Arbitration reference depends on an operative agreement, and a contractual condition precedent can block referral if unmet.

A court is not bound to refer a dispute to arbitration merely because an arbitration clause exists; it may first examine whether a valid and operative arbitration agreement is actually in force. Section 16 does not prevent that preliminary inquiry. On the agreement's construction, the stipulated escrow deposit was an integral condition precedent to the arbitration mechanism, linked to the wider transaction and the no-objection certificate arrangement. Because the deposit had not been made, the arbitration clause did not become operative and the dispute could not be referred to arbitration. The petitions therefore failed and the orders below were sustained with costs.

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Issues: (i) Whether the mere existence of an arbitration clause under Section 8 of the Arbitration and Conciliation Act, 1996 and Section 408 of the Bombay Provincial Municipal Corporation Act, 1949 obligated the Court to refer the dispute to arbitration; (ii) Whether deposit of Rs. 6,68,76,000/- in the Escrow Account was a condition precedent for invoking arbitration under the agreement dated 22 April 2009.

Issue (i): Whether the mere existence of an arbitration clause under Section 8 of the Arbitration and Conciliation Act, 1996 and Section 408 of the Bombay Provincial Municipal Corporation Act, 1949 obligated the Court to refer the dispute to arbitration?

Analysis: The statutory language requiring reference to arbitration operates only where there is an arbitration agreement in existence between the parties. The existence and validity of such agreement is a preliminary jurisdictional that can be examined by the Court when reference is sought through judicial intervention. The principle of competence-competence under Section 16 does not prevent the Court from deciding whether the arbitration agreement itself exists and is operative before making a reference.

Conclusion: No. The Court was not bound to refer the matter merely because the agreement contained an arbitration clause.

Issue (ii): Whether deposit of Rs. 6,68,76,000/- in the Escrow Account was a condition precedent for invoking arbitration under the agreement dated 22 April 2009?

Analysis: Reading the agreement as a whole, the promise to issue the no-objection certificate, the sale transaction, and the arbitration clause were interlinked. Clause 1 and Clause 2 showed that the deposit in the Escrow Account was the foundation on which the agreed reference to arbitration rested. The petitioner had obtained the benefit of the arrangement but failed to perform the corresponding obligation. In these circumstances, the arbitration agreement did not become operative unless the agreed deposit was made.

Conclusion: Yes. Deposit of the stipulated amount in the Escrow Account was a condition precedent, and in its absence the dispute could not be referred to arbitration.

Final Conclusion: The petitions failed and the orders of the Courts below were sustained, with costs awarded against the petitioner.

Ratio Decidendi: A court may refuse reference to arbitration where the existence or operative force of the arbitration agreement itself depends on fulfilment of a contractual condition precedent, and Section 16 does not compel referral before that preliminary question is resolved.

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