“Judicial Authority Has No Discretion Where Arbitration Clause Exists”: J&K High Court Directs Parties to Arbitration, Says “Mandatory Reference Required Under Section 8”
Sanchayita Lahkar
The High Court of Jammu & Kashmir and Ladakh at Jammu has directed the parties to a contractual dispute to proceed to arbitration, recording that “once a plea of existence of arbitration clause is taken in the written statement and the defendant persists with the same and objects to the jurisdiction of the trial court to proceed ahead with the suit, then the judicial authority is left with no discretion but to refer the parties to arbitration.” The matter was adjudicated by Justice Rajnesh Oswal, who partially modified the earlier decision of the trial court, directing the parties to arbitration while setting aside the nomination of an arbitrator who was an official of one of the parties.
The Court held that under Section 8 of the Arbitration and Conciliation Act, 1996, the judicial authority has no discretion once the statutory requirements are satisfied, and must refer parties to arbitration unless no valid arbitration agreement exists.
The dispute arose from a contract/agreement dated 30.09.2021 executed between the appellant and the respondents, arising out of e-NIT Nos. 39 and 40 of 2021-22. The appellant approached the trial court seeking a declaration that the agreement had become incapable of performance due to the respondents’ alleged inaction in curbing unauthorized eateries and vendors in the vicinity of the appellant’s premises. The appellant also sought a mandatory injunction directing the refund of Rs. 7,48,650 along with the return of two FDRs, bearing Nos. 532825 and 532826 dated 16.09.2021, with interest. Further relief of Rs. 10 lakh as compensation was claimed, along with a permanent injunction restraining the respondents from enforcing the terms of the agreement.
The respondents appeared and filed a written statement on 20.02.2022, raising a preliminary objection on maintainability due to the arbitration clause contained in the contract. Subsequently, on 27.07.2023, the trial court framed an issue on whether the suit was barred in view of the arbitration clause.
The trial court, by its order dated 30.10.2023, held the suit to be not maintainable, referring the parties to arbitration. The appellant challenged this finding before the High Court, asserting that by filing a detailed written statement, the respondents had waived their right to seek reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The appellant submitted that no formal application under Section 8 had been filed before the submission of the written statement and that the respondents could not now rely on the arbitration clause to defeat the suit.
Senior counsel for the appellant argued that under Section 8, reference to arbitration could only be sought before filing a first statement on the substance of the dispute, contending that the respondents had failed to adhere to this requirement. Additionally, it was argued that clause 18 of the agreement nominated an arbitrator who was an official of the respondents, rendering the clause unenforceable.
The appellant relied on judgments of the Supreme Court in Rashtriya Ispat Nigam Ltd. & Anr. v. M/s Verma Transport Co., 2006 AIR SC 2800 and Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors., 2011 AIR SC 2507, along with the judgment of the Jammu and Kashmir High Court in Brij Mohan Sawhney v. Sanjeev Kumar Gupta decided on 25.08.2023.
Senior counsel appearing for the respondents countered that the arbitration clause was specifically invoked in the written statement, satisfying the mandate of Section 8 of the Act. The respondents conceded that the nominated arbitrator, being an official of the respondents, could not act as an independent arbitrator and agreed to the appointment of an independent arbitrator. Reliance was placed on decisions of the Delhi High Court in Sharad P. Jagtiani v. Edelweiss Securities Ltd., 2014 SCC OnLine Del 4015 and Madhu Sudan Sharma & Ors. v. Omaxe Ltd., 2023:DHC:8044.
The Court reproduced the relevant provisions of Section 8 of the Arbitration and Conciliation Act, 1996 and stated that “a judicial authority before which an action is brought in a matter, which is the subject of an arbitration agreement shall refer the parties to arbitration, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute.”
Justice Rajnesh Oswal recorded that “the appellant himself has annexed the agreement dated 30.09.2021 executed between the Market Administrative Committee (MAC) Fruit and Vegetable Market Narwal Jammu and M/s Singh Traders, the appellant herein.” It was observed that while no formal application under Section 8 had been filed with the arbitration agreement, the respondents had raised the arbitration clause in their written statement.
The Court observed that the statutory requirement under Section 8(1) relates to the timing of raising the arbitration clause, which may be done before or alongside the submission of the first statement on the substance of the dispute. The Court relied on Supreme Court precedents, stating that “once the conditions precedent contained in the said provision are satisfied, the judicial authority is statutorily mandated to refer the matter to arbitration.”
Quoting from P. Anand Gajapathi Raju & Ors. v. P.V.G Raju (Dead) & Ors., the Court recorded that “the language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement.”
The Court also referred to Rashtriya Ispat Nigam Ltd. v. M/s Verma Transport Co., observing that “the direction to make reference is not only mandatory, but the arbitration proceedings to be commenced or continued and conclusion thereof by an arbitral award remain unhampered by such pendency.”
The Court rejected the appellant’s contention that the respondents had waived their right to arbitration, stating that “the respondents brought to the notice of the learned trial court the existence of arbitration clause in the agreement through the medium of written statement and at the same time submitted their first statement on the substance of the dispute.”
Further reliance was placed on Sharad P. Jagtiani v. Edelweiss Securities Ltd., where it was held that “if in the written statement filed it is brought to the notice of the Court that there exists an arbitration agreement between the parties which embraces the subject matter of the suit there would complete compliance with the mandate of the law.”
The Court concluded that since the arbitration clause was invoked within the permissible stage, “the judicial authority is left with no discretion but to refer the parties to arbitration.”
The Court upheld the trial court’s decision to refer the matter to arbitration but modified the direction regarding the arbitrator. It was directed that “the learned trial court ought not to have granted liberty to the parties to approach the nominated arbitrator, who was the official of the respondents.” The Court noted that the respondents conceded the need for an independent arbitrator.
The appeal was accordingly disposed of by modifying the order to the extent that the suit is disposed of by referring the parties to arbitration, with the appointment of an independent arbitrator.
Advocates Representing the Parties
For the Appellant: Mr. Vikram Sharma, Senior Advocate with Mr. Sachin Dev Singh, Advocate
For the Respondents: Ms. Priyanka Bhat, Advocate vice Mr. Suneel Malhotra, GA, and Mr. Rahul Pant, Senior Advocate with Mr. Anirudh Sharma, Advocate
Case Title: S. Charanjeet Singh v. UT of J&K and Ors.
Neutral Citation: 2025:J&KHC:1434
Case Number: RFA No. 52/2023
Bench: Justice Rajnesh Oswal
[Read/Download order]
