IMPORTANT POINT
Section 8 of the Arbitration and Conciliation Act is peremptory in nature and in a case where there exists an arbitration agreement, Court is under obligation to refer parties to arbitration.

Headnote:Arbitration and Conciliation Act, 1996—Section 8—Memorandum of Understanding was executed between parties in relation to business of export and same contained an arbitration clause—Disputes and differences arose—Person who was managing affairs of respondent firms passed away and his daughter took over the business—Parties entered into a settlement of dispute in relation to amount due and owing to appellant—Respondents issued five cheques of Rs.11,25,000/- each—Three cheques were honoured but two cheques were dishonoured—Appellant filed suit for recovery of Rs. 36,14,887/- and dishonoured cheques was not put as a cause of action for suit—Respondents in meanwhile paid amounts of dishonoured cheque by bank drafts which were accepted by appellant—Application by respondent for reference of dispute to arbitrator—Court dismissed application opining that no dispute existed between parties for reference to arbitrator—High Court reversed decision in revision—Appeal—Section 8 of the Act made a radical departure from Section 34 of 1940 Act—Respondent had raised a dispute in regard to claim of appellant and had not filed written statement—Respondents had made payments without prejudice to their rights and contentions—Claim in suit was not confined to non-payment of amount under two dishonoured cheques—There existed a dispute and Court was under and obligation to refer parties to arbitration.
       Held : Respondents had not filed any written statement in the suit. They had not disclosed their defence. They indisputably had raised a dispute in regard to the claim of the appellant. We have noticed the arbitration agreement entered into by and between the parties. It is of wide amplitude. The arbitration agreement brings within its fold dispute of any nature whatsoever. It is in broadest term. Respondents had made payments without prejudice to their rights and contentions. Payments were made keeping in view the ongoing business relationship between the parties. Out of the five post dated cheques, two were dishonoured. But, despite pendency of the suit, payments had been made to satisfy the claim of the appellant in respect of the cheques which were dishonoured. Sufficient explanation has been offered by the respondents therefor. Certain contingencies of events, as indicated hereinbefore, are not in dispute. If the suit was confined to the amount in respect of those two cheques, the contention of Mr. Rao could have been accepted. But it is not so. The term ‘dispute’ must be given its general meaning under the 1996 Act.(Paras 17 and 18)
       Admittedly, the appellant’s claim is not confined to the question regarding non-payment of the amount under the two dishonoured cheques. Thus, there existed a dispute between the parties. Had the dispute between the parties been confined thereto only, the same had come to an end.(Para 20)
       Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration in terms of the arbitration agreement. [See Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 and Rashtriya Ispat Nigam Limited (supra)] No issue, therefore, would remain to be decided in a suit. Existence of arbitration agreement is not disputed. The High Court, therefore, in our opinion, was right in referring the dispute between the parties to arbitration.(Para 22)

JUDGMENT

S.B. Sinha, J.—Leave granted.

2. An order of the Andhra Pradesh High Court dated 16th December, 2005 passed in Civil Revision Petition No. 5241 of 2004 directing the parties to take recourse to the provisions of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”) opining that the suit filed by the appellant herein was not maintainable, is in question before us.

3. Appellant and the predecessor-in-interest of the respondents entered into a Memorandum of Understanding on 8.05.2002 in relation to their businesses of export. The same Memorandum of Understanding contained an arbitration clause in the following terms:

“In case of any dispute between the two parties, the same shall be referred to Arbitration, by two Arbitrators, nominated by each of the parties. The Award of the Arbitrators shall be binding on both the parties.”

4. Disputes and differences arose between the parties. However, the person who was managing the affairs of the respondents - firms passed away. His daughter thereafter took over the business of the firms. By a letter dated 03.08.2003, it was stated:

“It is with great sorrow and regret that we write to inform you the said demise of our beloved Mr. R. Srivatsan, Managing Director of our Company on the 1 August, 2003 at 20-45 hrs after a brief illness. He suffered a massive heart attack and succumbed.

However the business interests of the company will be continued to fulfil his cherished goal and vision. Our company will strive to carry forward his legacy which will serve as a beacon light in all our future endeavours.

We wish to reiterate all our customers that business will be carried on a usual and all our commitments and obligations shall be made without any interruption.

We seek your fullest co-operation at this juncture to achieve and end results and fulfill Mr. R. Srivatsan’s cherished dreams.”

5. They entered into a purported settlement of dispute in relation to the amount due and owing to the appellant. In terms of a letter dated 08.08.2003, it was stated:

“We observe that you have charged interest of Rs. 827755/- which amount could kindly waive. Out of the principal balance amount of Rs.17.50 lakhs, we are in a position to pay at best Rs.5 lakhs only. We have arrived at this figure after thoroughly analyzing our situation. We are confident that such a large and prestigious Company like yours will definitely lend as your hand of friendship and bail us out of our current situation.”

6. They asked for waiver of some interest, etc. which allegedly was accepted by it. The respondents issued five post dated cheques of Rs. 11,25,000/- each, which were forwarded by a letter dated 9th January, 2003 stating:

“We are enclosing herewith five post dated cheques Bearing Nos.: 574351 TO 574355 (5 Cheques) drawn ICICI Bank Ltd., Mount Road, Each R. 11,25,000/- (Eleven Lakhs Twenty Five Thousand only) towards settlement of your outstanding calculated on approximate basis.

Once the overseas bills are realized we shall arrive at the exact amount balance. And if anything to be paid, we shall pass it on the same to you by a separate cheque with in 30 days time.”

7. The said cheques were presented to the bank. Payments in terms of three cheques bearing Nos. 574351 dated 21.4.2003, 574352 dated 21.5.2003 and 574353 dated 21.6.2003 were honoured whereas the fourth cheque bearing No. 574354 dated 21.7.2003 was dishonoured on 29.07.2003.

8. Admittedly, Respondents without prejudice to their rights and contentions sent a demand draft bearing number 028881 drawn on 18.08.2003 for a sum of Rs. 11,25,000/- which was accepted by the appellant. Yet again on 12.09.2003, the respondents without prejudice to their rights sent another demand draft bearing number 029612 for a sum of Rs. 11,25,000/-.

9. Before receipt of the said payments, however, the appellant filed a suit in the District Court at Vijaywada for a decree for a sum of Rs. 36,14,887/-, the cause of action wherefor was stated as under:

“The cause of actio

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2007 Supreme(SC) 86

IMPORTANT POINTSection 8 of the Arbitration and Conciliation Act is peremptory in nature and in a case where there exists an arbitration agreement, Court is under obligation to refer parties to arbitration.

Cases Referred (2)

IMPORTANT POINT
Section 8 of the Arbitration and Conciliation Act is peremptory in nature and in a case where there exists an arbitration agreement, Court is under obligation to refer parties to arbitration.