IMPORTANT POINT
For maintaining an application under Section 8 of the Arbitration, and Conciliation Act, 1996, service of notice under the arbitration agreement is not mandatory. Section 8 of the 1996 Act mandates a reference.

Headnote:Arbitration and Conciliation Act, 1996—Section 8 [Section 34 of Arbitration Act, 1940 (now repealed)]—Interpretation and Application of Section 8 of the Act—Power to refer parties to arbitration where there is an arbitration agreement—Scope and effect of the expression ‘substance of the dispute’—Section 8 of the 1996 Act mandates a reference—Consignment Agency contract between appellant, a Public Sector Undertaking and respondent firm, engaged in the business of consignment agents—Contract of respondent was terminated by appellant—A show cause notice was issued to a partner of the respondent firm as to why he and his firms/companies should not be blacklisted—Respondent-Firm filed a suit for grant of permanent injunction restraining appellants from blacklisting respondent firm or terminating the consignment agency contract—Civil Judge directed parties to maintain status quo—Appellants sought for time to file written statement—They also filed a rejoinder to the counter affidavit to the application for injunction pleading that subject matter of the suit being covered by the arbitration agreement entered into by and between the parties, it was not maintainable—Appellants filed an application u/s 8 of the 1996 Act which was rejected by the Civil Judge—Revision filed against the order was rejected on ground that application u/s 8 filed being not accompanied by original arbitration agreement or a duly certified copy thereof, was not maintainable—Whether application filed by appellants u/s 8 of the 1996 Act was maintainable—(Yes).
       Held : Section 8 confers a power on the judicial authority. He must refer the dispute which is the subject-matter of an arbitration agreement if an action is pending before him, subject to the fulfillment of the conditions precedent. The said power, however, shall be exercised if a party so applies not later than when submitting his first statement on the substance of the dispute. (Para 16)
       In the instant case, the existence of a valid agreement stands admitted. There cannot also be any dispute that the matter relating to termination of the contract would be a dispute arising out of a contract and, thus, the arbitration agreement contained in clause 44 of the contract would be squarely attracted. Once the conditions precedent contained in the said proceedings are satisfied, the judicial authority is statutorily mandated to refer the matter to arbitration. What is necessary to be looked into therefor, inter alia, would be as to whether the subject-matter of the dispute is covered by the arbitration agreement or not. (Para 20)
       Section 34 of the repealed 1940 Act employs the expression steps in the proceedings. Only in terms of Section 21 of the 1940 Act, the dispute could be referred to arbitration provided parties thereto agreed. Under the 1940 Act, the suit was not barred. The Court would not automatically refer the dispute to an arbitral tribunal. In the event, it having arrived at satisfaction that there is no sufficient reason that the dispute should not be referred and no step in relation thereto was taken by the applicant, it could stay the suit. (Para 21)
       Section 8 of the 1996 Act contemplates some departure from Section 34 of the 1940 Act. Whereas Section 34 of the 1940 Act contemplated stay of the suit; Section 8 of the 1996 Act mandates a reference. Exercise of discretion by the judicial authority, which was the hallmark of Section 34 of the 1940 Act, has been taken away under the 1996 Act. The direction to make reference is not only mandatory, but the arbitration proceedings to be commenced or continued and conclusion thereof by an arbitral award remain unhampered by such pendency.(Para 22)
       The High Court, in our opinion, proceeded on a wrong premise. It posed unto itself wrong question. It refused to interfere in the matter opining that no notice had been served by the Chairman of the First Appellant in terms of the arbitration agreement. For maintaining an application under Section 8 of the 1996 Act, service of notice under the arbitration agreement was not mandatory. The said stage was yet to be reached. What was necessary was existence of an arbitration agreement. So far as the question of blacklisting is concerned, an error was committed by the High Court in opining that the Respondent-Firm had been blacklisted without issuing any notice.(Paras 25 & 26)
       Filing of a reply to the injunction application could also not have been a ground to refuse to entertain the plea taken by the Appellants that the suit should be referred to arbitral tribunal.(Para 30)
       Thus, they did not submit themselves to the jurisdiction of the court. They did not waive their right. They in effect and substance questioned the jurisdiction of the court in proceeding with the matter. In fact, in its application filed under Section 8 of the 1996 Act, the Appellant raised a contention that the suit was liable to be dismissed and the order of injunction vacated in view of the arbitration clause. (Para 31)
       The expression first statement on the substance of the dispute contained in Section 8(1) of the 1996 Act must be contra-distinguished with the expression written statement. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, is needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the 1996 Act, may not be held wholly unmaintainable. (Para 33)
       Waiver of a right on the part of a defendant to the lis must be gathered from the fact situation obtaining in each case. In the instant case, the court had already passed an ad interim ex pare injunction. The Appellants were bound to respond to the notice issued by the Court. While doing so, they raised a specific plea of bar of the suit in view of the existence of an arbitration agreement. Having regard to the provisions of the Act, they had, thus, shown their unequivocal intention to question the maintainability of the suit on the aforementioned ground.(Para 39)

JUDGMENT

S.B. Sinha, J.—Leave granted.

2. Interpretation and application of Section 8 of the Arbitration and Conciliation Act, 1996 (for short, the 1996 Act) is in question in these appeals which arise out of a judgment and order dated 10.02.2003 passed by a learned Single Judge of the High Court of Punjab & Haryana, dismissing the Civil Revision Application filed by the Appellants herein from a judgment and order dated 03.10.2002 passed by the Civil Judge (Junior Division), Jalandhar and order dated 15.09.2004 refusing to review the said order.

FACTS :

3. The Appellant No.1 is a Public Sector Undertaking. It is engaged, inter alia, in the business of manufacturing and marketing of iron and steel products. The Respondent is a partnership firm. It is engaged in the business of consignment agents. It has its office at Jalandhar. A contract was entered into by and between the parties hereto in regard to the handling and storage of iron and steel materials of the Appellant at Ludhiana. The Appellants contend that one Shri Anil Verma, Partner of the Respondent-Firm had constituted various firms and companies and obtained several consignment agency contracts from the Appellant pertaining to Delhi, Faridabad, Chandigarh and Ludhiana etc. who conspired with certain officials of the Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/- per M.T. on a false plea that the Transport Union at Bahadurgarh did not permit transportation of goods without levy of a fee of Rs.100/- per M.T. on transportation of such goods. An investigation was conducted by the Central Bureau of Investigation and a criminal case was initiated against Shri Anil Verma and the concerned officials of the Appellants. Allegedly, with the object of presenting a clean image to the Appellants and with a view to avoid termination of all the contracts by them, a plea was put forth that Shri Anil Verma had resigned from the partnership firm as also from his other firms/companies. According to the Appellants, the said Shri Anil Verma was replaced by his family members as a partner of the said firm but he continued to be in complete control over the firms/companies. The contract of the Respondent was terminated by the Appellants on 23.05.2002. On the same day, a show cause notice was also issued to Shri Anil Verma as to why he and his firms/companies should not be black listed.

4. The Respondent-Firm, however, filed a suit being Suit No.122 of 2002 for grant of permanent injunction restraining the Appellants herein from in any manner blacklisting the Respondent-Firm or terminating the consignment agency contract. On an application for injunction having been filed, the Civil Judge, Junior Division, directed the parties to maintain status quo in regard to the status of the Respondent-Plaintiff herein qua termination of the contract as also the order of blacklisting. The Appellants appeared to have sought for time to file written statement. They also filed a rejoinder to the counter affidavit to the application for injunction wherein it took a specific plea that the subject-matter of the suit being covered by the arbitration agreement entered into by and between the parties, it was not maintainable. On 07.06.2002, they filed an application under Section 8 of the 1996 Act, which was rejected by the Civil Judge, Junior Division by an order dated 03.10.2002, holding:

"The applicants/defendants have already filed a reply to application u/o 39 Rules 1 and 2 read with Section 151 CPC and sought 15 days time to file written statement clearly proves that the process of the suit has already begun and the defendants have already entered into a defence of the suit meaning thereby they have subjected themselves to the jurisdiction of the Civil Court. The defendants have not spelt out as to what is the dispute or difference between the parties. Rather, they have straightaway black listed the plaintiff firm, without giving them any notice regarding any dispute or

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2006 Supreme(SC) 712

IMPORTANT POINTFor maintaining an application under Section 8 of the Arbitration, and Conciliation Act, 1996, service of notice under the arbitration agreement is not mandatory. Section 8 of the 1996 Act mandates a reference.

Cases Referred (8)

IMPORTANT POINT
For maintaining an application under Section 8 of the Arbitration, and Conciliation Act, 1996, service of notice under the arbitration agreement is not mandatory. Section 8 of the 1996 Act mandates a reference.