J&K Arbitration And Conciliation Act | Filing Application U/S 5 Not Bar To Referral For Arbitration U/S 8(1): High Court

Section 8(1) of the Act prescribes that an application to refer parties to arbitration should be made before submitting the first statement on the substance of the dispute. Hence if a party wishes to have a dispute resolved through arbitration as per the arbitration agreement, they must make this request to the court before the formal proceedings on the merits of the dispute begin.

These observations were made by Justice Rajnesh Oswal while hearing a plea under article 227 whereby the petitioner had assailed the order of the trial court in terms of which it had allowed the application of the respondents under Sec 8 of the Act and referred the matter to an arbitrator.

The case stemmed from a suit filed by the appellant, seeking a rendition of accounts and recovery of their share from the partnership firm. The respondent, in response, filed an application under Section 5 of the J&K Arbitration and Conciliation Act, 1997, asserting that the partnership had been dissolved with mutual consent in 2010, and that the appellant had already received their capital investment back. Furthermore, the respondent argued that the partnership deed contained an arbitration clause, making the dispute arbitrable.

The trial court initially dismissed the application under Section 5, stating that the respondent had not filed an application under Section 8 of the Act, which is the provision for referring parties to arbitration. The respondent challenged this decision through a revision petition but the court upheld the dismissal.

Subsequently, the respondent filed an application under Section 8 of the Act for referring the dispute to arbitration which came to be allowed and the suit filed by the appellant was dismissed and the parties were referred for arbitration in terms of section 8 of the Act.

Assailing the judgment the ground that the trial court was not factually correct by returning a finding that the respondent had not taken any defence in an application filed under Section 5 of the Act, the appelant argued that once the respondent had disclosed his defence to the suit in the application filed under section 5 of the Act, he could not have filed an application under Section 8 of the Act.

In order to address the controversy Justice Oswal carefully examined the relevant provisions of the J&K Arbitration and Conciliation Act, particularly Section 8(1), which states that a judicial authority must refer parties to arbitration if a party applies not later than when submitting their first statement on the substance of the dispute.

Highlighting the significance of timely arbitration referrals referring to the mandate of Section 8 of the J&K Arbitration and Conciliation Act, 1997 Justice Oswal observed,

“A perusal of Section 8(1) of the Act would reveal that if a party applies not later than when submitting his first statement on the substance of the dispute, the judicial authority has to refer the parties to arbitration. Thus, the party can apply under section 8 of the Act for referring the parties to arbitration, either prior to or along with the submission of the first statement of the dispute and not thereafter”.

Clarifying the crucial point as to whether the party has submitted their first statement on the substance of the dispute or not the bench held that If the Respondent/defendant by filing statement/application/affidavit demonstrates his intention to submit himself to the jurisdiction of the Court, then only he is deemed to have waived his right to seek reference to arbitration.

In this case, the court found that the respondent had not waived their right to seek arbitration when they filed the Section 5 application, as their primary argument was based on the existence of an arbitration clause in the partnership deed.

“Filing of the application under Section 5 of the Act, which was rightly held to be not maintainable by the learned trial court, cannot be construed as a submission of statement of the substance of the dispute within the meaning of Section 8(1) of the Act (supra) as the respondent never sought dismissal of the suit on the merits of the claim of the parties, rather the respondent brought to the notice of the court that suit was required to be dismissed as there was an arbitration clause in the partnership deed”, the bench maintained.

In view of the said legal position the court found the appeal to be misconceived and the same was accordingly dismissed.

Case Title: Brij Mohan Sawney Vs Sanjeev Kumar Gupta

Citation: 2023 LiveLaw (JKL)

Case No: CFA No. 11/2017 (O&M)

Click Here To Read/Download Judgment