Appeal No.23 of 2000,Arbitration Petition No.324 of 1999

13th December, 2011

Petitioner Counsel: Mr. NAVROZ SEERVAI, Mr. ZUBIN BEHRAMKAMDIN, Ms. SHOUGH MERCHANT, Mr. DARYUSH MARFATIA, Ms. SHREYA PARIKH, BHARUCHA
Respondent Counsel: Mr. PRAVIN SAMDANI, Mr. KARL SHROFF, Mr. KEERIT SHAH, Ms. KHYHATI GHEVARIA

Cases Cited:
P. Anand Gajapathi Raju Vs. P.V.G. Raju, (2000) 4 SCC 539 [Para 5,9]

JUDGMENT

DR. D. Y. CHANDRACHUD, J. :- This appeal arises out of an order of a Learned Single Judge dated 22 November 1999, dismissing a petition filed under Section 9 of the Arbitration and Conciliation Act, 1996, on the ground that the Appellants having filed an application under Section 8 before a Court at Vadodara, where the Respondent has instituted a suit, this Court would not have jurisdiction to pass any orders in relation to arbitral proceedings, including orders under Section 9.

2. The Appellants claim to be owners of land admeasuring 21,706 sq.mtrs. bearing R.S.86 (part) and 95-B situated at Jetalpur Taluka in the District of Baroda. Between 2 March 1995 and 18 March 1995, the Appellants entered into diverse agreements with the Respondent for the development of the property. On 11 August 1995, the Appellants addressed a communication to the Respondent alleging breach in the performance of the obligation under the agreements. The agreements contain an arbitration agreement. On 25 August 1995, the Respondent responded to the letter and contended that as provided in the agreements disputes between the parties in this regard or regarding the development agreement have to be referred to arbitration. On 6 September 1995, the Appellants purported to reiterate that the agreement stood terminated.

3. The Respondent filed a suit (Civil Suit 671 of 1998) before the Civil Judge, Senior Division, Vadodara on 7 September 1998, seeking inter alia a decree for specific performance and an injunction restraining the Appellants from disturbing the Respondent "from making use and occupation" of the land and from disturbing the Respondent from pursuing the work of development and construction on the land. On 16 September 1998, the Appellants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 in the Court of the Civil Judge, Senior Division at Vadodara. On 14 January 1999, the Appellants invoked arbitration and sought to appoint Hon'ble Mr.Justice M.L.Pendse, former Judge of this Court as Arbitrator. By a response dated 21 February 1999, the Respondent contended that only a Civil Court would be competent to pass a decree for specific performance and hence, there was no question of a reference to arbitration. On 15 September 1999, the Appellants filed an arbitration petition under Section 9 before this Court seeking an injunction restraining the Respondent from proceeding with or continuing with the suit filed in the Court of the Civil Judge, Senior Division at Vadodara. The application under Section 9 was dismissed by a Learned Single Judge by his impugned order dated 25 November 1999.

4. The Learned Single Judge held that an application under Section 8 filed by the Appellants was pending before the Court at Vadodara. The Learned Single Judge was of the view that since an application under Part-I of the Arbitration and Conciliation Act, 1996 was pending, then it is only that Court where such an application is pending, which would have jurisdiction over the arbitral proceeding. Hence, the Learned Single Judge was of the view that until an application filed by the Petitioners under Section 8 remains pending before the Civil Court at Vadodara, this Court would not have jurisdiction to pass orders in relation to the arbitral proceeding, including orders under Section 9 of the Act.

5. In assailing the judgment of the Learned Single Judge Counsel appearing on behalf of the Appellants submitted that: (i) The filing of an application under Section 9 would not be such an application as contemplated under Section 42 in view of the judgment of the Supreme Court in P.Anand Gajapathi Raju vs. P.V.G. Raju; (2000) 4 SCC 539 (ii) An application under Section 8 is not an application which is made with respect to an arbitration agreement and hence, Section 42 would have no application; (iii) In the present case, Clause 15 of the Contract which contains an arbitration agreement would clearly show that parties intended to refer all disputes to arbitration and that the Courts at Mumbai alone would have jurisdiction; and (iv) In view of the well settled position in law, it is open to parties where two or more Courts have jurisdiction over the subject matter of the disputes to confer exclusive jurisdiction on one of them and hence, in the present case, the Court for the purpose of Section 2(e) must necessarily refer to the Court at Mumbai and not Vadodara.

6. On the other hand, it is urged on behalf of the Respondent by Learned Counsel that: (i) The Civil Court at Vadodara would constitute 'the Court' within the meaning of Section 2(e) since it would have jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit; (ii) In view of the provisions of Section 16(a) of the Code of Civil Procedure, 1908, a suit for land would be maintainable before the Court at Vadodara and since such an action could not be brought before the Court at Mumbai, parties could not confer exclusive jurisdiction upon the Courts at Mumbai; (iii) Since the suit in the present case has been filed before a Court as defined in Section 2(e) and an application under Section 8 was filed by the Appellants in that Court, Section 42 would come into operation and would entail that only the Court at Vadodara would have jurisdiction to entertain all applications under Part-I of the Arbitration and Conciliation Act, 1996.

7. The expression "Court" is defined in Section 2(e) of the Arbitration and Conciliation Act, 1996 as follows:

"(e) "Court" means the principal civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil Court of a grade inferior to such principal civil Court, or any Court of Small Causes."

In so far as is material, the Court means the principal Civil Court of original jurisdiction in a district having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit. The test, therefore, is two fold. Firstly, the Court must be the principal Civil Court of original jurisdiction for the district. Secondly, if the questions which form the subject matter of arbitration were to be the subject matter of a suit, the Court must have jurisdiction to decide those questions. Under Subsection (1) of Section 8, a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. Section 8 applies to a judicial authority, which expression is of a wider connotation than the Court. Parliament has advisedly used the expression "judicial authority" in Sub-section (1) of Section 8 so as to cast an obligation even upon a judicial authority which, strictly speaking, may not be a Court to refer parties to arbitration where an action is brought in a matter which forms the subject matter of an arbitration agreement. Before the Court can exercise its power under Section 8, several conditions are to be satisfied these being that (i) There must be an arbitration agreement; (ii) An action is brought by a party to the arbitration agreement against the other party before a judicial authority; (iii) The subject matter of the action before the judicial authority is the subject of the arbitration agreement; and (iv) The other party applies before the judicial authority for referring parties to arbitration before it submits his first statement on the substance of the dispute.

8. An application under Section 9 for an interim measure has to be moved before a Court. That expression, for the purposes of Section 9, must necessarily have the same connotation as defined in Section 2(e). Section 42 provides that notwithstanding anything contained elsewhere in Part-I, or in any other law for the time being in force, where with respect to an arbitration agreement any application under the part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court. While enacting Section 8, Parliament advisedly used the expression "judicial authority" and not Court. The Parliamentary intent is clear. Where an action is brought in a matter which is a subject of an arbitration agreement, the legislature mandated that any judicial authority before which the action is brought shall refer the parties to arbitration. There is no element of discretion in Subsection (1) of Section 8 and the mandate of the provision is that there is an obligation on the judicial authority to refer parties to arbitration once the governing conditions set out in the provision are fulfilled. Now, what an application under Section 8 does is to bring to the notice of the judicial authority before which an action has been brought, that the subject of the action is the subject of an arbitration agreement between the parties. Evidently, where the judicial authority is not a court, there would be no scope for the application of Section 42, because Section 42 postulates a situation where with respect to an arbitration agreement any application under Part I has been made in a court. The issue still remains as to what would happen where an application under Section 8 is filed in a Court, such filing being necessitated by the fact that the action in which a reference to arbitration is sought has been filed in a court by the other side. If the broad proposition which has been laid down by the Learned Single Judge were to be accepted, that would result in a situation where the mere filing of an action in any court albeit in breach of the arbitration agreement by one of the parties to the agreement would lead to that court alone having jurisdiction to entertain applications over and arising out of the arbitral proceedings. This would lead to an obviously absurd consequence which could not have been within the intent of Parliament. A party which has breached its obligation under the contract to refer disputes to arbitration by bringing an action in a court cannot by its conduct ensure that the Court which would have jurisdiction over the arbitral proceedings is the Court in which the action was brought. For, once an action is commenced by one of the parties to the arbitration agreement, the other party, if it is desirous of proceeding with arbitration has necessarily to apply under Section 8 in the Court in which the action is brought. Therefore, as a matter of first principle, we are not inclined to accept the view that the mere filing of an application under Section 8 of the Arbitration and Conciliation Act, 1996, would confer jurisdiction on the Court in which the application is filed over the arbitral proceedings and all applications arising out of the agreement.

9. As a matter of fact, this position has been elaborated upon in the judgment of the Supreme Court in P.Anand Gajapathi Raju vs. P.V.G. Raju. (2000) 4 SCC 539 The Supreme Court observed as follows :

"In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. 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 2of 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."

In this view of the matter, we are of the view that the Learned Single Judge was, with respect, in error in holding that once an application was filed under Section 8, it is only that Court where the application was pending which would have jurisdiction over the arbitral proceedings and that till the application under Section 8 remains pending before the Court of Vadodara, this Court would not have jurisdiction to pass any order in relation to arbitral proceedings, including under Section 9.

10. Counsel appearing on behalf of the Respondent, however, submitted that the action which has been instituted by the Respondent before the Civil Judge, Senior Division at Vadodara is before the Court as defined in Section 2(e) of the Arbitration and Conciliation Act, 1996 and hence, once an application is filed under Section 8 before that Court, it is that Court which would have jurisdiction over the arbitral proceedings and all applications arising out of the agreement. On this aspect of the matter, the submission of the Appellants is that the clause which contains an arbitration agreement confers exclusive jurisdiction on the Courts at Mumbai and the Court at Vadodara cannot therefore, entertain an application arising out of the arbitration agreement. Moreover, it is urged that a suit for specific performance is not a suit for land. Hence, even if two or more courts have jurisdiction, parties can confer exclusive jurisdiction on one of them as here. To the contrary, it is asserted on behalf of the Respondent that the exclusivity which the arbitration clause contains is only as regards the choice of a party to proceed to arbitration and not in regard to the Court of competent jurisdiction. Moreover, it is urged that the suit at Vadodara is a suit for land and not only for specific performance; since reliefs qua possession are sought. On this aspect of the matter, no finding one way or the other has been expressed by the Learned Single Judge. The Learned Single Judge dismissed the application at the threshold on the view which he took of Section 42, visavis Section 8. That view, we have held to be incorrect. In that view of the matter, we are of the view that the appropriate direction to pass in this appeal would be to remand the proceedings back to the Learned Single Judge for a decision afresh. Since the reason which weighed with the Learned Single Judge has been found to be erroneous, we accordingly set aside the impugned judgment of the Learned Single Judge dated 22 November 1999 and remand the proceedings for a fresh decision. However, while doing so, we keep open all the rights and contentions of the parties on all other questions, save and except on the broad principle laid down in the impugned order of the Learned Single Judge which has been held to be incorrect. The appeal is accordingly allowed and the impugned judgment of the Learned Single Judge dated 22 November 1999 is set aside. There shall be no order as to costs. In view of the facts and circumstances of the case, we request the Learned Single Judge to expeditiously dispose of the Petition upon remand.

Appeal allowed.