The change in the language of Section 8(1) of the A&C Act ismaterial. Whereas prior to the 2015 Amendment, Sub-section (1) of Section 8 of the A&C Act used the expression “not later than when submitting his first statement on the substance of the dispute”. Subsection (1) of Section 8, as substituted, uses the expression “not later than the date of submitting his first statement on the substance of the dispute”. The legislative intent to introduce the words “not later than the date of” clearly stipulates a framework of time within which an application under Section 8(1) of the A&C Act can be made. {Para 22}
25. As stated above, a written statement would also fall within the sweep of expression “statement on the substance of the dispute” as used in Section 8(1) of the A&C Act. The introduction of the expression “the date of” in the context of the suit would necessarily have to be co-related with the time available or granted for filing of a written statement. The legislative intent of introducing the expression “the date of”, when read with the contemporaneous amendments to Order VIII Rule 1 of the CPC by virtue of the Commercial Courts Act, 2015, is quite clear; it is to introduce the precise time frame within which an application under Section 8(1) of the A&C Act could be filed.
26. Resultantly, if a party fails to file an application under Section 8(1) of the A&C Act for referring the parties to arbitration within the time available or granted for filing the first statement on the substance of the dispute (which would include a written statement in the context of a suit), the party would forfeit its right to apply under Section 8(1) of the A&C Act.
IN THE HIGH COURT OF DELHI AT NEW DELHI
FAO(COMM) 81/2022 and CM No. 24865/2022
M/S SPML INFRA LTD. Vs M/S. TRISQUARE SWITCHGEARS
PVT. LTD.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
HON'BLE MR. JUSTICE AMIT MAHAJAN
Author: VIBHU BAKHRU, J.
Judgment delivered on: 6th July 2022
1. The appellant has filed the present appeal impugning an order
dated 28.03.2022 (hereinafter ‘the impugned order’) passed by the
learned Commercial Court rejecting the appellant’s application filed
under Section 8 of the Arbitration and Conciliation Act, 1996
(hereinafter ‘the A&C Act’). The learned Commercial Court had
declined to refer the parties to arbitration on the ground that the
appellant had filed the said application after the statutory period to file
the written statement had expired and the appellant’s right to do so
was closed. In addition, the learned Commercial Court also observed
that the proceedings indicated the appellant’s intention to participate
in the same.
2. It is the appellant’s case that it had no intention to participate in
the proceedings before the learned Commercial Court or to waive its
right to refer the subject disputes to arbitration.
3. The principal question that is required to be addressed is
whether a party forfeits its right to file an application under Section 8
of the A&C Act on expiry of time to file the written statement of its
defence.
4. Briefly stated, the relevant facts necessary to address the
controversy in the present appeal are as under: -
4.1 The respondent (plaintiff) has filed the suit for recovery and
claiming a decree against the appellant (defendant) for a sum of
₹15,60,000/- along with pendente lite and future interest at the rate of
18% per annum as well as costs. The plaintiff claims that it had
supplied goods and raised invoices for a value of ₹1,06,32,953/-.
Against the aforesaid amount, it had received an aggregate amount of
₹97,17,481/- till 31.03.2015. It had received a further payment of
₹1,146/- on 18.04.2015. Thus, a balance amount of ₹10,20,477/-
remains outstanding and payable.
4.2 In its plaint, the plaintiff claims that it is entitled to the said
amount along with interest at the rate of 18% per annum from
18.04.2015 till filing of the plaint on 26.03.2018 computed at
₹5,39,700/-. Thus, in aggregate, the plaintiff claims that it was entitled
to a sum of ₹15,60,177/- inclusive of interest till the date of filing of
the suit, which is rounded off to ₹15,60,000/-.
4.3 The said suit was listed before the learned Commercial Court on
11.04.2018 and a copy of the plaint and other documents were
provided to the learned counsel for the defendant (the appellant
herein). The learned Commercial Court granted one month’s time to
file the Written Statement and listed the suit for further proceedings on
29.07.2018. The appellant failed to file the Written Statement within
the specified period and the matter was adjourned. It was again listed
on 03.11.2018. On that date, the learned Commercial Court noted that
the appellant had not filed the Written Statement and the time for
doing so had expired. Accordingly, the learned Commercial Court
closed the right of the appellant to file the Written Statement and relisted
the matter for the plaintiff’s evidence on 29.01.2019.
4.4 The plaintiff (the respondent) filed an affidavit of its witness
and a copy of the same was also provided to the appellant. However,
since the representative of the plaintiff (the respondent) had not
brought the original documents to court on 29.01.2019, the learned
Commercial Court adjourned the matter to 18.04.2019.
4.5 At this stage, the appellant has filed an application under
Section 8 of the A&C Act. The appellant relied upon the dispute
resolution clause as included in the Purchase Order dated 01.04.2018
and sought reference of the subject disputes to arbitration.
5. Mr Khurana, learned counsel appearing for the appellant,
submitted that the learned Commercial Court had relied upon the
decision of a Single Bench of this Court in Anil Mahindra & Anr. v.
Surender Kumar Makkar & Anr.1 and on the strength of the said
decision, rejected the appellant’s application under Section 8 of the
A&C Act. He submitted that the said decision was rendered in a
petition filed under Article 227 of the Constitution of India and the
Court had declined to interfere with the orders passed by the learned
Trial Court without examining the language of Section 8 of the A&C
Act. He further referred to another decision of the Single Bench of this
Court in Hughes Communication India Ltd. & Ors. v. Union of
India2 and drew the attention of this Court to paragraph 27 of the said
judgment, wherein the Court had noted that the decision in Anil
Mahindra’s3 case was rendered without noting that Section 8 of the
A&C Act did not permit any such interpretation and therefore, the
same was not a binding precedent. He submitted that the learned
Commercial Court had erred in following the said decision.
6. In fairness, the learned counsel also referred to the decisions of
a Single Bench of this Court in SSIPL Lifestyle Private Limited v.
12017 SCC OnLine Del 11532
22018 SCC OnLine Del 10879
3Supra Note 1
Vama Apparels (India) Private Limited & Anr.4 and the decision in
the case of Krishan Radhu v. The Emmar MGF Construction Pvt.
Ltd.5, wherein the Court had taken different view in the context of
Section 8 of the A&C Act as amended by virtue of the Arbitration and
Conciliation (Amendment) Act, 2015. Further, he also referred to the
decision of a Single Judge of this Court in Shri Chand Construction
and Apartments Private Limited &Anr. v. Tata Capital Housing
Finance Ltd.6.
7. Prior to enactment of the A&C Act (Arbitration and
Conciliation Act, 1996), the law relating to arbitration was embodied
in the Arbitration Act, 1940. Section 34 of the said Act empowered the
court “to stay legal proceedings where there is an arbitration
agreement”. Section 34 of the said Act is relevant and reproduced
below:
“34. Power to stay legal proceedings where there is an
arbitration agreement.— Where any party to an
arbitration agreement or any person claiming under him
commences any legal proceedings against any other
party to the agreement or any person claiming under him
in respect of any matter agreed to be referred, any party
to such legal proceedings may, at any time before filing
a written statement or taking any other steps in the
proceedings, apply to the judicial authority before which
the proceedings are pending to stay the proceedings; and
if satisfied that there is no sufficient reason why the
matter should not be referred in accordance with the
arbitration agreement and that the applicant was, at the
42020 SCC OnLine Del 1667
52016 SCC OnLine Del 6499
62020 SCC OnLine Del 472
time when the proceedings were commenced, and still
remains, ready and willing to do all things necessary to
the proper conduct of the arbitration, such authority may
make an order staying the proceedings.”
8. In terms of Section 34 of the Arbitration Act, 1940, a party was
entitled to apply to the court/judicial authority before which the legal
proceedings were pending to stay the proceedings “at any time before
filing a written statement or taking any other steps in proceedings”.
The courts had interpreted the expression “other steps in the
proceedings” to mean “such steps as would manifestly display an
unequivocal intention to proceed with the suit and to give up the right
to have the matter disposed of by arbitration”7.
9. The Supreme Court had also explained the expression “taking
any ‘other steps in the proceedings’ does not mean that every step in
the proceedings would come in the way of enforcement of the
arbitration agreement. The step must be such as would clearly and
unambiguously manifest the intention to waive the benefit of
arbitration agreement”8.
10. The A&C Act replaced the Arbitration Act, 1940. The A&C
Act is based on the UNCITRAL Model Law. Article 8 of the
UNCITRAL Model Law reads as under: -
“Article 8. Arbitration agreement and substantive claim
before court (1) A court before which an action is
brought in a matter which is the subject of an
arbitration agreement shall, if a party so requests not
7Food Corpn. of India v. Yadav Engineer & Contractor: (1982) 2 SCC 499
8RachappaGurudappaBijapur v. GurudiddappaNurandappa: (1989) 3 SCC 245
later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration
unless it finds that the agreement is null and void,
inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this
article has been brought, arbitral proceedings may
nevertheless be commenced or continued, and an award
may be made, while the issue is pending before the
court.”
11. Section 8 of the A&C Act, as enacted, was somewhat similar to
Article 8 of the UNCITRAL Model Law and reads as under:
“8. Power to refer parties to arbitration where there is
an arbitration agreement.–
(1) A judicial authority before which an action is
brought in a matter which is the subject of an
arbitration agreement shall, if a party so applies not
later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall
not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy
thereof.
(3) Notwithstanding that an application has been made
under sub-section (1) and that the issue is pending
before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.”
12. It is clear from the above that Section 8 of the A&C Act did not
prescribe any specific time for filing an application under Section 8 of
the A&C Act for referring the parties to arbitration. It merely provided
that such application ought to be moved not later than submission of
the first statement on the substance of the dispute.
13. In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. &
Ors.9, one of the questions that fell for consideration before the
Supreme Court was whether an application under Section 8 of the
A&C Act was liable to be rejected on the ground that it was filed
almost twenty months after the defendant had entered appearance in
the suit. The Court answered the question as under: -
“19. Though Section 8 does not prescribe any time
limit for filing an application under that section, and
only states that the application under Section 8 of the
Act should be filed before submission of the first
statement on the substance of the dispute, the scheme
of the Act and the provisions of the section clearly
indicate that the application thereunder should be made
at the earliest. Obviously, a party who willingly
participates in the proceedings in the suit and subjects
himself to the jurisdiction of the court cannot
subsequently turn round and say that the parties should
be referred to arbitration in view of the existence of an
arbitration agreement. Whether a party has waived his
right to seek arbitration and subjected himself to the
jurisdiction of the court, depends upon the conduct of
such party in the suit.
When plaintiffs file applications for interim relief like
appointment of a receiver or grant of a temporary
injunction, the defendants have to contest the
application. Such contest may even lead to appeals and
revisions where there may be even stay of further
proceedings in the suit. If supplemental proceedings
like applications for temporary injunction on
9(2011) 5 SCC 532
appointment of Receiver, have been pending for a
considerable time and a defendant has been contesting
such supplemental proceedings, it cannot be said that
the defendant has lost the right to seek reference to
arbitration. At the relevant time, the unamended Rule 1
of Order VIII of the Code was governing the filing of
written statements and the said rule did not prescribe
any time limit for filing written statement. In such a
situation, mere passage of time between the date of
entering appearance and date of filing the application
under Section 8 of the Act, can not lead to an inference
that a Defendant subjected himself to the jurisdiction of
the court for adjudication of the main dispute. The facts
in this case show that the plaintiff in the suit had filed
an application for temporary injunction and
appointment of Receiver and that was pending for some
time. Thereafter, talks were in progress for arriving at a
settlement out of court. When such talks failed, the
appellant filed an application under Section 8 of the
Act before filing the written statement or filing any
other statement which could be considered to be a
submission of a statement on the substance of the
dispute. The High Court was not therefore justified in
rejecting the application on the ground of delay.”
14. The expression “first statement on the substance of the dispute”
is of wide import. It would take within its sweep any statement filed to
join or raise issues regarding the substratum of the matter in dispute.
In the context of the civil suit, it would include the written statement
as required to be presented under Order VIII Rule 1 of the Code of
Civil Procedure, 1908 (CPC).
15. In Rashtriya Ispat Nigam Ltd. v. Verma Transport Co.10, the
Supreme Court had interpreted the expression “first statement on the
substance of the dispute” and observed as under: -
“36. The expression ‘first statement on the substance of
the dispute’ contained in Section 8(1) of the 1996 Act
must be contradistinguished with the expression
“written statement”. It employs submission of the party
to the jurisdiction of the judicial authority. What is,
therefore, needed is a finding on the part of the judicial
authority that the party has waived its right to invoke
the arbitration clause. If an application is filed before
actually filing the first statement on the substance of
the dispute, in our opinion, the party cannot be said to
have waived its right or acquiesced itself to the
jurisdiction of the court. What is, therefore, material is
as to whether the petitioner has filed his first statement
on the substance of the dispute or not, if not, his
application under Section 8 of the 1996 Act, may not
be held wholly unmaintainable.”
16. The expression “not later than” as used in Section 8(1) of the
A&C Act also makes it amply clear that a party would not be
precluded from applying under Section 8 of the A&C Act
simultaneously along with filing of a written statement or include such
relief in the written statement. However, the party would forfeit its
right to apply under Section 8 of the A&C Act once it has filed the
written statement. The expression “first statement on the substance of
the dispute” would also take within its sweep any other filing,
whereby a party evinces his intention to contest the proceedings and
subject himself to the jurisdiction of court/judicial authority. Filing of
10(2006) 7 SCC 275
any such statement, would indicate the party’s intention to abandon
the arbitration agreement. It would preclude the said party to thereafter
seek that the parties be referred to arbitration under Section 8 of the
A&C Act.
17. Although Section 8 of the A&C Act (as in force prior to
23.10.2015) did not prescribe any time period within which a party
must apply under Section 8 of the A&C Act as explained in Booz
Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors.11, the
scheme of the A&C Act and the provisions of Section 8 of the A&C
Act clearly indicate that the application under that section “should be
made at the earliest”.
18. It is clear from the scheme of the Act that once the proceedings
before the court or judicial authority progress beyond the initial stage,
it would no longer be permissible for a party to then turn around and
seek recourse to arbitration. A mere delay in making an application
under Section 8 of the A&C Act may not be fatal to a party’s right; but
once the proceedings have progressed beyond the stage of completion
of pleadings, such an application would not lie. This is because at that
stage, the parties are sufficiently invested in the said proceedings, and
it would not be permissible for any party to turn around and apply
under Section 8 of the A&C Act.
19. If a party’s right to file a statement of defence is closed, the
same would also result in its rights accruing in favour of the other
11Supra Note 9
party. Clearly, at this stage, it would not be permissible for a party to
apply under Section 8 of the A&C Act even though he has not
expressly evinced any intention to contest the proceedings. It is
implicit in the expression “not later than submitting the first statement
of substance of the dispute” that the application under Section 8 of the
A&C Act can be made at the stage when it is open for a party to
submit such a statement. It, obviously, follows that once such a stage
is crossed, the right of the party to apply under Section 8(1) of the
A&C Act would also stand closed. The scheme of Section 8 of the
A&C Act does not contemplate unraveling concluded proceedings.
Once the right of a party to file the written statement of defence is
closed, the proceedings in a suit progress beyond the stage of
completion of pleadings. It is not open for the defendant to now seek a
reference to arbitration. Although Section 8 of the A&C Act (as in
force prior to 23.10.2015) did not specify any time limit, it did
indicate the stage of the proceedings at which a party could apply, that
is, before filing of the first statement on the substance of the dispute.
This clearly implies a stage at which such a statement could be filed
and not thereafter.
20. If the contention advanced by the appellant is accepted, it would
imply an application under Section 8 of the A&C Act can be allowed
to be filed at any stage of the proceedings; even after the evidence is
tendered and witnesses have been cross-examined or for that matter
just before the matter is fixed for pronouncement of the decision.
Clearly, this is not in conformity with the scheme of Section 8 of the
A&C Act.
21. The Arbitration and Conciliation (Amendment) Act, 2015 [Act
3 of 2016] amended the A&C Act significantly. By virtue of the said
Act, Sub-section (1) of Section 8 of the A&C Act was substituted and
a proviso was introduced to Sub-section (2) of Section 8 with
retrospective effect from 23.10.2015. Section 8 of the A&C Act, as in
force with effect from 23.10.2015, reads as under:
“8. Power to refer parties to arbitration where there
is an arbitration agreement-[(1) A judicial authority,
before which an action is brought in a matter which is
the subject of an arbitration agreement shall, if a party
to the arbitration agreement or any person claiming
through or under him, so applies not later than the date
of submitting his first statement on the substance of the
dispute, then notwithstanding any judgment, decree or
order of the Supreme Court or any Court, refer the
parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists]
(2) The application referred to in sub section (1) shall
not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy
thereof:
[Provided that where the original arbitration agreement
or a certified copy thereof is not available with the
party applying for reference to arbitration under subsection
(1), and the said agreement or certified copy is
retained by the other party to that agreement, then, the
party so applying shall file such application along with
a copy of the arbitration agreement and a petition
praying the Court to call upon the other party to
produce the original arbitration agreement or its duly
certified copy before that Court.] ...”
22. The change in the language of Section 8(1) of the A&C Act is
material. Whereas prior to the 2015 Amendment, Sub-section (1) of
Section 8 of the A&C Act used the expression “not later than when
submitting his first statement on the substance of the dispute”. Subsection (1) of Section 8, as substituted, uses the expression “not later than the date of submitting his first statement on the substance of the dispute”. The legislative intent to introduce the words “not later than the date of” clearly stipulates a framework of time within which an application under Section 8(1) of the A&C Act can be made.
23. This amendment to Section 8 of the A&C Act, cannot be
considered in isolation. It is material to note that the Parliament had
also enacted the Commercial Courts Act, 2015 (Act 4 of 2016), which came into force on the same date as the Arbitration and Conciliation (Amendment) Act, 2015, that is, with effect from 23.10.2015. By virtue of Section 16 of the said Act, certain provisions of the CPC were amended in their application to any suit in respect of a commercial dispute of the specified value. The said provisions, inter alia, also included amendment to Order VIII Rule 1 and Order VIII Rule 10 of the CPC. The proviso to Order VIII Rule 1 of the CPC was substituted, which expressly provided that if the defendant failed to file a written statement within the prescribed period of thirty days, the court could, for reasons to be recorded in writing, extend further time to file the written statement. However, such extended time could not be later than 120 days from the date of service of summons. Further, the proviso to Order VIII Rule 10 of the CPC was introduced, which expressly provided that no court would make an order to extend the time provided under Order VIII Rule 1 of the CPC for filing of the written statement. Thus, the Parliament has curtailed the outer time limit of filing of a written statement in a commercial suit to 120 days after receipt of summons. The said amendment is obviously to ensure expeditious adjudication of commercial disputes.
24. Arbitration is an alternate dispute resolution mechanism to
provide for an expeditious adjudication of disputes. By virtue of the
Arbitration and Conciliation (Amendment) Act, 2015, certain other
provisions were also introduced in the A&C Act to provide for time
limits for making the arbitral award. Section 29A of the A&C Act was
introduced, which specifically provide that an arbitral award would be
made within a period of twelve months from the date the arbitral
tribunal enters upon reference. One of the objects of the A&C Act is to
provide for an expeditious resolution of disputes in a time bound
manner. In Bharat Sanchar Nigam Limited and Anr. v. M/s Nortel
Networks India Private Limited (2021) 5 SCC 738, the Supreme Court had observed
that the A&C Act “has been amended twice over in 2015 and 2019, to
provide for further time limits to ensure that the arbitration
proceedings are conducted and concluded expeditiously”.
25. As stated above, a written statement would also fall within the
sweep of expression “statement on the substance of the dispute” as
used in Section 8(1) of the A&C Act. The introduction of the
expression “the date of” in the context of the suit would necessarily
have to be co-related with the time available or granted for filing of a
written statement. The legislative intent of introducing the expression
“the date of”, when read with the contemporaneous amendments to
Order VIII Rule 1 of the CPC by virtue of the Commercial Courts Act, 2015, is quite clear; it is to introduce the precise time frame within which an application under Section 8(1) of the A&C Act could be filed.
26. Resultantly, if a party fails to file an application under Section
8(1) of the A&C Act for referring the parties to arbitration within the
time available or granted for filing the first statement on the substance
of the dispute (which would include a written statement in the context
of a suit), the party would forfeit its right to apply under Section 8(1)
of the A&C Act.
27. This Court is unable to accept that there is any infirmity in the
decision of the learned Commercial Court. This Court is unable to
concur with the decision of the Single Judge of this Court in Hughes
Communications India Ltd. and Ors. v. Union of India13 that Section
8 of the A&C Act cannot be read to mean that an application under
Section 8(1) of the A&C Act would not lie after the right to file the
written statement has been closed. We, accordingly, over-rule the said
decision.
13Supra Note 2
28. The decision of the learned Commercial Court to follow the
decision of Single Bench of this Court in Anil Mahindra’s14 case
(supra) cannot be faulted. We concur with the decision of the learned
Commercial Court that the right of the appellant to file an application
under Section 8(1) of the A&C Act stood closed. We find no infirmity with the impugned decision to reject the appellant’s application under Section 8(1) of the A&C Act.
29. The appeal is, accordingly, dismissed. The pending application
is disposed of.
VIBHU BAKHRU, J
AMIT MAHAJAN, J
JULY 6, 2022
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