2007 (3) TMI 807 - HC - Indian Laws

Revision petition granted, parties directed to arbitration under Section 8.

ZENITH DRUGS & ALLIED AGENCIES PVT. LTD. REPRESENTED BY ITS MANAGING DIRECTOR, SHRI UDAY KRISHNA PAUL Versus M/s. NICHOLAS PIRAMAL INDIA LTD.

The revision petition was allowed, setting aside the trial court's order. The court directed the parties to arbitration, emphasizing the mandatory nature ... - Issues Involved:1. Applicability of the arbitration clause to the dispute raised in the suit.2. Jurisdiction of the civil court to decide on the applicability of the arbitration clause.3. Whether the civil court can decline to refer a dispute to arbitration despite the existence of an arbitration clause.4. The impact of a compromise decree on the arbitration clause.5. Maintainability of the revision petition under Section 115 of the CPC.Issue-wise Detailed Analysis:1. Applicability of the Arbitration Clause to the Dispute Raised in the Suit:The core question was whether the arbitration clause in the agreement between the parties applied to the dispute raised in the suit. The court noted that the existence of the arbitration clause was admitted by the plaintiff company. According to Section 8 of the Arbitration and Conciliation Act, 1996, a judicial authority must refer the parties to arbitration if an arbitration agreement exists. The court emphasized that it is the arbitrator's role, under Section 16 of the Act, to decide the applicability of the arbitration clause to the dispute. This position was reinforced by the Supreme Court in Hindustan Petroleum Corpn. Ltd vs. Pinkcity Midway Petroleums, which held that the civil court must refer the dispute to arbitration if an arbitration clause exists, leaving the determination of its applicability to the arbitrator.2. Jurisdiction of the Civil Court to Decide on the Applicability of the Arbitration Clause:The court highlighted that the civil court does not have jurisdiction to decide whether the arbitration clause applies to the facts of the case. This determination is within the exclusive domain of the arbitrator as per Section 16 of the Act. The Supreme Court's ruling in Konkan Railway Corporation Ltd. further clarified that objections regarding the applicability of the arbitration clause should be raised before the arbitral tribunal.3. Whether the Civil Court Can Decline to Refer a Dispute to Arbitration Despite the Existence of an Arbitration Clause:The court ruled that the civil court cannot decline to refer a dispute to arbitration if an arbitration clause exists and the application for arbitration is made before the filing of the written statement. The trial court's decision to dismiss the defendant's petition for arbitration was found to be a serious error of jurisdiction, as it contradicted the mandatory provisions of Section 8 of the Act.4. The Impact of a Compromise Decree on the Arbitration Clause:The court examined whether the compromise decree in a previous suit affected the arbitration clause. It was noted that the compromise decree settled the disputes raised in that specific suit. However, the new money suit filed by the plaintiff company was based on different grounds, such as illegal termination and harassment, which were not covered by the compromise decree. Therefore, the arbitration clause remained applicable to the new disputes, and the civil court should have referred the matter to arbitration.5. Maintainability of the Revision Petition Under Section 115 of the CPC:The court addressed the objection regarding the maintainability of the revision petition. It was observed that the impugned order, if allowed to stand, would cause failure of justice and irreparable injury to the defendant company. The court referred to the Supreme Court's decision in Pinkcity Midway Petroleums, which held that refusal to refer a dispute to arbitration when an arbitration clause exists amounts to a jurisdictional error. Consequently, the revision petition was deemed maintainable under Section 115 of the CPC.Conclusion:The revision petition was allowed, and the impugned order was set aside. The trial court was directed to refer the parties to arbitration. The court emphasized the mandatory nature of Section 8 of the Arbitration and Conciliation Act, 1996, and reiterated that the arbitrator has the exclusive jurisdiction to decide the applicability of the arbitration clause to the dispute. The parties were instructed to appear before the trial court on a specified date for further proceedings.