2023 (7) TMI 1496 - HC - SEBI

Arbitration reference upheld under Section 8 when valid arbitration agreement exists between parties

Delhi HC dismissed revision petition challenging trial court's order referring dispute to arbitration under Section 8 of Arbitration Act, 1996. Court held ... Maintainability of petitioner’s challenge against the impugned Order of Trial Court allowing reference to arbitration u/s 115 of the CPC - Revisional jurisdiction of the High Court. HELD THAT:- This Court has limited powers which can be exercised under Section 115 of the CPC. Not every order of the Trial Court can be regarded as an order that can be put under the ambit of revisional jurisdiction of the High Court. In view of the instant matter, Trial Court has referred the dispute of the petitioner for arbitration u/s 8 of the Act, 1996. Considering the facts of the instant case, there is a reference to arbitration as per the AOF executed between the petitioner and respondent no. 2. This Court is of the view that any agreement that contains an arbitration clause must be referred to arbitration in an application under Section 8 of the Act, 1996. The same must be done because the parties have already consented to arbitration. Since the AOF in the instant case contains the arbitration clause, it has to be referred to arbitration for the necessary adjudication. The Court in this scenario cannot adjudicate upon whether the disputes which are arbitrable under the agreed terms between the parties. Hon’ble Supreme Court in Magma Leasing & Finance Ltd. v. Potluri Madhavilata, [2009 (9) TMI 592 - SUPREME COURT] has strictly narrated its view with regard to the cases wherein reference to the arbitration has not been allowed by the Court despite existence of an arbitration clause in the agreement. The application filed before the learned Trial Court has been properly accompanied by the AOF, which outlines the petitioner’s rights and obligations and acknowledgment of the same by the petitioner therein. It evidently specifies that any dispute between the “client and stock broker‟ should be referred to arbitration. In addition, Chapter-11 of the National Stock Exchange of India Byelaws provides for arbitration between trading members and constituents deriving from or relating to dealings, contracts, and transactions made subject to the byelaws, rules, and regulations of the Exchange. On bare perusal of the reliefs sought by the petitioner before the learned Trial Court, it is ex facie apparent that the petitioner’s primary concern is against respondent no. 2. The reference to arbitration is mandatory for adjudication of the dispute in the present petition. The petitioner's contention that the current dispute is a tripartite dispute and not a bipartite dispute is not sustainable. Conclusion - This Court is of the view that the learned Trial Court has not committed any error of law that can be the subject matter to be exercised by this Court exercising its revisional powers u/s 115 of the CPC. Section 8 of the Act, 1996 refers to a clause that limits Court's interference in the arbitration procedure. This Court has serious objections to the extent of interference on the grounds of the arbitrability of the subject matter, and the competence of the arbitral tribunal to deal with it. Section 8 of the Act, 1996 continues to serve as a hope for arbitration, forming the basis for mandating the parties to follow the model of arbitration where an arbitration agreement exists. With regards to the maintainability of the revision petition, the learned Trial Court has rightly determined that its jurisdiction to hear the suit does not exist due to the presence of an arbitration clause. After relying upon the aforementioned judgments, it is concluded that the observations made therein apply to the facts of the case in hand. Therefore, it is held that the learned Trial Court did not have the jurisdiction to hear a dispute after an application for arbitration under Section 8 of the Act, 1996 was filed. As a result, the learned Trial Court has correctly allowed the said application under Section 8 of the Act, 1996. In such a case, refusing to refer the matter to arbitration would be a failure of justice, causing irreparable harm to the parties and violating the settled principles of law. This Court is of the view that no case of revision as defined under Section 115 of CPC has been made out by the petitioner as no such cause exists wherein the learned Trial Court has failed to exercise its jurisdiction as per law. The learned Trial Court has neither acted illegally in the exercise of its jurisdiction nor has there been any material irregularity. Accordingly, the issue framed above has been decided. This Court finds no infirmity in the impugned Order in Civil Suit passed by the learned Senior Civil Judge, Patiala House Court, New Delhi. Issues Involved:1. Whether the petitioner's challenge against the impugned Order of the learned Trial Court allowing reference to arbitration is maintainable under Section 115 of the CPCRs.Issue-wise Detailed Analysis:1. Maintainability of the Revision Petition under Section 115 of CPC:The petitioner challenged the impugned Order dated 17th November 2021, which referred the dispute to arbitration, claiming it was a tripartite dispute involving respondent No. 1 and respondent No. 2. The petitioner argued that the matter could not be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, as respondent No. 1 is a necessary party for proper adjudication. The petitioner contended that the letters/circulars issued by respondent No. 1 were illegal and that the application under Section 8 was not maintainable.The Court examined the scope of Section 115 of the CPC, which allows the High Court to call for records of any case decided by a subordinate court if it exercised jurisdiction not vested in it by law, failed to exercise jurisdiction so vested, or acted illegally or with material irregularity. The Court referred to several judgments, including Pandurang Dhondi Chougule v. Maruti Hari Jadhav and D.L.F. Housing & Construction Co. (P) Ltd. v. Sarup Singh, which clarified that errors of law or fact not related to jurisdiction cannot be corrected under Section 115.The Court found that the learned Trial Court had not committed any error of law that could be addressed under Section 115. The Court emphasized that the arbitration agreement in the Account Opening Form (AOF) between the petitioner and respondent No. 2 mandated arbitration for disputes arising out of their dealings. The Court cited the judgment in A. Ayyasamy v. A. Paramasivam, which highlighted that objections to arbitration should be raised before the arbitral tribunal, not the court.The Court also referred to Magma Leasing & Finance Ltd. v. Potluri Madhavilata, which stated that Section 8 is a legislative command to the court to refer parties to arbitration when conditions are met. The Court found that the learned Trial Court correctly referred the dispute to arbitration, as the arbitration clause in the AOF covered the dispute between the petitioner and respondent No. 2.The Court concluded that the learned Trial Court acted within its jurisdiction and did not commit any material irregularity or illegality. The petitioner's contention that the dispute was tripartite was not sustainable, as the primary concern was against respondent No. 2. The Court held that the revision petition was not maintainable under Section 115 of the CPC, as the learned Trial Court had not acted outside its jurisdiction or with material irregularity.Conclusion:The Court dismissed the petition, finding no infirmity in the impugned Order dated 17th November 2021. The learned Trial Court correctly allowed the application under Section 8 of the Arbitration and Conciliation Act, 1996, referring the dispute to arbitration. The Court emphasized that refusing to refer the matter to arbitration would cause irreparable harm and violate settled legal principles. The petition was dismissed, and pending applications were disposed of.