1. Construction agreement dispute — Suit for declaration, injunction, and recovery — Application under Section 8, Arbitration and Conciliation Act — Challenge to High Court order on misjoinder. (Para 2 , 13 , 14 )
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2017 Supreme(SC) 325
SUPREME COURT OF INDIA
MADAN B. LOKUR, R.K. AGRAWAL, JJ.
MRS. HEMA KHATTAR & ANR. – APPELLANTS
VERSUS
SHIV KHERA – RESPONDENTS
Civil Appeal No. 8837 of 2016
Decided On : 10-04-2017
Important Points
IMPORTANT POINT
When prerequisites of section 8 of Arbitration and Conciliation Act 1996 are satisfied, Civil court will have no jurisdiction.
When prerequisites of section 8 of Arbitration and Conciliation Act 1996 are satisfied, Civil court will have no jurisdiction.
Subject
Civil Law - Arbitration and Conciliation Act, 1996
Act Referred
Headnote
(a) Code of Civil Procedure, 1908 – Order II, Rule 3 and 6 r/w Order I Rule 1– Appellant No. 1 and respondent entering into agreement dated 06.06.2009 to which appellant No. 2 was only a witness – Agreement terminated by mutual agreement – On such termination, appellant No. 2, husband of appellant No. 1, agreeing to take over execution of the pending works – Appellant No. 1 not a party to oral agreement between Appellant No. 2 and the respondent – Oral agreement substituted in place of written agreement dated 06.06.2009 – Right to get declarations with regard to the contract dated 06.06.2009 as null and void or a right to seek an injunction restraining the respondent from taking any action on the basis of the said contract arising in favour of appellant No. 1 against respondent is first cause of action – Similarly right to seek money decree on the basis of second agreement would be a distinct cause of action – Both cause of action in continuity – Both appellants could have joined as plaintiffs in a suit - Instant suit not bad for misjoinder of parties or causes of action. (Para 22)
(1992) 2 SCC 524 – Relied upon
(b) Arbitration and Conciliation Act, 1996 – Section 8 – Arbitration agreement between parties – Arbitrator appointed – Other party bringing action in court on the same subject matter a that in arbitration – Other party moving the court for referring parties to arbitration before submitting his first statement on the substance of the dispute – Requirements of section 8 satisfied – Civil court will have no jurisdiction. (Para 27)
(2015) 14 SCC 444; (2000) 4 SCC 539 – Relied upon
Facts of the case:
An agreement to reconstruct a building was executed between Hema Khattar-the appellant No. 1 herein, wife of Ashwani Khattar - the appellant No. 2 herein, carrying on business in construction and Shiv Khera-the respondent herein.
Being aggrieved by the quality of construction, the respondent served a legal notice to the appellant No. 1 seeking damages. The respondent appointed a sole arbitrator. In statement of claims, the respondent, besides other claims, also sought for a sum of Rs. 39.85 lakhs paid to the appellant No. 1 along with a sum of Rs. 35,000/- for the TDS deposited to her credit.
The appellants filed a suit for declarations, permanent injunction and recovery before the High Court seeking a decree that the agreement dated 06.06.2009 entered into between the appellant No. 1 and the respondent was vitiated and had been terminated by mutual consent by both the parties and any proceeding initiated pursuant to the agreement is null, non-est and void and also for recovery of an amount of Rs. 45,50,000/-.
The respondent filed I.A. in CS(OS) u/s 8 of the Arbitration and Conciliation Act, 1996 claiming that the subject-matter of dispute in the present suit is already pending adjudication before the Arbitral Tribunal, hence, the suit cannot be proceeded with.
Single Judge of the High Court, found that the suit is bad for misjoinder of parties as well as for causes of action and gave an option to the appellants therein to elect whether they want the suit to be treated as a suit for recovery of money by appellant No. 2 herein against the respondent or a suit for declarations and injunction by appellant No. 1.
The appellants went in appeal which was dismissed.
Finding of the Court:
When prerequisites of section 8 of Arbitration and Conciliation Act 1996 are satisfied, Civil court will have no jurisdiction.
Result: Appeal allowed.
Legal Category Hierarchy
Advocates Appeared:
For the Appellants : Pradeep Kumar Bakshi, Adv.
For the Respondents: P.D. Sharma, Adv.
For the Appellants : Pradeep Kumar Bakshi, Adv.
For the Respondents: P.D. Sharma, Adv.
Table of Contents
2. Whether the suit is bad for misjoinder of parties and causes of action — Whether the existence of an arbitration agreement mandates referral to arbitration under Section 8. (Para 5 , 6 , 7 , 9 , 10 , 11 )
3. Continuity between written and oral agreements permits joinder of parties and causes of action — Section 8 of the Arbitration Act is peremptory, mandating referral to arbitration. (Para 15 , 16 , 22 , 23 , 25 , 26 , 27 , 28 )
4. Mandatory nature of Section 8, Arbitration and Conciliation Act — Obligation of judicial authorities to refer parties to arbitration upon application if a valid arbitration agreement exists. (Para 25 , 26 , 27 )
5. Appeal allowed — High Court orders set aside — Disputes referred to the sole arbitrator for expeditious adjudication. (Para 29 )
6. When can multiple plaintiffs join causes of action in a single suit under the Code of Civil Procedure?
Under Order II Rule 3 and Order I Rule 1, plaintiffs may unite several causes of action or join as plaintiffs if they are jointly interested or if the right to relief arises from the same transaction, provided it does not embarrass or delay the trial. (Para 18 , 19 , 20 , 22 )
7. What is the effect of a Section 8 application under the Arbitration and Conciliation Act, 1996?
Section 8 is peremptory; a judicial authority must refer parties to arbitration if a valid arbitration agreement exists, the action is brought in a matter subject to that agreement, and the application is made before the first statement on the substance of the dispute. (Para 23 , 25 , 26 , 27 )
8. Does an arbitration clause survive the termination of an agreement by mutual consent or substitution by an oral agreement?
Yes, an arbitration clause does not perish upon termination by mutual consent. Furthermore, if an oral agreement substitutes a written agreement containing an arbitration clause, that clause remains applicable to the disputes arising from the oral agreement. (Para 26 , 28 )
JUDGMENT
R.K. Agrawal, J.
Challenge in this appeal is to the legality of the judgment and order dated 28.09.2012 rendered by a Division Bench of the High Court of Delhi at New Delhi in FAO (OS) No. 470 of 2012 whereby the High Court dismissed the appeal filed by the appellants herein.
2. Factual position in a nutshell is as follows:-
a) An agreement to reconstruct a building situated at C-6/4, Vasant Vihar, New Delhi was executed between Hema Khattar-the appellant No. 1 herein, wife of Ashwani Khattar - the appellant No. 2 herein, carrying on business in construction under the name and style of M/s Dessignz and Shiv Khera-the respondent herein on 06.06.2009.
b) Pursuant to the said agreement, the building site was handed over to the appellant No. 1 herein on 09.11.2010 and thereafter the execution of the work had started. In March 2011, as per Clause 16 of the Agreement dated 06.06.2009, a spot inspection was conducted by renowned structural engineers which pointed out several structural lacunae. On coming to know about the same, the respondent further arranged inspection by various specialized agencies which confirmed the same in their reports.
c) Being aggrieved by the quality of construction, the respondent served a legal notice dated 19.09.2011 to the appellant No. 1 seeking damages. The respondent, vide Clause 33 of the said agreement, appointed a sole arbitrator claiming that the appellant No. 1 has not complied with the terms of the agreement whereby disputes, requiring adjudication, have arisen between the parties. In statement of claims, the respondent, besides other claims, also sought for a sum of Rs. 39.85 lakhs paid to the appellant No. 1 along with a sum of Rs. 35,000/- for the TDS deposited to her credit.
d) The appellants filed a suit for declarations, permanent injunction and recovery before the High Court being CS(OS) No. 1532 of 2012 seeking a decree that the agreement dated 06.06.2009 entered into between the appellant No. 1 and the respondent was vitiated and had been terminated by mutual consent by both the parties and any proceeding initiated pursuant to the agreement is null, non-est and void and also for recovery of an amount of Rs. 45,50,000/-.
e) It is also pertinent to mention here that it was alleged in the plaint that a formal meeting was held between the parties in which it was decided that appellant No.1 will no longer be the contractor and the agreement dated 06.06.2009 would stand terminated by mutual consent and the construction would be carried out by the sub-contractors to be appointed as per the advice of appellant No. 2 who would supervise the same without remuneration/profit.
f) The respondent filed I.A. No. 12124 of 2012 in CS(OS) No. 1532 of 2012 under Section 8 of the Arbitration and Conciliation Act, 1996 (in short `the Act') claiming that the subject-matter of dispute in the present suit is already pending adjudication before the Arbitral Tribunal, hence, the suit cannot be proceeded with which was denied by the appellants in their reply to the above said application.
g) Vide order dated 17.09.2012, learned single Judge of the High Court, found that the suit is bad for misjoinder of parties as well as for causes of action and gave an option to the appellants therein to elect whether they want the suit to be treated as a suit for recovery of money by appellant No. 2 herein against the respondent or a suit for declarations and injunction by appellant No. 1.
h) Being aggrieved by the order dated 17.09.2012, the appellants went in appeal and filed FAO (OS) being No. 470 of 2012 before the High Court. A division bench of the High Court, vide order dated 28.09.2012, dismissed the appeal.
i) Aggrieved by the order dated 28.09.2012, the appellants have filed this appeal by way of special leave before this Court.
3. Heard Mr. Jayant Bhushan, learned senior counsel for the appellants and Mr. Sakal Bhushan, learned counsel for the respondent and perused the records.
Point for consideration:-
4. The only poi
