Arbitration Clause Mandates Reference, Question Of Appropriateness Can't Be Considered U/S 8 Of A&C Act: Calcutta High Court

The Calcutta High Court bench of Justices Arijit Banerjee and Rai Chattopadhyay has held that where an agreement between the parties contains a clear arbitration clause and disputes arise under that agreement, the Trial Court is bound to refer the parties to arbitration. The question of whether such reference is appropriate or not does not arise, as Section 8(1) of the Arbitration and Conciliation Act, 1996 is mandatory in nature. Brief Facts: This appeal challenges the judgment dated January 3, 2025, passed by the learned Judge, Bench-VI, City Civil Court at Calcutta in Title Suit No. 1487 of 2023, whereby the appellant's application under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 was dismissed. The respondent entered into a loan-cum-hypothecation agreement with the appellant company for a truck, which was thereafter used commercially by the respondent. Upon default in payment of instalments, the appellant demanded dues. In response, the respondent filed Title Suit No. 1487 of 2023 seeking to restrain the appellant from repossessing or interfering with the truck's operation. Notably, the agreement contains an arbitration clause. In view of the said clause, the appellant herein applied before the learned Trial Court under Sections 5 and 8 of the 1996 Act, for reference of the disputes forming the subject-matter of the suit to arbitration in accordance with the aforesaid arbitration clause. The appellant's application was dismissed as the learned Judge noted that an earlier arbitral award in its favour had been set aside and interlocutory proceedings were pending. Concluding that reference to arbitration was inappropriate at this stage, the Judge rejected the application. Aggrieved, the finance company has filed this appeal. Observations: The court observed that the impugned order must be set aside. Since the agreement contains a valid arbitration clause and disputes have arisen under it, the Trial Court was bound to refer the parties to arbitration under Section 8(1) of the Arbitration Act. The question of it being appropriate or inappropriate does not arise in view of the language of Section 8(1) of the Arbitration Act, which is mandatory. Once a party applies before filing the first substantive statement, the Court must refer the matter to arbitration unless it finds that no valid arbitration agreement exists. Based on the above, it held that In this case, the existence of a valid arbitration clause is undisputed, and the disputes in the respondent's suit clearly fall within its scope. Accordingly, the appellant's application under Sections 5 and 8 of the Arbitration Act deserves to be allowed. The impugned order is set aside, and the matter is referred to arbitration. The court also held that the interim injunction dated May 14, 2025, is confirmed. The appellant is granted liberty to take possession of the vehicle, with the Officer-in-Charge of the jurisdictional Police Station directed to provide full assistance. The appellant is also free to pursue legal remedies to recover its dues from the respondent. Accordingly, the present appeal and the connected application were disposed of. Case Title: M/S. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED Versus SUJAN SEIKH Case Number: FMA/251/2025 IA No: CAN/1/2025 Judgment Date: 12/06/2025 Mr. Ranjit Singh, Adv. Mr. Amar Singh, Adv. Ms. Tutul Das, Adv. Mr. Ratul Deb Banerjee, Adv. Ms. Sanchita Bera, Adv. …for the appellant. Mr. Md. Shamim Halder, Adv. …for the respondent. Click Here To Read/Download The Order

Arbitration Clause Mandates Reference, Question Of Appropriateness Can't Be Considered U/S 8 Of A&C Act: Calcutta High Court

Mohd Malik Chauhan

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