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Saturday, December 17, 2016

whether there is an agreement between the parties; whether disputes which are subject-matter of the suit fall within the scope of arbitration; and whether the reliefs sought in the suit are those that can be adjudicated and granted in arbitration. In view of the above, we think it just and proper to request the High Court to decide the application afresh in the light of law laid down by this Court in para 19 of the judgment in Booz Allen and Hamilton Inc. v. SBI Homes Finance Limited and others (supra) except the point, which has already been answered in the present case by us.

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL NO. 12066 OF 2016
                (Arising out of S.L.P. (C) No. 34016 of 2015)


Greaves Cotton Limited                       … Appellant

                                   Versus

United Machinery and Appliances              …Respondent






                               J U D G M E N T


Prafulla C. Pant,J.


Leave granted.

This appeal is directed against order dated 16.09.2015, passed by  the  High
Court of Judicature at Calcutta in GA No. 2998 of  2015  (in  CS  No.  2  of
2015), whereby said Court has rejected the application moved  under  Section
5 read with Section 8 of the Arbitration and Conciliation Act, 1996, to  get
the dispute referred to arbitral tribunal.

Brief facts of the case are that appellant Greaves Cotton are  manufacturers
of, inter alia, diesel engines.  Respondent United Machinery and  Appliances
are  manufacturers  of  diesel  generator  sets.   An  agreement  containing
arbitration clause was executed between them for supply  of  diesel  engines
by the appellant to  the  respondent  for  using  the  same  in  the  diesel
gensets.  Arbitration clause contained in Article 10.1  of  agreement  dated
02.07.2007 (copy Annexure P-1) reads as under: -

“10.1 Any dispute or difference whatsoever arising between the  parties  out
of or relating to the construction, meaning, scope, operation or  effect  of
this Agreement or the validity or the breach thereof shall be referred to  a
Sole Arbitrator to be appointed by Greaves.  The decision of the  Arbitrator
shall be final and binding upon  the  parties.   The  venue  of  arbitration
shall be Mumbai.  The arbitration proceedings shall, in all  other  aspects,
be governed by the provisions of the Arbitration and Conciliation Act,  1996
or any subsequent statutory enactment in place thereof.”

The plaintiff-respondent filed civil suit (CS No. 2 of 2015) seeking  decree
for an amount of Rs.4,92,76,854/- towards the loss and damages  suffered  by
it on account of alleged breach  of  contract  on  the  part  of  defendant-
appellant.  The High Court, in its original  side,  issued  summons  in  the
suit on 06.01.2015 to the appellant.  On the other hand, the appellant  sent
communication to the respondent claiming that it was the respondent who  has
to  pay  outstanding  dues  of  Rs.1,04,53,103/-  to  the  appellant.    The
appellant, in response to the summons, on 07.07.2015  moved  an  application
(copy Annexure P-6) before the High Court  seeking  extension  of  time  for
eight weeks to file written statement and  invoked  the  arbitration  clause
contained in the agreement  dated  02.07.2007  by  sending  a  letter  dated
08.07.2015 (copy Annexure P-7) to the  respondent,  in  response  to  which,
vide communication dated 13.07.2015  (copy  Annexure  P-7),  it  denied  the
claim of the appellant, and objected to invocation of arbitration clause  on
the ground of pendency of civil suit before  the  High  Court.   Thereafter,
the appellant moved Application GA No. 2998 of  2015  (copy  Annexure  P-10)
under Section 5 read with Section 8  of  the  Arbitration  and  Conciliation
Act, 1996 (for short “the 1996 Act”), in the suit seeking reference  of  the
disputes between the parties forming the subject-matter  of  the  suit,  for
arbitration, which is rejected by the High Court  on  the  ground  that  the
appellant has, by moving application for extension of time to  file  written
statement, waived  its  right  to  seek  arbitration.   Hence,  this  appeal
through special leave.

We have heard learned counsel for the parties.

Before further discussion, it is  just  and  proper  to  refer  to  relevant
provisions of law applicable to  the  case.   Section  5  of  the  1996  Act
provides that notwithstanding anything contained in any other  law  for  the
time being in force, in matters governed by Part I,  no  judicial  authority
shall intervene except where so provided in the said Part of the Act.   Sub-
section (1)  of  Section  8  of  the  1996  Act,  as  it  existed  prior  to
23.10.2015, provided that a judicial authority before  which  an  action  is
brought in a matter which is the subject  of  an  arbitration  shall,  if  a
party so applies not later than when submitting his first statement  on  the
substance of the dispute, refer the parties to arbitration.

The issue before us for consideration is whether filing  of  an  application
for extension of time to file written statement before a judicial  authority
constitutes – ‘submitting first statement on the substance of  the  dispute’
or not.

For appreciating the intention of the Legislature, it is  necessary  for  us
to examine the change in law brought about by the 1996 Act.   In  Manna  Lal
Kedia and ors. v. State of  Bihar  and  ors.[1],  comparing  the  provisions
contained in Section 34 of the Arbitration Act, 1940 and Section  8  of  the
1996 Act, High Court of Patna has opined as follows: -

“10.  In terms of the Section 34 of the old Act  a  party  was  required  to
apply for reference of the dispute to the arbitrator before  filing  written
statement or taking any other step in the proceeding.  The words “or  taking
any  other  step”  were  interpreted  to  include   even   application   for
adjournment,  for  filing  written  statement.    This   obviously   created
anomalies,  not  only  frustrating  the  objects  of  arbitration  but  also
resulting in injustice in many cases.  In order to  bring  about  change  in
this regard in the New Act in Section 8 (1), provision has been made to  the
effect that the party intending to go in for arbitration must do so  in  his
“first statement on the substance of the dispute” and not later  than  that.
In other words, only if in the first  statement  on  the  substance  of  the
dispute he does not make such prayer that he is debarred  from  making  that
prayer later.  Section 8(1) of the New Act is,  thus,  an  Improvement  upon
the provisions of Section 34 of the old Act…….”

In Rashtriya Ispat  Nigam  Ltd.  and  another  v.  Verma  Transport  Co.[2],
interpreting the  expression  “first  statement  on  the  substance  of  the
dispute”, this Court has held as under: -

“36.  The expression “first statement  on  the  substance  of  the  dispute”
contained in Section 8(1) of the 1996 Act must be  contradistinguished  with
the expression “written statement”.  It employs submission of the  party  to
the jurisdiction of the judicial authority.  What is, therefore,  needed  is
a finding on the part of the judicial authority that the  party  has  waived
its right to invoke the arbitration clause.   If  an  application  is  filed
before actually filing the first statement on the substance of the  dispute,
in our opinion, the party cannot  be  said  to  have  waived  its  right  or
acquiesced itself to the jurisdiction of the  court.   What  is,  therefore,
material is as to whether the petitioner has filed his  first  statement  on
the substance of the dispute or not, if not, his application  under  Section
8 of the 1996 Act, may not be held wholly unmaintainable…..”

This Court in Rashtriya Ispat Nigam Ltd. (supra) further held as under: -

“42.  Waiver of a right on the part of  a  defendant  to  the  lis  must  be
gathered from the fact situation obtained in  each  case.   In  the  instant
case, the court had already passed an ad interim ex parte  injunction.   The
appellants were bound to respond to the notice issued by the  Court.   While
doing so, they raised a specific plea of bar of the  suit  in  view  of  the
existence of an arbitration agreement.  Having regard to the  provisions  of
the Act, they had, thus, shown their unequivocal intention to  question  the
maintainability of the suit on the aforementioned ground.”

In Booz Allen and Hamilton Inc. v. SBI Homes Finance Limited and  others[3],
while dealing with  the  question,  this  Court,  in  paragraph  19  of  the
judgment, has laid down the law on the similar issue as under: -

“19.  Where a suit is  filed  by  one  of  the  parties  to  an  arbitration
agreement against the other parties to the  arbitration  agreement,  and  if
the defendants file an application under Section 8 stating that the  parties
should be referred to arbitration, the court (judicial authority) will  have
to decide:


whether there is an arbitration agreement among the parties;


whether all  the  parties  to  the  suit  are  parties  to  the  arbitration
agreement;

whether the disputes which are the subject-matter of the  suit  fall  within
the scope of arbitration agreement;


whether the defendant  had  applied  under  Section  8  of  the  Act  before
submitting his first statement on the substance of the dispute; and

whether the reliefs sought in the suit are those  that  can  be  adjudicated
and granted in an arbitration.”

This Court in Booz Allen and Hamilton Inc. (supra), has further observed  in
paragraph 25 as under: -

“25.  Not only filing of the written statement in a suit, but filing of  any
statement, application, affidavit by a defendant prior to the filing of  the
written statement will be construed as “submission of  a  statement  on  the
substance     of     the     dispute”,      if      by      filing      such
statement/application/affidavit,  the  defendant  shows  his  intention   to
submit himself to the jurisdiction of the court  and  waives  his  right  to
seek reference to arbitration.  But filing of a reply by a defendant, to  an
application   for   temporary   injunction/attachment    before    judgment/
appointment of Receiver, cannot be considered as submission of  a  statement
on the substance of the dispute, as that is done to avoid an  interim  order
being made against him.”

In view of the law laid down by this Court, as above, we find  it  difficult
to agree with the High Court that in  the  present  case  merely  moving  an
application seeking  further  time  of  eight  weeks  to  file  the  written
statement would amount to making first statement on  the  substance  of  the
dispute.  In our opinion, filing of an  application  without  reply  to  the
allegations of the  plaint  does  not  constitute  first  statement  on  the
substance of the dispute.  It does not appear  from  the  language  of  sub-
section (1) of Section 8 of the 1996 Act that the  Legislature  intended  to
include such a step like moving simple application of seeking  extension  of
time to file written statement as first statement on the  substance  of  the
dispute.  Therefore, in the facts and circumstances of the present case,  as
already narrated above, we are unable to hold that the appellant, by  moving
an application for  extension  of  time  of  eight  weeks  to  file  written
statement, has waived right  to  object  to  the  jurisdiction  of  judicial
authority.

From  the  order  impugned,  it  also  reflects  that  before  disposing  of
application under Section 8 of the 1996 Act the High Court  has  not  looked
into questions as to whether there is  an  agreement  between  the  parties;
whether disputes which are subject-matter of the suit fall within the  scope
of arbitration; and whether the reliefs sought in the suit  are  those  that
can be adjudicated and granted in arbitration.  In view  of  the  above,  we
think  it  just  and  proper  to  request  the  High  Court  to  decide  the
application afresh in the light of law laid down by this Court  in  para  19
of the judgment in Booz  Allen  and  Hamilton  Inc.  v.  SBI  Homes  Finance
Limited and  others  (supra)  except  the  point,  which  has  already  been
answered in the present case by us.

Accordingly the appeal is allowed.  The impugned order, passed by  the  High
Court is set aside.  The High Court is requested to decide  the  application
(GA No. 2998 of 2015 in CS No. 2 of 2015) in the light  of  observation,  as
above.  No order as to costs.


                                                           ……………….....…………J.
                                                            [J. Chelameswar]



                                                             .……………….……………J.
New Delhi;                        [Prafulla C. Pant]
December 14, 2016.


-----------------------
[1]    AIR 2000 Pat 91
[2]    (2006) 7 SCC 275
[3]    (2011) 5 SCC 532


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