Case: Mrs. Hema Khattar  Vs. Mr. Shiv Khera

2. Factual position in a nutshell is as follows:-a) An agreement to reconstruct a building situated at C-6/4, Vasant Vihar, New Delhi was executed between Hema Khattar-the appellant No. 1 herein, wife of Ashwani Khattar - the appellant No. 2 herein, carrying on business in construction under the name and style of M/s Dessignz and Shiv Khera-the respondent herein on 06.06.2009b) Pursuant to the said agreement, the building site was handed over to the appellant No. 1 herein on 09.11.2010 and thereafter the execution of the work had started. In March 2011, as per Clause 16 of the Agreement dated 06.06.2009, a spot inspection was conducted by renowned structural engineers which pointed out several structural lacunae. On coming to know about the same, the respondent further arranged inspection by various specialized agencies which confirmed the same in their reportsc) Being aggrieved by the quality of construction, the respondent served a legal notice dated 19.09.2011 to the appellant No. 1 seeking damages. The respondent, vide Clause 33 of the said agreement, appointed a sole arbitrator claiming that the appellant No. 1 has not complied with the terms of the agreement whereby disputes, requiring adjudication, have arisen between the parties. In statement of claims, the respondent, besides other claims, also sought for a sum of Rs. 39.85 lakhs paid to the appellant No. 1 along with a sum of Rs. 35,000/- for the TDS deposited to her creditd) The appellants filed a suit for declarations, permanent injunction and recovery before the High Court being CS(OS) No. 1532 of 2012 seeking a decree that the agreement dated 06.06.2009 entered into between the appellant No. 1 and the respondent was vitiated and had been terminated by mutual consent by both the parties and any proceeding initiated pursuant to the agreement is null, non-est and void and also for recovery of an amount of Rs. 45,50,000/-e) It is also pertinent to mention here that it was alleged in the plaint that a formal meeting was held between the parties in which it was decided that appellant No.1 will no longer be the contractor and the agreement dated 06.06.2009 would stand terminated by mutual consent and the construction would be carried out by the sub-contractors to be appointed as per the advice of appellant No. 2 who would supervise the same without remuneration/profitf) The respondent filed I.A. No. 12124 of 2012 in CS(OS) No. 1532 of 2012 under Section 8 of the Arbitration and Conciliation Act, 1996 (in short `the Act) claiming that the subject-matter of dispute in the present suit is already pending adjudication before the Arbitral Tribunal, hence, the suit cannot be proceeded with which was denied by the appellants in their reply to the above said applicationg) Vide order dated 17.09.2012, learned single Judge of the High Court, found that the suit is bad for misjoinder of parties as well as for causes of action and gave an option to the appellants therein to elect whether they want the suit to be treated as a suit for recovery of money by appellant No. 2 herein against the respondent or a suit for declarations and injunction by appellant No. 1h) Being aggrieved by the order dated 17.09.2012, the appellants went in appeal and filed FAO (OS) being No. 470 of 2012 before the High Court. A division bench of the High Court, vide order dated 28.09.2012, dismissed the appeali) Aggrieved by the order dated 28.09.2012, the appellants have filed this appeal by way of special leave before this Court.

Court's reasoning:
22. In view of the foregoing discussion, we are of the opinion that the appellants even though had different causes of action against the respondent but it was a continuity of the agreement dated 06.06.2009 and oral agreement is evidenced by the transcript of conversation between the appellant No. 2 and the respondent on 6/07.04.2011, therefore, both the appellants could have joined as plaintiffs in a suit and the suit is not bad for misjoinder of parties or causes of action. Hence, learned single Judge as also the division bench, was not right in giving an option to the appellants to pursue reliefs qua appellant No. 1 or qua appellant No. 2 onlyIn view of the above, where an agreement is terminated by one party on account of the breach committed by the other, particularly, in a case where the clause is framed in wide and general terms, merely because agreement has come to an end by its termination by mutual consent, the arbitration clause does not get perished nor is rendered inoperative. This Court, in the case of P. Anand Gajapathi Raju (supra), has held that the language of Section 8 is peremptory in nature. Therefore, 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 in an agreement between the parties before the civil court, if there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitratorIn view of the above, where an agreement is terminated by one party on account of the breach committed by the other, particularly, in a case where the clause is framed in wide and general terms, merely because agreement has come to an end by its termination by mutual consent, the arbitration clause does not get perished nor is rendered inoperative. This Court, in the case of P. Anand Gajapathi Raju (supra), has held that the language of Section 8 is peremptory in nature. Therefore, 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 in an agreement between the parties before the civil court, if there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator27. In view of the above, we are of the considered opinion that in the present case, the prerequisites for an application under Section 8 are fulfilled, viz., there is an arbitration agreement; the party to the agreement brings an action in the court against the other party; the subject matter of the action is the same as the subject-matter of the arbitration agreement; and the other party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. We have come to the conclusion that the civil court had no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration. In such a situation, refusal to refer the dispute to arbitration would amount to failure of justice as also causing irreparable injury to the defendant28. As we have already held that the oral agreement as evidenced by the transcript of conversation between the appellant No. 2 and the respondent on 06/07.04.2011 substituting the alleged written agreement dated 06.06.2009 and which contained a clause for arbitration, the same clause for arbitration would also be applicable to the oral agreement. The Division Bench has also erred in law in affirming the order passed by learned single Judge. Both the orders, therefore, cannot be sustained and are set aside and, therefore, in view of the decision in P.R. Shah (supra), there can only be one arbitrator and there can only be a single arbitration