Simultaneous Filing of Written Statement and Section 8 Application Not a Waiver of Arbitration Right: Karnataka HC

Bengaluru: The High Court of Karnataka has clarified a crucial aspect regarding the timing of filing applications under Section 8 of the Arbitration and Conciliation Act, 1996. In a recent judgment, the court held that filing a written statement simultaneously with an application seeking reference of a dispute to arbitration does not amount to a waiver of the right to invoke the arbitration clause.

Justice H.P.Sandesh , presiding over the case of SRI R NATARAJ v/s SMT R PUNITHA (MFA 6586 of 2024), set aside an order passed by the VII Additional Senior Civil and JMFC, Bengaluru Rural District, which had dismissed a Section 8 application on this very ground.

Case Background:

The case originated from a civil suit (O.S.No.1705/2023) filed by the respondents seeking reliefs including a declaration that a "deed of arrangement and confirmation" dated 29.12.2021 was null and void. The suit involved partners of a partnership firm, Plaintiff No. 3.

The appellant (Defendant No. 1 in the suit), also a partner, filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, requesting the court to refer the parties to arbitration. The appellant contended that the registered partnership deed dated 12.12.2022 contained an arbitration clause (Clause No. 15) mandating that any dispute arising out of the deed be referred to a single arbitrator. Therefore, the civil suit was not maintainable without first invoking arbitration.

Trial Court's Dismissal:

The respondents opposed the Section 8 application, arguing it was filed merely to delay proceedings. They also contended that by filing a written statement, the appellant had already submitted to the court's jurisdiction and waived the right to seek arbitration.

The Trial Court agreed with the respondents, reasoning that Section 8 requires the application to be made "not later than the date of submitting his first statement on the substance of the dispute." The court found that since the appellant filed the written statement and the Section 8 application on the same day, the appellant had already put forth their defence by filing the written statement and thus could not invoke Section 8.

High Court's Analysis:

The High Court found the Trial Court's interpretation of Section 8 to be erroneous. Relying on judgments from the Supreme Court (P. ANAND GAJAPATHI RAJU and RASHTRIYA ISPAT NIGAM LIMITED) and a Division Bench of the High Court (PRICEWATERHOUSE COOPERS SERVICE), Justice Sandesh emphasized the correct interpretation of the phrase "not later than".

The court noted that the Division Bench, in PRICEWATERHOUSE COOPERS SERVICE, had elaborately discussed the Apex Court judgments, concluding that the term 'not later than' permits the filing of an application seeking reference to arbitration along with the written statement.

Citing the Apex Court's view, the High Court reiterated that the expression "first statement on the substance of the dispute" is distinct from a "written statement" and refers to submitting to the judicial authority's jurisdiction. Filing a written statement and an application under Section 8 simultaneously does not lead to an inference that the defendant has submitted to the civil court's jurisdiction and waived their right to arbitration. The Legislature used the term 'not later than' deliberately to mean that a party must apply for reference at the earliest point in time.

Decision and Remand :

Given the binding precedents and the correct interpretation of Section 8(1), the High Court concluded that the Trial Court erred in dismissing the application based solely on the simultaneous filing of the written statement. The Trial Court had dismissed the application on a technicality without considering its merits.

Consequently, the High Court allowed the appeal, set aside the Trial Court's order dated 26.07.2024, and remanded the matter back to the Trial Court. The Trial Court is directed to consider the application filed under Section 8 of the Act afresh on its merits, taking into account the contentions of both sides. The High Court directed the Trial Court to consider the application within a period of one month.

The High Court clarified that all contentions of both parties regarding the Section 8 application are kept open for the Trial Court to consider during the fresh adjudication.

This judgment reinforces the principle that the right to seek arbitration under Section 8 is not lost merely because the application is filed concurrently with the first defensive pleading, ensuring that parties can invoke arbitration as per their agreement at the earliest stage of court proceedings.