Application under Section 8 of the Arbitration Act is not maintainable if filed after the right to file a written statement is closed: Delhi High Court - 2025-06-12

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Delhi HC: Can't Seek Arbitration After Forfeiting Right to File Defence

New Delhi: The Delhi High Court has ruled that a defendant who fails to file a written statement within the prescribed time and whose right to file it has been closed cannot subsequently move an application to refer the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.

A Division Bench of Justice Navin Chawla and Justice Shalinder Kaur upheld a Commercial Court's decision to decree a recovery suit, emphasizing that procedural defaults have significant consequences. The court observed that an application under Section 8 must be filed no later than the date of submitting the first statement on the substance of the dispute, which is the written statement.

Background of the Dispute

The case originated from a suit filed by One97 Communications Ltd. (the Respondent) against R. Santosh (the Appellant), the proprietor of Sharada Talkies. The parties had entered into a Ticketing Agreement in 2016 for listing movie tickets on One97's platform. An Addendum Agreement in 2017 stipulated that One97 would pay an interest-free refundable security deposit of ₹5,00,000 to Santosh.

After Sharada Talkies ceased operations in April 2022, One97 terminated the agreements and demanded the refund of the security deposit. When Santosh failed to pay, One97 filed a commercial suit for recovery.

In the trial court, Santosh failed to file a written statement and did not cross-examine One97's witness, leading the court to close his rights to do so. Subsequently, after One97's evidence was concluded, Santosh filed an application under Order VII Rule 11 of the CPC, seeking rejection of the plaint on grounds of an existing arbitration clause, among others. The application was dismissed, and the suit was decreed in favor of One97. Santosh then appealed this decision to the High Court.

Arguments in the High Court

The appellant, R. Santosh, argued that: -

One97 had failed to provide documentary proof of the ₹5,00,000 payment. -

The suit was bad for non-joinder of necessary parties, namely 'Mysore Talkies' and a Mr. Manjunath Gowda, who he alleged had actually received the money. -

The trial court erred by not referring the dispute to arbitration, as a valid arbitration clause existed in the agreement. He contended that the failure to file a written statement should not bar a reference to arbitration.

One97's case, as upheld by the trial court, was based on the signed agreements and their statement of account, which remained unchallenged as Santosh had forfeited his right to cross-examine their witness.

High Court's Analysis and Ruling

The High Court dismissed the appeal, finding no merit in the appellant's submissions. The bench's reasoning was multi-faceted:

1. On the Maintainability of the Arbitration Plea: The court held that the application under Section 8 of the Arbitration and Conciliation Act was filed too late. It cited its own precedent in Hitachi Payments Services (P) Ltd. & Anr. v. Shreyans Jain & Anr. to affirm the principle:

"where the written statement is not filed within the period granted and the right to file the written statement stands closed, application under Section 8 of the A&C Act would no longer be maintainable."

The court distinguished the appellant's reliance on Madhu Sudan Sharma & Ors. v. Omaxe Ltd. , noting that in that case, the arbitration plea was raised at an early stage, before the filing of the written statement.

2. On the Effect of Not Filing a Defence: The bench noted that the appellant's failure to file a written statement or cross-examine the plaintiff's witness meant that the evidence presented by One97, including the Addendum Agreement acknowledging the security deposit and the statement of account, stood unrebutted. The judgment stated:

"The Appellant's failure to contest the evidence led by the Respondent and present a valid defence, leads to the conclusion that the Respondent's claims are substantiated."

3. On the Lack of Proof of Payment: The court rejected the argument that the payment was not proven. It highlighted that the appellant had admitted to signing the Addendum Agreement which explicitly mentioned the ₹5,00,000 security deposit. The onus was on the appellant to prove his claim that the money went to a different entity, which he "miserably failed to prove" due to his procedural defaults.

Final Decision

Finding no infirmity in the trial court's judgment, the High Court dismissed the appeal, confirming the decree for ₹5,00,000 along with interest in favor of One97 Communications Ltd. The decision serves as a stark reminder of the critical importance of adhering to procedural timelines in commercial litigation.