2000 JTR(SC) 617
2000 AIR(SC) 1886 ; 2000 AIR(SCW) 1489 ; 2000 4 ALD(SC) 46 ; 2000 2 ArbLR 204 ; 2000 2 CLT(SC) 162 ; 2001 4 CompLJ 219 ; 2000 DNJ 277 ; 2000 4 JT 590 ; 2000 3 MLJ 69 ; 2000 2 RAJ 213 ; 2000 3 Scale 330 ; 2000 4 SCC 539 ; 2000 2 SCR 684 ; 2000 2 UJ 1138 ; 2000 KHC 1157 ; 2000 1 KLT(Online) 902 ; 2000 3 Supreme 464
2000(3) Supreme 464
SUPREME COURT OF INDIA
(From Andhra Pradesh High Court)
D.P. Wadhwa & Ruma Pal, JJ.
P. Anand Gajapathi Raju & Ors. -Appellants
versus
P.V.G. Raju (Died) by Ors. -Respondents
Civil Appeal No. 5251 of 1993
Decided on 28-3-2000
Counsel for the Parties :
For the Appearing Parties : K. Madhava Reddy, N.S. Hegde, C. Sitaramaiah, Sr. Advocates, Nikhil Nayar, Ms. T. Anamika, Guntur Prabhakar A. Subba Rao, A.T. Rao, B. Parthasarathy, A.D.N. Rao, G. Nageswara Reddy, Mrs. B. Reddy, Ms. Promila, Advocates.
IMPORTANT POINTS
1. Submission of first statement on substance of the dispute is not a bar on the Court to refer the parties to arbitration if the party who wants the matter to be referred to arbitration applies to the Court and the other party who has brought the action does not object.
2. The phrase "which is the subject of an arbitration agreement" in Section 8 of the Arbitration and Conciliation Act does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in the Court. The phrase also connotes an arbitration agreement being brought into existence while the action is pending.
3. The Supreme Court in an appeal can refer the parties to arbitration where the parties pursuant to an arbitration agreement entered into during pendency of appeal seek reference of the matter to arbitration.
Act
Referred
:ARBITRATION ACT : S.21, S.25
ARBITRATION AND CONCILIATION ACT : S.34, S.2(e), S.85, S.42, S.8
(A) The Arbitration and Conciliation Act, 1996 (new Act) governs the reference of disputes to arbitration during the pendency of an appeal where an arbitration agreement exists. Sections 7, 8, and 42 of the new Act, together with Sections 21, 25, and 85 of the Arbitration Act, 1940, provide the statutory framework. Section 8 of the new Act mandates that a judicial authority, when an action is brought concerning a subject matter covered by an arbitration agreement, must refer the parties to arbitration if a party applies before filing its first statement, subject to the agreement being accompanied by a copy. The provision contemplates that an arbitration agreement may be entered into even while proceedings are ongoing, and the courts role is limited to referral without deciding the merits. An award under the new Act is subject to challenge before the designated court under clause (e) of Section 2, and the disposal of the suit or appeal follows the arbitration process.
(B) Key principles include: (i) mandatory referral to arbitration where an agreement exists and a party applies before submitting its first statement; (ii) the phrase is the subject of an arbitration agreement includes agreements entered into while the action is pending; (iii) once referred, the court stands disposed of and has no further adjudicatory role in the suit or appeal; (iv) the right to challenge the award shifts to the forum under the new Act; and (v) minimal judicial intervention to promote expeditious and cost-effective dispute resolution.
Facts of the case:
An appeal was pending before the court when all parties entered into an arbitration agreement, appointing a retired judge as sole arbitrator. The agreement covered all disputes between the parties and satisfied the requirements of Section 7 of the new Act. One party moved to refer the matter to arbitration before submitting its first statement on the substance of the dispute, while the other did not object.
Findings of Court:
The court held that the arbitration agreement was valid and covered the subject matter of the appeal. Under Section 8 of the new Act, the court was obliged to refer the parties to arbitration. Since the agreement was executed during the pendency and the application was made before the first statement, the court could not adjudicate the appeal and it stood disposed of. The court emphasized minimal intervention to encourage arbitration.
Issues:
Whether an appeal pending before the court can be referred to arbitration under the Arbitration and Conciliation Act, 1996 when the arbitration agreement is entered into during the pendency; whether the phrase is the subject of an arbitration agreement includes agreements entered into after the commencement of the proceedings; and whether the court is obliged to dispose of the appeal once the reference is made.
Ratio Decidendi:
The phrase is the subject of an arbitration agreement encompasses agreements entered into while the action is pending. Section 8 of the Arbitration and Conciliation Act, 1996 imposes an obligation on the court to refer parties to arbitration where the subject matter is covered, the application is made before the first statement, and the other party does not object, resulting in the appeal being disposed of in favor of arbitration.
Result:
The appeal was disposed of with no further orders, and the parties were referred to arbitration under the Arbitration and Conciliation Act, 1996, with disputes to be adjudicated by the designated arbitrator.
(A) The Arbitration and Conciliation Act, 1996 (new Act) governs the reference of disputes to arbitration during the pendency of an appeal where an arbitration agreement exists. Sections 7, 8, and 42 of the new Act, together with Sections 21, 25, and 85 of the Arbitration Act, 1940, provide the statutory framework. Section 8 of the new Act mandates that a judicial authority, when an action is brought concerning a subject matter covered by an arbitration agreement, must refer the parties to arbitration if a party applies before filing its first statement, subject to the agreement being accompanied by a copy. The provision contemplates that an arbitration agreement may be entered into even while proceedings are ongoing, and the courts role is limited to referral without deciding the merits. An award under the new Act is subject to challenge before the designated court under clause (e) of Section 2, and the disposal of the suit or appeal follows the arbitration process.
(B) Key principles include: (i) mandatory referral to arbitration where an agreement exists and a party applies before submitting its first statement; (ii) the phrase is the subject of an arbitration agreement includes agreements entered into while the action is pending; (iii) once referred, the court stands disposed of and has no further adjudicatory role in the suit or appeal; (iv) the right to challenge the award shifts to the forum under the new Act; and (v) minimal judicial intervention to promote expeditious and cost-effective dispute resolution.
Facts of the case:
An appeal was pending before the court when all parties entered into an arbitration agreement, appointing a retired judge as sole arbitrator. The agreement covered all disputes between the parties and satisfied the requirements of Section 7 of the new Act. One party moved to refer the matter to arbitration before submitting its first statement on the substance of the dispute, while the other did not object.
Findings of Court:
The court held that the arbitration agreement was valid and covered the subject matter of the appeal. Under Section 8 of the new Act, the court was obliged to refer the parties to arbitration. Since the agreement was executed during the pendency and the application was made before the first statement, the court could not adjudicate the appeal and it stood disposed of. The court emphasized minimal intervention to encourage arbitration.
Issues:
Whether an appeal pending before the court can be referred to arbitration under the Arbitration and Conciliation Act, 1996 when the arbitration agreement is entered into during the pendency; whether the phrase is the subject of an arbitration agreement includes agreements entered into after the commencement of the proceedings; and whether the court is obliged to dispose of the appeal once the reference is made.
Ratio Decidendi:
The phrase is the subject of an arbitration agreement encompasses agreements entered into while the action is pending. Section 8 of the Arbitration and Conciliation Act, 1996 imposes an obligation on the court to refer parties to arbitration where the subject matter is covered, the application is made before the first statement, and the other party does not object, resulting in the appeal being disposed of in favor of arbitration.
Result:
The appeal was disposed of with no further orders, and the parties were referred to arbitration under the Arbitration and Conciliation Act, 1996, with disputes to be adjudicated by the designated arbitrator.
ORDER
No orders on I.As. 3 and 4.
2. During the pendency of this appeal all the parties have entered into an arbitration agreement. They have agreed to refer their disputes in this appeal and others to Justice S. Ranganathan, a retired Judge of this Court as sole Arbitrator. The arbitration agreement is in the form of an application and has been signed by all the parties and meets the requirements of Section 7 of the Arbitration and Conciliation Act, 1996 (new Act).
3. The question that arises for consideration is whether this Court in appeal can refer the parties to arbitration under the new Act. The Arbitration Act, 1940 expressly provided for the parties to a suit to apply for an order of reference of the subject matter of the suit (see Sections 21 to 25, Chapter IV relating to arbitration in suits). There is also authority for the proposition under the 1940 Act that with the reference of the disputes, the suit itself may stand disposed of.
4. Part I of the new Act deals with domestic arbitrations. Section 5, which is contained in Part I of the new Act, defines the extent of judicial intervention in arbitration proceedings. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in that Part. Section 5 brings out clearly the object of the new Act, namely, that of encouraging resolution of disputes expeditiously and less expensively and when there is an arbitration agreement, the Court s intervention should be minimal. Keeping the legislative intention in mind, Section 8 of the new Act may be construed. It reads :
"Power to refer parties to arbitration where there is an arbitration agreement.-
8(1). 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.
(1) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(2) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, and arbitration may be commenced or continued and an arbitral award made."
5. The conditions which are required to be satisfied under sub-sections (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. This last provision creates a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the Court after submission of his statement and the party who has brought the action does not object, as is the case before us, therefore is no bar on the Court referring the parties to arbitration.
6. In our view, the phrase "which is the subject of an arbitration agreement" does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in the Court. The phrase also connotes an arbitration agreement being brought into existence while the action is pending. Black s Law Dictionary has defined the word `is as follows :
"This word, although normally referring to the present, often has a future meaning, but is not synonymous with "shall have been". It may have, however, a past signification, as in the sense of "has been".
7. A further question arises whether the Court is in these circumstances obliged to refer the parties to arbitration and if so with what effect.
8. 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 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.
9. We, therefore, allow the application and would refer the parties to arbitration. No further orders are required in this appeal and it stands disposed of accordingly.
(C.R.) Appeal disposed of accordingly.
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