Safiya Malik

The Gauhati High Court has dismissed an appeal challenging a trial court's refusal to refer a property dispute to arbitration, ruling that the mere existence of an arbitration clause in a contract does not automatically oust the jurisdiction of the civil court. The court held that the arbitration clause in question did not explicitly mandate arbitration as the sole dispute resolution mechanism, thereby allowing the civil court to retain jurisdiction over the matter.

The dispute arose from a real estate transaction between the appellants, M/s J.M.B. Construction, a registered partnership firm, and the respondents, Dr. Somesh Dhar and others. The respondents had filed a suit (Title Suit No. 26/2024) before the Civil Judge (Senior Division), Tinsukia, seeking specific performance of a contract for the sale of a flat. According to the agreement, the respondents had paid the full purchase price of ₹30,00,000, but the appellants failed to complete construction and hand over possession of the flat.

Upon discovering that only the third-floor slab had been cast and construction had halted, the respondents issued a legal notice demanding completion and possession within three months. The appellants responded with an assurance that the flats would be delivered within one year. However, even after this extended period, the appellants failed to fulfill their obligations, prompting the respondents to initiate legal proceedings.

Alongside the suit, the respondents sought an ad-interim mandatory injunction under Order 39, Rule 1 and 2 of the Civil Procedure Code (CPC), which was granted by the trial court. The injunction directed the appellants to complete the construction and hand over the flat within three months.

In response, the appellants moved an application under Order 7, Rule 11 of the CPC and Sections 5 and 8 of the Arbitration and Conciliation Act, 1996, arguing that the matter should be referred to arbitration. They contended that Clause 23 of the agreement contained an arbitration clause, which required disputes to be resolved through arbitration in exceptional cases.

The trial court rejected the appellants' application on September 20, 2024, holding that the arbitration clause was not unequivocal in ousting civil court jurisdiction. Aggrieved by this decision, the appellants filed the present appeal under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996.

The High Court considered whether the presence of an arbitration clause in the agreement necessitated referral to arbitration, thereby ousting the jurisdiction of the civil court. The appellants argued that Section 8 of the Arbitration and Conciliation Act, 1996, made it mandatory for courts to refer disputes to arbitration when an arbitration agreement exists. They cited precedents such as Sundaram Finance Ltd. v. T. Thankam, (2015) 14 SCC 444, and Hindustan Petroleum Corporation Ltd. v. Pink City Midway Petroleums, (2003) 6 SCC 503, to support their claim that arbitration should be the primary mode of dispute resolution.

However, the respondents countered that the arbitration clause in the agreement did not expressly mandate arbitration as the sole mechanism for dispute resolution. They argued that civil court jurisdiction is not automatically ousted unless there is an explicit exclusion. The respondents also pointed out that the appellants had failed to produce an original or certified copy of the arbitration agreement, a requirement under Section 8(2) of the Arbitration Act.

The High Court referred to S. Vanathan Muthuraja v. Ramalingam, (1997) 6 SCC 143, where the Supreme Court held that civil courts have jurisdiction over all suits of a civil nature unless explicitly excluded by law. The judgment stated: "The normal rule of law is that civil courts have jurisdiction to try all suits of civil nature except those of which cognizance is either expressly or by necessary implication excluded. The rule of construction being that every presumption would be made in favor of the existence of a right and remedy in a democratic setup governed by the rule of law and jurisdiction of the civil courts is assumed."

The court further cited ITI Ltd. v. Siemens Public Communications Network Ltd., (2002) 5 SCC 510, which held that an arbitration clause does not inherently oust civil court jurisdiction unless explicitly stated. Additionally, the Rajasthan High Court in Mahesh Kumar v. RSRTC, AIR 2006 Rajasthan 56, had ruled that mere existence of an arbitration clause does not bar a civil court from hearing a case unless the agreement explicitly mandates arbitration as the exclusive remedy.

Applying these principles, the Gauhati High Court observed: "The arbitration clause in the present agreement merely provides that disputes should be resolved mutually and, in exceptional cases, may be referred to arbitration. This does not constitute an unequivocal mandate requiring arbitration as the sole means of dispute resolution. Consequently, the civil court's jurisdiction remains intact."

On the issue of procedural compliance, the court noted: "As per Section 8(2) of the Arbitration Act, 1996, an application under Section 8 shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. The appellants have failed to produce such a document, further weakening their case."

Based on these findings, the Gauhati High Court upheld the trial court's decision and dismissed the appeal. The directives issued by the court are as follows:

1. The order dated September 20, 2024, passed by the Civil Judge (Senior Division), Tinsukia, rejecting the appellants’ application under Section 8 of the Arbitration Act, was affirmed.

2. The arbitration clause in the agreement did not mandatorily exclude the jurisdiction of the civil court.

3. The appellants' failure to produce the original or certified copy of the arbitration agreement further justified the dismissal of their application.

4. The appeal was dismissed with no order as to costs.

Case Title: M/s J.M.B. Construction & Ors. v. Dr. Somesh Dhar & Ors.
Case Number: Arb.A. No. 8/2024
Bench: Justice Malasri Nandi

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