Having said so, what will be the requirement for holding that the reply or application is the "first statement of defence" considering the legal position. The reply to such interim application must clearly indicate that the party is aware of the arbitral clause and yet intends not to invoke the arbitral clause but acquiesces in the judicial proceedings. For that purpose the reply or application must disclose that though the subject matter of the dispute is the subject matter of the arbitral proceeding yet the defendant/respondent acquiesces in the Court granting interim relief till the hearing and final disposal of the suit or other proceeding. In other words that even though there is an arbitral clause covering the subject matter of the dispute the party does not intend to invoke the arbitral clause. The intention must be clear and unequivocal. A mere reply to an interlocutory application or even disclosing that the subject matter is the same will not be sufficient. The pleadings and record must disclose that though the party is aware of the arbitral clause and that it covers the dispute yet does not elect to invoke the arbitral clause. To be construed as first statement on the substance of the dispute, must mean that the Judicial authority before whom the reply is filed, can from the reply be able to hold that the cause of action of the suit or the entire subject matter is governed by the arbitral clause including the relief sought and yet the party has shown its intention not to invoke the arbitral clause. The legal position now can be summed up thus:
1. Unlike the Act of 1940, under the Act of 1996, a reply to an interim/interlocutory application can be construed as the first statement on the substance of the dispute.2. The first statement of substance of the dispute will include a written statement in a suit or a reply to an application under other proceedings before a Judicial authority.3. To hold that a reply to an interim application or interlocutory application is the first statement of the substance of the dispute, the reply must disclose that the party is aware of the arbitral clause; that the subject matter of the "suit or proceeding" and the reliefs sought are covered by the arbitral clause and having such knowledge knowingly and unequivocally intends to proceed with the suit or proceedings before the judicial authority by acquiescing in the continuation of the suit or proceeding.
Bombay High Court
Jashu M. Patel vs Shivdatta R. Joshi on 9 December, 2002
Bench: F Rebello
2003(1)ALLMR1080, 2003(2)ARBLR479(Bom), 2003(3)BomCR307, 2003(3)MhLj487
1. The matter pertains to a dispute arising out of dissolution of partnership agreement between the petitioners and respondents. Respondent is the original plaintiff in Suit No. 2041 of 1982. The petitioner herein has yet to file his written statement. In the suit, however, interim proceedings had been taken out for appointment of Court Receiver being Notice of Motion No. 17 of 1983. The petitioner herein had filed his reply to the said motion. As may be noted the suit was filed when the provisions of Indian Arbitration Act, 1940 were in force. During the pendency of the suit, Arbitration and Conciliation Act, 1996 has came into force which repealed the Arbitration Act, 1940.
The petitioner has now invoked the provisions of Section 8 of the Arbitration and Conciliation Act, 1996. It is contended on behalf of the petitioner that the party to the suit before filing his first statement on the substance of the dispute can invoke provisions of Section 8 by calling on the judicial authority to refer parties to the arbitration. It is contended that petitioner herein has yet to file his first statement on the substance of the dispute and that being the case, it is open to the petitioner even, if the petitioner had not invoked the provisions of Section 34 of the Indian Arbitration Act, 1940 to invoke jurisdiction under Section 8 of the Arbitration and Conciliation Act, 1996. On the other hand on behalf of the respondent their learned counsel contends that expression "first statement on the substance of the dispute" does not necessarily refer to the written statement in the suit but can also apply or include even a reply to an application filed even in interim proceedings. In the instant case, there is an arbitral clause. Petitioner herein, it is contended, extensively dealt with the contents of the plaint in reply to the motion for Receivership, and by so doing had already filed first statement on the substance of the disputes. That being the case and as the petitioner herein, did not elect either for the stay of the suit or for getting the matter referred to arbitration, has waived the right and consequently application under Section 8 has to be rejected.
2. The issue therefore, will turn on the meaning of the expression "first statement on the substance of dispute" as found in Section 8. Does it only mean the filing of the written statement in the suit or does it include any application or reply dealing with the substance of the dispute. In that context it would be useful to refer to the judgment in the case of P. Anand Gajapathi Raju and Ors. v. P. V. G. Raju (Dead) and Ors., . Considering Section 8 the Apex Court has stated :
"5. The conditions which are required to be satisfied under Sub-section (1) and (2) of Section 8 before the Court can exercise its powers are :
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the Court against the other party;
(3) subject matter of the action is the same as the subject matter of the arbitration agreement;
(4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute."
Since the judgment is adverted to it is also set out therein that the provision is mandatory and that has been expressed by the Apex Court in the following words:
"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."
From the above, it is clear that the Court while interpreting the provision is bound to consider the issue in view of the mandatory nature of the language of Section 8. There essentially must be an arbitration agreement/clause and the arbitration clause must cover the subject matter of the suit. It is in that context that the Court will have to examine whether filing of the reply in the motion for appointment of Receiver can be said to be first statement on the substance of dispute.
3. Under the Indian Arbitration Act, 1940 power of the judicial authority was different and was governed by Section 34 of the Indian Arbitration Act, 1940. Certain requirements had to be satisfied for a judicial authority to refer the parties to Arbitration under the Act of 1940. Firstly a party to the legal proceedings could at any time before the filing of written statement or taking another step in the proceedings, apply to the judicial authority for stay of the proceedings. Consequently the Judicial authority had to be satisfied that there was no sufficient reason why matter should not be referred in accordance with arbitration agreement and that the applicant, was at the time when the proceedings were commenced and still, remains ready and willing to do all things necessary for the proper conduct of the arbitration. On being satisfied, such authority had to make an order staying the proceedings. It is clear from the language of section 34 that Judicial authority or Court was not obliged or bound to refer the parties to arbitration. There was discretion in the Court. Even if the applicant satisfied, the requirements, namely of applying before filing of written statement or taking any steps in the proceedings and also expressing intent or desire to be ready and willing to comply with all necessary things for the proper conduct of the arbitration. The Court could refuse to stay the suit. The language of Section 8 of the Act of 1996 is on the other mandatory. The Judicial authority has no discretion, if an application is moved before filing the first statement of defence and if the subject matter of the suit is governed by the arbitral clause. Section 34 had come up for consideration before the Apex Court in several cases. However, reference need be made to the judgment in Food Corporation of India and Anr. v. Yadav Engineer and Contractor, AIR 1982 SC 1302. In that case, the expression "taking any other steps in the proceedings" had come up for consideration. The Apex Court was considering the expression "written statement" on the one hand and "taking any other steps in the proceedings" on the other. The following observations of the Apex Court need to be set out. The questions formulated for consideration are as set out in Paragraph 7 of the judgment. One of the question formulated was as under :
"Would entering an appearance and contesting petition or notice of motion for interlocutory order constitute such step in the suit or proceedings as would disentitle the party to an order under section 34?"
The subsidiary question formulated was as under :
"The subsidiary point is, whether where in a suit filed in a Court, a prayer for an ex parte ad interim injunction is made either by an application or by a notice of motion or an application is made for appointment of a receiver and either ex parte ad interim injunction is granted or ex parte receiver is appointed and the copies of the pleadings and the order are served upon the defendant, if the defendants appears and requests the Court either to vacate the injunction or discharge the receiver or modify the orders without filing a written statement or making an application for filing a written statement to the plaint, could he be said to have taken a step in the proceedings so as to disentitle him from obtaining stay of the suit?"
Considering the words "written statement" and the expression "taking any other steps in the proceedings" the Court observed that the latter general expression must be construed ejusdem generis with the specific expression just proceeding to bring out the ambit of the latter. After having so considered the Court observed that:
"Some other steps must indisputably be such step as would manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. Each and every step taken in the proceedings cannot come in the way of the party seeking to enforce the arbitration agreement by obtaining stay of proceedings but the step taken by the party must be such step as would clearly and unmistakably indicate an intention on the part of such party to give up the benefit of arbitration agreement and to acquiesce in the proceedings commenced against the party and to get the dispute resolved by the Court. A step taken in the suit which would disentitle the party from obtaining stay of proceeding must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration."
The Court then considered the effect of incidental proceedings for appointment of Receiver and interim injunction or for protection of the property or interest in the property as under:
"Therefore, the expression, "taking any other steps in the proceedings" must be given a narrow meaning in that the step must be taken in the main proceedings of the suit and it must be such step as would clearly and unambiguously manifest the intention to waive the benefit of the arbitration agreement and to acquiesce in the proceedings. Interlocutory proceedings are incidental to the main proceedings. They have a life till the disposal of the main proceeding..,"
Proceeding further, the Court observed as under:
"When these interlocutory proceedings are contested it cannot be said that the party contesting such proceedings has displayed an unequivocal intention to waive the benefit of the arbitration agreement or that it had submitted to the jurisdiction of the Court."
It is therefore, relevant to note that the test which was applied by the Apex Court was whether the party to the contract which contained clause for arbitration had manifested its intention to waive the arbitration agreement and to acquiesce in the proceedings by not moving the Court for stay of the suit before filing of written statement or taking such other proceedings. The Apex Court further makes it clear that interim proceeding cannot be said to be proceeding which will fall within the meaning of "take such proceedings in the suit". This is how the Apex Court declared the law.
"Appearing and contesting the interlocutory applications by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement. Any other view would both be harsh and inequitious and contrary to the underlying intendment of the Act."
The test applied was that an application by a party to the suit has to be examined keeping in view the purpose and the object of the section which is to direct parties to resolve the dispute by what they have agreed and whether from the conduct of the party making an application there was a clear intention to acquiesce in the suit. The question then was answered in the following affirmative words :
"Having thus critically examined both on principle and precedent, the meaning to be given to the expression "taking steps in the proceedings", we are clearly of the view that unless the step alleged to have been taken by the party seeking to enforce arbitration agreement is such as would display an unequivocal intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the other party, namely, filing of the suit and thereby indicate that it has abandoned its right under the arbitration agreement to get the dispute resolved by arbitration, any other step would not disentitle the party from seeking relief under section 34. It may be clearly emphasized that contesting the application for interim injunction or for appointment of a receiver or for interim relief by itself without anything more would not constitute such step as would disentitle the party to an order under section 34 of the Act."
4. Coming to the present case, the suit was filed when the Act of 1940 was in force. The petitioner herein till date had not taken steps to file written statement nor is there any order to proceed ex parte i.e. without filing of the written statement. The petitioner, however, had contested the motion for receivership. Under the Act of 1940, it would not be a step in the proceedings considering the judgment of the Apex Court in Food Corporation of India (supra). There is no material produced at the hearing from the record to show that the petitioner has acquiesced in continuation of the proceedings before the Civil Court and waived its right to get the proceedings resolved through arbitration.
Under the Act of 1996, which has now come into force, if the petitioner herein had moved an application under Section 8 and satisfied the other conditions, the Court was bound to direct the parties to arbitration. The stage for filing written statement was not yet over. What will be position of such a party who had allowed the suit to proceed without applying for stay but where the stage for filing written statement had not been concluded. Would such a party be barred from moving under Section 8 of the Act of 1996. The legal position on that count is no longer res integra. The Apex Court had decided the issue in the case of Kalpana Kothari v. Sudha Yadav and Ors., . In that case also, proceedings had been filed under the Act of 1940. An application made under section 34 was dismissed as not pressed. After however, of coming into force of the Act of 1996, an application was moved under Section 8(1). Application under Section 8 was rejected on the ground of estoppel. Answering the issue, the Apex Court observed as under:
"On the ground of estoppel and the conduct of the appellants in getting their earlier application made under Section 34 of the 1940 Act dismissed as not pressed that the applications under Section 8 of the 1996 Act were not countenanced by the High Court. The fact that the earlier application under the 1940 Act was got dismissed as not pressed in the teeth of the repeal of the said Act cannot, in our view, constitute any legal impediment for having recourse to and avail of the avenues thrown open to parties under the 1996 Act. Similarly having regard to the distinct purposes, scope and object of the respective provisions of law in these two Acts, the plea of estoppel can have no application to deprive the appellants of the legitimate right to invoke an all comprehensive provision of mandatory character like Section 8 of the 1996 Act to have the matter relating to the disputes referred to arbitration in terms of the arbitration agreement."
The petitioner will therefore, not be estopped from applying under Section 8. With that, we will now consider the meaning of the expression "first statement" on the substance of the dispute. Would filing reply to the interim application amount to submitting his first statement on the substance of the dispute. The contract contains an arbitral clause. When there is such a clause, Court normally direct parties to proceed and give effect to the arbitration clause. In other words permitting parties to move the forum which they have chosen for resolving their disputes. It is in that context that the expression "first statement" must be understood. As noted earlier, the language is mandatory. Unlike Section 34, the Judicial Authority has no discretion in refusing to direct the parties to arbitration if other conditions are fulfilled. The language is that Judicial Authority shall. The interpretative process therefore must yield to a course which must result in directing parties to a forum they chose. If that be the object of the section, what would be a meaning of the expression "first statement on the substance of the dispute". There can be no difficulty in holding that filing of written statement will fall within the expression "first statement on the substance of the disputes". Similarly a reply to the main application in any proceeding other than a suit, before a judicial authority. Would filing of reply to an interim application amount to submitting first statement on the substance of dispute. The effect of so construing it would be to hold that the defendant/respondent has chosen to give up its forum of choice and intends to choose to proceed with the suit. To so hold or construe, the court must come to the conclusion, firstly that an application can be made at any stage, even before filing of the written statement and secondly that by not moving an application under Section 8, it was clearly the intention of the party to give a go by to the arbitral clause. Considering the purport of the legislature and to give intent to the object of the legislation, the party seeking to invoke provisions of Section 8 need not have to wait for filing of written statement. The expression, therefore, "first statement on the substance of the dispute" need not necessarily mean filing of written statement. It may be a reply other than a written statement though written statement can be said also to constitute first statement on the substance of the dispute as set out earlier. The expression "first statement on the substance of the dispute" must be a statement which would indicate the clear intention of the party not to refer the dispute to arbitration and to proceed with the proceedings before the Judicial authority. The statement or reply could be in interlocutory proceedings. The reply or statement must clearly disclose that the party intends to get its disputes resolved not by the Arbitral Tribunal, but by the Judicial forum and that it waives its right under the contract and acquiesce in the jurisdiction of the judicial authority. The Civil Court jurisdiction to grant interim relief in interlocutory proceeding did not cease even if an application was made under Section 34 of the Act of 1940, nor by directing the parties to arbitration, did the Court cease to have jurisdiction. The Award as passed had to be made a decree of the Court. The position under the Act of 1996 is distinct and different. There are two specific provisions under which relief by way of a temporary nature pending arbitral proceedings can be ordered. There is power in the Court under Section 9, under which before commencement of the arbitral proceedings; on invocation of the arbitral clause; in the course of the arbitral proceedings and even after the award but before it becomes an executable decree, a party could move the Court under Section 9; See Sundaram Finance Ltd. v. The State of Kerala and Anr., AIR 1996 SC 1178. The next provision is under Section 17 of the Arbitration and Conciliation Act, 1996. There a power has been conferred on the Arbitral Tribunal to grant interim relief. In other words, the earlier position under the Act of 1940 under which the Court retained jurisdiction to grant relief even if an application was made under Section 34 is supplanted by a different procedure. The right of the Civil Court to assume jurisdiction when an application is made under Section 8 to grant relief, if the Court comes to the conclusion, that the dispute is covered by the Arbitral Clause is doubtful considering Sunderam Finance Ltd. (supra). The exercise of jurisdiction at the highest can be till such time that application under Section 8 is decided. This would be an added indication that the expression first statement of substance of disputes could also be at an interlocutory stage. Therefore, unlike the Act of 1940, it is possible to hold under the Act of 1996 that even a reply filed to the notice of motion or interim relief, can be construed to mean the first statement on the substance of the dispute as long as intention of the party is clear namely that it does riot intend to invoke the arbitral clause by showing that even though the subject matter of the plaint or cause of action in the suit is governed by the arbitral clause it intends to proceed with the suit. Such an interpretation would give intent to the object of the Act. By such an interpretation the party is also not left to wait till the filing of the written statement to indicate its intention. The party thus can at the first available opportunity disclose its intention by filing the first statement on the subject matter of the dispute. That can be construed as the first statement of defence.
Having said so, what will be the requirement for holding that the reply or application is the "first statement of defence" considering the legal position. The reply to such interim application must clearly indicate that the party is aware of the arbitral clause and yet intends not to invoke the arbitral clause but acquiesces in the judicial proceedings. For that purpose the reply or application must disclose that though the subject matter of the dispute is the subject matter of the arbitral proceeding yet the defendant/respondent acquiesces in the Court granting interim relief till the hearing and final disposal of the suit or other proceeding. In other words that even though there is an arbitral clause covering the subject matter of the dispute the party does not intend to invoke the arbitral clause. The intention must be clear and unequivocal. A mere reply to an interlocutory application or even disclosing that the subject matter is the same will not be sufficient. The pleadings and record must disclose that though the party is aware of the arbitral clause and that it covers the dispute yet does not elect to invoke the arbitral clause. To be construed as first statement on the substance of the dispute, must mean that the Judicial authority before whom the reply is filed, can from the reply be able to hold that the cause of action of the suit or the entire subject matter is governed by the arbitral clause including the relief sought and yet the party has shown its intention not to invoke the arbitral clause. The legal position now can be summed up thus:
1. Unlike the Act of 1940, under the Act of 1996, a reply to an interim/interlocutory application can be construed as the first statement on the substance of the dispute.
2. The first statement of substance of the dispute will include a written statement in a suit or a reply to an application under other proceedings before a Judicial authority.
3. To hold that a reply to an interim application or interlocutory application is the first statement of the substance of the dispute, the reply must disclose that the party is aware of the arbitral clause; that the subject matter of the "suit or proceeding" and the reliefs sought are covered by the arbitral clause and having such knowledge knowingly and unequivocally intends to proceed with the suit or proceedings before the judicial authority by acquiescing in the continuation of the suit or proceeding.
5. Now coming to the facts of this case. Can it be said that the petitioner herein by filing reply to the notice of motion had filed his first statement on the substance of dispute. When the petitioner filed his reply the Act of 1996 was not in force. The matter was governed by the provision of Section 34 of the Act of 1940 where in respect of the stage for stay of the proceedings the law had been declared by the Apex Court. Will therefore, a party who on the coming into force of the Act of 1996, who seeks to get the dispute resolved by arbitration and has not yet filed the written statement or taken such other steps in the proceedings under the Act of 1940, he precluded from moving under Section 8 of the Act of 1996? To that the answer would be a clearly. On the coming into force of the Act of 1996, various situations may arise. A party could still move under Section 8 and call on the Judicial Authority to refer the matter to Arbitration if written statement had not been filed. A reply to the application for temporary injunction filed when the Act of 1940 was in force cannot per se be constructed to be first statement on the substance of the dispute unless the reply discloses other relevant factors stated earlier. These aspects will have to be considered after the Act of 1996 has come into force and if under the Act of 1940 written statement had not been filed.
Considering the above position, in my opinion, the reply filed by the petitioners in answer to the motion cannot be said to disentitle the petitioner in invoking Section 8 of the Act of 1996. After the Act of 1996 has come into force and as written statement had not been filed and as the petitioner has not shown or disclosed its intention to relinquish his right to invoke the arbitral clause and acquiesce in the Court proceeding with the suit. Petition under Section 8 is maintainable. The original of the arbitral agreement was shown to the Court and the same has been returned as copy of the partnership deed containing the arbitral clause is on record. The petitioner has complied with the other requirements of Section 8.
6. In the light of that, parties are directed to get the subject matter of the suit resolved by arbitration in terms of the arbitral clause. Petition made absolute in aforesaid terms. Suit also stands disposed of accordingly.
In the circumstances of the case, there shall be no order as to costs.
All authorities to Act on an ordinary copy of this order duly authenticated by the Associate of this Court on usual copying charges.
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