Participation In A Civil Suit Filed By Partner, Doesn’t Operate As Waiver Of Right To Invoke Arbitration: Delhi High Court

The Delhi High Court has ruled that, merely because the defendant participated in a civil suit filed by the plaintiff, he cannot be said to have waived his right to invoke arbitration with respect to all future litigation between the parties under the Agreement. The bench of Justice Neena Bansal Krishna held that participation of a party in a civil suit instituted by a partner, would not debar the party from initiating independent proceedings by way of arbitration, seeking independent remedies under the Partnership Deed. The Court also remarked that since the relief of declaration and permanent injunction sought by the plaintiff in the civil suit, was not amenable to arbitration, the defendant’s participation in the said suit would not amount to waiver of his right to invoke arbitration. The petitioner, Chadha Motor Transport Company Pvt Ltd, filed a review petition before the Delhi High Court, seeking review of the High Court’s order where it had allowed the application filed by the respondent, Barinderjit Singh Sahni, under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) and had referred the parties to arbitration. The petitioner/ plaintiff, Chadha Motor Transport, submitted before the Court that it had filed a civil suit against the respondent/ defendant, and even though the said suit was taken up on twelve occasions, the respondent did not file any application under Section 8 of the A&C Act for invocation of arbitration. It argued that the respondent, by filing a Written Statement in the said suit, had waived off his right to invoke arbitration. The petitioner argued that despite the fact that it had raised a specific plea in the Section 11 application, claiming abandonment of respondent’s right to invoke arbitration, no finding was given on this aspect by the High Court. The petitioner thus pleaded that the respondent, by participating and by filing the Written Statement in the proceedings before the civil court, is estopped from resorting to arbitration. Referring to Section 8 of the A&C Act, the Court reckoned that, despite there being an Arbitration Agreement, the respondent may accept the resolution of disputes through civil litigation rather than arbitration. However, if the respondent has any objection, then he is required to move an application under Section 8 of the A&C Act, not later than the date of submitting his first statement on the substance of the disputes. Thereafter, the Court may refer the parties to arbitration. Referring to the facts of the case, the Court observed that after certain disputes arose between the petitioner and the respondent in relation to a partnership business relating to a liquor shop, the petitioner filed a civil suit seeking a declaration that it was the exclusive owner of the liquor shop. The petitioner also sought an injunction to restrain the respondent, as well as other parties arrayed as defendants in the suit, from interfering in the business of the petitioner. It further noted that the Kerala High Court in Shriram Transport Finance Co. Ltd. vs. Naduvacheri Balakrishnan (2017) had held that, a suit for declaration of title, right or interest in an immoveable property, or a suit seeking permanent mandatory injunction in relation to an immoveable property, is not amenable to any of the provisions contained under the A&C Act. The Court thus concluded that since the relief of declaration and permanent injunction, as sought by the petitioner in the civil suit, was not amenable to arbitration, the respondent’s participation in the civil suit would not amount to waiver of his right to invoke arbitration. The bench further observed that the civil suit was filed by the petitioner not only against the respondent but also against three other defendants, who were neither partners nor were they signatory to the Partnership Deed containing the Arbitration Agreement. The Court also took note that as per the law laid down by the Apex Court in Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya and Anr. (2003), an objection regarding non-maintainability of a suit can be taken by filing a Section 8 application, only when the entire subject matter of a civil suit can be referred to arbitration and when all the parties to the suit are also a party to the Arbitration Agreement. Referring to the facts of the case, the High Court said, “Admittedly, the Civil Suit bearing No. CS(OS) 306/2018 was filed by the petitioner against the Respondent and three other defendants who were not signatory to Partnership Deed containing Arbitration Clause. Hence, the objection about non-maintainability of the Civil Suit could not have been taken by the Respondent as has been rightly contended on behalf of the respondent, and thus, the question of waiver of arbitration does not arise.” The Court further ruled that participation of the respondent in a civil suit...

Participation In A Civil Suit Filed By Partner, Doesn’t Operate As Waiver Of Right To Invoke Arbitration: Delhi High Court

Parina Katyal

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