2020 Supreme(Del) 1546

IN THE HIGH COURT OF DELHI
Rajiv Sahai Endlaw, Asha Menon, JJ.
Alok Kumar Lodha - Appellant
Versus
Asian Hotels (North) Limited - Respondent
RFA(OS)(COMM) 13 of 2020, CMs No. 16950 of 2020 (for ex-parte ad interim injunction) & 20009 of 2020 (u of S 8 of Arbitration and Conciliation Act) and RFA(OS)(COMM) 12 of 2020 & CM No. 16942 of 2020 (for stay) etc.
Decided On : 24-12-2020

Headnote:

Whether for the Judicial Authority, before which an action is brought in a matter which is the subject matter of an arbitration agreement, to refer the parties to arbitration, it is necessary that a party to the arbitration agreement applies in writing for referring the parties to arbitration or a verbal plea in this regard is sufficient? If the answer to the aforesaid question is that a written application is necessary, then if on a verbal plea of Section 8, the suit is dismissed, whether the order is an order referring the parties to arbitration under Section 8, so as to be not appealable under Section 37?

Fact of the Case:

The Occupants, as plaintiffs, filed suits against the Hotel, as defendant, claiming to be owners of their shops in occupation of the Hotel or of being irrevocable licensees in perpetuity. The Hotel vide termination notices, terminated the licences in their respective favour. The Occupants sought a decree of declaration, declaring them as owners of the shops in their respective favour and in the alternative, as irrevocable licensees in perpetuity; and, of injunction, restraining the Hotel from dispossessing them from the shops in their respective occupation. The Hotel raised an objection under Section 8 of the Arbitration and Conciliation Act, 1996 with regard to the maintainability of the suits, in view of the arbitration clause in the Licence Agreements admitted to have been executed with the Hotel by the Occupants also and copies of which Licence Deeds were filed by the Occupants along with their suits. The Commercial Division, in the impugned order/judgment, recorded that the following issues arose for consideration before the Court: Whether an objection under Section 8 of the Act can be taken without filing an application? On an objection under Section 8 of the Act, whether the Court can decide that the dispute is arbitrable or not or the parties are required to be relegated to the Arbitrator for decision on the arbitrability of the dispute? Whether claims which are relatable to the special statute alone cannot be referred to arbitration or even where there is a claim for a judgment in rem, the dispute cannot be referred to arbitration? Whether prima facie plaintiffs have a right in their favour creating an interest in the land or the burden of the covenant running with the land to the extent that the same cannot be decided in arbitration? If the present suit is maintainable, whether on facts the plaintiffs are entitled to grant of interim injunction? With respect to the arguments heard by the Commercial Division on the applications for interim relief, the Commercial Division held that prima facie the plaintiffs have a right in their favour and interest in land which is more than that of a lessee or at least that of an irrevocable licensee. The Commercial Division, on the basis of findings aforesaid on the Issues arising for adjudication, vide impugned order/judgment dated 21st July, 2020 held that prima facie the rights created in favour of the plaintiffs and the interest created in the land is in the nature of an arbitrable dispute in terms of the decision of the Supreme Court in Olympus Superstructures Vs. Meena Vijay, (1999) 5 SCC 651 Booz Allen & Hamilton Inc. Vs. SBI Home Finance Limited, (2011) 5 SCC 532: and Vidya Drolia Vs. Durga Trading Corporation, 2019 SCC OnLine SC 358:  the suits and the applications are dismissed with liberty to the parties to avail remedy of arbitration. The Occupants are aggrieved from the judgment of the Commercial Division, because their suits have been dismissed. The Hotel is aggrieved from the judgment because of the prima facie findings returned by the Commercial Division.

Finding of the Court:

1. For the Judicial Authority, before which an action is brought in a matter which is the subject matter of an arbitration agreement, to refer the parties to arbitration, it is necessary that a party to the arbitration agreement applies in writing for referring the parties to arbitration and a verbal plea in this regard is not sufficient. 2. The impugned order/judgment purporting to be in exercise of powers under Section 8 of the Arbitration Act, of referring the parties to arbitration, is not in law, an order/judgment of a Judicial Authority of referring the parties to arbitration, in exercise of powers under Section 8 and thus the bar under Section 37 of the Arbitration Act to the maintainability of these appeals, is not applicable.

Issues: 1. Whether for the Judicial Authority, before which an action is brought in a matter which is the subject matter of an arbitration agreement, to refer the parties to arbitration, it is necessary that a party to the arbitration agreement applies in writing for referring the parties to arbitration or a verbal plea in this regard is sufficient? 2. If the answer to the aforesaid question is that a written application is necessary, then if on a verbal plea of Section 8, the suit is dismissed, whether the order is an order referring the parties to arbitration under Section 8, so as to be not appealable under Section 37?

Ratio Decidendi: 1. Section 8 of the Arbitration Act requires the defendant, if desirous of ousting the jurisdiction of the Court before which the suit has been brought and of having the disputes raised by way of a suit decided by arbitration, is required to, not later than the date of submitting the first statement on the substance of the dispute and which has been understood and interpreted as meaning a written statement, apply for referring the parties to arbitration. 2. The procedure prescribed in the Code for a suit is of the same to be presented to the Court by filing a plaint in writing and which plaint should be compliant with other Rules prescribed in the Code, including of the factual contents thereof being verified and supported by an affidavit of the plaintiff. Applying Section 141 of the CPC, the defendant, to apply under Section 8 must file an application in writing, accompanied by an affidavit of the defendant. 3. The existence of the arbitration agreement relating to the action brought in a matter, applying the aforesaid judgments, in our view, is a adjudicatory fact before an order of reference to arbitration in exercise of powers under Section 8 can be made by a Judicial Authority. However, for the Judicial Authority to adjudicate the aforesaid fact, its jurisdiction to refer the parties to arbitration should have been invoked and which invocation, as aforesaid, has to be by an application in writing in accordance with Section 8 of the Arbitration Act. Even if the arbitration agreement exists but application in accordance with Section 8 is not filed, no power of referring the parties to arbitration can be exercised by the Judicial Authority.

Final Decision: The appeals of the Occupants as well as the Hotel are allowed, by setting aside the impugned order/judgment in entirety including the prima facie findings on the inter se rights of the parties and by, for the sake of abundant caution, clarifying that the said findings would have no bearing whatsoever at any further stage, be it in Courts or in arbitration. The suits from which these appeals arise are remanded to the Commercial Division of this Court. The Hotel is permitted to, if so desires, on or before 15th January, 2021, prefer applications under Section 8 of the Arbitration and Conciliation Act before the Commercial Division of this Court and which applications, if filed, will be considered and decided in accordance with law. The interim arrangement as in force till now, is extended till 15th January, 2021. All pending applications also, besides the appeals, are disposed in terms of above. The parties are left to bear their own costs.