The presence of an arbitration clause in an agreement entitles a party to seek leave to defend a suit and obligates the court to refer the parties to arbitration once the arbitration clause is brought to its knowledge.

1. The defendant in a suit for recovery of money is the petitioner before this court. He is aggrieved against the order passed by the trial Court in dismissing the application filed under Order 37 Rule 3(5) of the Civil Procedure Code. The trial Court in and by the said order refused to grant leave to the petitioner to defend the suit claim of the respondent/ plaintiff .

2. The short facts of the case culled out from the pleadings of the respective parties are as follows:-

The respondent herein filed a suit against the petitioner in O.S.No. 2209 of 2009 on the file of the 15th Assistant City Civil Court, Chennai for recovery of a sum of Rs. 2,40,596/- with interest based on a personal loan availed by the petitioner from the respondent to the tune of Rs. Two lakhs. According to the respondent as the plaintiff, a loan agreement was executed on 4.7.2006 by the petitioner, stipulating various terms and conditions for repayment of the said loan amount in instalments as well as the rate of interest payable on the principal amount. It is the case of the respondent that after the borrowal of the said loan amount, the petitioner herein did not pay the instalments regularly in terms of the said agreement dated 4.7.2006 which had resulted the suit claim. Therefore, the respondent had filed the said suit, as summary suit, under Order 37 Rule 1 of CPC seeking for recovery of the said sum with interest as stated supra.

3. The petitioner on receipt of the summon from the Court, filed I.A.No. 9583 of 2009 under Order 37 Rule 3(5) CPC seeking unconditional leave to defend the claim of the respondent/plaintiff. An affidavit was filed in support of the said application by the petitioner. From the perusal of the said affidavit, it is seen that the petitioner has raised a plea of questioning the very maintainability of the said suit on the ground that the dispute between the parties must be referred to arbitration, in view of the presence of an arbitration clause in the agreement dated 4.7.2006. Thus, apart from raising a preliminary objection with regard to the maintainability of the suit, the petitioner without prejudice to such objection also stated that the plaintiff had come to the Court with inconsistent pleas as could be seen from his notices issued on 29.11.2007, 22-12-2008 and 06-02-2009. It is also stated by the petitioner that he had made payments on 14.11.2006, 19.12.2006, 18-01-2007, 14.3.2007 and 11.5.2007 by Cheque Nos.260559, 260560, 260562, 260564, 260566 respectively each for Rs.12,833/-which have not been given due credit to by the respondent. Therefore, according to the petitioner, apart from the fact that the suit itself is not maintainable in view of the existence of an Arbitration clause in the said agreement, even on merits, the facts narrated in the affidavit filed in support of the application filed under Order 37 Rule 3(5) disclose that there are triable issues to be gone into in detail. Accordingly, the petitioner sought for grant of unconditional leave to defend the claim of the plaintiff / respondent.

4. The respondent herein as the plaintiff contested the said application filed by the petitioner by filing a counter affidavit. The respondent apart from stating that the payments made by the petitioner were duly credited in his loan account, has not stated anything about the arbitration clause in the agreement dated 4.7.2006. In other words, a specific plea raised by the petitioner at paragraph 3 of his affidavit with regard to arbitration clause in the agreement dated 4.7.2006 and his claim that the dispute must be resolved by referring the same to arbitration, has not been denied by the respondent specifically.

5. The trial court after hearing both parties, rejected the application by its order dated 24.7.2009 by holding that the petitioner has not made any application for referring the matter to the arbitration and that the petitioner did not respond to the notices issued by the respondent before filing t