Section 8 Of A&C Act Falls Outside The Scope Of Section 42: Madras High Court Reiterates

The Single Bench of Justice M. Sundar ruled that a party has no choice of jurisdiction while filing a Section 8 application, and that it is a Hobson's choice for it since it is constrained to file an application under Section 8 in the Civil Court where the civil suit has been filed by the opposite party.

A Mortgage Loan Agreement was entered into between the petitioner - K. Samad and the respondent- Reliance Capital Limited.

After certain disputes arose between the parties, a civil suit was filed by the petitioner in the Civil Court in Chennai against the respondent. After the respondent filed an application under Section 8 of the A&C Act, the Civil Court referred the parties to arbitration. Against this, the petitioner filed a revision petition before the Madras High Court, which was dismissed.

Thereafter, the petitioner filed an application under Section 34 of the A&C Act to set aside the arbitral award rendered against it, before the Madras High Court.

When the Madras High Court raised the issue of whether it had the jurisdiction to entertain the petition under Section 34 of the A&C Act, the petitioner K. Samad contended that the respondent had filed an application under Section 8 before the Civil Court in Chennai and therefore, in view of Section 42 of the A&C Act, all the subsequent applications, including the application under Section 34, would have to be filed in Chennai. Thus, the petitioner averred that the Madras High Court had the jurisdiction to entertain the petition.

Section 8 of the A&C Act provides that if an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, on an application being made as provided, the judicial authority shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

Section 42 of the A&C Act provides that notwithstanding anything contained elsewhere in Part 1 of the A&C Act or in any other law for the time being in force, where with respect to an arbitration agreement any application under Part 1 has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court alone and in no other Court.

The High Court observed that the relevant clause contained in the arbitration agreement, which provided for the exclusive jurisdiction of the Courts of a City, was left blank; however, the arbitration agreement specified the venue of arbitration as Mumbai. Further, the Court noted that the entire arbitral proceedings were held in Mumbai.

The Court ruled that as per the law laid down by the Supreme Court in BGS SGS Soma JV versus NHPC (2019), where a place is specified as a "venue" of the arbitral proceedings, in the absence of any other contrary indicator, the said "venue" would also be the juridical "seat" of the arbitration.

Noting that the venue of arbitration had been specified as Mumbai, while the seat of arbitration was left blank, the Court ruled that in view of the principle laid down in BGS SGS Soma (2019), the seat and the venue would be the same.

Observing that the petitioner had by its own volition filed a civil suit in Chennai and therefore, the respondent was constrained to file an application under Section 8 in the said civil suit in Chennai, the Court ruled that Section 8 is an exception to Section 42 of the A&C Act.

The Court noted that the Supreme Court in the case of the State of West Bengal versus Associated Contractors (2014) had ruled that Section 42 only applies to applications made under Part I of the A&C Act, if they are made to a "court" as defined under Section 2(1)(e) of the A&C Act. The Apex Court had held that since the applications under Section 8 are made to judicial authorities, who are not a "court" as defined under Section 2(1)(e), such applications would be outside the ambit of Section 42.

Hence, reiterating that Section 8 is an exception to Section 42, the High Court ruled that a party is compelled to file an application under Section 8 in the Civil Court where the civil suit has been filed by the opposite party. The Court added that the party has no choice of jurisdiction while filing a Section 8 application and that it is a Hobson's choice for it.

"If a Section 8 is also brought within the ambit and sweep of Section 42, a contracting party which wants to move the Seat or Seat/Venue can go to another jurisdiction and file a suit thereby compelling the other contracting party to file a Section 8 application the other jurisdiction and thereafter say that the other contracting party should file all other applications only in the other jurisdictional Court where a Section 8 application was filed. This would defeat the sublime philosophy underlining arbitration as an ADR mechanism i.e., party autonomy. In this view of the matter also, it is only a natural sequitur that Section 8 is an exception to Section 42." the Court said.

Observing that the entire arbitral proceedings were held in Maharashtra, the arbitral award was made in Maharashtra, and that the sole Arbitrator was a former Judicial Officer in the District Judiciary in the State of Maharashtra, the Court held that it did not have the jurisdiction to entertain the petition under Section 34 of the A&C Act.

Therefore, the Court disposed of the petition as returned to the petitioners, while granting them the liberty to approach the Court having jurisdiction to entertain the challenge against the arbitral award.

Case Title: K. Samad & Anr. versus Reliance Capital Limited

Dated: 10.08.2022 (Madras High Court)

Citation: 2022 LiveLaw (Mad) 380

Counsel for the Petitioner: Ms. P. Uma

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