Delhi High Court Rules That Right To Seek Reference To Arbitration Under Section 8 Can Be Waived By Defendant

Delhi High Court Rules That Right to Seek Reference to Arbitration Under Section 8 Can Be Waived by Defendant

The Delhi High Court bench, comprising Chief Justice Manmohan and Justice Tushar Rao Gedela, has ruled that a defendant in a civil suit has the right to withdraw an application filed under Section 8 of the Arbitration and Conciliation Act, 1996, and submit to the jurisdiction of the Civil Court. The court clarified that when the defendant (the respondent in this case) withdrew the application seeking a reference to arbitration, the plaintiff (the appellant) had no legal right to oppose this withdrawal or insist on the matter being referred to arbitration. M/S Sultan Chand and Sons Pvt. Ltd. (the appellant) entered into a publication and copyright sharing agreement with the respondent concerning two books:
(i) Essentials of Artificial Intelligence, Class VIII, and
(ii) Essentials of Artificial Intelligence, Class I.
The agreement included an arbitration clause.

However, the appellant published a third book, Essentials of Artificial Intelligence—Class X, without a formal agreement between the parties. Following this, the appellant received allegations that the books authored by the respondent were plagiarized from various sources and subsequently filed a suit for damages amounting to Rs. 2.25 crores for misrepresentation. In response, the respondent filed a criminal complaint under Section 63 of the Copyright Act, 1957, against the appellant and submitted an application under Section 8 of the Arbitration and Conciliation Act, requesting the dismissal of the damages suit and the referral of disputes to arbitration. The appellant agreed to this request for arbitration; however, the respondent later withdrew his Section 8 application.

The appellant then filed a petition challenging the order that allowed the respondent to withdraw his Section 8 application, seeking a reference to arbitration in line with the mandatory nature of Section 8 of the Act.

The appellant argued that the amendment to Section 8 of the Act in 2015 made it obligatory for the court to refer disputes to arbitration. The appellant cited several cases, including Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums (2003), Kalpana Kothari v. Sudha Yadav & Ors. (2002), and P. Anand Gajapathi Raju & Ors. v. P.V.G. Raju & Ors. (2000), to support this argument.

The court noted that the arbitration clause in the agreement did not pertain to the subject matter of the dispute. There was no arbitration clause relevant to the suit regarding the third book, Essentials of Artificial Intelligence—Class X.

The court held that the appellant, having expressly denied the existence of an arbitration clause concerning the disputes raised in the complaint, could not seek a reference to arbitration under the agreement. The appellant's own position in the plaint did not allow for the invocation of Exception 2 of Section 28 of the Indian Contract Act, 1872.

The court further observed that “the right to seek a reference to the Arbitral Tribunal under Section 8 of the Act is a right available solely to the defendant. This right is waivable at the instance of the respondent-defendant, who has the option to submit to the jurisdiction of the Civil Court.”

The court concluded that the appellant's references to the aforementioned cases were misplaced. In P. Anand Gajapathi Raju, it was determined that the language of Section 8 of the Act is preemptory, obliging the court to refer the parties to arbitration when the necessary conditions are met. In Kalpana Kothari, it was clarified that the plea of estoppel does not apply to Section 8 of the Act.

Ultimately, the court held that since the respondent had withdrawn the Section 8 application and did not wish to seek a reference to arbitration, the appellant had no legal right to oppose this withdrawal or insist that the matter be referred to arbitration. As a result, the court dismissed the application.