Mandatory referral to arbitration applies where a broad arbitration clause covers the dispute despite partial settlement payments.

Where an arbitration agreement exists and the suit falls within its broad scope, Section 8 of the Arbitration and Conciliation Act, 1996 requires a mandatory reference to arbitration. Partial or without-prejudice payments do not by themselves extinguish the dispute, especially where the claim is not confined to dishonoured cheques and the defendants have not waived their defence by filing a written statement. The commentary distinguishes the earlier Section 34 regime under the Arbitration Act, 1940 and reiterates that, once the statutory conditions are satisfied, the judicial authority must refer the parties to arbitration.

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Issues: Whether, in the presence of an arbitration clause, the civil suit was liable to be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 despite partial payments and the appellant's assertion that no dispute survived.

Analysis: Section 8 of the Arbitration and Conciliation Act, 1996 operates mandatorily where an arbitration agreement exists and the subject matter of the suit falls within its scope. The dispute clause in the parties' memorandum was of wide amplitude and covered disputes of any nature. The respondents had not filed a written statement and had not waived their defence. Their subsequent payments were made without prejudice and did not extinguish the controversy, particularly when the claim in the suit was not confined only to the dishonoured cheques. The Court distinguished the earlier regime under Section 34 of the Arbitration Act, 1940, and reiterated that under the 1996 Act the judicial authority must refer the parties to arbitration once the statutory conditions are met.

Conclusion: The suit was rightly referred to arbitration and the objection that no dispute survived was rejected.

Ratio Decidendi: Where an arbitration agreement exists and the suit covers disputes within its broad scope, Section 8 of the Arbitration and Conciliation Act, 1996 requires a mandatory reference to arbitration even if the parties have made partial or without-prejudice payments and the alleged settlement does not fully extinguish the dispute.

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