Suit for recovery maintainable if arbitration agreement is non-binding: Karnataka High Court reiterates

The Karnataka High Court recently reiterated that the presence of a clause that makes an arbitration agreement non-binding will leave it open to parties to continue with proceedings before a civil court [Masters Management Consultants (India) Private Ltd v. Nitesh Estates Limited]..Justice Sachin Shankar Magadum reiterated that as per precedent, agreements indicating a chance for fresh consent of parties with respect to arbitration would mean the same are not arbitration agreements. "...that there is absolutely no intention on the parties to enter into arbitration agreement and if there is no intention on the part of the parties to the agreement to refer their disputes to Arbitrator for adjudication and if there is no willingness to be bound by a decision of such Tribunal, the present suit instituted before the Court is very much maintainable," the single-judge observed. The High Court thus held that the lower court could not have cited Section 8 of the Arbitration and Conciliation Act to refer the parties to arbitration in the present matter. .The petitioner-company had instituted a suit for recovery before a Bengaluru district court as per its agreement with the respondent, which then filed an application under Section 8 of the Arbitration Act and requested the district court to refer the dispute to arbitration.The Court referred the matter to arbitration and returned the plaint. Aggrieved, the petitioner filed the present writ petition before the High Court. It was pointed out that the agreement between the parties made it clear that the arbitration clause was non-binding.Further, mere use of the words 'arbitrator' or 'arbitration' in an agreement do not itself indicate a determination to be bound by the decision of an arbitral tribunal, it was contended. The respondents, on the other hand, contended that the present appeal was non-maintainable as the remedy of a miscellaneous appeal before the district court under Order 43 of the Civil Procedure Code was not exhausted. .The single-judge noted that there were two questions before it for consideration:1) Whether the lower court order on an application filed under Section 8 of the Act can be questioned by invoking the writ jurisdiction under Article 227?2) Whether the finding of the lower court that the parties in terms of the concerned arbitration clause have to seek redressal of their dispute by referring the dispute to an Arbitrator is erroneous?At the outset, the Court cited the decision in Jagdish Chander v. Ramesh Chander and Ors to note that the Arbitration Act does not provide for appeals before the lower court.It observed that the term "non-binding" as per the Advanced Law Lexicon relied on by counsel for the petitioner refers to a document that carries no formal legal obligations, but may carry moral obligations.The Court noted that the relevant clause in the concerned agreement between the parties provided that if the parties were unable to satisfactorily resolve their dispute in line with their non-binding arbitration, the parties are free to initiate litigation.It thus ruled that the agreement, which was a subject matter before a district court, was not an arbitration agreement.It was accordingly held that the district court had 'grossly erred' in returning the present petitioner's plaint by citing Section 8 of the Act..Advocate Aditya Vikram Bhat represented the petitioner. Advocates Chinmay J Mirji and Kiran J represented the respondents. .[Read order]