Party Cannot Invoke Arbitration After Voluntarily Submitting To Court's Jurisdiction During Proceedings: Gujarat High Court

The Gujarat High Court bench of Justice J. C. Doshi has held that whether a party has waived their right to seek arbitration and submitted to the jurisdiction of the Court depends on the party's conduct during the suit. However, the bench held that the legal principle remains that an application under Section 8(1) of the Arbitration and Conciliation Act, 1996, must be filed before the first statement on the substance of the dispute is submitted. It held that a party that willingly participates in the court proceedings and submits to the Court's jurisdiction cannot later reverse their position and request that the dispute be referred to arbitration based on an existing arbitration agreement. Brief Facts: The facts of the case revolve around three Special Civil Applications where Prabhudas Jesangbhai Patel (Petitioner) sought the cancellation of various legal instruments before the City Civil Court. In Special Civil Application No. 10188 of 2023, the Petitioner filed a Regular Civil Suit for the cancellation of a registered Power of Attorney executed in favor of Vinodbhai Mohanbhai Togadiya (Respondent). The Respondent contested this by filing a written statement and an application under Order 7 Rule 11 of the Code of Civil Procedure, 1908 (CPC) seeking to reject the plaint. After the Petitioner's reply and the production of a Partnership Deed, the Trial Court rejected the Respondent's application. The Respondent then withdrew a subsequent Civil Revision Application before the Court and filed a new application under Order 14 of the CPC for framing a preliminary issue. The Respondent also filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 which was allowed by the City Civil Court which led to the dismissal of the suit based on the arbitration clause in the Partnership Deed. In Special Civil Application No. 9972 of 2023, the Petitioner initiated a Regular Civil Suit and sought to cancel a registered Sale Deed executed by Respondent No. 1 in favor of Respondents Nos. 2 to 7. Similar to the first case, the Respondent filed an application under Order 7 Rule 11 of CPC which was rejected by the Trial Court. The Respondent withdrew a subsequent Civil Revision Application and later moved another application under Order 14 of CPC for framing a preliminary issue. The Respondent also filed an application under Section 8 of the Arbitration Act which was granted by the City Civil Court. The Petitioner contended that the City Civil Court exceeded its jurisdiction by referring the matters to arbitration after the Respondent filed his first statements on the substance of the dispute which he argued amounted to submission to the court's jurisdiction. He contended that the application under Section 8 of the Arbitration Act should have been made before filing the first statement on the substance of the dispute and once this threshold was crossed, the Respondent could not later invoke the arbitration clause. On the other hand, the Respondent contended that the disputes arose from the Partnership Deed executed between the parties which contained an arbitration clause. He argued that the Petitioner suppressed material facts and that the investment in the property was actually a capital investment of the partnership firm. The Respondent maintained that under Section 8 of the Arbitration Act the court was bound to refer the matter to arbitration when a valid arbitration agreement existed. Observations by the High Court: The High Court referred to Section 5 of the Arbitration Act which restricts judicial intervention in matters governed by the Act except where expressly provided. It also referred to Section 8 which allows a judicial authority to refer parties to arbitration. It noted that for Section 8 to apply, several conditions must be met: the dispute must be subject to an arbitration agreement, an application for arbitration must be made by one of the parties, and the application must be filed before submitting the first statement on the substance of the dispute. The application should also be accompanied by the original arbitration agreement or a certified copy thereof. The High Court observed that prior to the amendment of Section 8 in 2015, the provision required that an application under Section 8 be made "not later than when submitting the first statement on the substance of the dispute." The amendment changed this wording to "not later than the date of submitting the first statement on the substance of the dispute," noting that the application for arbitration must be presented before the defendant submits their first statement on the dispute's substance. The bench held that: “Noticeably, as a result of the amendment in Section 8, three key changes are introduced in Sub-section (1) of Section 8. It is now permissible for person claiming through or under defendant to claim benefit of...

Party Cannot Invoke Arbitration After Voluntarily Submitting To Court's Jurisdiction During Proceedings: Gujarat High Court

Rajesh Kumar

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