1. This Civil Revision Petition is filed against the order dated 6.4.2011 made in I.A No. 604/2010 in O.S No. 162/2010 by the learned District Judge, Kanyakumari at Nagercoil.
2. The Respondent herein has instituted a suit in O.S No. 162/2010 on the file of the learned District Judge, Kanyakumari at Nagercoil for recovery of Rs. 50/- lakhs from the Defendant with future interest at 12 per cent p.a from the date of the plaint till the date of decree and at 6 per cent p.a till realization. The claim of the Respondent/Plaintiff is based on a Memorandum of Understanding entered into between the Plaintiff and the Defendant which contained a clause that all the differences and disputes relating to the agreement arising out of the deed shall be resolved by arbitration under the Arbitration Act and the decision of the arbitration shall be final and binding on both parties. There was exchange of notices between the parties. According to the Respondent/Plaintiff, the Petitioner/Defendant had no intention to perform the legal obligation under the agreement and it was reasonably felt that the Defendant has abandoned the agreement. In the said circumstances, the Respondent/Plaintiff has filed the suit for recovery of money.
3. In response to the summons issued by the Trial Court, the revision petitioner/Defendant entered appearance and filed an application in I.A No. 604/2010 under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) read with Section 151 of CPC and Order 7 Rule 11 of C.P.C
4. In the affidavit filed in support of the application in I.A No. 604/2010, it was the case of the Petitioner/Defendant that several disputes and differences arose between the Plaintiff and the Defendant and the Petitioner also raised tenable contentions regarding the liability and alleged disbursement. So, in view of the disputability of the claim, he sought for reference of the dispute to arbitration in view of specific clause in the memo of understanding to refer the dispute for arbitration.
5. The application in I.A No. 604/2010 was contested by the Respondent/Plaintiff by filing a written argument, wherein it is contended that no independent application was filed by the Revision Petitioner under the provisions of the Act and the application was not accompanied by the original Memo of Understanding and therefore, Section 8(1) and (2) of the Act was not complied with. Since the agreement itself is denied by the Revision Petitioner in her reply notice, she is disentitled from seeking to enforce the arbitration clause.
6. The Trial Court rejected the application on the ground that there was no concluded contract between the parties and the very amount stated have been paid by the Respondent to the Petitioner is under dispute and the same involves question of fact requiring adjudication by civil court.
7. Mr. D. Nallathambi, the learned counsel for the Revision Petitioner contended that it was mandatory for the Trial Court to refer the dispute to arbitration when admittedly there was an arbitration clause in the Memorandum of Understanding. The learned counsel would submit that Section 8 of the Act mandates a judicial authority before whom an action is brought in a matter which is subject of arbitration agreement to refer the parties to arbitration. He would contend that the Trial Court is not justified in refusing to refer the parties to arbitration by holding that there was no concluded contract between the parties and the dispute involves serious questions of fact requiring adjudication by the civil court. The learned counsel further challenged the findings of the Trial Court that the Petitioner is disentitled to get the relief under Section 8 of the Act as he has failed to produce the original agreement as untenable and referred to a decision of this court reported in 2008-6-MLJ-24 (Union of India owning the Southern Railway by its General Manager, Southern Railway, Chennai v. Rajesh Damani, Proprietor, Allied General Sales Corporation, Chennai) wherein it is held that non-production of the agreement between the parties along with the application will not disentitle the Petitioner from claiming the relief under the said Act.
8. The learned counsel also contended that the court cannot go into the question whether agreement is null and void, inoperative or incapable of being performed and those issues should be raised only before the Arbitrator. In support of his contention, he relied upon the decision of this court reported in 2008-4-CTC-1 (Kotak Mahindra Bank Ltd. v. Sundaram Brake Lining Ltd.).
9. On the other hand, Mrs. J. Padmavathi, the learned counsel for the Respondent strenuously contended that there is no strict compliance of the provisions of Section 8(1) and (2) of the Act, inasmuch as no separate application is filed by the revision petitioner/Defendant for seeking relief under Section 8 of the Act. The learned counsel pointed out that the application is filed under Order 7 Rule 11 of CPC to reject the plaint. The learned counsel would contend that Order 7 Rule 11 of CPC provides for rejection of plaint in a suit, inter alia, where it appears from the statement in the plaint that the suit is barred by any law, however, there is no prohibition for a party to file a civil suit merely because there is an arbitration clause in the agreement. Hence, she would submit that an application filed under Order 7 Rule 11 of CPC for rejection of plaint on the ground that the dispute raised in the subject matter of an arbitration agreement cannot be allowed, since that by itself does not act as a bar to a civil suit.
10. The learned counsel supported the order of the Trial Court and contended that when the fact of the contract itself was disputed by the Revision Petitioner/Defendant, the court is right in holding that the arbitrator cannot decide that point as it involves adjudication by a civil court. She would further contend that when neither the original arbitration agreement nor its certified copy has been filed, the rejection of the application for reference was justified.
11. I have heard the contentions raised by both the parties and perused the record.
12. The scope of Section 8 of the Act is based on the principle that the right to seek arbitration is a contractual right and a contract cannot be unilaterally abrogated so as to overthrow the arbitration clause. Under this Section, the judicial authority does not restrain the Plaintiff (party to the agreement) from bringing an action in breach of his agreement with the Defendant (the other party to the agreement). On the other hand, it is only on the Defendant exercising his right to go in for arbitration that the judicial authority makes the parties to abide by their contract and refers them to arbitration. On an application filed under Section 8(1) of the Act, the judicial authority is only concerned to see that the matter on which the suit has been instituted is also the subject matter of the arbitration agreement. Hence, where there is an arbitration agreement between the parties, they are ordinarily bound by their agreement and will not be permitted to initiate any legal proceedings other than arbitration proceedings relating to the dispute falling within the arbitration clause.
13. The Kerala High Court in M. Vijaya Narayanan v. M. Prabakaran (AIR-2006-Kerala-373) has explained the scope of this section in lucid terms and the observations of the court in this regard deserve reproduction:—
“When an application is filed under Section 8, the court has to decide whether there exists a valid arbitration agreement. If there is a valid arbitration agreement, it has to further decide whether the dispute that is sought to be raised before it covered by the arbitration clause. If these aspects are found in favour of the applicant and the party had applied under Section 8 before submitting his first statement on the substance of the dispute before the court, the court is bound to refer the parties to arbitration.”
14. Hence, it is relevant to state that if an arbitration agreement subsists between the parties and the other requirements under Section 8 are satisfied, a referral to arbitration is mandatory. In such circumstances, the court would not be justified in refusing to refer the parties to arbitration by holding that there is no concluded contract between the parties and the dispute involves serious question of fact. Where a party to the agreement accepts the existence and validity of the arbitration agreement, it cannot later deny existence of agreement. In the present case, the Plaintiff herself bases her claim on the basis of Memorandum of Understanding entered into between the parties. The Plaintiff, who had filed the suit based on the said Memorandum of Understanding cannot turn around and contend that there is no concluded contract between the parties. The dispute whether there has been a breach by one side or the other or whether circumstances exist where one of the parties failed in performing the contract should be regarded as “differences or dispute which have arisen under the contract and even if there is repudiation of contract, it will not put an end to the arbitration clause. Even in such a situation, the contract survives for the purpose of measuring the claims arising out of the breach and for determining the mode of settling.
15. At this juncture, it is relevant to refer to the decision of this court reported in 2008-4-CTC-1 cited supra, wherein it is pointed out that in an application under Section 8 of the Act to refer parties to arbitration, the court need not go into the question as to whether agreement entered into between the parties is null and void, inoperative or incapable of being performed and these issues should be raised before the Arbitrator.
16. The arbitration clause in the present case clearly indicate the intention of the parties to the agreement to refer the parties to arbitration to resolve all the differences and disputes relating to the agreement and it has been agreed that the decision of the arbitration shall be final and binding on both the parties. The findings of the Trial Court that the Petitioner/Defendant has not expressed any intention to refer the dispute to arbitration is unfounded and not on material placed on record. I do not find anything in the agreement indicative of the fact that the arbitration clause in the agreement was made without any intention of being acted upon by the Defendant. It is not in dispute that the Petitioner/Defendant admitted execution of the agreement and the existence of an arbitration clause in the said agreement and the Respondent/Plaintiff also admitted it and when facts are such, the court had to pass an order of reference. Therefore, the court is not justified in refusing to refer the parties to arbitration.
17. The next contention raised by the Respondent/Plaintiff is that the application filed under Order 7 Rule 11 of CPC along with Section 8 of the Act is not maintainable in law. Order 7 Rule 11 of CPC provides for rejection of plaint in a suit, inter alia, where it appears from statement in the plaint that the suit is barred by an law. It is no doubt true that there is no prohibition for a party to file a civil suit merely because there is an arbitration clause in the agreement. Therefore, an application filed under Order 7 Rule 11 of CPC for rejection of plaint, on the ground that the dispute raised is the subject matter of an arbitration agreement cannot be allowed. But, however, where a suit is filed pertaining to dispute to be resolved through arbitration, it would be open to the Defendant to inform the court about the arbitration agreement and seek appropriate order. Therefore, the court cannot reject the application merely because the Petitioner/Defendant has sought for rejection of plaint on the said ground.
18. The last contention made by the learned counsel for the Respondent is that the requirement of Section 8(2) of the Act was not satisfied, inasmuch as the application is not accompanied by the original Memo of Understanding or a duly certified copy thereof.
19. On the other hand, the learned counsel for the Petitioner referring to a decision of this court reported in 2008-6-MLJ-24 cited supra contended that non production of the arbitration agreement between the parties along with application seeking reference of dispute to arbitration will not disentitle the applicant from claiming the relief under the Act.
20. It is relevant to note that the Honourable Supreme Court in Atul Singh v. Sunil Kumar singh ((2008) 2 SCC 602 : AIR-2008-SC-1016 : 2008-2-L.W. 872) while dealing with a situation where the arbitration agreement itself was denied and it was found that no document had been filed, even along with the suit, held to the effect that mere filing of a copy of the agreement along with the petition under Section 8 will not satisfy the requirement of Section 8(2) of the Act. However, it held further that where the document containing arbitration clause forms the basis of the suit itself, it is not open to such a party to raise objections regarding non filing of original or certified copy of the arbitration agreement.
21. In the present case, the original of Memorandum of Understanding having been produced by the Plaintiff herself who had filed the suit, I have no hesitation to hold that it was a sufficient compliance. Sub-section (2) of Section 8 which requires the original or a certified copy thereof to be filed along with application cannot be interpreted to mean that even if the original is already there on the record, it should nevertheless be filed by the applicant also. Indeed the said document is relied upon by both the Plaintiff as well as the Defendant and it is not in dispute that the said agreement contains the said arbitration clause. Therefore, it cannot be held that the requirement of Section 8(2) of the Act are not satisfied.
22. The contentions of the Plaintiff cannot be gone into by the court exercising jurisdiction under this section as its function is a very limited one and the only point to be decided is whether the claim brought before the court falls within the submission to arbitration. It has to be reiterated that the court is concerned only with the existence of a dispute and not on its merits. It is for the arbitrator to decide whether a particular claim can be allowed or is tenable or not. Once it is shown that there is a valid and subsisting arbitration agreement, the prima facie duty of the court is to refer the parties to arbitration and the application for reference in terms of the arbitration clause cannot be rejected. The word “shall” used in Section 8(1) of the Act makes it obligatory on the part of the court to order arbitration if other requirements are satisfied. Therefore, the order passed by the learned District Judge refusing to refer the parties to arbitration is unsustainable and as such, the order of the learned trial judge is liable to be set aside.
23. For the reasons stated above, this Civil Revision Petition is allowed and the impugned order is set aside. No costs. Consequently, the connected MP is closed.
VCJ/VCS