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INTRODUCTION

The Arbitration and Conciliation Act, 1996 (hereinafter the "1996 Act") supplants the
Arbitration Act, 1940. In the 1996 Act, intervention by Courts was limited so that the object
behind speedy justice could be well achieved. To further the aforesaid objective, the 1996 Act
harbours many provisions. Section 8 of the 1996 Act denotes one such provision which
provides for limited judicial intervention and furthers the objective by directing the parties to
get involved in arbitration on the basis of the arbitration agreement. In domestic arbitrations ,
the uses of Section 8 applications in the Courts have spiraled over the years. This piece
provides an indepth analysis of Section 8 of the 1996 Act by focusing on the judicial
precedents.
FACTS
The Rashtriya Ispat Nigam is a Public Sector Undertaking. It is engaged, inter alia, in the
business of manufacturing and marketing of iron and steel products. The Respondent is a
partnership firm. It is engaged in the business of consignment agents. It has its office at
Jalandhar. A contract was entered into by and between the parties hereto in regard to the
handling and storage of iron and steel materials of the Appellant at Ludhiana. The Appellants
contend that one Shri Anil Verma, Partner of the Respondent-Firm had constituted various
firms and companies and obtained several consignment agency contracts from the Appellant
pertaining to Delhi, Faridabad, Chandigarh and Ludhiana etc. who conspired with certain
officials of the Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/- per
M.T. on a false plea that the Transport Union at Bahadurgarh did not permit transportation of
goods without levy of a fee of Rs.100/- per M.T. on transportation of such goods. An
investigation was conducted by the Central Bureau of Investigation and a criminal case was
initiated against Shri Anil Verma and the concerned officials of the Appellants. Allegedly,
with the object of presenting a clean image to the Appellants and with a view to avoid
termination of all the contracts by them, a plea was put forth that Shri Anil Verma had
resigned from the partnership firm as also from his other firms/companies. According to the
Appellants, the said Shri Anil Verma was replaced by his family members as a partner of the
said firm but he continued to be in complete control over the firms/companies. The contract
of the Respondent was terminated by the Appellants on 23.05.2002. On the same day, a show
cause notice was also issued to Shri Anil Verma as to why he and his firms/companies should
not be black listed.

SECTIONS INVOLVED
Section 8: The Golden Eagle:
A. Condition Precedent Stipulated under Section 8

Section 8 of the Arbitration and Conciliation Act, 1996 is peremptory in nature. It provides
that a judicial authority shall, on the basis of the arbitration agreement between the parties,
direct the parties to go for arbitration. It also enlists conditions precedent, which need
fulfillment before a reference can be made as per the terms of the 1996 Act. 1 In P. Anand
Gajapathi Raju & Ors. v. P.V.G. Raju (Died) & Ors 2., while iterating the periphery of Section
8 of the 1996 Act, the Supreme Court said that "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. .... The
language of Section 8 is per-emptory."
The following factors are to be considered before entertaining an application under Section 8
of the 1996 Act:

First question to be analyzed is whether it can be made applicable to a civil dispute.


The Supreme Court while answering the aforesaid question in H. Srinivas Pai and
Anr. v. H.V. Pai (D) thr. L.Rs. and Ors. 3, said that "The Act applies to domestic
arbitrations, international commercial arbitrations and conciliations. The applicability
of the Act does not depend upon the dispute being a commercial dispute. Reference to
arbitration and arbitability depends upon the existence of an arbitration agreement,
and not upon the question whether it is a civil dispute or commercial dispute. There
can be arbitration agreements in non-commercial civil disputes also."

The presence of arbitration agreement is another pre-requisite for seeking a reference


under Section 8.4Section 7 of the 1996 Act provides the diameter of the term
"arbitration agreement". The importance of arbitration agreement, for seeking a
reference under Section 8, was emphasized by the Supreme Court in Smt. Kalpana
Kothari v. Smt. Sudha Yadav and ors.5 wherein the Court said that "As long as the
Arbitration clause exists, having recourse to Civil Court for adjudication of disputes
envisaged to be resolved through arbitral process or getting any orders of the nature
from Civil Court for appointment of Receiver or prohibitory orders without evincing
any intention to have recourse to arbitration in terms of the agreement may not arise."

In the step wise analysis of Section 8 is whether the validity of the arbitration clause
can be disputed before the Court, in front of which an application for reference is
made. The answer to the question was laid in the negative by the Supreme Court
in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums6. The Court in
this case held that if the existence of the arbitration clause is admitted, in view of the
mandatory language of Section 8 of the Act, the courts ought to refer the dispute to
arbitration. The Supreme Court, while raising a presumption for the validity of an
arbitration clause in an agreement, in India Household and Healthcare Ltd. v. LG

Household and Healthcare Ltd.7, said that the Courts would construe the agreement in
such a manner so as to uphold the arbitration agreement.

Section 8 further mandates that the subject matter of the dispute is the same as the
subject matter of the arbitration agreement. While articulating on this pre-requisite,
the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr.8, said
that "The relevant language used in Section 8 is-"in a matter which is the subject
matter of an arbitration agreement". Court is required to refer the parties to arbitration.
Therefore, the suit should be in respect of 'a matter' which the parties have agreed to
refer and which comes within the ambit of arbitration agreement."

An application under Section 8(1) cannot be entertained unless accompanied by


original arbitration agreement or a certified copy thereof. Laying emphasis on section
8(2) for the grant of reference, the Supreme Court in The Branch Manager, Magma
Leasing and Finance Limited and Anr. v. Potluri Madhavilata and Anr.9 said that "An
analysis of Section 8 would show that for its applicability, the following conditions
must be satisfied: (e) that along with the application the other party tenders the
original arbitration agreement or duly certified copy thereof."

B. Implied Inclusion under Section 8


Though not implicit in the reading of Section 8 of the Act, the Court in the case of Haryana
Telecom Ltd. v. Sterlite Industries (India) Ltd.10 brought in the competence of the arbitral
tribunal as one of the grounds for the grant of reference. The proposition that Section 8,
despite providing the explicit grounds on which reference can be made, also lays down the
implicit ground of competence of the Arbitral Tribunal, was also read in the affirmative by
the Court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. 11 wherein it
was held that where the cause/dispute is inarbitrable, the court where a suit is pending, will
refuse to refer the parties to arbitration, under Section 8 of the Act.
Effect of the Arbitration and Conciliation (Amendment) Ordinance, 2015:
On 23rd October, 2015, the President promulgated the Arbitration and Conciliation
(Amendment) Ordinance, 2015. The said Ordinance amended Section 8 by stipulating that
joinder of non-signatories to an arbitration agreement was not permissible. Further
amendment to Section 8 requires that the judicial authority compulsorily refer parties to
arbitration irrespective of any decision by the Supreme Court or any other court, if the
judicial authority finds that a valid arbitration clause prima-facie exists. The amendment
essentially nullifies the judgment of the Supreme Court in Booz Allen Hamilton v. SBI Home
finance12, where it had ruled that serious allegations of fraud are not arbitrable.

ISSUES RAISED BY BOTH PARTIES


Mr. R.F. Nariman, the learned Senior Counsel appearing on behalf of the Appellants, inter
alia, submitted that :
(1) Section 8 of the 1996 Act cannot be equated with Section 34 of the Arbitration Act, 1940,
(for short, 'the 1940 Act) having been made in terms of UNCITRAL Model Rules and having
undergone a thorough change.
(2) Filing an opposition to the interim injunction would not preclude a defendant from filing
an application under Section 8 of the 1996 Act.
(3) The High Court committed a serious error in entertaining the plea raised by the
Respondent for the first time before it in holding that the application filed by the Appellants
was not accompanied by a certified copy of the arbitration agreement.
(4) Despite the fact that attention of the High Court was specifically drawn that the said
finding was factually incorrect in the review application, the High Court did not address itself
on the said question.
Mr. Nagendra Rai, the learned Senior Counsel appearing on behalf of the Respondent, on the
other hand, submitted that :
(1) The premise on which the contract was terminated being de 'hors the conditions of the
contract, the same would not be arbitrable.
(2) The suit having been filed questioning both blacklisting as also termination of contract
being outside the purview of arbitration, the application under Section 8 of the 1996 Act was
not maintainable.
(3) The Appellants in their rejoinder having disclosed the substance of the dispute were not
entitled to file the said application. (4) An application for time having been filed to file
written statement, the impugned orders do not suffer from any infirmity.

JUDGEMENT
The evidence recorded by the Trial Court discloses that there was no dispute between the
Company and the Union arising under the contract on which the suit was filed. The Union
accepted liability to pay the amount claimed by the Company in the suit. The Union still
declined to pay the amount asserting that an amount was due from the Company to the Union
under a distinct contract. This amount was not sought to be set-off under any term of the
contract under which the Company made the claim. The dispute raised by the Union was
therefore not in respect of the liability under the terms of the contract which included the
arbitration clause, but in respect of an alleged liability of the Company under another contract
which it may be noted had already been referred to arbitration. The Union had no defence to
the action filed by the Company : it was not contended that the amount of Rs. 10,625/- was
not due to the Company under the contract relied upon by the Company. For enforcement of
the arbitration clause there must exist a dispute : in the absence of a dispute between the
parties to the arbitration agreement, there can be no reference."
Such was not the case here.
For the foregoing reasons, we are of the opinion that the application filed by the Appellants
underSection 8 of the 1996 Act was maintainable. Before parting with the case, we may
notice a disturbing state of affairs. Mr. Nariman made a statement before us that in view of
the order of status quo passed by the learned Civil Judge, the Respondents have not only been
working for the full term of five years contemplated under the agreement but also for the
extended the period of ten years, to which they were not entitled. The order of injunction
passed by the learned Trial Judge is not before us. The contention raised by Mr. Nariman if
correct, we are sure that corrective measures shall immediately be taken by the court
concerned.
For the reasons aforementioned, the impugned judgments cannot be sustained which are set
aside. The appeals are allowed with costs. Counsel fee is quantified at Rs.15,000/-.