Denial Of Arbitration Clause In Reply To Arbitration Notice Can’t Disentitle A Party To Invoke Section 8 Of The A&C Act In A Suit : Delhi High Court

The bench of Justices V. Kameshwar Rao and Mr. Anoop Kumar Mendiratta held that the Court cannot refuse to refer the dispute to arbitration merely on the ground that the defendant had initially, in reply to Section 21 notice, denied the existence of the arbitration agreement.

The Court held that the arbitration clause does not ceases to exist on mere denial by party and such a denial would not preclude that party from later making an application under Section 8 of the A&C Act for reference of the dispute to arbitration.

The Court held that the doctrine of approbation and reprobation cannot be invoked against the respondent to decline reference to arbitration when the plaintiff does not dispute the existence of the arbitration agreement.

Facts

The respondent supplied polymers raw material to the appellant on various occasions. Tax invoices were issued for each of these supplies. Pertinently, these invoices contained an arbitration clause.

A dispute arose between the parties. Accordingly, the respondent issued a notice of arbitration under Section 21 of the A&C Act and sought the resolution of dispute through arbitration. However, in response to the said notice, the appellant denied the existence of the arbitration clause as well as rejected the claim on its merit.

Accordingly, the respondent filed a suit for the recovery of the unpaid money before the District Judge, Commercial Court-01, Shahdara, Karkardooma, Delhi. In that suit, the appellant (defendant therein) filed an application under Section 8 of the A&C Act praying for the reference of the dispute to arbitration.

The Ld. Commercial Court dismissed the application on the ground that the appellant had initially, in its response to the notice of arbitration, denied the existence of the arbitration agreement, therefore, it cannot now be allowed to plead otherwise. It held that the appellant was approbating and reprobating at the same time.

Aggrieved by the decision of the Ld. Commercial Court, the appellant approached the High Court under Section 37 of the Act.

Grounds of Appeal

The appellant challenged the order on the following grounds:

• The Ld. Commercial Court erred in dismissing the application. It contended that mere denial of the appellant about the existence of the arbitration agreement, cannot be a ground to refuse arbitration when admittedly the existence of the arbitration agreement is not disputed by the plaintiff.
• The Court failed to appreciate that Section 8 is mandatory in nature and the Court is left with no other option but to refer the dispute to arbitration when there exists an arbitration agreement between the parties and an appropriate Section 8 application is filed.

The respondent made the following counter-arguments:

• The Ld. Commercial Court has rightly rejected the application as it was a mere dilatory tactic adopted by the appellant to delay the process of recovery.
• The Court rightly observed that the appellant had denied the existence of the arbitration agreement, therefore, it cannot be, subsequently, allowed to plead otherwise. The doctrine of approbation and reprobation would prevent the appellant from taking contradictory stand.

Analysis by the Court

The Court observed that the appellant had initially denied the existence of the arbitration agreement when it gave its response to the notice of arbitration and on this ground only the Ld. Commercial Court has dismissed the application seeking reference to arbitration.

However, the Court held that that Section 8 of the A&C Act is mandatory in nature meaning thereby that the Court is bound to refer the dispute to arbitration when there exists a valid arbitration agreement between the parties and the respondent makes an application for reference to arbitration before submitting its written statement before the Court.

The Court held that the Court cannot refuse to refer the dispute to arbitration merely on the ground that the defendant had initially, in reply to Section 21 notice, denied the existence of the arbitration agreement.

The Court held that the arbitration clause does not ceases to exist on mere denial by party and such a denial would not preclude that party from later making an application under Section 8 of the A&C Act for reference of the dispute to arbitration.

The Court held that the doctrine of approbation and reprobation cannot be invoked against the respondent to decline reference to arbitration when the plaintiff does not dispute the existence of the arbitration agreement.

Accordingly, the Court set aside the impugned order and allowed the application filed by the appellant under Section 8 of the A&C Act. The Court appointed Justice (Retd.) R.K. Gauba as the sole arbitrator and directed the parties to appear before him.

Case Title: ANR International Pvt Ltd v. Mahavir Singhal

Citation: 2023 LiveLaw (Del) 1081

Date: 03.11.2023

Counsel for the Appellant: Mr. Samrat Nigam, Ms. Stuti Gupta and Mr. Sunil Manchanda, Advs.

Counsel for the Respondent: Mr. Udit Maniktala, Mr. S. K. Maniktala, Mr. Mohit Sharma, Mr.Ayush Kumar and Mr. Abhishek Kedia, Advs.

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