The Madras High Court has issued a definitive ruling emphasizing that parties cannot utilize arbitration as a procedural loophole to overcome a forfeited right to file a written statement in commercial litigation. In an appeal brought before a Division Bench comprising Justice N. Sathish Kumar and Justice G.K. Muthukumar, the court held that a party’s failure to adhere to the mandatory 120-day timeline prescribed by the Commercial Courts Act, 2015, acts as a permanent barrier to subsequently seeking a reference to arbitration. This decision clarifies that allowing a party to participate in cross-examination of witnesses does not equate to a waiver of the statutory forfeiture of their defense filing rights.

The dispute arose from a commercial recovery claim filed by TUV SUD South Asia Private Limited against BGR Energy Systems Limited. TUV SUD, an international entity specializing in certification and technical inspection, had provided services to BGR Energy, an engineering and construction company. Following a disagreement over unpaid invoices totaling ₹37,45,109, TUV SUD initiated a recovery suit in the Principal Commercial Court at Egmore, Chennai.

A Missed Deadline Sparks Procedural Conflict

The timeline of the case became the focal point of the legal dispute. After receiving the summons on April 2, 2026, BGR Energy failed to file its written statement within the 120-day period mandated by the amended Code of Civil Procedure. Consequently, on June 16, 2026, the Principal Commercial Court declared the company ex parte.

Following the filing of the proof affidavit by TUV SUD in early July, BGR Energy sought to mitigate its position. On August 13, 2026, the company filed an application under Order IX Rule 7 of the Code of Civil Procedure, requesting that the ex parte order be set aside and seeking permission to participate in the ongoing proceedings. On September 3, 2026, the commercial court granted this request, allowing BGR Energy to cross-examine witnesses, but explicitly upheld the forfeiture of its right to file a formal written statement due to the expiration of the statutory period.

Simultaneously, BGR Energy attempted to shift the legal venue. Relying on an arbitration clause—specifically Clause 15 of their contractual agreement—the company moved for a reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The commercial court rejected this request, leading to the appeal heard by the High Court.

The High Court’s Strict Interpretation of Commercial Timelines

In the High Court, BGR Energy argued that the contractual requirement for arbitration remained valid and that the expiration of the 120-day limit for a written statement did not automatically constitute a waiver of the right to arbitrate. They contended that the commercial court failed to adequately assess the merits of the arbitration agreement before dismissing the application.

The Division Bench, however, rejected these assertions, focusing instead on the legislative intent behind the Commercial Courts Act. The court clarified that a party must initiate a request for arbitration no later than the stage at which it is expected to file its primary statement of defense. The judges maintained that once this stage has passed and the right to defend has been forfeited under the law, the party cannot use the arbitration mechanism as a "backdoor" to re-enter the litigation process.

“Merely because the appellant was permitted to participate in the proceedings to cross-examine the plaintiff side witnesses, the appellant cannot take advantage of the same and use Section 8 of the Arbitration and Conciliation Act, 1996, as a procedural device to circumvent the mandatory time limit introduced by the Commercial Courts Act, 2015,” the Bench observed during the proceedings.

Narrowing the Path to Arbitral Intervention

The High Court drew significant support from the precedent set in the Delhi High Court case SPML Infra Limited v. Trisquare Switchgears Private Limited . In that matter, it was established that a party is barred from seeking a reference under Section 8 of the Arbitration and Conciliation Act if the window for filing a statement of defense has already closed.

By applying this logic, the Madras High Court reinforced the principle that the Commercial Courts Act was enacted specifically to streamline and expedite the resolution of complex commercial disputes. Allowing parties to ignore strict deadlines would undermine the very efficiency the legislation seeks to promote. The court emphasized that the permission granted to BGR Energy to cross-examine witnesses was an act of procedural fairness regarding the ongoing trial, but it did not provide a bridge back to the stage of filing pleadings or initiating arbitration.

“If the right of the party to file written statement has already been forfeited by the Statute, later, the party cannot seek reference as a procedural device to circumvent the time limit held to be mandatory in filing the written statement in commercial suits,” the Bench concluded.

The ruling serves as a stern reminder to corporate entities that procedural deadlines in commercial suits are absolute. By choosing not to file a written statement within the 120-day window, a party effectively risks losing its right to contest the claims through alternative dispute resolution mechanisms like arbitration. The High Court ultimately dismissed the appeal, upheld the September 3, 2026, order of the commercial court, and closed the connected miscellaneous petition. No costs were imposed in the final order, but the decision stands as a clear indicator of the court’s resolve to enforce rigorous adherence to procedural timelines in commercial law. As it stands, the case will continue to proceed in the Principal Commercial Court, limited by the constraints established by the High Court’s current ruling.