Section 8 of the Arbitration and Conciliation Act, 1996 (Act) embodies a key facet of the arbitration framework in India – minimum judicial interference. This provision mandates that civil courts should refer parties to arbitration where the dispute is a subject matter of a valid arbitration agreement. While the language of Section 8 suggests a legislative command on the civil courts to refer the parties to arbitration, a recent ruling of the Delhi High Court emphasizes and reaffirms that the right to seek reference via Section 8 lies solely with the defendant, who can choose to waive off this right and submit to the jurisdiction of the civil court.
It is well recognized that Section 8 is peremptory in nature, and the use of the work 'shall' leaves no scope for doubt that the legislative intent underlying this provision was to ensure that judicial discretion could not supersede the intent/right of the parties to seek resolution of dispute through arbitration. As specified in the provision, the mandatory obligation on the courts applies as long as there is a valid arbitration agreement, the application for reference is filed before submitting the first statement on the substance of the dispute, and the application is accompanied by the original arbitration agreement or its certified copy. Furthermore, the subject matter of the suit ought to be within the ambit of the arbitration agreement.
The exception to the applicability of Section 8 was highlighted in Sukanya Holding (P) Ltd v. Jayesh Pandya1 wherein the Supreme Court of India held that a dispute would not be required to be referred to arbitration if parties to the arbitration agreement have not filed any such application for referring the dispute to the arbitrator; in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or when such application is not accompanied by the original arbitration agreement or duly certified copy thereof.
Recently, the Delhi High Court dealt with an interesting issue in Sultan Chand and Sons Pvt Ltd v. Kartik Sharma2 pertaining to whether a defendant can withdraw the application under Section 8 of the Act filed by it? And if yes, can the plaintiff who had approached the civil court and denied the existence of the arbitration clause, challenge the withdrawal by the defendant?
In this case, Sultan Chand and Sons Pvt Ltd (Sultan), a publishing house, entered into a publication/copyright sharing agreement with Mr. Kartik Sharma (Respondent/Author). Subsequently, on account of various allegations of plagiarism against the Respondent, Sultan filed a suit seeking damages against the Respondent. Initially, the Respondent filed an application under Section 8 of the Act for reference of the dispute to arbitration, but subsequently sought to withdraw this application. The Single Judge of the High Court permitted the Respondent to withdraw its application which was challenged by Sultan by way of an appeal before the Division Bench, which dismissed Sultan's appeal and held that the defendant alone has the exclusive right to seek reference of the dispute to arbitration under Section 8.
Highlighting the important distinction between mandatory referral of a dispute to arbitration under Section 8 by the court and the discretion of the parties, more particularly the defendant, to instead submit to the jurisdiction of the Civil Court, the High Court was of the view that the defendant could choose to submit to the Civil Court's jurisdiction and waive this right of seeking reference to arbitration. The Court emphasised that while Section 8 imposes a legislative command on the Civil Court to refer the dispute to arbitration if the conditions specified therein are met, it does not however eliminate the defendant's discretion to withdraw their request for reference to arbitration. The Court held that Sultan could not enforce the arbitration agreement unilaterally once the Respondent had chosen to submit to the jurisdiction of the civil court.
The ruling in Sultan Chand (supra) emphasises that the defendant is free to choose to submit to the civil court's jurisdiction by waiving its right under Section 8 of the Act. Although civil courts are required under Section 8 to refer disputes to arbitration when the requirements are met, the defendant retains the exclusive right to invoke this provision. In order to seek reference of the dispute to arbitration, a party i.e. the defendant has to apply for reference. This, therefore, implies that the Act does not oust the jurisdiction of the civil court/judicial authority to decide the dispute in a case where parties to the arbitration agreement do not take appropriate steps as contemplated under Section 8. The right to waive is therefore inherent in language of the provision and the party i.e. the defendant can choose to submit to the jurisdiction of the civil court instead. The judgment also underlines that a civil court does not have any suo moto power under Section 8 of the Act to refer parties to arbitration despite being cognizant about the existence of an arbitration agreement – such power can be exercised only at the instance of a defendant.
The decision in Sultan Chand (supra) is pending challenge before the Supreme Court of India. In our view, a key factor which may influence the decision of the Supreme Court could be the potential misuse of the Delhi High Court's decision by litigants. It is well settled that once an application under Section 8 of the Act is filed, such application should be decided first before any further proceedings in the suit, effectively stalling the proceedings in the suit during the pendency of the application under Section 8. Therefore, the ruling in Sultan Chand (supra) can be misused by defendants to drag the proceedings in the suit by filing an application under Section 8 (without any real intent to submit to arbitration), but eventually (after several months if not years) withdraw such application and thereby frustrating the rights and remedies of the plaintiff.
While the decision of the Supreme Court would be eagerly awaited by the arbitration community, the view adopted by the Delhi High Court is likely to evolve a judicial practice of expeditious disposal of applications under Section 8 to prevent a belated volte face by litigants.
Footnotes
1. (2003) 5 SCC 531
2. 2024 SCC OnLine Del 7281
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