Section 8 of the Arbitration and Conciliation Act, 1996 deals with the power of the judicial authority to refer the parties to arbitration. The crux of the provision is that if there is an arbitration agreement between the parties and a dispute arises between the parties which is a subject matter of arbitration.

Then the judicial authority before whom either of the parties has brought the case is obligated under Section 8 of the Arbitration and Conciliation Act, 1996 to direct the parties to resolve their dispute through arbitration. To amplify the scope of arbitration, the 2015 Amendment to Section 8 of the said Act mandates the judicial authority to refer the parties to arbitration irrespective of any decree/court order/judgment. This section is based on Section 34 of the erstwhile Arbitration Act, 1940.

Nature of Section 8 of Arbitration and Conciliation Act, 1996

Since the language of the provision is peremptory in nature, which means it cannot be appealed, it is therefore mandatory for the civil court to refer the parties to the arbitration. If there is any objection to the validity of the arbitration clause or agreement, then the same can be challenged in the arbitration proceeding. This was held by the Supreme Court in Hindustan Petroleum Corporation Ltd. vs. Pink City Midway Petroleums (2003).

Essential ingredients of Section 8 of Arbitration and Conciliation Act,1996
By the plain reading of the Section, it can be inferred that the following are the essential ingredients of it:

1. There should be a valid arbitration agreement between the parties.
2. Action should be brought before the judicial authority and that action should be a subject matter of the arbitration.
3. Either of the parties or any person related to the dispute should invoke the arbitration clause or agreement before the date of submitting their first statement on the substance of the dispute before the judicial authority.
4. The application of the party to refer the case to arbitration should be filed with the original arbitration agreement or its duly certified copy.

Meaning of 'Party'
Section 2(1)(h) of the Arbitration and Conciliation Act, 1996 defines the term "party" as a party to an arbitration agreement. These parties can also be bodies of persons or incorporated persons like a company. For the purpose of Section 8 of the said Act, the party should be the disputing party/parties who have submitted their dispute for resolution before the judicial authority.

Valid arbitration agreement between parties

Section 7(1) of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as an agreement through which parties can resolve their dispute which has arisen or may arise, by way of arbitration.

Essentials for the Arbitration agreement:

1. According to Section 7(2) of the Arbitration and Conciliation Act, 1996, an arbitration agreement can be in the following forms:
   
   1. As an arbitration clause in the agreement or
   2. In a form of a separate agreement.
2. The arbitration agreement should be in writing [Section 7(3)]
3. In a contract where there's a reference to a document that contains the arbitration clause will be regarded as an arbitration agreement only if the contract is in writing.

In the case of Garware Wall Ropes Ltd vs. Coastal Marine Construction and Engineering Ltd. (2019) the court iterated that to examine the prima facie validity of an arbitration agreement, the judicial authority needs to determine the following:

1. Whether the arbitration agreement is in writing?
2. Whether the arbitration agreement was contained in the exchange of letters, telecommunication, etc?
3. Whether the core contractual ingredients of the arbitration agreement are satisfied?
4. Also, determine the arbitrability of the subject matter, which will be discussed in the paragraph below.

Arbitrability of the subject matter of dispute

The Supreme Court of India in 2011 enlisted 6 categories of dispute which are not arbitrable in the case of Booze Allen & Hamilton Inc. vs. SBI Home Finance Ltd. and Ors.(2011) The list is as follows:

1. Disputes related to criminal offence or fraud,
2. Matrimonial Disputes,
3. Guardianship Matters,
4. Insolvency And Winding-Up Matters,
5. Testamentary Matters, And
6. Eviction Or Tenancy Matters.

Post the 2015 amendment, the Hon'ble Supreme Court of India further added another category of matter which was non-arbitrable in the case of Shri Vimal Kishor Shah & Ors vs. Mr. Jayesh Dinesh Shah & Ors, (2016), the category is- disputes arising out of a Trust Deed. The reasoning given by the court is that, since the execution of the trust deed is done by the testator and not the beneficiaries, which makes the beneficiaries non-parties to the trust deed, there exists no arbitration agreement between them even though the trust deed had an arbitration clause.

For determining the arbitrability of the subject matter, the Supreme Court laid down the following test in the case of Vidya Drolia vs Durga Trading Corporation (2020):

1. Disputes which relate to actions in rem, and do not pertain to subordinate rights in personam that arise from rights in rem;
2. Disputes which affect third party rights; have erga omnes (towards all) effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable;
3. Disputes relating to inalienable sovereign and public interest functions of the State; and
4. Disputes which are expressly or by necessary implication non-arbitrable as per mandatory statute

Maintainability of a Section 8 application in Insolvency Suits

Even before the enactment of the Insolvency and Bankruptcy Code, 2016 in India, the Apex Court in the case of Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd (1999) held that the power to order the winding up of a company of a commercially insolvent company is vested in the Companies Act, 1956 and therefore concluded that notwithstanding any agreement between the parties, an arbitrator has no power to order the company to wind up.

Recently a landmark judgment was passed by the Supreme Court bench of 3 judges, namely: CJI SA Bobde, Justices AS Bopanna and V. Ramasubramanian in the matter of Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund (2021).

The court observed that during the pendency of proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 which deals with the initiation of corporate insolvency resolution process by a financial creditor, if the adjudicating authority is satisfied that the corporate debtor has in fact defaulted, then any application for referring the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 would not be maintainable before the court.

Maintainability Of A Section 8 Application Where Fraud Has Been Alleged

In the case of Booz Allen, we saw that matters related to criminal offences and fraud are not arbitrable. The question with regard to the arbitrability of matters involving alleged fraud came up before the Supreme Court of India in 2016 in the case of A Ayyasamy vs. A Paramasivam & Ors.(2016).

The Court held that a mere allegation of fraud cannot be a ground to reject the application for reference to arbitration under Section 8 but where the allegation is serious, then only the civil courts will have jurisdiction to adjudicate it. Since in the aforesaid case the allegations were not that serious, the hon'ble court, reversing the order of the lower courts, allowed the application for reference to arbitration.

First statement on the substance of dispute and the limitation with respect to it Section 8 provides that the party to arbitration merely needs to insinuate the judicial authority about the arbitration clause before the filing of the first statement. Thereafter, the judicial authority has to compulsorily refer the parties to the arbitration.

For invoking the arbitration clause, Section 8 provides a time limit and within that limit, the parties need to intimate the judicial authority about the arbitration clause, the said limitation is described in the provision as "not later than the date of submitting his first statement on the substance of the dispute."

For Analyzing The Aforementioned Expression, Let's Break It Into Two Parts:

1. 'first statement on the substance of dispute' [The first part]
2. 'not later than the date of submitting' [The second part]

First statement on the substance of dispute

The Hon'ble Supreme Court of India in Rashtriya Ispat Nigam Ltd. vs. Verma Transport Company (2006) deduced that the 'First statement' with respect to Section 8 should be different from the expression 'written statement'. Further, the court goes on to say that it is the duty of the judicial authority to find whether the party has waived its right to invoke arbitration by filing the first statement.

Whereas the High Court of Delhi in the case of Sharad P. Jagtiani vs. Edelweiss Securities Limited (2014) held that in a suit generally the first statement on the substance of the dispute is the 'written statement' filed by the defendant in reply to the plaint and therefore, the written statement could be regarded as the first statement on the substance of the dispute.

Further, in the case of Greaves Cotton Ltd. vs. United Machinery and Appliances (2016), the Apex Court held that an application for seeking an extension of time for filing the written statement would not amount to the ' First statement of the substance of dispute'.

In MI2C Security Facilities Pvt. Ltd. vs. North Delhi Municipal Corporation (2018) the Delhi High Court adjudicated that if the party has filed its first statement without any intimation of the arbitration clause before the judicial authority then it would be presumed that the party has waived off its right to invoke the arbitration clause as per Section 8 of the Arbitration and Conciliation Act, 1996. In this case, the defendant had filed a short affidavit as a reply to the writ petition filed, the court held that since the affidavit filed was a reply, therefore it was the first statement.

Through the analysis of the above judicial precedents, it can be deduced that to constitute a statement as the first statement on the substance of the dispute, the judicial authority needs to analyse the components of the statement so filed by the defendant and the intention thereof. If the statement is of the nature that it is defending the parties against the plaint, then it would be the first statement, and where there's no mention of an arbitration clause or agreement in the first statement, it is implied that the parties have submitted to the jurisdiction of the judicial authority, relinquishing their right to arbitration.

Not later than the date of submitting
The above expression sets a limit on the period within which the parties must invoke the arbitration clause/agreement before the judicial authority, which should be prior to the date of submitting the first statement. The nitty-gritty of the expression can be understood clearly with the help of some case laws.

In the matter of SSIPL Lifestyle Pvt. Ltd. vs. Vama Apparels (India) Pvt. Ltd (2020), the Delhi High Court decided on the issues related to the time limit for filing an application under Section 8. The court clarified that the 'written statement required to be filed by the defendant party according to Order VIII Rule 1 of the CPC would be the first statement on the substance of the dispute, and the court further proceeded to state that that limitation for filing of the written statement under CPC for non-commercial suits, and for commercial suits under the Commercial Courts Act, 2015 would be 90 days and 120 days respectively from the date of summons. In that matter, the party intimated the court about the arbitration clause after the expiry of 120 days. Hence, the court rejected the reference to arbitration.

Previously the Supreme Court of India had iterated in M/s SCG Contracts India Pvt. Ltd. vs. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors (2019) that in commercial suits the limit of 120 days is mandatory in nature and not discretionary.

Conclusively, Section 8 fixes a time limit for the parties to file the first statement, which is 90 days for civil original suits and 120 days for commercial suits. It is during this period that the parties need to apply for arbitration before the court, and if the parties fail to do so, it will be deemed that they have waived off their right to arbitration. The intention behind fixing the limit is to avoid unnecessary delay in commencing the arbitral proceedings because the sole purpose of arbitration is to provide a swift resolution of a dispute.

Obligation Of The Judicial Authority To Refer The Parties To Arbitration

The words in Section 8-"Judicial authority notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima facie no valid agreement exists." indicate that if all the conditions precedent are satisfied, then the judicial authority is obligated to refer the parties to arbitration, and subsequently ceasing the jurisdiction of the civil court in action brought before it.

The same was iterated in the case of Agri Gold Exims Ltd. vs. Sri Lakshmi Knits & Wovens Ltd (2007).

Requirement of original arbitration agreement or its certified copy
Section 8(3) makes it mandatory for the parties to submit the original arbitration agreement along with the application under Section 8 to seek reference to arbitration.

The proviso to the above clause provides that when the party applying for arbitration does not have the original agreement or the certified copy thereof, but the other party has retained the agreement, then the onus falls on the arbitration seeking party to file a petition before the court to make the other party produce the original agreement.

Conditions Precedent Under Section 8 Of Arbitration And Conciliation Act, 1996
Section 8(1) and 8(2) provides for the conditions that need to be satisfied to refer the parties to arbitration, and if the conditions are fulfilled, the court is obliged to stay the court proceedings and refer the parties to the arbitration.

The following conditions were given by the Hon'ble Supreme Court of India in the matter of:
P. Anand Gajapathi Raju & Ors. vs. P.V.G. Raju & Ors (2000):

1. There must be an arbitration agreement or an arbitration clause between the parties;
2. A party to the arbitration agreement files a case against the other party before the judicial authority;
3. The subject matter of the case so filed must be the same as the subject matter of the arbitration agreement;
4. The defendant or any other party related to the case moves the Court seeking a reference of the parties to arbitration before the submission of first statement on the substance of the dispute.

The above conditions stand true for both the pre-2015 and post-2015 amended versions of the provision.

Judicial precedents providing the factors to be considered before entertaining an application under Section 8 of Arbitration and Conciliation Act
Below are some issues that have been taken up by the courts that the judicial authority can keep in mind before accepting any application under Section 8:

• Whether Section 8 Is Applicable For Civil Disputes:
  The Supreme Court in H. Srinivas Pai and Anr. vs. H.V. Pai (D) thr. L.Rs. and Ors. (2010), said that:
  "The applicability of the Act does not depend upon the dispute being a commercial dispute and arbitrability depends upon the existence of an arbitration agreement, and it does not matter whether the dispute is a civil dispute or commercial dispute. There can be arbitration agreements in non-commercial civil disputes."
   
• Whether the parties need to attach the original arbitration agreement or its certified copy in accordance with Section 8(2) for the grant of reference:
  The Supreme Court held in Magma Leasing and Finance Limited and Anr. vs. Potluri Madhavilata and Anr (2009). said that the original arbitration agreement is a mandate.
   
• Another factor that the judicial authority might want to look into would be whether the validity of the arbitration clause can be challenged before the Court:
  The aforesaid issue was raised before the Supreme Court in Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums (2003). The Court held that if the existence of the arbitration clause is notified to the court then, the courts ought to refer the dispute to arbitration.

Grounds for rejection of the application under Section 8 of Arbitration and Conciliation Act, 1996

Apart from the unfulfillment of the condition precedent required under Section 8, the judicial authority can reject the application on the following grounds:

1. When it appears that the party has waived his right to invoke the arbitration clause before submission of the first statement on the substance of the dispute
2. When the Judicial authority is of the view that no adequate relief would be available to the party.
3. When the Court or the Judicial authority is satisfied that no contract has been concluded between the parties.
4. When the contract itself is fraudulent in nature.
5. When the main contract is void ab initio or illegal or non-existent.
6. Where the suits or claim is based on Hundies or on Negotiable Instruments

2015 Amendment To Section 8 Of Arbitration And Conciliation Act, 1996

After receiving the assent of the President of India on 31 December 2015, the Arbitration and Conciliation (Amendment) Act, 2015 came into force with effect on 23rd October 2015. Via this amendment the time limit with respect to the filing of an application for seeking a grant of reference to arbitration was set.

Prior to the 2015 amendment, the provision stated that "A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement 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." Post amendment, the words 'not later than when submitting' were replaced by 'not later than the due date of submitting'

The Delhi High Court in the case of Parasramka Holdings (P) Ltd. vs. Ambience (P) Ltd. & Anr. (2018) analyzed in detail the difference between the pre-amended provision and the post amended provision and stated that although the pre-amendment act did have a limit for the parties seeking arbitration, the limit was not certain and created a lot of confusion. After the 2015 amendment, a definite time limit was set and within that stipulated time limit, the parties need to apply for Section 8 of the Arbitration and Conciliation Act, 1996.

Conclusion
Section 8 of the 1996 Act demonstrates a provision that limits judicial intervention in the arbitration process. Through various judicial precedents, it is clear that where there is a valid arbitration clause or agreement between the parties and a party to the dispute notifies the judicial authority regarding the same, then nobody can stop the party from taking their matter to arbitration. The intent of the legislature behind framing this statute is to encourage more and more parties to resolve their disputes by way of arbitration.

Award Winning Article Is Written By: Ms.Ena Shrivastava

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