2006 (8) TMI 515 - SC - Companies Law

Supreme Court: Arbitration application maintainable under Section 8

The Supreme Court ruled that the application under Section 8 of the Arbitration and Conciliation Act, 1996 was maintainable. The court found errors in the ... Whether the subject-matter of the dispute is covered by the arbitration agreement or not? Held that:- The application filed by the Appellants under Section 8 of the 1996 Act was maintainable. Before parting with the case, we may notice a disturbing state of affairs. Mr. Nariman made a statement before us that in view of the order of status quo passed by the learned Civil Judge, the Respondents have not only been working for the full term of five years contemplated under the agreement but also for the extended the period of ten years, to which they were not entitled. The order of injunction passed by the learned Trial Judge is not before us. The contention raised by Mr. Nariman if correct, we are sure that corrective measures shall immediately be taken by the court concerned. Issues Involved:1. Interpretation and application of Section 8 of the Arbitration and Conciliation Act, 1996.2. Validity of blacklisting without notice.3. Maintainability of the application under Section 8 without the original arbitration agreement or certified copy.4. Whether filing a reply to an interim injunction constitutes submission to the jurisdiction of the Civil Court.Detailed Analysis:1. Interpretation and Application of Section 8 of the Arbitration and Conciliation Act, 1996:The Supreme Court addressed the interpretation and application of Section 8 of the Arbitration and Conciliation Act, 1996. The court noted that the 1996 Act is a radical departure from the 1940 Act, incorporating modern arbitration rules but not as extensive as the English Arbitration Act. Section 8 mandates a judicial authority to refer the dispute to arbitration if the conditions precedent are met, specifically if the application is made before submitting the first statement on the substance of the dispute. The court emphasized that the term 'first statement on the substance of the dispute' must be distinguished from 'written statement,' indicating submission to the court's jurisdiction.2. Validity of Blacklisting Without Notice:The court found that the High Court erred in concluding that the Respondent-Firm was blacklisted without notice. The notice dated 23.05.2002 clearly stated that a final decision on blacklisting would be taken only after considering the respondent's explanation. Thus, the blacklisting process had not been completed, and the Respondent-Firm had the opportunity to respond.3. Maintainability of the Application Under Section 8 Without the Original Arbitration Agreement or Certified Copy:The High Court dismissed the application under Section 8 on the grounds that it was not accompanied by the original arbitration agreement or a certified copy. However, the Supreme Court clarified that the existence of an arbitration agreement is the primary requirement for maintaining such an application. The court noted that the High Court failed to address the fact that a certified copy had indeed been filed, as pointed out in the review application.4. Whether Filing a Reply to an Interim Injunction Constitutes Submission to the Jurisdiction of the Civil Court:The Supreme Court held that filing a reply to an interim injunction does not equate to submitting to the jurisdiction of the Civil Court. The court referenced previous judgments, stating that interlocutory proceedings are incidental and do not constitute steps in the main proceedings. The appellants had explicitly stated in their reply to the injunction application that the suit was not maintainable due to the existence of an arbitration clause, thereby not waiving their right to arbitration.Conclusion:The Supreme Court concluded that the application under Section 8 of the 1996 Act was maintainable, and the High Court had erred in its judgment. The court set aside the impugned judgments and allowed the appeals with costs quantified at Rs.15,000/-. The court also noted the need for corrective measures if the Respondents had been working beyond their entitled period due to the status quo order.