Once the decision taken by a judicial authority under Section 8(1) of the Arbitration & Conciliation Act declining to refer the dispute to arbitration has become final, jurisdiction of the Chief Justice under Section 11(6) of the Act cannot be invoked

The Supreme Court of India has held¹ that either party to the proceedings cannot invoke the jurisdiction of the Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 after the decision taken by a judicial authority under Section 8(1) of the Act declining to refer the dispute pending before it to arbitration and the said decision has become final.

The case involved a suit filed by a partnership firm, viz., M/s. Rana Sahebram Mannulal and three others before the Court of the Civil Judge Senior Division at Aurangabad, Maharashtra. The appellants before the Supreme Court were defendants 1 to 3 in the said suit. The dispute mainly pertained to the partnership business.

Upon entering appearance, the defendants/appellants had filed an application under Section 9A of the Code of Civil Procedure, 1908 to dismiss the suit for want of jurisdiction since the partnership deed contained a provision for arbitration and hence the disputes were liable to be resolved in terms of the Act. In other words, the application filed by defendants, in essence, was to be treated as an application under Section 8(1) of the Act. The same was opposed by the plaintiff. The trial court upheld the objection and held that it was within the jurisdiction of the court to try the dispute and, therefore, it was not required under law to refer the same to arbitration.

The suit proceeded. The parties have examined all their witnesses.

While so, the respondents herein approached the Chief Justice of the High Court of Judicature at Bombay by filing an application under Section 11(6) of the Act seeking appointment of an arbitrator as per the terms of the partnership deed. The appellants opposed the prayer.

The High Court, as per the impugned order, ignored the objection and held that Section 8(3) of the Act does not preclude appointment of arbitration during course of the litigation pursuant to an agreement

“4. Sub-section (3) of Section 8 of the Act does not preclude appointment of arbitration during course of litigation pursuant to agreement. Taking into account sub-section (3) of Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996, it would be expedient that pursuant to clause 6 of the partnership deed, a proper person be appointed as arbitrator to entertain dispute between the parties,” so held the High Court.

The defendants in the suit, aggrieved by the order of the High Court carried the matter in appeal to the Supreme Court.

The Apex Court Court was thus essentially confronted with the issue as to whether either party to the proceedings can invoke the jurisdiction of the Chief Justice under Section 11(6) of the Act after the decision taken by a judicial authority under Section 8(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) declining to refer the dispute pending before it to arbitration and the said decision has become final. The scope of Section 8(3) of the Act was also an ancillary issue before the Court.

The Court held that the facts of the case would show that the application filed by the respondents before it under Section 11 of the Act was nothing but an abuse of process. “The partnership firm itself is the first plaintiff in the suit. The dispute between the parties is the subject of the suit. Precisely for that reason, the appellants sought the matter to be referred to the arbitrator. That was opposed by the respondents. When the suit is at the final stage, the respondents have sought appointment of an arbitrator under Section 11(6) of the Act. Having approached the civil court and having opposed the reference to arbitration under Section 8(1) of the Act and the decision of the court in that regard having become final, the respondents cannot invoke jurisdiction under Section 11(6) of the Act; it is hit by the principle of issue estoppel.”

The Court explained further: “Under Section 8(1) of the Act, either party is free to apply to the judicial authority within the prescribed time to refer the parties to arbitration, in case the matter pending before it is the subject matter of an arbitration agreement. Section 8(3) of the Act however makes it clear that notwithstanding the application under Section 8(1) of the Act and the issue pending before the judicial authority, arbitration may be commenced or continued and an arbitral award can also be made. In other words, despite the pendency of an application under Section 8(1) of the Act before the judicial authority, Section 8(3) of the Act permits the parties to commence and continue the arbitration and the arbitral tribunal is free to pass an award. That alone is what is contemplated under Section 8(3) of the Act.

Writing the judgment for the Bench, Justice Kurian Joseph opined that the principle of res judicata would also come into play once the decision of the Civil Court under Section 8(1) of the Act had become final. He said: “In the suit instituted by the firm and some of the respondents, the order passed by the civil court that it was well within its jurisdiction to try the suit, despite the objection regarding the existence of a clause for arbitration, has become final. Thereafter, Section 11(6) jurisdiction of the Chief Justice cannot be invoked by either party. The principle of res judicata will also be attracted in such a case.”

The Bench of Kurian Joseph and Anil.R. Dave, JJ. thus held : “once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision having become final, thereafter Section 11(6) route before the Chief Justice is not available to either party.”

The Apex Court accordingly set aside the impugned order and allowed the appeal with costs of Rs.25,000/-.

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1. Anil @ v. Rajendra, Civil Appeal No. 11604 /2014 [Arising out of S.L.P. (Civil) No. 15314 of 2014, decided on 18.12.2014