Tuesday, 17 February 2015

Can't have the cake and eat it too

The instant case[1]  arises out of a Special Leave Petition No. 15314 of 2014. A special suit was filed at Aurangabad by a partnership firm being M/S Rana Sahebram Mannulal and others pertaining to the disputes arising out of the partnership business. The appellants were Defendants in the aforementioned suit. The appellants filed an application under Section 9 of the Code of Civil Procedure, which was deemed to be an application under Section 8(1) of the Arbitration and Conciliation Act 1996 (“the Act”) for dismissal of the special suit since the partnership deed contained a provision for arbitration and thus the disputes were to be resolved in terms of the Act. The application was opposed by the present Respondents (Plaintiff in the special suit) and an Arbitration Application under Section 11(6) of the act seeking appointment of an arbitrator as per the terms of the partnership deed was filed by them to the Chief Justice at the High Court of Bombay.

The following issues were to be considered by the Supreme Court:-

i) Whether a party to the proceedings can invoke the jurisdiction of the Chief Justice under Section 11(6), once the judicial authority has taken a final decision under Section 8(1) of the Act declining to refer the dispute pending before it to arbitration?
ii) What is the scope of Section 8(3) of the Act?

The trial court opined that it was within the jurisdiction of the court to try the dispute and no reference to arbitration was required under law.

The high court while interpreting Section 8(3) along with section 11 of the Act held that in accordance with the partnership deed, a proper person shall be appointed as an arbitrator to entertain dispute between the parties.

Issue No 1: Once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision has become final, thereafter jurisdiction under Section 11(6) cannot be invoked by either parties

It was held by the Supreme Court that the application filed by the Respondents under Section 11 of the Act was not maintainable as it amounts to abuse of process of law. The abovementioned application was filed when the civil suit was at its final stage. The respondent themselves had opposed to the reference to Arbitration and had hence approached the civil court. Considering the decision of the court has become final, the Respondents cannot invoke the jurisdiction under Section 11(6) of the Act as the same is hit by the principle of estoppels.

Further, the Supreme Court also upheld the decision of the Lower Court regarding the jurisdiction of a civil court to adjudicate a dispute despite the existence of arbitration clause in the partnership deed. Thus, the jurisdiction under Section 11 (6) cannot be invoked as the same attracts principles of res judicata.

Issue No 2: Scope of Sub clause 3 of Section 8 of the Act

This was an ancillary issue and the court has not dealt with the same in detail. Section 8(3) of the Act permits the parties to commence and continue arbitration proceedings despite the pendency of an application under Section 8(1) of the Act.


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