LI Network
Published on: February 14, 2024 at 13:00 IST
The Telangana High Court, under the single bench of Justice Alok Aradhe, has ruled that the obligation outlined in Section 8(1) of the Arbitration and Conciliation Act, 1996, to inform the Court about the existence of an arbitration clause is fulfilled when a party submits an application for rejecting the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 in a commercial court.
Background:
The case involved an agreement between M/s Naolin Infrastructure Private Ltd. (“Applicant”) and M/s Kalpana Industries (“Respondent”), which contained an arbitration clause. Following a dispute under the agreement, the Applicant issued a notice, but no further progress was made. Simultaneously, the Respondent initiated a civil suit for recovery.
The Applicant, citing an arbitration clause, filed an application under Order VII Rule 11 of the CPC, which was rejected by the Commercial Court in 2022. Pending an appeal in the appellate court, the Applicant sought the appointment of an arbitrator in the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
Observations by the High Court:
The court noted that the essence of Section 8(1) of the Arbitration Act is to inform the court about the existence of an arbitration agreement. Citing the Supreme Court’s decision in Sundaram Finance Ltd. vs Abdul Samad [AIR 2018 SC 965], the High Court emphasized that the civil court’s approach, once an application is made under Section 8, should focus on whether its jurisdiction has been ousted, rather than on jurisdiction itself.
It stressed the importance of following the procedures outlined in special statutes over general law, stating that failure to do so could delay dispute resolution and increase grievances’ complexity.
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 ruled that the filing of the application under Order VII Rule 11 of CPC fulfilled the requirement outlined in Section 8(1) of the Arbitration Act, bringing the arbitration agreement to the court’s attention.
The Court rejected the contention that the Applicant had not complied with Section 8(1) and affirmed that the Applicant was entitled to invoke Section 11(6) of the Arbitration Act. Consequently, it appointed Justice P. Naveen Rao as the sole arbitrator to resolve the dispute between the parties in accordance with their agreement.
Case Title: M/s Naolin Infrastructure Private Ltd. vs M/s Kalpana Industries