Chandka 1 NMS-3173-3174 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 3173 OF 2010 WITH NOTICE OF MOTION NO. 3174 OF 2010 IN SUMMARY SUIT NO. 2337 OF 2010 Pooja Enterprises ..Plaintiff versus Champagne Indage Ltd. & Anr. ..Defendants Mr. D. S. Chandnani i/b. Lexim Associates for Plaintiff. Mr. Cyrus Ardeshir with Mr. Mahek Kamdar i/b. Kanga & Co. for Defendants. CORAM : DR. D. Y. CHANDRACHUD, J. 22 March 2011. P.C. : These Notices of Motion have been taken out by the First and Second Defendants to the suit under Section 8 of the Arbitration and Conciliation Act 1996. 2. The suit has been instituted for the recovery of an amount of Rs.92.94 Chandka 2 NMS-3173-3174 lacs as against the First Defendant and an amount of Rs.8.60 lacs as against the Second Defendant together with interest on the principal sums. The suit has been instituted under Order XXXVII of the Code of Civil Procedure 1908. In paragraph 14 of the plaint it has been stated that the amount claimed is based on contracts annexed at Exhibits ‘A’ to ‘C’ and at Exhibit ‘E’ to the plaint. In so far as the First Defendant is concerned a Distribution Agreement was entered into on 24 February 2006 which was renewed on 1 April 2008. Both the Agreements provide for a reference of disputes to arbitration. Clause 15 of the renewed agreement contains an arbitration agreement by which parties agreed to endeavour to settle disputes by consultation and failing settlement to refer them to a sole Arbitrator. If the parties failed to agree on an Arbitrator, the arbitration was to be conducted before an Arbitral Tribunal consisting of three Arbitrators appointed in accordance with the Arbitration and Conciliation Act 1996. In so far as the Second Defendant is concerned, there was a Consignee Agreement dated 6 March 2006. Clause 14 of the Agreement provides that disputes shall be resolved within the jurisdiction of Mumbai only by arbitration. There is therefore admittedly an arbitration agreement. 3. The law on the subject is well settled. The provisions of Section 8 of the Arbitration and Conciliation Act 1996 are imperative and mandatory. Chandka 3 NMS-3173-3174 They cast an obligation on a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement, to refer the parties to arbitration. The Court is bound to do so. However this is subject to a party to the arbitration agreement applying before the court not later than when submitting his first statement on the substance of the dispute. 4. In P. Anand Gajapathi Raju & Ors. vs. P.V.G. Raju (dead) & Ors.1 , the Supreme Court while interpreting Section 8 held as follows : “The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in clause (e) of Section 2 of the new Act and not the court to which an application under Section 8 of the new Act is made. An application before a court under Section 8 merely brings to the court’s notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as the court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of Section 2(e) of the new Act.” 1 (2000) 4 SCC 539 Chandka 4 NMS-3173-3174 This decision was followed in Kalpana Kothari (Smt) vs. Sudha Yadav (Smt) & Ors.2 , where the Court held as follows: “Section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the 1996 Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or the making of an application under Section 8(1) of the 1996 Act, the arbitration proceedings are enabled, under Section 8(3) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency.” Finally, it may be noted in Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums3, the same decision was reiterated in the following observations : “In cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both 2 (2002) 1 SCC 203 3 (2003) 6 SCC 503 Chandka 5 NMS-3173-3174 the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.” 5. The contention which has been urged on behalf of the Plaintiff, is that there is no defence to the claim in the Summary Suit and there is no dispute whatsoever that requires to be agitated upon by arbitration. Learned counsel submitted that the Defendants have not yet filed their replies to the Summons for Judgment. 6. Now Section 8 postulates that an application under the provision has to be filed by a party to the arbitration agreement not later than when submitting the first statement on the substance of the dispute. Obviously therefore there is no merit in the contention of the Plaintiff that the Defendant must first file a reply to the Summons for Judgment. The Motion under Section 8 has to be taken out even before submitting a first statement on the substance of the dispute. That apart, it is not possible to accept the submission, from the record as it stands, that there is no dispute between the parties. As a matter of fact the Plaintiff has sought recovery of certain dues, which is sought to be contested by the Defendants. There is Chandka 6 NMS-3173-3174 indeed a dispute which subsists between the parties. The email which is annexed at Exhibit ‘R-1’ to the affidavit in reply filed by the Plaintiff to one of the two Motions does not, as is sought to be contended evidence that there was an acknowledgment of liability or acceptance that any particular sum was due and payable. 7. In the circumstances, the Motions will have to be allowed and are accordingly made absolute in terms of prayer clause (a). (Dr. D. Y. Chandrachud, J.)