Delhi High Court: Denial of clause in response to arbitration notice can’t disentitle party to invoke Section 8 of A&C Act

Delhi High Court: Denial of clause in response to arbitration notice can’t disentitle party to invoke Section 8 of A&C Act

The bench appoints Justice (Retd.) R.K. Gauba as the sole arbitrator and directs the parties to appear before him

The Delhi High Court has held that Section 8 of the Arbitration and Conciliation (A&C) Act, 1996 is mandatory and the court is bound to refer the dispute to arbitration. That is if there’s 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 bench of Justice V Kameshwar Rao and Justice Anoop Kumar Mendiratta held that the court could not deny referring the dispute to arbitration merely because initially, in reply to the Section 21 notice, the defendant denied the existence of the arbitration agreement.

The court held that the arbitration clause does not cease to exist on denial by a party and it would not preclude that party from later making an application under Section 8. The doctrine of approbation and reprobation could not be invoked against the respondent to decline reference to arbitration when the plaintiff did not dispute the existence of the arbitration agreement.

The respondent supplied polymers raw material to the appellant on various occasions. The tax invoices issued for the supplies contained an arbitration clause.

As a dispute arose between the entities, the respondent issued a notice of arbitration under Section 21 and sought a resolution through arbitration. However, in response to the notice, the appellant denied the existence of the arbitration clause and rejected the claim.

Thereafter, the respondent filed a suit before the District Judge, Commercial Court-01, Shahdara, Karkardooma, Delhi, to recover the amount. The appellant (defendant therein) filed an application under Section 8 praying for the reference of the dispute to arbitration.

However, the Ld. Commercial Court dismissed the application stating that the appellant had earlier denied the existence of the arbitration agreement. It could not be allowed to plead otherwise, as it was approbating and reprobating.

Aggrieved by the decision, the appellant approached the high court.

It challenged the order on the following grounds:

• The Ld. Commercial Court erred in dismissing the application. Mere denial by the appellant about the arbitration agreement’s existence, cannot be a ground to refuse arbitration when the existence of the agreement is not disputed by the plaintiff.

• The court failed to appreciate that Section 8 is mandatory and the court is left with no option but to refer the dispute to arbitration when there exists an arbitration agreement between the parties and a 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 recovery process.

• 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 a contradictory stand.

The court analyzed 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 alone the Ld. Commercial Court dismissed the application.

However, the bench held that Section 8 was mandatory and the court could not refuse to refer the dispute to arbitration just because the defendant had initially denied the existence of the arbitration agreement.

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