ARBITRATION AND CONCILIATION ACT, 1996 — Section 8
Civil suit filed during pendency of arbitration — Maintainability — Jurisdiction of civil court — Ouster — Effect.
Where the dispute between the parties was admittedly pending before the arbitrator since the year 2007 and the arbitration proceedings were in progress, institution of a civil suit in the year 2011 seeking permanent injunction restraining enforcement of partner’s share of profit and loss is not maintainable.
(Paras 22, 26, 29)
Section 8 — Mandatory reference to arbitration — Scope of court’s discretion.
Once existence of arbitration clause and pendency of arbitral proceedings are admitted by both parties, the civil court has no jurisdiction to adjudicate the dispute and is bound to refer the parties to arbitration under Section 8 of the Act.
(Paras 26, 28, 29, 30)
Section 8(2) — Filing of original arbitration agreement — Non-production — Effect.
Where it is the specific plea of the defendant that the original partnership deed containing arbitration clause is with the plaintiff, and such plea is not disputed by the plaintiff, non-production of the original arbitration agreement does not defeat the application under Section 8.
(Paras 16, 17)
Code of Civil Procedure, 1908 — Order VII Rule 11 — Rejection of plaint — Arbitration dispute.
Disputes governed by arbitration clause do not attract rejection of plaint under Order VII Rule 11 CPC; at best, the matter has to be referred to arbitration under Section 8 of the Arbitration and Conciliation Act.
(Para 32)
Arbitrability — Partnership disputes — Share of profit and loss.
Dispute relating to enforcement or restraint of partner’s share of profit and loss in a partnership firm is a dispute arising out of contractual relationship and is arbitrable in nature.
(Paras 20, 26)
Rights in personam — Arbitrability.
Disputes concerning inter se rights of partners fall within rights in personam and are amenable to arbitration.
(Paras 18, 19, 20)
Fraud allegations — Effect on arbitration.
Allegations of fraud, criminal wrongdoing or statutory violation do not detract from the jurisdiction of the arbitral tribunal to decide disputes arising out of civil or contractual relationships.
(Paras 25, 26, 31, 33)
Section 16 — Kompetenz-Kompetenz.
Arbitral tribunal is competent to rule on its own jurisdiction, including objections as to existence or validity of the arbitration agreement, and civil court cannot assume such jurisdiction.
(Para 26)
Parallel proceedings — Bifurcation — Not permissible.
Permitting one part of the dispute to be decided by arbitral tribunal and the other by civil court would lead to delay, multiplicity of proceedings, increased cost of litigation, and possibility of conflicting judgments.
(Paras 29, 34)
Second Appeal — Section 100 CPC — Scope.
High Court cannot interfere with concurrent or appellate findings of fact unless findings are contrary to mandatory provisions of law, settled legal principles, or based on no evidence or inadmissible evidence.
(Para 14)
Substantial question of law — Absence.
Where the dispute is admittedly covered by arbitration clause and proceedings were pending even prior to institution of suit, no substantial question of law arises for consideration in second appeal.
(Para 35)
Result.
Second appeal and cross objections dismissed — Judgment of First Appellate Court directing reference to arbitration confirmed.
(Para 36)
ANALYSIS OF FACTS
1. Parties
Plaintiff / Appellant:
Voona Sarveswara Rao — Managing PartnerDefendant / Respondent:
Andhravarapu Govinda Rajulu — Partner holding 20% share
2. Nature of dispute
Firm: M/s. Ajantha Real Estates, Srikakulam
Registered partnership
Partnership deed contained arbitration clause
3. Arbitration proceedings
Arbitration initiated in 2007
Arbitrator appointed
Proceedings in progress
Evidence stage reached
This fact was admitted by both parties.
4. Civil suit (2011)
Plaintiff filed O.S. No.04 of 2011 seeking:
permanent injunction restraining the defendant from ever claiming or enforcing his 20% share of profit and loss in the firm.
5. Interlocutory application
Defendant filed:
I.A. No.375 of 2017
Under Order VII Rule 11 CPC r/w Section 8 of Arbitration Act
Prayer: rejection of plaint.
6. Trial Court
Allowed I.A.
Rejected plaint.
7. First Appellate Court
Modified order:
Held plaint cannot be rejected
Directed reference to arbitration under Section 8
8. Second Appeal
Plaintiff challenged appellate decree on grounds:
Section 8 application filed belatedly
Arbitration agreement not produced
Written statement already filed
Civil suit maintainable
ANALYSIS OF LAW
A. Section 8 — Mandatory nature
The Court reiterated:
Language of Section 8 is peremptory
Once arbitration clause exists, court must refer parties to arbitration
(Paras 28–30)
B. Pendency of arbitration prior to suit
Critical factual finding:
Arbitration pending since 2007
Suit filed in 2011
Plaintiff admitted pendency
Therefore:
Civil court jurisdiction stood excluded even before suit was filed.
(Paras 22, 26, 29)
C. Non-filing of arbitration agreement
Court held:
Defendant pleaded original deed with plaintiff
Plaintiff never disputed possession
Arbitration proceedings already ongoing
Hence:
Non-production of deed not fatal.
(Paras 16–17)
D. Arbitrability of partnership disputes
Dispute concerned:
Share of profits and losses
Inter se rights of partners
Held to be:
Contractual
Rights in personam
Fully arbitrable
(Paras 18–20)
E. Fraud plea
Even assuming allegations of fabrication:
Arbitrator competent to decide
Section 16 empowers tribunal
Civil court cannot assume jurisdiction.
(Paras 25–27, 31, 33)
F. Section 100 CPC limitation
High Court emphasized:
Second appeal confined only to substantial questions of law
No perversity or legal violation shown
(Para 14)
RATIO DECIDENDI
The High Court held:
When parties admittedly are governed by an arbitration clause and arbitration proceedings were pending prior to institution of the civil suit, the civil court has no jurisdiction to entertain the suit, and the dispute must be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
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