This article is written by Simran Mohanty and further updated by Subhangee Biswas. The article discusses in detail Section 8 of Arbitration and Conciliation Act,1996, its nature, essentials, maintainability, applicability, and the amendment with respect to it, along with landmark judgements. This article is aimed to provide a thorough explanation and analysis of the Section with its related terms and aspects.

This article has been published by Shashwat Kaushik.

Introduction 

The Preamble of The Arbitration and Conciliation Act, 1996 defines the Act as one which is consolidating and amending the laws relating to domestic arbitration in India. Mainly, the 1996 Act was an improvement over the previous laws related to arbitration. The purpose of the Act is to popularise the use of arbitration to resolve disputes. Since the courts are already overburdened with cases, arbitration provides an out of court settlement procedure which not only lessens such burden on courts, but also ensures a quicker and more cost effective means of remedy for the parties involved. 

To utilise the method of arbitration in order to settle disputes, parties incorporate an arbitration clause in the agreement they enter into. That arbitration agreement would stipulate that if any dispute arises, the same shall be referred to and settled by using arbitration. If the parties incorporate an arbitration clause in their agreement, and yet they decide to approach the court for dispute settlement, the purpose of including the arbitration clause will be defeated.

Section 8 of Arbitration and Conciliation Act, 1996

Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘Act’) deals with the power of the judicial authority to refer the parties to arbitration. The core of the provision is that if there is a valid arbitration agreement existing between the parties and a dispute arises which is a subject matter included in the said arbitration agreement, then the judicial authority before whom either of the parties has brought the case is obligated under Section 8 of the Arbitration and Conciliation Act, 1996 to direct the parties to resolve their dispute through arbitration. This Section minimises judicial intervention by making it mandatory for the Court to direct the parties to go for arbitration if they have included an arbitration clause in their agreement. To further increase the scope of arbitration, the 2015 Amendment to Section 8 of the said Act made it compulsory for the judicial authority to refer the parties to arbitration irrespective of any decree or court order or judgement of any court. This Section is based on Section 34 of the erstwhile Arbitration Act, 1940.

2015 amendment to Section 8 of Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 was enacted with an intention to provide for speedy disposal and effective resolution of disputes through alternate dispute resolution, mainly arbitration and conciliation. It would also help to reduce the burden on the courts. However, with time, there were many shortcomings and criticisms regarding the Act of 1996. 

The Ministry of Law and Justice had requested the Law Commission to undertake a study on the proposed Amendment to the Act of 1996. For this, the Law Commission set up an expert committee, studied the proposed amendments and prepared suggestions. It submitted its report in August 2014 wherein it recommended certain changes to the then Arbitration Act of 1996. 

To know more about The Law Commission Report on the Amendments to Arbitration and Conciliation, click here.

The President promulgated the Arbitration Ordinance in October 2015 giving effect to a few of these amendments suggested. Since an Ordinance was introduced to give effect to the amendments, confusion prevailed regarding the applicability of the amendments- whether the effect of them would be prospective or retrospective. But the Amendment Act provided an impetus to the growth of arbitration in India. The Amendment Act was in consonance with the Law Commission Report as well as the Ordinance.

The President gave assent to the Amendment Act on 31 December 2015. Accordingly, the Arbitration and Conciliation (Amendment) Act, 2015 came into force with effect from 23 October 2015. This Amendment restricted the time limit within which an application seeking grant of reference to arbitration could be filed.

Now let us compare some of the pre and post amendment provisions of the Act for a better understanding of the change desired and given effect to.

Prior to the amendment of 2015, the provision stated that “A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to  arbitration.” 

Post amendment, the words ‘not later than when submitting’ were replaced by ‘not later than the due date of submitting’

The Delhi High Court in the case of Parasramka Holdings (P) Ltd. vs. Ambience (P) Ltd. & Anr. (2018) carefully analysed the difference between the pre-amended provision and the post amended provision and concluded that although the pre-amendment act did have a limit for the parties seeking arbitration, the prescribed time limit was not certain and it also led to a lot of confusion. After the 2015 amendment, a definite time limit was set within which the parties are required to apply for Section 8 of the Arbitration and Conciliation Act, 1996.

Sub-section (1) of Section 8 has been amended. The amended provision states that, “A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, …, 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”. Thus, irrespective of the existence of any judgement, decree or order of any court, the judicial authority shall refer the parties to arbitration except in the circumstance that there is no existence of an arbitration agreement. 

Another provision has been added, which is sub-section (2) to Section 8. This provision allows that if the party applying for reference of the matter to arbitration, does not possess the original copy of the arbitration agreement but the other party has retained it, then the first party can apply to the court for a direction ordering the other party to produce the original arbitration agreement or a certified copy of it when the parties do not possess the original document. 

The Arbitration and Conciliation (Amendment) Act, 2015 made it mandatory for the judicial authority to refer the parties to arbitration under Section 8. The Supreme Court in the case of Gujarat Composite Limited vs. A Infrastructure Limited (2023), observed that the amendment of Section 8 was done on the recommendation of the 246th Law Commission Report in which it was seen that according to the proposed amendment, the only situation when the judicial authority would not refer the parties to arbitration is when there does not exist any arbitration agreement or if there is one existing, the agreement is null and void.

The 2015 Amendment is a positive step in the direction of making arbitration in India a speedy, productive and cost-effective remedy. The new changes are intended to curb the practices that led to time wastage. The Amendment makes arbitration time bound by introducing Section 29A which sets a time limitation on the Arbitral Tribunal to decide upon a matter and pronounce an award. 

The Amendment makes the arbitrator accountable for any delay in the arbitration proceedings, thus ensuring that the arbitrators do not take up too many cases that they would not be able to deliver and do justice to. This makes the declaration of independence and impartiality by the arbitrators more realistic and not just a mere formality under law.

Most importantly, extra care is taken to ensure that the Court interference is reduced to a greater extent. It reduces judicial intervention, especially in the matter of appointment of arbitrators, by adding sub-section (6-A) to Section 11. This Section ensures that the judicial intervention is only limited to the existence of an arbitration agreement, and it does not go into other issues like live claims, qualifications, conditions for exercise of power, validity of the agreement, etc. This not only reduces judicial intervention but also avoids unnecessary delays in the proceedings. 

Nature of Section 8 of Arbitration and Conciliation Act, 1996

The language of Section 8 is held to be peremptory in nature, which means it cannot be appealed. Therefore, it becomes mandatory for the civil court to refer the parties to the arbitration. If there is any objection to the validity of the arbitration clause or arbitration agreement,  then the same has to be challenged in the arbitration proceeding before the appropriate Arbitral Tribunal. The Court cannot decide even on the validity of the arbitration agreement. The issue of applicability of the arbitration agreement is also to be raised before the concerned Arbitral Tribunal which will be the forum to decide it. The Court ought not interfere in this. This was held by the Supreme Court in Hindustan Petroleum Corporation Ltd. vs. Pink City Midway Petroleums (2003). The Section restricts the judicial intervention in adjudication of dispute to such an extent that it leaves the judicial authority with no option but to refer the parties to the dispute to arbitration. It cannot decide on the matter, nor can it decide on the validity of the arbitration agreement. It is a mandatory provision and the Court cannot exercise any discretion in this regard.

In the case of Magma Leasing and Finance Limited and Anr. vs. Potluri Madhavilata and Anr, (2010), in para 23, the Supreme Court held that, Section 8 is in the form of a legislative command and with the fulfilling of the prerequisite conditions to the provision, the court must refer the parties to arbitration. No option is left to the court other than referring the parties to arbitration.

Even if the actual agreement is terminated, the arbitration clause survives. In the case of M/S Ford Credit Kotak Mahindra vs. M. Swaminathan (2005), it was stated that the arbitration clause is considered to be distinct and separate from the other clauses of the contract. Since it is separate, it survives even in the total breach of the other clauses. The party in default still can invoke the arbitration clause. It was also highlighted in this case that the parties have to move to the Arbitration forum to discuss even the matter of termination of the contract.

In another case of Ashok Thapar vs. Tarang Exports Pvt. Ltd. (2018), the purpose of the Act of 1996, was highlighted which is to minimise the burden on the Courts as well as to expedite the matters. It was stated that once the parties have intended to refer their dispute to an arbitrator by incorporating an arbitration clause in their main agreement, any dispute relating to the main agreement or relating to the subject matter of the agreement has to be referred to the arbitrator even if the arbitration agreement is mutually terminated by both the parties. 

Essential ingredients of Section 8 of Arbitration and Conciliation Act, 1996

By the plain reading of the Section, the following essential ingredients can be deduced-

1. Existence of a valid arbitration agreement between the parties.
2. An action is brought before the judicial authority, the action being a subject matter of the arbitration.
3. Either of the parties or any person related to the dispute should invoke the arbitration clause or agreement before the date of submitting their first statement on the substance of the dispute before the judicial authority.
4. The application of the party to refer the dispute to arbitration should be accompanied with the original arbitration agreement, and if the original copy is unable to be produced by either of the parties, then its duly certified copy.

Valid arbitration agreement between parties

Section 7(1) of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as an agreement through which parties can resolve their dispute which has arisen or may arise, by way of arbitration. 

Section 8 requires that there must be a valid arbitration agreement existing between the parties. For the existence of a valid arbitration agreement, the very basic requirement of any agreement, which is the presence of two parties, must be fulfilled. So, before understanding more about a valid arbitration agreement, let us first know the meaning of “party” as related to this concept.

Meaning of ‘Party’

Section 2(1)(h) of the Arbitration and Conciliation Act, 1996 defines the term “party” as a party to an arbitration agreement. It can be interpreted to include bodies of persons or incorporated persons like a company. For the purpose of Section 8, the party should be the disputing party or parties who have submitted their dispute for resolution before the judicial authority.

Now comes the question whether an ‘agent’ qualifies as a ‘party’ under Section 2(1)(h) of the Act. The Supreme Court answered this issue in the case of Benarsi Krishna Commit. & Ors. vs. Karmyogi Shelters P. Ltd (2012), wherein it was held that the term ‘party’ as defined in Section 2(1)(h) indicates a person who is a party to the arbitration agreement, such definition in no way includes an agent of the party to such agreement. The same opinion was reiterated by the Delhi High Court in the recent case of the Ministry of Health & Family Welfare and another vs. M/S Hosmac Projects Division of Hosmac India Pvt. Ltd (2023). Relying on the Benarsi case, it was held that the expression ‘party’ does not include an agent or a lawyer of such a party.

Moreover, in another recent case of Cox and Kings Limited vs. SAP India Private Limited (2022), the Supreme Court held that non-signatories to an arbitration agreement can also be bound by arbitration if there is mutual intention. ‘Non-signatories’ is the term used for ‘third parties’. It means a person or an entity who has not entered into the arbitration agreement formally but is involved in the dispute which is the subject matter of an arbitration. It has to be determined if the non-signatory intends to affect the legal relations with the signatory parties and if they are bound by the arbitration agreement. It comes solely to the consent to decide who the parties are. 

Then, the Supreme Court proceeded to uphold the doctrine of ‘Group of Companies’. In short, let us understand this doctrine. The doctrine is used for companies which are related to each other for being a part of the same corporate group. Considering the fact that every company in a group has a separate legal personality, a contract formally entered into by one company would not be binding on the other member companies due to the limited liability principle. This doctrine of Group of Companies doctrine is used to bind a “non-signatory company” (a company which did not sign the agreement directly) within a group to an arbitration agreement which has been signed by some other member of the group. The doctrine does two tasks simultaneously, maintains the existence of corporate separateness of the group companies and determines the common intention of the parties to bind the non-signatory party to the arbitration agreement.

Regarding the determination of mutual intention, the Court held that the courts need to look into the corporate structure to conclude if both the signatory and non-signatory parties belong to the same group then it has to consider the commercial circumstances, the conduct of parties in order to decide the common intention. Moreover, the party who wants the joinder of a non-signatory, has to prove that all these factors have been fulfilled to the satisfaction of the court. If a non-signatory is actively involved in the performance of the contract and the conduct is also in harmony with the other members of the group, it is assumed that the non-signatory party is a ‘veritable party’ (actual party) to the contract which has the arbitration agreement included in it. 

In the final conclusion of the judgement, it was held that the definition of ‘parties’ includes both the “signatory” and the “non-signatory” and the consent of the parties can be the basis to determine their consent to be bound by the arbitration agreement.

Essentials for the arbitration agreement

1. According to Section 7(2) of the Arbitration and Conciliation Act, 1996, an arbitration agreement can be in the following forms:
   1. Included as an arbitration clause in the same agreement or;
   2. Separately in the form of another agreement.
2. The arbitration agreement should be in writing [Section 7(3)]. In this regard, Section 7(4) provides the documents in which an arbitration agreement can be said to be contained:
   1. Document which is signed by the parties, 
   2. Any exchange of letters, telegrams or telecommunication, or similar documents including those made through electronic means. Such exchange must provide for a record of the agreement,
   3. An exchange of statements of claim and defence in which the existence of the arbitration agreement can not be denied by any party.
3. When there is a reference to a document containing an arbitration clause in a contract, such document will be regarded as an arbitration agreement only if the contract is in writing.

In the case of Garware Wall Ropes Ltd vs. Coastal Marine Construction and Engineering Ltd.(2019), the court iterated that to examine the prima facie validity of an arbitration agreement, the judicial authority needs to determine the following:

1.  Whether the arbitration agreement is in writing? 
2. Whether the arbitration agreement was contained in the exchange of letters, telecommunication, etc?
3. Whether the core contractual ingredients of the arbitration agreement are satisfied?
4. Also, determine the arbitrability of the subject matter,  which will be discussed in the paragraph below.

Arbitrability of the subject matter of dispute

In simple terms, arbitrability means the ability of a dispute to be settled by arbitration. Similarly, non-arbitrable means disputes which can not be resolved through arbitration, which can be settled using a court process only,  or rather, some other process but not arbitration. In arbitration law, a dispute must be arbitrable in order to be settled using arbitration. As per the requirements of Section 8, the subject matter of the dispute must be capable of being resolved using arbitration. 

The Supreme Court of India in 2011 enlisted 6 categories of dispute which are not arbitrable in the case of Booze Allen & Hamilton Inc. vs. SBI Home Finance Ltd. and Ors.,(2011). The list is as follows:

1.  Disputes related to criminal offence or fraud, 
2. Matrimonial disputes, 
3.  Guardianship matters,
4.  Insolvency and winding-up matters,
5.  Testamentary matters, and 
6.  Eviction or tenancy matters.

In the same case, the Supreme Court also has mentioned three facets of non-arbitrability. These are as follows:

1. Whether the disputes can be resolved by adjudication and settlement by arbitration? 
2. Whether the disputes are covered by the arbitration agreement? In other words, the disputes need to be mentioned in the arbitration agreement as the matters which are to be decided by arbitration. 
3. Whether the parties have referred the disputes to arbitration? In other words, the disputes need to fall under the scope of the submission to the Arbitral Tribunal.

Post the 2015 amendment, the Hon’ble Supreme Court of India added another category of non-arbitrable subject-matter through the case of Shri Vimal Kishor Shah & Ors vs. Mr. Jayesh Dinesh Shah & Ors, (2016). The category being disputes arising out of a Trust Deed. The reason behind including this category in the non-arbitrable subject-matter list is that there is no arbitration agreement between them even though the trust deed includes an arbitration clause. This is because the execution of the trust deed is done by the testator and not the beneficiaries, so the beneficiaries are non-parties to the trust deed. Hence, there is no arbitration agreement.

The Supreme Court laid down the following test in the landmark case of Vidya Drolia vs Durga Trading Corporation, (2021), which helps in ascertaining the arbitrability of a subject matter-

• Disputes which are related to actions in rem, and do not relate to rights in personam arising out of rights in rem;
• Disputes that affect the third party rights; or have erga omnes (towards all) effect; or require centralised adjudication, and mutual adjudication would be inappropriate and unenforceable;
• Disputes which are related to inalienable sovereign and public interest functions of the State; and
• Disputes which are expressly or by necessary implication non-arbitrable as per mandatory statute”

To know more about the landmark case of Vidya Drolia vs. Durga Trading Corporation (2021), click here and here.

Again, in Gujarat Composite Limited vs. A Infrastructure Limited (2023), there was an original agreement between the parties. Then, they had entered into another additional agreement. The dispute arose from the additional agreement, but the arbitration clause was mentioned in the original agreement only. However, all the agreements were related to the same property. 

The Supreme Court denied reference to arbitration because the establishment of a contractual relationship from the original agreement does not ipso facto lead to the availability of the arbitration clause for dispute arising from a different agreement (here, additional agreement).

In another case of Hero Electric Vehicles Private Limited vs. Lectro E-Mobility Private Limited (2021), the issue was whether Intellectual Property (IP) disputes could be resolved by arbitration. 

The Delhi High Court, upholding the arbitrability of IPR disputes, stated that under Section 8, rights in personam are arbitrable in nature. It was stated that if there is a valid arbitration agreement existing then it is obvious that any dispute between the parties ought to be referred to arbitration, it is only when there is a clear “chalk and cheese” case of non-arbitrability that the court would not invoke the arbitration clause.

Maintainability of application for insolvency under Section 8 of Arbitration and Conciliation Act, 1996 

Insolvency disputes cannot be resolved by arbitration under Indian law. Insolvency proceedings are in rem which means they involve the rights of a third party, which makes the subject matter of the dispute non-arbitrable.

Prior to the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) in India, the Apex Court in the case of Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd, (1999), held that the power to order the winding up of the enterprise of a commercially insolvent company is vested in the Companies Act, 1956. Moreover, it concluded that notwithstanding any agreement between the parties, an arbitrator has no power to order the company to wind up.

Recently, a landmark judgement was passed by the Supreme Court bench of 3 judges, namely- CJI SA Bobde, Justices AS Bopanna and Justice V. Ramasubramanian in the matter of Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund, (2021). This case has been dealt with in detail in the later portion.

The court had observed that during the pendency of proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, the Court has to first decide on the application under Section 7 of IBC. The IBC deals with the initiation of a corporate insolvency resolution process by a financial creditor. Now two cases may arise, first situation is that if the application under Section 7 is allowed, that is, if the adjudicating authority comes to the conclusion that the corporate debtor has in fact defaulted, then the insolvency proceeding is initiated which falls under the list of the non-arbitrable matters, the proceeding becomes in rem and outside the scope of arbitration, then any application for referring the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 would not be maintainable before the court.. The second situation is if the application under Section 7 does not succeed, that is, there is no default. Then the adjudicating authority need not decide the application under Section 8 and the parties can go for the alternate remedies available to them.

Maintainability of an application alleging fraud under Section 8 of Arbitration and Conciliation Act, 1996

In the case of Booz Allen, it was concluded that the matters related to criminal offences and fraud are not arbitrable. 

In the  case of A Ayyasamy vs. A Paramasivam & Ors., (2016), the question regarding the arbitrability of matters involving alleged fraud came up before the Supreme Court. The Court held that a mere allegation of fraud cannot be a ground to reject the application for reference to arbitration under Section 8. However, where the allegation is serious, then only the civil courts will have jurisdiction to adjudicate on it. In the above-mentioned case, the allegations were not that serious, hence the Supreme Court reversed the order of the lower courts and allowed the application for reference to arbitration.

Invoking arbitration clause

In simple terms, invoking an arbitration clause means to request that the parties follow the arbitration clause or agreement that they had agreed to and had incorporated in their main agreement. Invocation of arbitration clause under Section 8 would mean the act of either of the parties to submit the first statement on the substance of dispute. The first statement on the substance of the dispute works as an application bringing out the fact there is an arbitration agreement or arbitration clause existing and the party wishes to avail the remedy of arbitration to solve the dispute brought before the court. 

Let us now understand what the term “First statement on the substance of dispute” means and what is the time limit for filing it.

First statement on the substance of dispute and the limitation with respect to it

Section 8 states that the party to arbitration only needs to imply to the judicial authority that there is a valid arbitration clause present before filing the first statement. This makes it compulsory for the judicial authority to refer the parties to arbitration. Section 8 also provides a time limit for the parties to invoke the arbitration clause. Within this mentioned time limit, the parties have to inform the judicial authority about the arbitration clause. The said limitation is described in the provision as “not later than the date of submitting his first statement on the substance of the dispute.” 

For analysing the aforementioned expression, let’s break it into two parts- 

1. ‘first statement on the substance of dispute’
2. ‘not later than the date of submitting’

First statement on the substance of dispute

The Supreme Court in Rashtriya Ispat Nigam Ltd. vs. Verma Transport Company, (2006), concluded that the ‘First statement’ with respect to Section 8 should be different from the expression ‘written statement’. The court also mentions that it is the duty of the judicial authority to examine whether the party has waived its right to invoke arbitration by filing the first statement.

Whereas the Delhi High Court in the case of Sharad P. Jagtiani vs. Edelweiss Securities Limited (2014) held that there is no specific manner in which a party has to file its first statement on the substance of the dispute under Section 8. In a suit, generally, the first statement on the substance of the dispute is the ‘written statement’ filed by the defendant. It is also the reply to the plaint and therefore, the written statement could be regarded as the first statement on the substance of the dispute. Thus, if the defendant in its written statement mentions the fact that there is an arbitration agreement existing between the parties which includes the subject matter of the suit, it will be in compliance with Section 8 and the defendant need not file anything separately. The Court then ought to refer the parties to arbitration.

Further, in the case of Greaves Cotton Ltd. vs. United Machinery and Appliances, (2018), the Apex Court held that an application seeking an extension of time for filing the written statement would not amount to the ‘ First statement of the substance of dispute’.

In MI2C Security Facilities Pvt. Ltd. vs. North Delhi Municipal Corporation , (2018), the Delhi High Court stated that if the party has filed its first statement without informing the judicial authority of the arbitration clause, then it would be presumed that the party has waived off its right to invoke the arbitration clause. In the mentioned case, the defendant had filed a short affidavit as a reply to the writ petition filed. The court held that since the affidavit filed was a reply, therefore it was the first statement.

In the case of G. Rajarajan vs. Aig Consumer Financial Services (2012), the Madras High Court has held that filing a petition under Order XXXVII Rule 3(5) of The Code of Civil Procedure, 1908 (Summary suit) for leave to defend does not mean filing of statement on the substance of the dispute as under Section 8 this Act.  

To know more about Order XXXVII of CPC, 1908, click here.

In the case of Stellar Industries vs. International Combustion (India) Ltd. (2008), the Bombay High Court has held that the application for leave to defend cannot be called ‘first statement’. Moreover, the Bombay High Court in the case of The Companies Act vs. Mr. Keval Krishan Arora (2009) has held that ordinarily, the reply of the defendant to the summon for judgement would be the first statement on the substance of the dispute as provided under Section 8.

In the case of Drive India Enterprise Solutions Ltd. vs. Haier Telecom (India) Pvt. Ltd. (2018), the Bombay High Court has held that the expression “first statement on the substance of the dispute” refers to the submission of the party to the jurisdiction of the judicial authority by offering to defend the suit. Such a submission waives off the right of that party to invoke the arbitration clause as per Section 8 of the Act. Even an affidavit can be said to be the first statement unless the affidavit indicates that the defendant does not want the judicial authority to take up the issue and adjudicate upon his rights and liabilities but wants the domestic forum to decide that.

In Nemai Chandra Roy Karmakar vs. Sarada Construction (2023), the issue was whether an application under Section 8 filed along with a written statement can be considered to have been submitted before submission of the first statement on the substance of the dispute. 

In this case, the petitioner was the owner of a property and the defendant was to develop a building there with a condition to complete it within a stipulated time. Due to non-performance, the petitioner cancelled the registered power of attorney. The defendant took possession of the property, and this led the petitioner to file a title suit. Then the defendant filed an appeal. Then again, the plaintiff filed a petition under Article 227. 

The High Court directed to preserve the property under the possession of the defendant and held that no third party interest is to be created till the decision of the application of temporary injunction is pending. This led to the defendant to file an application under Sections 5 and 8 of the 1996 Act along with a written statement praying to refer the dispute to arbitration as per the terms of the development agreement. This application was allowed, and the dispute was referred to arbitration while putting a stay order to the title suit filed. 

The petitioners have contended that the application under Section 8 should have been filed before submitting the first statement on the substance of the dispute, whereas the defendant had already participated in the proceeding by filing the written statement. 

The Court held that the petitioner should have filed the application under Section 8 before the first statement, in order to waive his right to participate in arbitral proceedings. It was held that filing of an application under Section 8 with a written statement cannot lead to the presumption that the defendant has waived his right to refer the dispute for arbitration.

After going through the above-mentioned judicial precedents, it can be concluded that to constitute a statement as the first statement on the substance of the dispute, the judicial authority needs to examine the components of the statement so filed by the defendant and also the intention behind it. If the statement is of the nature that it is defending the parties against the plaint, then it would be the first statement. If there is no mention of an arbitration clause or agreement in the first statement, it is implied that the parties have submitted to the jurisdiction of the judicial authority, waiving of their right to arbitration.

Not later than the date of submitting

This expression is interpreted to mean that a time limit has been set within which the parties are supposed to invoke the concerned arbitration clause or agreement before the judicial authority. This must be done before the date of submitting the first statement. This concept can be well explained with the help of some case laws.

In the case of Anis Ahmad S/O Zahir Ahmad vs. Hongkong and Shanghai Banking (2005), it was stated that an application for referring a dispute to arbitration should be made no later than when submitting the first statement on the substance of the dispute. 

In this case, there was no mention of the existence of any arbitration clause in the application for leave to defend. The defendant at a later stage filed an appeal that the arbitration agreement should be given effect to. The Delhi High Court held that in a suit under Order XXXVII of CPC, 1908 for leave to defend, the first submission of the defendant on the substance of the dispute takes place when an application for leave to defend is filed. If the defendant has not raised the issue of the existence of an arbitration agreement between the parties in that application, then the defendant cannot be allowed to bring up the plea of the existence of an arbitration agreement after there has been substantial progress in the suit.

The case of Krishan Radhu vs. The Emmar Mgf Construction Pvt. Ltd (2016) gives an insight into the interpretation of the phrase ‘not later than the date of submitting’ before and after the 2015 Amendment. 

Three major changes, which were the result of the amendment, were highlighted in this case. One of the effects was that the amendment shortens the period by which the application under Section 8(1) is to be presented. Before the amendment, the phrase used was ‘not later than when submitting the first statement on the substance of the dispute’ whereas the amended provision uses the words ‘not later than the date of submitting the first statement on the substance of the dispute’. 

The pre-amendment provision allows the party seeking reference to arbitration to apply for such reference even while submitting his reply or written statement. This is clear from the words “when submitting” as mentioned in the pre-amendment provision which can be held to imply that the application could be done simultaneously with the filing of the written statement. Hence, if the written statement was filed and the party was seeking reference to arbitration, simultaneously, the submission of the written statement could not be construed as a waiver of the right for reference. 

Under the amended provision, the party has to invoke the arbitration clause and apply for reference by moving an application. However, the party is not required to file the written statement or any reply which presents the statement on the substance of the dispute. After the amendment, submission of a written statement or any such reply presenting such statement may be interpreted as a waiver of the right to seek reference to arbitration or as submission to or acquiescence of the jurisdiction of the court where action has been brought by the plaintiff. 

There is a limitation period provided under the amended provision of Section 8 within which the application to invoke an arbitration agreement has to be presented and such limitation period is indicated by the phrase “not later than the date of submitting”.

In the matter of SSIPL Lifestyle Pvt. Ltd. vs. Vama Apparels (India) Pvt. Ltd (2020), the Delhi High Court decided on the issues related to the time limit for filing an application under Section 8. The court clarified that the ‘written statement which is required to be filed by the defendant party in accordance with the provisions of Order VIII Rule 1 of the CPC would be the first statement on the substance of the dispute. The court proceeded to state that the limitation period for filing of the written statement under Code of Civil Procedure for non-commercial suits would be 90 days and for commercial suits under the Commercial Courts Act, 2015 would be 120 days from the date of summons. In the above-mentioned case, the party had intimated the court about the arbitration clause after the expiry of 120 days. Hence, the court rejected the reference to arbitration. 

Before this, the Supreme Court of India had stated in another case named M/s SCG Contracts India Pvt. Ltd. vs. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors (2019) that the nature of the limitation period of 120 days in commercial suits is mandatory and not discretionary.

In conclusion, it can be safe to state that Section 8 provides a time limitation for the parties to file the first statement. As mentioned above, it is 90 days for civil original suits and 120 days for commercial suits. During this period of 90 and 120 days, the parties need to apply for arbitration before the court. In case the parties fail to do so, it will be considered that they have waived off their right to arbitration. The intention behind fixing the time limit is to avoid unnecessary delay in commencing the arbitral proceedings as the sole purpose of arbitration is to provide a speedy disposal of disputes.

Obligation of the judicial authority to refer the parties to  arbitration 

The words in Section 8(1)-“Judicial authority… 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 agreement exists.” indicates that if all the conditions precedent are fulfilled, it makes the judicial authority obligated to refer the parties to arbitration, and subsequently, the jurisdiction of the civil court in the action brought before it, comes to an end.

The same was iterated in the case of Agri Gold Exims Ltd. vs. Sri Lakshmi Knits & Wovens Ltd, (2007). The issue in this case was whether there was a dispute existing between the parties. The Supreme Court noticed that the arbitration agreement entered into by the parties was of a wide amplitude and included any sort of dispute that could arise. It was stated that Section 8 is peremptory in nature and where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration as per the terms of such arbitration agreement. Finally, the court held that there was an undisputed existence of an arbitration agreement and upheld the decision of the High Court of referring the dispute between the parties to arbitration. 

As the words of Section 8(1) mention, there is an exception to the mandatory obligation of the court to refer to arbitration, which is when there is no prima facie existence of a valid arbitration agreement. If we think in simple terms, if there is no valid arbitration agreement, then the basis on which the reference is made vanishes. So then, the obligation of the court also loses its obligation. A valid arbitration agreement must be existing. Validity is important because an invalid arbitration agreement will be no less different than a non-existing one. 

In the case of Gujarat Composite Ltd vs. A Infrastructure Ltd and ors, the Commercial Court and High Court had refused reference to arbitration due to the absence of an arbitration agreement related to the subject matter of the suit. In this case, the arbitration clause was in a different agreement and the dispute arose regarding a different tripartite agreement. Since there was no arbitration clause or agreement related to the tripartite agreement, the Supreme Court upheld the view of the Commercial Court and High Court and declined the prayer for reference to arbitration. 

Sub-section (3) to Section 8 provides that the arbitration can commence or continue and the arbitral award can also be made even though an application under sub-section (1) is pending before such judicial authority. This gives authorization to carry on with the arbitration proceedings even when the matter is pending before the court, meaning thereby, that the arbitration proceedings and the court proceedings can exist and continue simultaneously.

In Punjab State Co-Operative Supply vs. Shiv Rice and General Mills and another (2000), the plaintiffs had prayed that the defendants be restrained from proceeding with the arbitration proceedings during the pendency of the suit. In this regard, the Punjab High Court held that the courts cannot restrain the defendants or the arbitrator to proceed with the arbitration proceedings. It further stated that Section 8(3) contemplates a situation where the matter is pending before the courts and still the arbitration may be commenced or continued and an arbitral award may be made. Hence, even if the concerned civil suit was pending in the civil court, the matter could be referred to arbitration and the arbitrator could proceed with the arbitration proceedings. Moreover, the aggrieved party has the remedy to challenge the award under Section 34 of the Act. 

Requirement of original arbitration agreement or its certified copy 

Section 8(2) mandates that the parties have to submit the original arbitration agreement along with the application under Section 8 in order to seek reference to arbitration. 

But there can be a situation where the party applying does not have the original arbitration agreement. Maybe the other party withholds it. 

To cover this situation, a proviso has been provided. The proviso mentions that in such a situation when the party applying for arbitration does not possess neither the original arbitration agreement nor its certified copy, and the other party has retained the agreement, it becomes the responsibility of the first party who is seeking arbitration to file a petition praying the court that the other party be ordered to produce the original agreement.

The Supreme Court in the case of N Radhakrishnan vs. M/S Maestro Engineers and Others (2009) has held that it is a mandatory requirement under Section 8(2) to file the original copy of the contractual agreement.

In the case of Magma Leasing and Finance Limited and Anr. vs. Potluri Madhavilata and Anr, (2010), the Supreme Court had emphasised the conditions which were to be satisfied for Section 8 to apply and one of the conditions mentioned was the submission of the original arbitration agreement or its duly certified copy.

The Supreme Court in Ananthesh Bhakta vs. Nayana S. Bhakta and ors (2016) has held that the interpretation of Section 8(2) has to be done in such a manner so as to mean that the court shall not consider any application filed under Section 8(1) by a party unless it is accompanied by the original arbitration agreement or its duly certified copy. However, the filing of the application without the original agreement or its certified copy will be accepted if, at a later stage of the proceedings, when the court examines the application, the original arbitration agreement is brought on record. In such a case, the application shall not be rejected.

The Karnataka High Court in Transvahan Technologies India vs. Sepson India Pvt. Ltd. (2018) stated that Section 8(2) uses the phrase “shall not be entertained”. It prohibits the entertainment of the application under Section 8(1) unless it is accompanied by the original arbitration agreement or its duly certified copy.

Again, the Patna High Court in Om Astha Construction Pvt. Ltd. vs. Axon Construction Pvt. Ltd. (2018) has held that Section 8(2) suggests that there is a restriction on entertaining an application under Section 8(1) unless such application is accompanied by an original arbitration agreement or its duly certified copy. However, there is no compulsion to produce only the original arbitration agreement, since the Section allows the production of a ‘duly certified copy’ to satisfy the requirement of Section 8(2). 

Again in the case of Alstom T&D India Ltd. vs. M/S Texcel International Pvt. Ltd (2020), the issue came before the Madras High Court whether the requirement to file the original arbitration agreement or its duly certified copy along with the application under Section 8 is mandatory or directory. In this case, it was seen from the record that the appellant neither produced the original agreement containing the arbitration clause, nor its certified copy. It was stated that Section 8(1) mandates that the applicant seeking reference to the suit to arbitral proceedings has to file the original arbitration agreement and, in its absence or inability to produce the original, the certified copy of it.

Factors to be considered before entertaining an application under Section 8 of Arbitration and Conciliation Act, 1996

Section 8 also provides the conditions precedent to its entertainment, i.e., the conditions which need to be fulfilled before a reference is made under Section 8 of the Act of 1996. Sub-sections (1) and (2) to Section 8 enumerate these conditions which are required to be fulfilled in order to refer the parties to arbitration. On the fulfilment of such conditions, it is mandatory for the court to put a stay to the court proceedings and refer the parties to arbitration.

In the case of P. Anand Gajapathi Raju & Ors. vs. P.V.G. Raju (Died) & Ors (2000) Hon’ble Supreme Court of India has pointed out the following conditions to be fulfilled- 

• There must be an arbitration agreement or an arbitration clause between the parties;
• One party to the arbitration agreement has to file a case against the other party before the judicial authority;
• The subject matter of the case so filed and the subject matter of the arbitration agreement has to be the same; 
• The defendant or any other party related to the case has to move before the Court seeking a reference to arbitration before the submission of the first statement on the substance of the dispute.

The above conditions stand true for both the pre-2015 and post-2015 amended versions of the provision. These conditions which are to be considered before entertaining an application under Section 8 are elaborated below:

Applicability to civil dispute

Applicability of Section 8 to civil disputes means whether civil disputes can be resolved by arbitration. If, in a civil dispute, there is a valid arbitration agreement involved, will that be considered by the court? In that case, will the court abide by Section 8 and refer the parties to arbitration? Or is the application only limited to commercial agreements?

To understand whether Section 8 is applicable to civil disputes, we first need to know what is a civil dispute. Civil dispute, simply means, disputes where both the parties are individuals or one party is an individual and the other is an organisation. Civil disputes are regarding rights and liabilities of individuals, and usually one person seeks remedy from the opposite party. For example, intellectual property disputes, personal injury disputes, employment or labour disputes, matrimonial disputes, etc. are all kinds of civil disputes. 

Commercial disputes, on the other hand, are related to commerce involving businesses or companies. For example, breach of contract, breach of trust, fraudulent transfers, and other such related disputes arising out of a commercial agreement can be termed as commercial disputes. It is very common to have arbitration clauses in commercial agreements, as it reduces the hassle of class action lawsuits. Hence, it is inherently accepted that Section 8 is applicable to commercial disputes. 

Let us now see what the courts have to say in this regard.

For Section 8 to apply, there is no requirement that the dispute has to be a commercial dispute. The presence of an arbitration clause in the agreement is one of the pre-requisites for application of Section 8. The Supreme Court in the case of H. Srinivas Pai and Anr. vs. H.V. Pai (D) thr. L.Rs. and Ors., (2010), has criticised the observation of the High Court that the Arbitration and Conciliation Act, 1996 would not apply to ‘civil disputes’ but will only apply to ‘commercial disputes’ or ‘international commercial disputes’. The Supreme Court has cleared that the Act applies to domestic arbitrations besides international commercial arbitrations and conciliations and said that  “the applicability of the Act does not depend upon the dispute being a commercial dispute and arbitrability depends upon the existence of an arbitration agreement, and it does not matter whether the dispute is a civil dispute or commercial dispute. There can be arbitration agreements in non-commercial civil disputes.”

The Court stated that the applicability depends upon the existence of an arbitration agreement rather than the kind of dispute, and that there can be arbitration agreements in non-commercial civil disputes as well.

Presence of an arbitration agreement

Presence of an arbitration agreement is also an essential condition under Section 8. According to Section 7 of the Arbitration and Conciliation Act, 1996, the phrase “arbitration agreement” refers to the agreement by which the parties to the agreement agree that certain disputes which have arisen or might arise between them in respect of a defined legal relationship (may or may not be contractual) will be submitted to arbitration. 

The Supreme Court in the case of Smt. Kalpana Kothari vs. Smt. Sudha Yadav and Ors., (2002), stated the importance of presence of an arbitration agreement. It was held that, “As long as the arbitration clause exists, having recourse to Civil Court for adjudication of disputes envisaged to be resolved through arbitral process or getting any orders of the nature from Civil Court for appointment of Receiver or prohibitory orders without evincing any intention to have recourse to arbitration in terms of the agreement, may not arise.” In simple terms, the Supreme Court stated that in the presence of an arbitration agreement, there is no need to take recourse to the Civil Court to adjudicate on those disputes which are supposed to be resolved through arbitration. 

The term “existence” of an arbitration agreement is connected to various factors like its validity and the arbitrability of the claims. Sometimes, there is an overlap between “existence” and “validity” of an arbitration agreement. In the case of Vidya Drolia, the court held that the arbitration agreement exists only when it is legal and valid. A void and unenforceable agreement is of no use and will not do any good. Existence of an arbitration agreement is meant to refer to an arbitration agreement that fulfils the statutory requirements of the Arbitration Act as well as the Indian Contract Act, 1872 and has to be enforceable in law.

Whether the validity of the arbitration clause can be disputed before the court

When there is an arbitration clause present, the court loses its jurisdiction over that dispute. The court cannot even examine the validity of the arbitration clause. The only option available is to refer the parties to arbitration.

This was one of the issues raised in the case of Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003). The Supreme Court in this regard held that Section 8 has a mandatory language which specifically states that when an action is brought before any judicial authority, the action being the subject matter of an arbitration agreement, the judicial authorities have to refer the parties to arbitration. It becomes an obligation for the court. It cannot decide on the matter brought before it. 

Subject matter same as that of the arbitration agreement 

Section 8 commands that the subject matter of the dispute has to be the same subject matter as that of the arbitration agreement. This is also a prerequisite condition which needs to be satisfied for reference to arbitration. The Supreme Court in Sukanya Holdings (P) Ltd v. Jayesh H. Pandya, (2003), pointed at the language of Section 8 which mentions that “in a matter which is the subject matter of an arbitration agreement”. Thus, the suit should be in respect of the matter which the parties have agreed to refer to arbitration through the arbitration agreement and is also the subject matter coming within the ambit of the arbitration agreement.

In Gujarat Composite Limited vs. A Infrastructure Limited (2023), the Commercial Court stated that as per the requirements under Section 8, the matter could be referred to arbitration only if the matter is a part of the subject-matter of the agreement. 

The Gujarat High Court stated that the tripartite agreement was between the parties and the bank, and it did not contain any arbitration clause. The tripartite agreement was an independent agreement for mortgage by deposition of title deeds.

The Supreme Court referred to the case of Sukanya Holdings and that it was stated therein that the subject-matter of the suit and the subject-matter of the arbitration agreement need to be correlated in order to fulfil the requirements under Section 8. Agreeing with the view of the Gujarat High Court that the phrase “in a matter which is the subject matter of an arbitration agreement” under Section 8 clarifies that the subject matter of the dispute should be amenable to an arbitration agreement, the Supreme Court upheld the view taken by the High Court.

Need of original arbitration agreement or its certified copy

An application under Section 8(1) requires the accompanying of the original arbitration agreement or the certified copy of it. Section 8(2) of the Arbitration and Conciliation Act, 1996, specifically mentions this requirement. The Section states that the application under Section 8(1) shall not be entertained unless the application is accompanied by the original agreement and in its absence, a duly certified copy of the original agreement. 

The Supreme Court in Magma Leasing and Finance Limited and Anr. vs. Potluri Madhavilata and Anr, (2010), Para 22, provided that “An analysis of Section 8 would show … (e) That along with the application the other party tenders the original arbitration agreement or duly certified copy thereof.”

Implied inclusion under Section 8 of Arbitration and Conciliation Act, 1996

Section 8 of the Arbitration and Conciliation Act, 1996 implies that when a party objects to the maintainability of a suit, it does not need to file an application under Section 8 separately to convince the Court regarding the non-maintainability of the suit, because the arbitration clause is considered binding between the parties. 

The case of Madhu Sudan Sharma and ors vs. Omaxe Ltd.,(2023) explains this phenomenon. In the background of the case, due to certain objections mentioned under a certain MoU being unfulfilled, the respondent filed a civil suit against the appellants to recover the money paid along with interest. The appellant applied for leave to defend the suit and the court granted a conditional leave. Later it modified the same and ordered the appellant to furnish an alternate security as well. The appellants challenged the maintainability of the suit invoking Section 8 and arguing that since there was an arbitration clause provided in the MoU, the suit is not maintainable. 

The Delhi High Court quoted Section 8 and opined that an application to refer the dispute to arbitration could not be submitted after the first statement on the substance of the dispute (the written statement). Hence, it is acceptable and well within the scope of the Act to submit an application under Section 8 with or before filing of the written statement. In this case, it was held by the Court that the appellant had raised the objection both in the application under Order XXXVII Rule 3(5) for grant of leave to defend the suit as well as in the written statement after it. Thus, it was wrongly held by the Commercial Court that the objection under Section 8 was raised beyond the limitation period.

Comparison between Section 89 CPC, 1908 and Section 8 of Arbitration and Conciliation Act, 1996

From the bare perusal of both the Sections, it may seem similar as both provide for alternate methods for dispute resolution. Section 89 of the Code of Civil Procedure, 1908, provides for settlement of disputes outside the Court. The Section promotes the usage of alternate dispute resolutions so as to lessen the burden on courts. The object is that an appropriate Alternative Dispute Resolution mechanism (ADR) is resorted to, for the resolution of the dispute at hand. The provision states that if it appears that there are elements of settlement existing and the parties are open to accept such settlement outside court, then the Court will formulate the terms of settlement, convey that to the parties for observation and then accordingly reformulate the terms for possible settlement and refer the dispute for alternate dispute resolutions. It recognizes four methods for settlement, namely:

• Arbitration,
• Conciliation, 
• Judicial settlement, which includes settlement through Lok Adalat, and
• Mediation.

For both arbitration and conciliation, the Act of 1996 provisions apply. 

Section 20(1) of the Legal Services Authority Act, 1987 shall apply regarding settlement through Lok Adalat. For other forms of judicial settlement,  the court shall refer the matter to a suitable person or institution who will be regarded as a Lok Adalat and accordingly the provisions of the Legal Services Authority Act shall be applicable as if the matter was referred to a Lok Adalat. For mediation, the Court shall proceed with a compromise between the parties.

On the other hand, Section 8 of 1996 Act mandates that the judicial authority has to refer the parties to arbitration if there is any arbitration agreement between the parties and the subject matter of the dispute brought before the judicial authority is included in the scope of that arbitration agreement.

Similarity between Section 89 CPC and Section 8 of A&C Act

Both the Sections promote the usage of ADR Mechanisms for resolution of disputes. The purpose is to combine judicial and extrajudicial methods of dispute resolution to ensure speedy and efficient justice. This not only reduces the burden on the Courts but also minimises the cost to be borne by the parties to the dispute.

Differences between Section 89 CPC and Section 8 of A&C Act

• Choice of ADR Mechanism– The most prominent difference is that the parties get to choose among the four different forms of alternative dispute resolution methods under Section 89 of CPC 1908 whereas under Section 8 of 1996 Act, the parties have to refer to arbitration only. 
• Existence of arbitration agreement– Section 89 presumes that there is no arbitration agreement existing and puts forward four alternative dispute mechanisms for the parties to choose from. Section 8 is itself based on the fact that there is an arbitration agreement existing and the subject matter of the dispute before the court is within the scope of the arbitration agreement, hence, that dispute is to be resolved by referring it to arbitration only. The court cannot interfere and neither can it give a choice. It becomes mandatory and the same is evident from the usage of ‘shall’ in the provision.
• Consent– Under Section 89, both parties need to consent mutually for referring the dispute to any of the ADR mechanisms provided. Under Section 8, only one party needs to apply to refer the dispute to arbitration and the Court will be bound to refer due to the presence of an arbitration agreement.

Grounds for rejection of the application under Section 8 of Arbitration and Conciliation Act, 1996 

As discussed above, there are certain condition precedents which are required to be satisfied. In case any of those conditions are unfulfilled, an application under Section 8 does not stand. In addition to this, there are grounds, subject to which, a judicial authority can reject an application under the said section. The grounds are as follows:

1. Before submitting the first statement on the substance of the dispute, the party waives his right to invoke the arbitration clause.
2. It is the opinion of the judicial authority that no sufficient relief will be obtained by the party.
3. The judicial authority is satisfied that no contract has been made between the parties.
4. The contract itself is fraudulent.
5. The main contract is void ab initio or illegal or non-existent.
6. The suit or claim is based on Hundies or on Negotiable Instruments.
7. The dispute regarding which action is brought is outside the scope of the arbitration agreement.
8. The applicable law prohibits arbitration of the subject matter of the dispute which is brought. For example, if it concerns public policy, then it cannot be referred to arbitration.
9. An essential precondition or prerequisite to refer the matter to arbitration has not been fulfilled by either or both the parties.
10. The arbitration agreement does not exist between the parties.

Remedies against rejection of an application under Section 8

Section 37 of the 1996 Act in its clause (a) of sub-section (1) states that appeal lies in the cases when order of refusal to refer the parties to arbitration under Section 8 is passed. Such appeals can be made to the courts which are authorised by law to hear appeals.
The Delhi High Court in Arun Srivastava vs. M/S Larsen & Toubro Ltd (2021), in this regard, has opined that for refusal of application under Section 8, statutory remedy of appeal is available under Section 37 of the Act but no remedy has been provided for the situation when the application under Section 8 is allowed. The reason behind, being the fact that the intention of enacting the Act is to give opportunity to the party to raise the existence and validity of the arbitration agreement before the Arbitral Tribunal and thus the orders passed by the court allowing the applications under Section 8 has been given finality.

Applicability of Limitation Act to Section 8

Section 43(1) of the Arbitration and Conciliation Act mandates that The Limitation Act, 1963 shall apply to arbitration proceedings. However, Section 8 itself provides a limitation period for its purpose. 

Before the Amendment of 2015 to the Act, the Supreme Court in the case of Booze Allen & Hamilton Inc. vs. SBI Home Finance Ltd. and Ors had held that the limitation period was not applicable to Section 8 and that the written application was to be filed at the earliest.

Post 2015 Amendment, the Section read “if an action relating to the subject matter of an arbitration agreement has been brought before the judicial authority by a party not later than the date of submitting his first statement….” – from this it can be presumed that the date of filing of the written statement can be regarded as the limitation period.

This decision of Booze’s case was contradicted in SSIPL Lifestyle Pvt. Ltd. vs. Vama Apparels (India) Pvt. Ltd, (2020), where the Delhi High Court ruled that an application under Section 8 of 1996 Act is governed by limitation period as prescribed under The Code of Civil Procedure, 1908 or The Commercial Courts Act 2015. In this case, the parties had entered into an agreement according to which SSIPL was to supply Vama Apparels products for sale. The agreement contained an arbitration clause apart from mentioning other contractual obligations of the parties. Disputes arose between the parties. SSIPL terminated the agreement. There was continuous correspondence between the parties including notice for cheque dishonour. Suit was filed seeking recoveries. Summons were issued and time was provided to file a written statement. Vama moved applications under Section 8 and prayed to seek reference to arbitration as per the presence of arbitration clause in the agreements.

The issue before the Delhi High Court was whether there is an existence of limitation period for filing the application under Section 8 and whether the limitation period prescribed under CPC and the Commercial Courts Act would be applicable to Section 8.  The court held that under the unamended provision, Section 8 application could have been moved at any time before filing of the written statement. The amendment was a conscious step towards prescribing a limitation period for filing the application under Section 8. 

Case laws

Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums (2003)

Facts 

The appellant is a company engaged in the business of manufacture, sale and distribution of petroleum products. They appointed the respondent as a dealer to sell their products through a retail outlet in Haryana. The appointment is governed by a Dealership Agreement executed by the parties. Clause 30 of the agreement empowered the appellant to cease the supply of its products to a dealer for a period it deems fit, if there is a breach of any of the conditions contained in the agreement. 

The appellant contended, besides other contentions, that the officers, in the exercise of their power of inspection, discovered that there was short delivery of Motor Spirit (MS) and High Speed Diesel (HSD) in the dispensing units of the respondent, and also that there were tamperings with weights and measurement seals in the HSD dispensing units. Based on this, the appellant stated that they had issued a show cause notice to the respondent. 

The respondent submitted its reply. The appellant not being satisfied with the received reply, suspended the sales and supply of petroleum products for 30 days. Additionally, it levied a penalty of Rs.15,000/- for the mentioned irregularities committed by the respondent.  Being aggrieved by such stoppage of supply of products, the respondent filed a Civil Suit. The respondent also filed an application under Order 39 Rules (1) and (2) of the CPC for ad-interim stay. Learned Civil Judge stayed the suspension of supplies by the appellant and regarding the penalty, no stay was granted. 

In reply, the appellant filed an application under Section 8 read with Section 5 of the Act praying that the dispute pending before the Civil Court be referred to the arbitrator as per Clause 40 of the Dealership Agreement. For this, the appellant enclosed a copy of the agreement. The learned Civil Judge dismissed the application. The Judge held that the dispute between the parties was outside the scope of the arbitration agreement.  A revision application was filed by the appellant in the High Court which was dismissed. Hence, the appellants appealed before the Supreme Court.

Issues 

1. Whether the court was justified in deciding on the existence or validity of the arbitration agreement?
2. What is the role of the Civil Court given the fact that the arbitration clause does not apply to the facts of the present case?

Judgment

• The Supreme Court stated that as per the Clause 40, the parties had agreed to refer any dispute arising out of the agreement to an arbitrator as mentioned in the agreement. Section 8 clearly mandates that when an action is brought before a judicial authority, the action being the subject matter of an arbitration agreement, the judicial authority has to refer the parties to arbitration. 

The Court referred to the case of P. Anand Gajapathi Raju & Ors. v. P. V. G. Raju (Dead) & Ors., (2000), wherein it was held that “the language of Section 8 is peremptory”. Thus, when there is an arbitration agreement, it becomes an obligation of the court to refer the parties to arbitration as per the terms of the arbitration agreement that the parties entered into. The court cannot decide on the matter brought before it. 

In the given case, there was an existence of an arbitration clause (Clause 40) and this fact has been accepted by both the parties as well as the courts. Despite this, the respondents had filed a civil suit and such dispute was entertained by the civil court. In this regard, the Supreme Court reiterated that the existence of an arbitration clause is accepted by all and considering the mandatory language of the Section 8 of the Act of 1996, the courts ought to have referred the dispute to arbitration.

• Regarding the role of the Civil Court when an argument is made that the arbitration clause does not apply to the facts of any case, the Supreme Court referred to Section 16 of the Act of 1996 which empowers the Arbitral Tribunal to rule on its own jurisdiction. This includes ruling on any objection regarding the existence or validity of the arbitration agreement. 

The Court referred to the case of Konkan Railway Corporation Ltd. & Anr. v. Rani Construction Pvt. Ltd. (2002) and stated that the Constitution Bench in this case interpreted Section 16. It was held that if there is any objection regarding the applicability of the arbitration clause to the facts of a case, such an objection has to be raised before the appropriate Arbitral Tribunal. Applying this rule in the present case, the courts should not have proceeded with analysing the applicability of the arbitration clause to the facts of the case but should have left the issue to be decided by the concerned Arbitral Tribunal. The same is stated under Clause 40 of the Dealership Agreement and is also in consonance with the requirement under Section 8 and Section 16 of the Arbitration and Conciliation Act, 1996. 

H. Srinivas Pai and Anr. v. H.V. Pai (D) thr. L.Rs. and Ors. (2010)

Facts 

The first respondent filed a suit for partition in 1991. In that suit, the appellant filed a stay application for proceedings under Section 34 of Arbitration Act, 1940. The stay application was dismissed. The appeal and the further revision filed by the appellant were also dismissed. The suit continued to be pending and the appellant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the matter for arbitration. The application under Section 8 was dismissed by the Trial Court. 

Aggrieved, the appellants filed a revision. The Division Bench dismissed the application under Section 8. Then, the appellant filed a review petition, which was also dismissed. Hence, the order of dismissal of the Division Bench and the order of dismissal of the review petition were challenged by a special leave appeal.

Issues 

While dismissing the application of the appellant under Section 8, the High Court had stated that the Act in its Section 1(2) provides that application of the Act is limited to the disputes relating to international commercial arbitration or international commercial conciliation. Thus, the Act is restricted to only commercial agreement matters and international commercial matters. Since, the present case is essentially a ‘civil dispute’ as the respondent had claimed a right in a suit for partition in joint family properties, the provisions of the Act of 1996 are not applicable. Hence, the question arose that whether the Arbitration and Conciliation Act, 1996 apply to ‘civil disputes’ or the application is restricted as provided in the statute?

Judgment

The Supreme Court dismissed the observation made by the High Court. The High Court had stated that the Arbitration and Conciliation Act, 1996 would not apply to ‘civil dispute’ and will only apply to commercial disputes or international commercial disputes. The Supreme Court stated that the Act applies to domestic arbitrations, international commercial arbitrations and conciliations. The applicability does not depend on whether the dispute is a commercial dispute or not, what matters is that there is an existence of an arbitration agreement. The dispute can be a civil or commercial dispute- as long as it has an arbitration agreement, reference can be made to arbitration. There can be arbitration agreements in non-commercial, civil disputes as well.

Coming to the case, the application under Section 34 was dismissed, then later, affirmed in appeal, and then attained finality. Thus, an attempt by the appellants to refer the matter to arbitration by submitting an application under Section 8 subsequently was rightfully refused by the Trial Court and the High Court. Considering this, the appeals were disposed of and the dismissal by the High Court was not interfered with.

However, the observation of the High Court regarding the applicability of the 1996 Act to only ‘civil disputes’ was set aside. 

Hero Electric Vehicles Private Limited v. Lectro E-Mobility Private Limited (2021)

Facts

The facts of the case revolved around a Family Settlement Agreement (FSA). The 7th Schedule of the Agreement divided the family into four groups. As per the agreement, any dispute which might arise out of or in connection with the agreement (FSA) was to be resolved through arbitration. 

Then, a TradeMark and Name Agreement (TMNA) was executed between the parties in 2010 which granted the right to use the Hero Trademark and its variants among the family groups, in relation to their conducted businesses. 

The plaintiff asserted that as per the TMNA, the exclusive right to use the trademark “Hero”, “Hero Electric ”, and its variants, on all the electric vehicles, was conferred on them. 

Later, Hero Exports incorporated Hero Electric Vehicles Pvt. Ltd.  for their electric vehicle business. Its products were sold under the trademark of Hero Exports. The defendants used the Hero Trademark for their electric bicycles. 

Then, a dispute arose which was referred to arbitration as there was an arbitration clause present. The previous arbitration award held that electric cycles do not fall under the category of electric bikes and the plaintiff cannot claim its exclusive rights. 

Thus, the plaintiffs sought for a permanent injunction to restrain the defendants from using Hero Trademark. The defendants, on the other hand, argued that the matter should be adjudicated through arbitration.

Issues

Whether Intellectual Property (IP) disputes could be resolved by arbitration?

Judgement

The Delhi High Court referred to the Vidya Drolia case and stated that, to prevent arbitration, the cause of action has to be entirely non-arbitrable. The court in the present needs to establish two things. Firstly, that there is the existence of a valid arbitration agreement. Secondly, that the subject matter of the dispute is arbitrable.

It was highlighted that the disputes between the parties are ex-facie arbitrable in nature as seen from the perspective of the two agreements. The dispute did not fall under the categories of dispute under the arbitral umbrella. The dispute was between two family groups regarding the rights arising from the FSA and TMNA, and not from the Trade Marks Act. The two agreements were not meant to be in relation to the whole world, but it was restricted to the family groups, making it exist solely in personam. 

Thus, the dispute was a contractual dispute. Moreover, the FSA and TMNA had a valid arbitration agreement. Thus, it was concluded that the dispute was not regarding some case of infringement, but it was ex-facie arbitrable in nature. The Court, deciding that it would be appropriate for the petitioner to present the plaint before the Arbitrator, referred the suit to arbitration.

Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund (2021)

Facts

Indus Biotech Pvt Ltd and Kotak India Venture entered into a few Share Subscription Agreements and Share Purchase Agreements for subscription of Optionally Convertible Redeemable Preference Shares in Indus. The Indus Group took the decision of making a Qualified Initial Public Offering (IPO). Due to that, Kotak Group was also obligated to convert their preference shares into equity shares complying with the SEBI Regulations of 2018. 

Then, dispute arose between the parties regarding-

1. The calculation and application of the conversion formula which was to be applied to convert preference shares into equity shares, and, 
2. The payment which was to be made by the Indus Group for the conversion. 

Indus Group alleged that the Kotak Group was entitled to 10% of the total paid up share capital and the Kotak Group maintained that they are entitled to 30% of the total paid up share capital. 

Indus Group invoked the arbitration clause and nominated an arbitrator. But owing to the dispute between the parties, the Arbitral Tribunal could not be formed. Indus Group approached the Supreme Court under Section 11 of the Act of 1996 seeking appointment of arbitrator from the side of Kotak Group. Kotak Group filed an application under Section 7 of the Insolvency and Bankruptcy Act before the National Company Law Tribunal of Mumbai seeking initiation of insolvency proceedings against Indus Group for default of payment. 

Indus Group filed an application under Section 8 of the Arbitration and Conciliation Act praying that the parties be referred to arbitration as the agreement contained an arbitration clause. The Tribunal allowed the Section 8 application of Indus Group and referred the matter to arbitration. It also stated that since the conversion process was yet to be completed, there is no debt and thus no default on the part of the Indus Group. 

This judgement was challenged in the Supreme Court.

Issues

1. Whether a direct appeal to the Supreme Court was the only remedy available?
2. Whether there was any existence of a debt in this case?
3. Is the issue arbitrable under the Act of 1996?

Judgement

• The Supreme Court decided in negative, inferring that, since the application under Section 7 was rejected and the application under Section 8 was allowed, there was a remedy available, that is, to appeal before the National Company Law Appellate Tribunal in accordance with Section 61 of the Insolvency and Bankruptcy Code.
• The Supreme Court agreed with the National Company Law Tribunal and proceeded to hold that since the process of calculation and share conversion was yet to be completed and was in the middle of its process, the parties were still deliberating on it, hence it cannot be said there was any ‘debt’ due and thus, there is no existence of any ‘default’.
• The Supreme Court referred to the case of Vidya Drolia vs. Durga Trading Corporation (2019), and the test laid therein. The court further mentioned that non-arbitrable disputes include insolvency matters, grant of patent and trademark, criminal matters, company related matters, matrimonial disputes, testamentary and probate related disputes. The Court clarified that mere filing of an application under Section 7 of IBC does not amount to proceeding in rem. Again relying on Section 238 of IBC, the Court stated that if an application under Section 8 of Act of 1996 is filed in a proceeding initiated under Section 7 of IBC, the Tribunal has to decide the application under Section 7 first. And if the application under Section 7 is allowed, and the insolvency proceeding is initiated, then the proceeding becomes in rem, and non-arbitrable. If it is found that there is no default and the application under Section 7 is dismissed then, the Tribunal need not decide the application under Section 8 because then the parties can avail the alternate remedies available. 

In the light of these observations, the Supreme Court upheld the rejection of insolvency application by the National Law Company Tribunal. On the other hand, the Court also provided that the Tribunal should not have allowed the application under Section 8. The court then proceeded with the nomination of arbitrators and constitution of arbitral tribunals.

This judgement settled an important question of law by mandating that an application under Section 8 of Arbitration and Conciliation Act is not maintainable in insolvency proceedings under Section 7 of IBC. 

Madhu Sudan Sharma and Ors v. Omaxe Ltd (2023)

Facts

The appellants and defendants entered into a Memorandum of Understanding (MoU), under which 29 bighas of land owned by the respondents were to be acquired by the appellants. The respondents paid the amount to the appellants. The MoU stated that if the appellant failed to obtain the required permissions from statutory authorities in respect of the land, the MoU will stand terminated at the option of the respondent and the amount paid by the respondent will be refunded by the appellants with the costs, expenses and all other charges. 

The respondents’ contention was that the appellants did not fulfil their obligations despite  the respondent’s requests and thus, the appellant is liable to refund the amount paid by the respondent. The appellant provided a cheque which was dishonoured by the bank, and due to this the respondent initiated a suit against the appellant under Order XXXVII of the CPC 1908 seeking the recovery of the amount paid by the respondent with interest. 

The Delhi High Court, by order dated 7 May 2010, granted conditional leave to the appellants. The order was upheld in the appeal by the Division Bench through their order dated 27 September 2011 with the modification that the appellant has to furnish some alternate security along with furnishing of the bank guarantee. The appellant furnished the alternate security, but it was provided beyond the time limit as allotted by the Division Bench. Due to the late furnishing, it was opined by the Court that the condition subject to which the leave was granted was not complied with and decreed the suit. 

The appellants challenged the judgement and decree before the Division Bench. The Division Bench allowed the withdrawal of the appeal by the appellants and allowed the appellants to approach the Single Judge for review of the order. The appellants filed a review petition before the Single Judge which was dismissed. The appellants then challenged this order before the Division Bench and the appeal was allowed. The suit was decreed on 15 July 2019 and the defendants appealed against it.

Issues

1. Whether the plea of objection was raised belatedly?
2. Whether there was compliance with Section 8?
3. Whether the appellant waived the objection?
4. Whether the judge was wrong in proceeding to decide the suit on merits as the objection by the appellants was based on Section 8 of the Arbitration and Conciliation Act, 1996?

Judgment

1. The Delhi High Court held that according to Section 8, the first statement on the substance of the dispute includes the written statement. Thus, before the written statement, if an objection is raised in the application for leave to defend, it cannot be considered to be late. Section 8(1) of the Act of 1996 requires an application of the first statement of defence on the substance of the dispute to be made by the Section 8 applicant before the date of submission. 

In the present case, the appellants had taken objection both in an application under Order XXXVII Rule 3(5) for grant of leave to defend the suit as well as in the written statement after it. Thus, the Delhi High Court held that the Commercial Court was clearly wrong in holding that the objection under Section 8 was raised at a later stage than as provided in the provision. The appellant’s objection has been wrongfully rejected on the ground that it was raised late.

2. The appellant’s extraction of the arbitration clause was indicative enough of the fact that the appellants have relied on it. It is not needed that the appellants reproduce the clause separately. Hence, the fact that the appellants did not request for reference to arbitration separately is of little importance. The appellants extracted the clause and relied on it, and also contested the maintainability of the suit on the basis of the arbitration clause- this clearly shows their intention to refer the dispute to arbitration. It will not be correct to hold that because a separate request was not made, there is no compliance with Section 8(1) of the Act of 1996. 

The Division Bench in Sharad P. Jagtiani v. Edelweiss Securities Ltd, (2014), had held that even when there is no specific request to refer the dispute to arbitration, raising of an objection to the effect that the suit is not maintainable considering the presence of an arbitration clause- will be taken as an implied request to refer the dispute to arbitration.

Thus, the position in law is that the requirement of making an application seeking to refer the disputes between the parties to arbitration as provided in Section 8(1) is a requirement of form rather than of substance. The basic requirement is that there should be a valid and subsisting arbitration agreement between the parties. The absence of a separate formal request to refer the dispute to arbitration makes no difference. 

3. In this case, the appellants presented a specific objection based on Section 8 in the application under Order XXXVII Rule 3(5) seeking leave to defend the suit. Again, the same objection was reiterated in the written statement. Again, it was mentioned in the arguments before the ADJ. Hence, it could not be said that the appellant waived the objection.
4. When an objection is raised based on Section 8, along with the existence of an arbitration agreement, the Court ipso facto loses its jurisdiction to continue to entertain the suit. In the case of Sukanya Holdings (P) Ltd v. Jayesh H. Pandya, (2003) and A. Ayyasamy v. A. Paramasivam, (1989), it was held that if there is an arbitration agreement between the parties and the defendant has invoked Section 8 in a suit, the Civil Court has to refer the dispute to arbitration. It cannot continue with the suit on its own. 

Gujarat Composite Limited v. A Infrastructure Limited (2023)

Facts

The appellants and respondents entered into licence agreements for licensing the operation of the appellant’s manufacturing units. Then, both the parties executed a supplementary agreement for advancing a certain sum to the appellant. It was also agreed that the respondent would be permitted to create a mortgage on the licensed manufacturing units to secure that advance. 

Then, a tripartite agreement was executed between the parties and a bank, whereby the bank sanctioned a loan amount to the respondent. An amendment was introduced to the tripartite agreement which restricted the transfer of title deeds of the land of the appellant during the subsistence of the licence agreement. 

Then, a dispute arose when the appellant was called upon to extend the term of the licence agreement. The appellant denied. The extension was applied for because of the inability of the appellant to pay certain dues owed to the respondent. The tenure of the agreement ended yet the respondent did not return the possession and declared that it will continue with the possession. The appellant issued a notice claiming recovery of possession and monetary dues on the basis that the tenure of the agreement had ended and hence the possession was illegal.

The arbitration clause under the licence agreement was invoked by the appellant and the respondent questioned the arbitrability of the dispute since it was related to other transactions and the arbitrator only had jurisdiction on matters related to the original agreement, hence, the adjudication of the dispute would be beyond the scope of the agreement.

Issues

Whether the issues raised in the case were beyond the licence agreement for the application of Section 8.

Judgement

The Supreme Court held that except the original licence agreement, the other additional agreements did not possess any arbitration clause. The contractual relationship between the parties established from the existence of the original licence agreement. Since the dispute arose from the tripartite agreement, it cannot be held that the arbitration clause from the main agreement is available for disputes arising from the tripartite agreement. 

Thus, it was concluded that since there is no arbitration agreement relating to the subject matter of the suit, and the reliefs claimed there are outside the arbitration clause, reference to arbitration under Section 8 cannot be made.

Conclusion

Section 8 of the Act of 1996 restricts judicial intervention in the process of arbitration. There has been a catena of judicial precedents which have made it clear enough, that, when there is an existence of a valid arbitration agreement or an arbitration clause between the parties, and one of the parties to the dispute informs the judicial authority of such existence, then it is imminent that the parties will take the matter to arbitration. Nothing can change that.

The Section also makes the Court powerless and bars it from adjudicating on the matter in any way, the Court or the judicial authority is obliged to refer the parties to arbitration. The intention of the legislature behind enacting such a provision is to motivate more parties to choose arbitration as a method to resolve their disputes.

Frequently Asked Questions (FAQs)

Is the power of judicial authority to refer the parties to the arbitration a discretionary power?

No, the power vested in the judicial authority by virtue of Section 8 of the arbitration and conciliation act, 1996 is obligatory.

When did the 2015 Amendment come into force?

23rd October 2015

Can the arbitration clause cease to operate after the termination of the agreement between the parties by mutual consent?

No, the arbitration clause remains operative even after the termination of the agreement.

Does Section 8 apply to civil disputes?

Yes. As long as there is an arbitration agreement existing, Section 8 will apply, regardless of whether the dispute is civil or commercial. The applicability depends on the existence of an arbitration agreement or arbitration clause, not the type of dispute.

Can the validity of the arbitration clause be disputed before the Court?

No. When an action is brought before any judicial authority, the action being the subject matter of an arbitration agreement, the authority is obliged to refer the parties to arbitration. It cannot adjudicate on the matter by itself. Even the validity of the arbitration agreement is to be disputed before and decided by the concerned Arbitral Tribunal.

References 

• Universal’s The Arbitration and Conciliation Act, 1996 Bare Act
• https://legalserviceindia.com/legal/article-10272-judicial-authority-to-refer-the-parties-to-arbitration-section-8-of-arbitration-and-conciliation-act-1996.html#google_vignette 
• https://www.mondaq.com/advicecentre/content/2786/Section-8-Of-The-Arbitration-And-Conciliation-Act-1996-A-Saving-Beacon#:~:text=Section%208%20of%20the%20Arbitration%20and%20Conciliation%20Act%2C%201996%20is,parties%20to%20go%20for%20arbitration 
• Central Law Publications Arbitration and Conciliation Act,1996-S.C Tripathi
• https://deliverypdf.ssrn.com/delivery.php?ID=570005095083087096000000096065018104100051081067090053088027122105127021070073086070039012044061104010048121010126097094086121019053041013058002011009009094070005074002039063116084125074101022127099022016102090066117028117082082064082113113107000127090&EXT=pdf&INDEX=TRUE
• https://www.lexology.com/library/detail.aspx?g=aac90152-2557-4f1b-8832-cbdaf8184d22 
• https://www.ebc-india.com/lawyer/articles/852.htm 
• https://main.sci.gov.in/judgments
• https://www.livelaw.in/pdf_upload/chs06112023rfa8232019165823-503567.pdf 
• https://www.mondaq.com/india/arbitration–dispute-resolution/494184/critical-analysis-of-the-arbitration-and-conciliation-amendment-act-2015 
• https://singhania.in/blog/highlights-of-amendment-to-the-arbitration-and-conciliation-act-1996-via-arbitration-ordinance-2015 
• https://www.mondaq.com/india/arbitration–dispute-resolution/1082792/maintainability-of-application-under-section-8-of-arbitration–conciliation-act-1996-in-an-insolvency-proceeding 
• https://www.vaishlaw.com/non-signatories-to-an-arbitration-agreement-can-be-made-parties-to-an-arbitration-proceeding/#:~:text=The%20Supreme%20Court%20held%20that,be%20bound%20by%20the%20arbitration 
• https://www.mondaq.com/india/trials-amp-appeals-amp-compensation/1345502/hsa-%7C-dispute-resolution–arbitration-monthly-update-%7C-july-2023- 
• https://www.mondaq.com/india/trademark/1073458/hero-electric-v-lectro-e-mobility-arbitrability-of-ip-disputes 
• https://readcube.com/articles/10.2139/ssrn.3371393 

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