This article is written by Charu Atrey pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

As we all know, arbitration is considered to be one of the most effective dispute resolution procedures utilised to resolve the dispute that can arouse between the contractual or non-contractual parties. There are several types of suits and disputes that one person can get into, such as civil disputes, suits arising out of criminal offences, arbitrable disputes, or disputes arising out of the commercial or non-commercial relationship. The question here is whether all these suits are maintainable under arbitration or not. It is important for any of the parties who are seeking claims or filing disputes should file them under the competent authorities. Only if the court has the jurisdiction to hear and decide the suit, it can grant the award or decree which can be final and binding on both parties. The award or decree granted by the competent courts is binding and is cannot be challenged on the ground of jurisdiction. As we know there are several types of suits or disputes, it is important to understand if the suit or dispute aroused between the parties is arbitrable or not and whether the suit is maintainable under the civil court. To understand the maintainability of the suit in the process of arbitration, let us first discuss the pre-requisites for referring the suit to arbitration.        

Prerequisites to refer to the arbitration

Any contract or arbitration agreement that has a mention of arbitration in it shall be referred to arbitration for any disputes concerning the contract. The definition of an arbitration agreement is provided under Section 7 of the Arbitration and Conciliation Act, 1996. It is mentioned under the act that;

• Any party can refer to arbitration for a dispute that arises in respect of the agreement, they have entered into whether contractual or not.
• The clause or agreement should mention that all or any dispute arising between the parties concerning the agreement they have entered into shall be referred to the arbitration.
• The parties should have an arbitration clause or should have an arbitration agreement between them.
• The agreement or clause shall be in writing and is deemed to be considered in writing only if,
  • The parties have signed the document.
  • The parties can prove the existence of the agreement such as any exchange via the telex, telegram, letters, or any other telecommunications.
  • The exchange of statement of claims or statement of defense between the parties that shows the presence of the agreement and the other party has not denied it.
• The parties have entered into a written agreement and have mentioned that the clause of arbitration forms the part of the agreement the parties have entered into.

For example: Party A, is a readymade clothes retailer, having its showrooms all over India agrees with the special water-resistant jeans manufacturing company who is party B. They have agreed upon the following terms and conditions under the agreement that party A will promote and sell the special jeans manufactured in party B’s company to showcase it in party A’s showroom and party B will be obligated not to retail the same product in the market or anywhere in India. The terms and conditions mentioned under the agreement are binding on both parties. The parties were working under the same conditions for a year. Further, party A realizes that party B is retailing the same product in the market at a lower price than the price charged by party A. As per the terms and conditions of the agreement, party B has committed a default.

Here, party A has the right to initiate the arbitration proceedings if the dispute resolution clause mentioned under the agreement states that in the event of default any of the parties can initiate the following proceedings.

Sample arbitration clause

1. The parties mentioned above agree that in the event of any dispute or differences arising between the parties in respect of any clause or breach mentioned under this agreement shall first resort to mediation and conciliation and if the first resort fails then the parties will resort to arbitration under the Arbitration and Conciliation Act, 1996.
2. The aggrieved party should notify the other party about the dispute or breach that occurred via the prior notice sent within 10 days of such dispute or breach.
3. The parties then shall attempt to reach an amicable solution by the process of mediation and conciliation within 60 days of the initiation of such proceedings. If the parties fail to resolve the dispute with mediation and conciliation within the prescribed time of 60 days, then the parties shall resort to arbitration.
4. The process of arbitration proceedings will be ad-hoc.
5. The Lender appointed Mr. __________ (Retd. Judge) and the borrower appointed Mr. ___________ (specialist in the field of Finance) as the arbitrators, the appointed arbitrators together appointed the third arbitrator Mr. ___________ (Retd. Judge), together the appointed arbitrators are considered as an arbitral tribunal and will conduct the arbitration proceedings in case of initiation of the proceedings by one of the parties.
6. The governing law of the proceedings will be the law of the seat i.e. ______ and will be conducted in English.
7. The venue and the seat for the proceedings will be _______ as mutually agreed upon by the parties.

We have discussed above all the prerequisites of the arbitration agreement but what happens in such a situation where even in the presence of the arbitration clause, at the time of arousal of a dispute the parties refer to the civil court instead of the arbitral tribunal?

Maintainability of a suit in light of an arbitration

Let us discuss the maintainability of a suit under such a situation. As we have already known that in any dispute whether it is a contractual or non-commercial civil dispute the parties can refer to the arbitration for dispute resolution only if the arbitration clause is present in the contract. But in case, if any one of the parties at the time of dispute referred it to the civil court irrespective of the presence of the arbitration, the dispute referred is not maintainable under the civil court due to the presence of the arbitration clause. In such a situation the other party can file a Section 8 application in the civil court praying to refer the dispute to arbitration. Under Section 8 of the Arbitration and Conciliation Act, 1996 it is mentioned that;

1. Any authority under which the dispute is filed related to any commercial or non-commercial dispute and the party has not filed the first statement can refer the dispute to the Arbitration, in the presence of the arbitration clause in an agreement.
2. The authority can only entertain such an application made under section 8(1) if the other party provides the original arbitration agreement or proof or any duly signed certified copy, which can prove the presence of the arbitration clause.
3. The authority can only entertain such an application made under section 8 (1) if the proceedings and decisions are still pending in the court.

For example: Party A and party B enter into a loan agreement (agreement), where party A is a company seeking the loan for the development of its software and party B is a bank that is involved in the finance business, financing various projects over time. As per the terms and obligations of the agreement the party A took a loan of amount 100 crores /- (loan amount) for 10 years, providing his several assets as the collateral under the agreement, also party A is required to pay the interest on the loan amount after the end of every financial year. Further, party A committed a default in payment of the interest. Party B notifies party A of such default and provides 10 days to rectify such a default but no such steps have been taken by party A. Therefore, party B, as last resort and as per the terms of the agreement, files the complaint in the civil court, irrespective of the presence of the arbitration clause.

Here, party B can file the Section 8 application under Arbitration and Conciliation Act, 1996 in the hon’ble court, stating that the dispute referred to the court is not maintainable under the hon’ble court and shall be referred to the arbitration. The’ court can only accept such an application if the requirements mentioned under Section that8 of Arbitration and Conciliation Act, 1996 are fulfilled. Party A is required to provide the agreement or any duly certified copy that can prove the presence of the arbitration clause in an agreement.

Irrespective of the essential requirements mentioned under Section 8 of the Arbitration and Conciliation Act, 1996 in the recent landmark case the Delhi High Court has referred the parties to the arbitration without filing the Section 8 application under Arbitration and Conciliation Act, 1996, stating that the mere presence or reference of the arbitration clause under the written statement is enough for the court to refer the dispute to arbitration.

Case Law: Parasramka Pvt. Ltd. and others v/s Ambiance Pvt. Ltd. and Another 2018, (167) DRJ 637 HC New Delhi.

Suits that are maintainable under Section 8

As we have discussed the provisions mentioned under Section 8 of the Arbitration and Conciliation Act, 1996 now let us further discuss all the suits that are maintainable or not maintainable under the act. Suits that are maintainable under section 8 of Arbitration and Conciliation Act, 1996 are: 

• A suit to challenge an award

The civil courts have no right to entertain any such application filed challenging an award granted after the proceedings conducted under the Arbitration and Conciliation Act, 1996.

For example: If the award is granted by the arbitral tribunal in the case of party XYZ and party MNO. Both the parties have entered into an arbitration agreement. At the time of the dispute, the parties initiate the arbitration proceedings and after the formal proceedings, the arbitral tribunal grants the award in the favour of party XYZ. Party MNO was not satisfied by the award and wanted to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996. No such application can be filed under the civil court. Therefore, party MNO has to file the application under arbitration only.

• Suits arising out of arbitration

Any suit or dispute arises out of the arbitration agreement or any such agreement which contains the arbitration clause or it is mentioned under the agreement that the parties will resolve such future disputes as per the rules of the arbitration than in such a case the suit is maintainable under the Arbitration and Conciliation Act, 1996.

• False allegations for undue influence

As we have already known that the parties negotiate and mutually agree on every clause, terms, or condition mentioned under the agreement. Therefore, all the terms and conditions are binding on both the parties of the agreement during the tenure of the agreement. No concerned party can take advantage of the agreement for a time being and then refuse to oblige to the terms or conditions of the agreement.

For example: Party ABC and party DBL have entered into a contract for 10 years. Both the parties are under the obligation to fulfill all the terms and conditions of the contract. Further, party ABC after 5 years refused to fulfill any obligations as per the contract on the ground that the contract the parties had entered into was not mutual and was induced by the undue influence of the party DBL. Then such a situation is maintainable under arbitration.

• Matters already referred to arbitration

Any such matter already referred to the arbitration can be entertained by the arbitral tribunal and cannot be referred to civil courts or any other court only if the subject matter is barred under section 8 and is not maintainable under the arbitration.

Case law: In case of Anand Gajapathi Raju & Ors. v/s P.V.G. Raju (Died) & Ors the Supreme Court has provided the prerequisites to refer the suit to the arbitration under Section 8 subsection (1) and (2) are:-

1. The arbitration agreement should be present between the concerning parties.
2. One of the concerning parties should bring the dispute in the court instead of the arbitral tribunal
3. The subject matter of dispute between the concerning parties shall be the same as the arbitration agreement.
4. The other party related to the dispute should apply to section 8 to refer the suit to arbitration before submitting the statement of defense.

Suits that are not maintainable under Section 8

Suits that are not maintainable under Section 8, irrespective of the presence of the arbitration clause: 

• Strangers to a contract 

Any award passed by the arbitral tribunal against any third person who is not part of the proceedings or is not the part of the agreement in relation toThe apply which the resolution is sort, then in such a case the third party has the right to challenge such an award in the court and no court can take away such a right from any such third party to seek justice under the code of civil procedure.

For example: Party A and party B were under the construction agreement. Party A is a developer and party B is a contractor. Party A wanted to develop a 15 storied apartment building and as per the contract have to pay the amount as per the invoice generated after completion of every floor by the contractor and the contractor i.e., party B has to finish the project within 3 years. During the tenure of the agreement, party A paid the amount regularly as per the invoices generated by party B. After some time party, A realizes that party B has committed fraud and is generating invoices fraudulently without completing the work as per the terms of the contract. Therefore, party A files a suit against party B. In such a situation party B alleges that party B is in a different agreement with party C who is the supplier of the raw materials for the construction and it did not provide the raw material as per the requirements for the project of party A. The Arbitral Tribunal passes an award against party C for non-compliance with the agreement.

Here, it is important to know that party C is not the party under the construction agreement and is not at all related to the dispute aroused between party A and party B. The contract between party B and party C is a different contract that is not a part or partial of the construction agreement of party A and party B. Therefore, party C can file a civil suit challenging the award passed against him under the proceedings of the disputes related to the construction agreement.

• Matters or disputes related to fraud and misrepresentation

Any matter related to fraud or misrepresentation or conspiracy is maintainable under civil court and cannot be referred to the arbitration. 

As under the case of Raja Picture Palace, Rajahmundry and others v/s Marina Jagga Rao, the court has stated the grounds where the court will be held rightful in not referring the matter to arbitration that is:-

1. Fraud and misrepresentation.
2. Collusion and conspiracy among the defendants. 
3. Suits that involve the complicated questions of laws.
4. Disputes related to arbitration agreements.
5. If there is such a situation where arbitrators will not act fairly.

• Matters related to disputes not arising under the arbitration agreement

Any such matters or disputes arise out of any agreement commercial or non-commercial which does not have an arbitration agreement between them, then in such a situation the suit is maintainable under the civil court only and cannot be referred to arbitration.

For example: Party A and party B enter into a loan agreement and are also decided to resort to any future dispute that arises concerning the agreement by filing the suit under the competent court. Then in such a situation, the parties have to refer any future dispute to the competent court and cannot file the claims under arbitration.

• Criminal proceedings against minors

Any proceedings relating to the offense committed by the child below the age of 18 or who is not major or is minor are not maintainable under the arbitration.

For example: A minor committed a crime of rape under the influence of 3 other men. The civil court in such a situation cannot refer such a suit against the minor to arbitration.

Conclusion

The maintainability of a suit is one of the essential aspects of the effective award or decree. If the suit is not filed under the competent courts, and the court has granted the decree or award then in such a case the parties can always challenge the eligibility of the award which can eventually cause a delay in providing justice. Therefore, Section 8 of the Arbitration and Conciliation Act, 1996 provides the power to the courts to refer the suit to arbitration if the subject matter of a dispute is arbitrable. 

References

1. https://indiankanoon.org/doc/1306164/
2. https://thedailyguardian.com/maintainability-of-suits-in-light-of-arbitration/

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