High Court of Judicature at Bombay Dismisses Writ Petition in Arbitration and Civil Suit Context — Section 8 of Arbitration and Conciliation Act, 1996 Reference Upheld. Ruling Clarifies That Filing Reply to Interim Injunction Application Does Not Amount to 'First Statement on Substance' Precluding Arbitration.

Writ petition under Articles 226 and 227 of the Constitution of India challenging two orders passed by the trial court in a suit for specific performance and permanent injunction.

Petitioner sought quashing of the trial court’s orders dated 16 January 2006 allowing the application under Section 8 of the Arbitration and Conciliation Act, 1996, and rejecting the application for amendment of the plaint.

The trial court had referred the dispute to arbitration despite petitioner’s claim that respondent No. 1 had submitted to the civil court’s jurisdiction by filing a reply and affidavit, and the amendment to add the named arbitrator as a party was refused.

The trial court passed two orders on 16 January 2006: one allowing the Section 8 application and directing the parties to arbitration, and another rejecting the amendment application. The present writ petition is the first challenge to these orders.

Whether the trial court erred in allowing the application under Section 8 of the Arbitration and Conciliation Act, 1996 and referring the dispute to arbitration despite respondent No. 1 having filed a reply to the injunction application and an affidavit before seeking the reference. Whether the trial court erroneously rejected the petitioner’s application for amendment of the plaint.

Petitioner contended that respondent No. 1’s reply to the injunction application and the affidavit dated 3 October 2001 constituted the first statement on the substance of the dispute, thereby precluding any subsequent application under Section 8; also that the amendment application should have been allowed as it was necessary for complete adjudication. Respondent No. 1 submitted that the reply and affidavit were merely responses to an interlocutory application for interim injunction and did not show an intention to submit to the court’s jurisdiction; the amendment was rightly rejected because the proposed party was the named arbitrator, and joining him would defeat the arbitration clause.

A defendant’s filing of a reply to an application for temporary injunction and an affidavit opposing it does not constitute submission of a first statement on the substance of the dispute under Section 8(1) of the Arbitration and Conciliation Act, 1996. To bar a reference to arbitration, such filing must demonstrate an unequivocal intention to submit to the civil court’s jurisdiction and waive the right to arbitrate. An amendment seeking to add the named arbitrator as a party is properly rejected as it would undermine the arbitration agreement.

Filing of a reply to application for temporary injunction cannot be considered as submission of a first statement made on the substance of the dispute. Filing of any statement, application, affidavit by a defendant prior to the filing of the written statement can be construed as “submission of a statement on the substance of the dispute” if by filing such statement, application or affidavit, the defendant shows his intention to submit himself to the jurisdiction of the Court and waives his right to seek reference to the arbitrator. Reading of the entire affidavit does not indicate that the same can be treated as a first statement on the substance of the dispute as per Section 8 of the said Act. Such statement should indicate the unequivocal intention of the defendant to contest the proceeding in the Civil Court by giving up the right to have the dispute referred to the Arbitrator.

On 17 July 1997, the petitioner entered into an agreement with the Liquidator of respondent No. 1 for purchase of a spinning mill. Disputes arose over possession, leading the petitioner to file a suit for specific performance and permanent injunction. The petitioner moved for temporary injunction (Exhibit 5), which was contested by respondent No. 1. On 27 September 2001, respondent No. 1 applied under Section 9A of the Code of Civil Procedure, 1908, alleging the suit was barred under Section 107 of the Maharashtra Cooperative Societies Act, 1960; the trial court framed preliminary issues on jurisdiction and statutory bar. On 3 October 2001, respondent No. 1 filed an affidavit opposing the injunction application, asserting that possession had been taken over on 26 September 2001 and the prayer had become infructuous. On 4 October 2001, respondent No. 1 filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference to arbitration as per Clause 27 of the agreement. On 16 January 2006, the trial court allowed the Section 8 application, directing the parties to arbitration, and simultaneously rejected the petitioner’s amendment application (Exhibit 41) that sought to add the Director of Handloom as a defendant. The petitioner filed the present writ petition challenging both orders. The High Court heard the matter and dismissed the petition on 25 June 2015.

• Arbitration and Conciliation Act, 1996: Section 8
• Code of Civil Procedure, 1908: Section 9A
• Maharashtra Cooperative Societies Act, 1960: Section 107, Section 164
• Constitution of India: Articles 226, 227