner, without filing a separate application under Section 8 of the A&C Act, cannot contend that the Civil Court has no jurisdiction. The respondent added that the question of referring the parties to arbitration arises only upon an application being made by a party to the arbitration agreement.

The Court observed that the respondent had issued a legal notice calling upon the petitioner to resolve the dispute by way of arbitration. The Court noted that the petitioner, in its reply to the legal notice, had contended that the dispute raised by the respondent was not arbitrable. Thus, the Court ruled that the petitioner had waived its right to refer the dispute to arbitration.

"The stand taken at para 25 of the reply notice disputing the application of Arbitration Act to the dispute between them tantamounts to waiving of right to settle the dispute in an arbitration proceedings. Therefore, what emerges from the stand taken in the reply notice is that the petitioners have already waived off their right and if a right once waived cannot be allowed to be reclaimed.", the Court held.

The Court ruled that Section 8 of the A&C Act requires a formal, independent and specific application, made before or at the time of filing of written statement, seeking reference of the dispute to arbitration.

The Court noted that a Co-ordinate Bench of the Karnataka High Court in the case of P. Tarachand versus Seshamal M. Jain (2019) had ruled that with respect to the proceedings pertaining to domestic arbitration, Section 8 of the A&C Act is the only provision that purports to oust the jurisdiction of the Civil Court. The Court had held that the provisions of the A&C Act clearly indicate that apart from Section 8, there is no provision under the A&C Act that ousts the jurisdiction of the Civil Court. The Court had ruled that Section 8 of the A&C Act contemplates that the matter is referred to arbitration by the Civil Court only subject to a party invoking and complying with the mandatory requirements of Section 8 within the stipulated time.

The Court observed that the petitioner had not invoked Section 8 of the A&C Act and that he had only filed an application under Order 7 Rule 11(d) of the CPC seeking rejection of the plaint filed by the respondent on the ground that it was barred by law.

Noting that the petitioner had not taken recourse to the provisions of Section 8 of the A&C Act to date, the Court ruled that the right of the petitioner to refer the dispute to arbitration cannot be kept in the sleeve and be used at will.

The Court observed that the petitioner, by issuing the reply notice, had disputed the existence of the arbitration agreement with respect to the disputes raised by the respondent. Therefore, the Court ruled that it can be inferred that the petitioner had waived its right to have the dispute resolved by arbitration.

The Court held that in view of the stand taken by the petitioner in his reply notice, the petitioner cannot be permitted to contend that the arbitral proceedings have already commenced and that the suit filed by the respondent was barred by law.

The Court, thus dismissed the writ petition.

Case Title: Y Harish and Anr. versus Y Satish and Ors.

Dated: 01.07.2022 (Karnataka High Court)

Citation: 2022 LiveLaw (Kar) 270 

Counsel for the Petitioners: Mr. R.V.S. Naik, Sr. Counsel for Mr. Nitin Prasad and King and Partridge, Advocate

Counsel for the Respondents: Mr. Pradeep Naik, Advocate

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