Jammu And Kashmir High Court Upholds Arbitration Clause In Trade Agreement | Disputes Must Be Resolved Only By Union As Per Bye-Laws | Civil Court Jurisdiction Clearly Ousted
Safiya Malik
In a recent judgment delivered by the High Court of Jammu & Kashmir and Ladakh at Srinagar, Single Bench of Justice Sanjay Dhar upheld the trial court’s decision to refer the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The judgment, pronounced on 6 May 2025, validated the arbitration clause in a commercial agreement between the petitioner and the respondent and dismissed the challenge against the referral order.
The High Court recorded that the trial court, vide order dated 12 June 2024, had referred the dispute to the Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore, based on a clause in the agreement executed between the disputing parties.
The petitioner filed a civil suit seeking settlement of accounts and a permanent injunction against the respondent. The plaint stated that the respondent had approached the petitioner for the supply of fruit boxes with an understanding that the fruits would be sold at higher rates, commission deducted at 1%, and requisite materials and financial assistance provided to the petitioner. The petitioner alleged that the respondent failed to uphold these terms, causing financial loss and business disruption.
According to the petitioner, fruits were sold at lower prices by the respondent, and the respondent failed to maintain proper accounts, which prevented the petitioner from settling dues with orchard owners. Despite requests, the accounts were allegedly not settled. As relief, the petitioner sought a preliminary decree for settlement of accounts and a final decree for recovery, alongside an injunction against the respondent’s interference.
In response, the respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, asserting the presence of an arbitration clause in the agreement that negated civil court jurisdiction. The respondent argued that disputes must be referred to arbitration before the Union of Kashmir Fruit Growers and Dealers Association, Sopore.
The petitioner contested this application, denying the existence of a valid arbitration clause. It was submitted that the clause did not qualify as an arbitration agreement and that jurisdiction of the civil court could not be ousted by such a provision. The petitioner also argued that the Union’s President, being a party member, lacked impartiality.
The trial court rejected the petitioner’s contention and referred the dispute to arbitration, observing that objections to the clause’s validity could be raised before the arbitral tribunal under Section 16 of the 1996 Act.
The petitioner approached the High Court, contending that the clause in the agreement was not an arbitration agreement and that the trial court had misconstrued its legal effect.
The High Court examined the Urdu-language agreement signed by both parties, which contained a note stating: "God forbid, if a dispute arises between the parties, the same would be resolved only and only by the Union in accordance with the rules of Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore."
The court considered whether this clause qualified as an arbitration agreement. Referring to precedents, including K. K. Modi vs. K. N. Modi (1998), Bihar State Mineral Development Corporation vs. Encon Builders (I) Pvt. Ltd. (2003), and Jagdish Chander vs. Ramesh Chander (2007), the court noted essential attributes of a valid arbitration agreement: agreement in writing, intention to refer disputes to a private tribunal, impartial adjudication, and binding effect.
Justice Sanjay Dhar recorded: "What is relevant is whether the parties have agreed that dispute arising between them in respect of the subject matter of the contract, would be referred to arbitration and the decision would be binding on them."
Referring to Section 8 of the Association’s Bye-laws, the court observed that the Chairman of the Association was empowered to hear disputes concerning orchard owners, traders, and others. The adjudication involved summoning parties, recording signatures, and collecting case-related fees.
"From an analysis of the aforesaid Bye-laws, it comes to the fore that Chairman of the Association is vested with the power to adjudicate the disputes between the traders, orchard owners and other persons associated with the trade of fruits. He has to hear the parties and he has also to adjudicate the disputes," the court noted.
Justice Dhar concluded that the agreement clause read with the Bye-laws satisfied all legal requirements of a valid arbitration clause. "The note appended to the agreement executed between the parties is nothing but an arbitration clause as the same satisfies all the requirements of the arbitration clause," he recorded.
The court rejected the petitioner’s objection and held: "Section 8 of the Act of 1996 clearly provides that when a party to the arbitration agreement applies under the said Act before the judicial authority prior to submitting his first statement on the substance of the dispute, the judicial authority has to refer the parties to arbitration once it is found that there is a valid arbitration agreement between the parties."
The High Court, however, found one part of the trial court’s order unsustainable. It noted that directing the Arbitrator to file the award before the same trial court was not in accordance with the Arbitration Act.
The High Court dismissed the petition, affirming the trial court’s referral to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. However, the direction to the Arbitrator to file the award before the trial court was set aside.
"The impugned order passed by the learned trial court except to the extent of directing the Arbitrator to file his award before the said court is upheld and the petition is dismissed," the court ordered.
Advocates Representing the Parties
For the Petitioner: Mr. Yasir Nabi Rather, Advocate
For the Respondent: Mr. Ibrahim Mehraj, Advocate
Case Title: Ghulam Rasool Bhat vs. Shafeeq Fruit Company
Case Number: CM(M) No.214/2024
Bench: Justice Sanjay Dhar
[Read/Download order]
