Professional Documents
Culture Documents
Shashank Adr
Shashank Adr
The Arbitration and Conciliation Act, 1996 (hereinafter the "1996 Act") supplants the
Arbitration Act, 1940. In the 1996 Act, intervention by Courts was limited so that the object
behind speedy justice could be well achieved. To further the aforesaid objective, the 1996 Act
harbours many provisions. Section 8 of the 1996 Act denotes one such provision which
provides for limited judicial intervention and furthers the objective by directing the parties to
get involved in arbitration on the basis of the arbitration agreement. In domestic arbitrations ,
the uses of Section 8 applications in the Courts have spiraled over the years. This piece
provides an indepth analysis of Section 8 of the 1996 Act by focusing on the judicial
precedents.
FACTS
The Rashtriya Ispat Nigam is a Public Sector Undertaking. It is engaged, inter alia, in the
business of manufacturing and marketing of iron and steel products. The Respondent is a
partnership firm. It is engaged in the business of consignment agents. It has its office at
Jalandhar. A contract was entered into by and between the parties hereto in regard to the
handling and storage of iron and steel materials of the Appellant at Ludhiana. The Appellants
contend that one Shri Anil Verma, Partner of the Respondent-Firm had constituted various
firms and companies and obtained several consignment agency contracts from the Appellant
pertaining to Delhi, Faridabad, Chandigarh and Ludhiana etc. who conspired with certain
officials of the Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/- per
M.T. on a false plea that the Transport Union at Bahadurgarh did not permit transportation of
goods without levy of a fee of Rs.100/- per M.T. on transportation of such goods. An
investigation was conducted by the Central Bureau of Investigation and a criminal case was
initiated against Shri Anil Verma and the concerned officials of the Appellants. Allegedly,
with the object of presenting a clean image to the Appellants and with a view to avoid
termination of all the contracts by them, a plea was put forth that Shri Anil Verma had
resigned from the partnership firm as also from his other firms/companies. According to the
Appellants, the said Shri Anil Verma was replaced by his family members as a partner of the
said firm but he continued to be in complete control over the firms/companies. The contract
of the Respondent was terminated by the Appellants on 23.05.2002. On the same day, a show
cause notice was also issued to Shri Anil Verma as to why he and his firms/companies should
not be black listed.
SECTIONS INVOLVED
The following factors are to be considered before entertaining an application under Section 8
of the 1996 Act:
In the step wise analysis of Section 8 is whether the validity of the arbitration clause
can be disputed before the Court, in front of which an application for reference is
made. The answer to the question was laid in the negative by the Supreme Court
in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums6. The Court in
this case held that if the existence of the arbitration clause is admitted, in view of the
mandatory language of Section 8 of the Act, the courts ought to refer the dispute to
arbitration. The Supreme Court, while raising a presumption for the validity of an
arbitration clause in an agreement, in India Household and Healthcare Ltd. v. LG
Household and Healthcare Ltd.7, said that the Courts would construe the agreement in
such a manner so as to uphold the arbitration agreement.
Section 8 further mandates that the subject matter of the dispute is the same as the
subject matter of the arbitration agreement. While articulating on this pre-requisite,
the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr.8, said
that "The relevant language used in Section 8 is-"in a matter which is the subject
matter of an arbitration agreement". Court is required to refer the parties to arbitration.
Therefore, the suit should be in respect of 'a matter' which the parties have agreed to
refer and which comes within the ambit of arbitration agreement."
Though not implicit in the reading of Section 8 of the Act, the Court in the case of Haryana
Telecom Ltd. v. Sterlite Industries (India) Ltd.10 brought in the competence of the arbitral
tribunal as one of the grounds for the grant of reference. The proposition that Section 8,
despite providing the explicit grounds on which reference can be made, also lays down the
implicit ground of competence of the Arbitral Tribunal, was also read in the affirmative by
the Court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. 11 wherein it
was held that where the cause/dispute is inarbitrable, the court where a suit is pending, will
refuse to refer the parties to arbitration, under Section 8 of the Act.
On 23rd October, 2015, the President promulgated the Arbitration and Conciliation
(Amendment) Ordinance, 2015. The said Ordinance amended Section 8 by stipulating that
joinder of non-signatories to an arbitration agreement was not permissible. Further
amendment to Section 8 requires that the judicial authority compulsorily refer parties to
arbitration irrespective of any decision by the Supreme Court or any other court, if the
judicial authority finds that a valid arbitration clause prima-facie exists. The amendment
essentially nullifies the judgment of the Supreme Court in Booz Allen Hamilton v. SBI Home
finance12, where it had ruled that serious allegations of fraud are not arbitrable.
Mr. R.F. Nariman, the learned Senior Counsel appearing on behalf of the Appellants, inter
alia, submitted that :
(1) Section 8 of the 1996 Act cannot be equated with Section 34 of the Arbitration Act, 1940,
(for short, 'the 1940 Act) having been made in terms of UNCITRAL Model Rules and having
undergone a thorough change.
(2) Filing an opposition to the interim injunction would not preclude a defendant from filing
an application under Section 8 of the 1996 Act.
(3) The High Court committed a serious error in entertaining the plea raised by the
Respondent for the first time before it in holding that the application filed by the Appellants
was not accompanied by a certified copy of the arbitration agreement.
(4) Despite the fact that attention of the High Court was specifically drawn that the said
finding was factually incorrect in the review application, the High Court did not address itself
on the said question.
Mr. Nagendra Rai, the learned Senior Counsel appearing on behalf of the Respondent, on the
other hand, submitted that :
(1) The premise on which the contract was terminated being de 'hors the conditions of the
contract, the same would not be arbitrable.
(2) The suit having been filed questioning both blacklisting as also termination of contract
being outside the purview of arbitration, the application under Section 8 of the 1996 Act was
not maintainable.
(3) The Appellants in their rejoinder having disclosed the substance of the dispute were not
entitled to file the said application. (4) An application for time having been filed to file
written statement, the impugned orders do not suffer from any infirmity.
JUDGEMENT
The evidence recorded by the Trial Court discloses that there was no dispute between the
Company and the Union arising under the contract on which the suit was filed. The Union
accepted liability to pay the amount claimed by the Company in the suit. The Union still
declined to pay the amount asserting that an amount was due from the Company to the Union
under a distinct contract. This amount was not sought to be set-off under any term of the
contract under which the Company made the claim. The dispute raised by the Union was
therefore not in respect of the liability under the terms of the contract which included the
arbitration clause, but in respect of an alleged liability of the Company under another contract
which it may be noted had already been referred to arbitration. The Union had no defence to
the action filed by the Company : it was not contended that the amount of Rs. 10,625/- was
not due to the Company under the contract relied upon by the Company. For enforcement of
the arbitration clause there must exist a dispute : in the absence of a dispute between the
parties to the arbitration agreement, there can be no reference."
For the foregoing reasons, we are of the opinion that the application filed by the Appellants
underSection 8 of the 1996 Act was maintainable. Before parting with the case, we may
notice a disturbing state of affairs. Mr. Nariman made a statement before us that in view of
the order of status quo passed by the learned Civil Judge, the Respondents have not only been
working for the full term of five years contemplated under the agreement but also for the
extended the period of ten years, to which they were not entitled. The order of injunction
passed by the learned Trial Judge is not before us. The contention raised by Mr. Nariman if
correct, we are sure that corrective measures shall immediately be taken by the court
concerned.
For the reasons aforementioned, the impugned judgments cannot be sustained which are set
aside. The appeals are allowed with costs. Counsel fee is quantified at Rs.15,000/-.