The Bombay High Court has ruled that a commercial dispute between RBL Bank Ltd. and the respondents should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. This decision followed the setting aside of an ex-parte decree, with the Court emphasizing the legal obligation to honor the arbitration clause in their agreement.

1. Introduction:

The dispute arises from a Leave and License (L&L) Agreement between RBL Bank (Petitioner) and Sohanlal V. Jain HUF (Respondents). The respondents failed to appear in court, resulting in an ex-parte decree against them, which was later set aside under Order IX Rule 13 of the CPC.
Relevant Act/Section: Constitution of India, Article 227; Arbitration and Conciliation Act, 1996, Section 8.

2. Background of the Case:

• Parties: RBL Bank (plaintiff) sought recovery of a deposit paid under the L&L Agreement.
• Decree: The Trial Court decreed ex-parte against the respondents for Rs. 65,02,100 with 36% interest.
• Respondents' Motion: The respondents later moved to set aside the ex-parte decree and introduced the arbitration clause, arguing that the matter should be referred to arbitration.
  Relevant Act/Section: CPC Order IX Rule 13; Arbitration and Conciliation Act, 1996, Section 8.

3. Procedural Developments:

• The respondents filed a Notice of Motion under Section 8 of the Arbitration Act after the ex-parte decree was set aside.
• The court allowed the motion, referring the matter to arbitration, which RBL Bank challenged.
  Relevant Act/Section: Arbitration and Conciliation Act, 1996, Section 8.

4. Key Legal Issue:

The bank contested the respondents’ right to file an arbitration request, citing that the delay in filing a written statement forfeited their rights under the Commercial Courts Act. However, the court emphasized that the Arbitration clause existed, and setting aside the ex-parte decree reinstated the respondents' rights.
Relevant Case Law: Mira Gehani v. Axis Bank Ltd., SPML Infra Ltd v. Trisquare Switchgears Pvt. Ltd.

5. Court's Reasoning:

The court reasoned that the right to arbitration was preserved as the respondents filed the arbitration motion after the ex-parte decree was set aside. The ruling noted that arbitration clauses must be enforced unless explicitly invalid.
Relevant Act/Section: Arbitration and Conciliation Act, 1996, Section 8; Commercial Courts Act, 2015.

6. Final Judgment:

The court upheld the arbitration referral but set aside the trial court's decision to keep the case on a dormant file. It clarified that the arbitrator would address the bank’s objections about the respondent’s rights to file a written statement.
Relevant Act/Section: Arbitration and Conciliation Act, 1996, Section 8.

Ratio Decidendi:

• Key Issue: Whether a party forfeits its right to seek arbitration after an ex-parte decree is set aside.

• Held: The High Court emphasized the importance of honoring arbitration clauses under Section 8 of the Arbitration and Conciliation Act, especially when a decree is set aside and the dispute is restored. Forfeiture of rights to arbitration was not applicable since the respondents acted at the first opportunity after the decree was vacated.

Subjects:

Arbitration, Commercial Dispute, Ex-Parte Decree, Arbitration Clause, Bombay High Court, Section 8 Arbitration Act, Commercial Courts Act, Legal Procedure