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SC issues notice in petition highlighting conflict between CPC and Arbitration Act
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SC issues notice in petition highlighting conflict between CPC and Arbitration Act

Shruti Mahajan

Can an Arbitration application be rejected on the ground that a party has sought leave to defend in a Summary Commercial Suit?

The Supreme Court has issued notice in a petition posing this question, after observing that conflicting views exist on the subject matter.

The Bench of Justices Kurian Joseph and Sanjay Kishan Kaul heard the petition on Monday, noting that no Supreme Court judgement exists on this question of law, and that various high courts have taken conflicting views on the same.

The primary issue involved in this case is whether an application seeking leave to defend under Order 37 Rule 3 of the Code of Civil Procedure (CPC) amounts to “first statement on substance of the dispute” in terms of Section 8 of the Arbitration and Conciliation Act, 1996.

In this particular case, the petitioner respondent companies had been conducting business with each other and had entered into a Logistics Agreement and a Product Purchase Agreement. Both these agreements contained Arbitration clauses.

Owing to some dispute, the respondent had moved the Bombay High Court in a Commercial Summary Suit, seeking a Court directed payment of a certain sum of money by the petitioner.

The petitioner, in line with the provisions of Order 37 Rule 3 of the CPC, filed an application seeking leave to defend within ten days. Subsequently, the petitioner preferred a Notice of Motion under Section 8 of the Arbitration and Conciliation Act to refer the dispute to Arbitration.

The Single Judge, and later the Division Bench of the Bombay High Court, ruled in favour of the respondent and set aside the Notice of Motion preferred by the petitioner.

The question here is whether an application for leave to defend filed under CPC would amount to making the “first statement on the substance of the dispute in Section 8 of the Arbitration Act.”

The petitioner has highlighted that so far, there is no settled ruling on this question and that various High Courts have answered this question differently.

While the Madras High Court in one case has held that an application under Order 37 of CPC would not amount to giving in to the jurisdiction of the civil court and does not amount to “first statement” under Section 8, the Delhi High Court has held that leave to defend amounts to the first statement as envisaged under Section 8 of the Arbitration Act.

The petitioner has also pointed out that the two co-ordinate Benches of the Bombay High Court have also interpreted it differently. The Nagpur Bench has taken the Madras High Court’s view and the Principal Bench at Mumbai has agreed with the Delhi High Court’s view.

It is contended by the petitioner that an application filed seeking leave to defend is merely to see whether there exists a triable issue before a court. This application does not go into the merits of the case as is the case in “first statement” under Section 8 of the Arbitration Act.

Further, at the stage of filing an application seeking leave to defend, questions concerning maintainability of the suit are raised without going into the merits of the case. Filing this application cannot mean that the petitioner has accepted the jurisdiction of the court and given up the right to invoke Arbitration, the petition states.

The petitioner was represented by Advocate Dhruv Mehta, assisted by Advocates Udayaditya Banerjee and Durgesh Kulkarni while the Respondents were represented by Dr. Abhishek Manu Singhvi.

Read Petition:

Haier-SLP-Supreme-Court.pdf
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