The court ruled that raising an arbitration clause in a written statement mandates referral to arbitration, and the trial court erred in appointing a nominated arbitrator from the respondents.

JUDGMENT :

1. This appeal is directed against the order/judgment dated 30.10.2023 passed by the court of learned Principal District Judge, Jammu (for short the "trial court‟) whereby the learned trial court has held the suit preferred by the appellant as not maintainable, with liberty to the parties to approach the nominated arbitrator at the earliest enabling him to settle the dispute inter se parties.

2. The brief facts necessary for disposal of the instant appeal are that a suit came to be filed by the petitioner for declaration to the effect that the contract/agreement dated 30.09.2021 executed between the parties, pursuant to e-NIT No. 39 of 2021-22 dated 03.09.2021 and e-NIT No. 40 of 2021-22 dated 03.09.2021, has frustrated and become incapable of performance, on account of deliberate inaction on part of the respondents to close numerous illegally run eat points/canteens/reharis/dhabas, etc. around and in vicinity of the premises of the appellant with consequential relief of mandatory injunction directing the respondents to refund an amount of Rs. 7,48,650/- deposited by the appellant and to return two FDR of Rs. 40,000/- bearing No. 532825 and 532826 dated 16.09.2021 deposited by the appellant alongwith interest, with further relief of compensation of Rs. 10.00 Lacs for frustrating the contract of the appellant and thus damaging goodwill of the appellant in the market and public and further relief of permanent prohibitory injunction restraining the respondents from enforcing the terms of the contract upon the appellant in any manner whatsoever.

3. The respondents after causing appearance, filed their written statement on20.02.2022 and on 27.07.2023, issue in respect of maintainability of the suit was framed by the learned trial court as to “Whether in view of the Arbitration Clause, the suit is barred, hence not maintainable before the court?”

4. After hearing the parties, the learned trial court vide order/judgment dated30.10.2023, decided the suit against the appellant and held the suit not maintainable.

5. The appellant has impugned the judgment/order dated 30.10.2023 on the ground that once the respondents had filed the detailed written statement/defence in respect of the suit filed by the appellant, they shall be deemed to have waived off their right to seek the settlement of dispute through arbitration, as such, the learned trial court could not have asked the parties to approach the arbitrator by referring to the arbitration clause. It is also urged that Arbitration and Conciliation Act, 1996 (for short the "Act of 1996‟), mandates for filing of application under Section 8 of the Act to seek reference of the dispute to arbitrator before filing the detailed written statement. Having not done so, the respondents cannot raise the issue of arbitration clause in the agreement to defeat the suit of the appellant.

6. Mr. Vikram Sharma, learned senior counsel for the appellant has argued that in absence of any application under Section 8 of the Act of 1996, the learned trial court could not have referred the parties to arbitration and further in terms of the clause 18 of the agreement, the arbitrator has been nominated, who is the official of the respondents, which is not permissible under law. Mr. Vikram Sharma has relied upon the judgments of Hon'ble the Supreme Court of India passed in cases titled "Rashtriya Ispat Nigam Limited and another vs. M/s Verma Transport Company’, 2006 AIR SC 2800 and "Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and others’, 2011 AIR SC 2507. He has further placed reliance upon judgment passed by this Court in case titled as Brij Mohan Sawhney vs. Sanjeev Kumar Gupta decided on 25.08.2023 to substantiate his contention.

7. Per contra, Mr. Rahul Pant, learned Senior Counsel for the respondents has argued that the specific plea in the written statement was taken in respect of the arbitration clause and as such, mandate of Section 8 of the Act 1996 was complied with by the respondents and