May 14, 2020

Timeline For Seeking Reference To Arbitration: Delhi HC Clarifies

- Diya Kapoor, Associate [ Dua Associates ]


The judgment reiterates the principle that when it comes to arbitration, a party which intends to arbitrate must do so with alacrity and speed instead of procrastinating...

The Delhi High Court in a recent important judgment, SSIPL Lifestyle Private Limited v. Vama Apparels (India) Private Limited & Anr.1, interpreted Section 8 of the Arbitration and Conciliation Act,1996 (“A & C Act”) in a liberal and commercially prudent manner by reading it harmoniously with the Commercial Courts Act, 2015 (“Commercial Courts Act”). The Court held that the intent behind the promulgation of the Commerical Courts Act read with the recent amendments to the A & C Act (in 2015 and 2019) was to prescribe a limitation period for filing an application, in a civil dispute, before a civil court for seeking a reference of the said dispute to arbitration.

In the aforementioned case, a question arose before the court, “whether there is a limitation period prescribed for filing of an application under Section 8 of the Arbitration and Conciliation Act?” The facts of the case pertain to two companies who entered into an agreement, by which the Plainitff agreed to supply various products to the Defendants which were to be further sold by the Defendants. The said agreement contained an arbitration clause.

That after almost 18 months into the agreement i.e. around October 2017, disputes arose between the parties and consequently, in February 2018, the Plaintiff filed two recovery suits against the Defendants (Defendant No.2 being the AR of Defendant No.1). The summons were issued on March 15, 2018 (received by the Defendants on April 23, 2018) and on May 16, 2018, the Defendants were directed to file their written statement(s). On May 17, 2018, corporate insolvency resolution proceedings (CIRP) commenced against Defendant No.1, which were thereafter disposed of on October 8, 2018.

On November 2, 2018, the Defendant moved two applications under Section 8 of the A & C Act. The said applications were kept under defects until February 11, 2019 when the same were re-filed after clearing the objections.

The Defendants contended that the suits for recovery were not maintainable as there existed an arbitration clause. Therefore in light of the language of the amended Section 8, the Court was bound to refer the disputes to arbitration. Section 8 of the A & C Act is reproduced below:

8. Power to refer parties to arbitration where there is an arbitration agreement-[(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then 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 arbitration agreement exists] (2) The application referred to in sub section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:

[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying to the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.] ..."

However, it was argued by the Plainitff that the period of limitation for filing of Section 8 application had expired and as per the amended A & C Act which made it clear that a Section 8 application must be filed “not later than the date of submitting his first statement on the substance of dispute.” The use of the word “date” implied that the time period available for filing of Section 8 application must be read harmoniously with the time period for filing of a written statement under the Code of Civil Procedure, 1908 (“CPC”) as also amended by the Commerical Courts Act. It is also contended that this harmonious construction of statutes should uphold the intent behind the enactment or the amendment as the case may be.

That upon hearing the contentions of the parties, the Court proceeded to make a contradistinction between the words  ‘not later than when submitting’ under the unamended Section 8 of the A & C Act and the words ‘not later than the date of submitting’ under the amended A & C Act. The court analysed the purport of Section 8 in light of judgments post the amendment. In Krishan Radhu v. Emaar MGF Construction Pvt. Ltd.2, the Court considered three main changes which the amended Section 8 aimed to introduce, which included a finding that the limitation for filing of the written statement under CPC for non-commercial suits and under the Commercial Courts Act for commercial suits would be applicable for filing of an application under Section 8. In Anil Mahindra v. Surender Kumar Makkar3 it was observed that since the time for filing of the written statement had expired at the time when Section 8 application was filed, the intention of the Defendant was held to be one for participation in the court proceedings as it had waived its right to object to the same within the time so precribed for it.

Relying on the position laid down in the abovementioned judgments and keeping in mind the object and spirit of the amendments made to the A & C Act, the Court dismissed the applications of the Defendant by observing that the amended language of Section 8 was a conscious step towards prescribing a limitation period for seeking a reference of court disputes to arbitration. By filing its applications only on February 11, 2019, which was not only beyond 120 days from the date of receipt of summons i.e. May 16, 2018 but was also beyond 120 days of the moratorium having ceased i.e. October 8, 2018, the same was time barred and liable to be rejected.

The judgment makes it clear use of the word ‘date’ means a precise date and incapable of any amiguity. Therefore, a Section 8 application would have to be filed either before the written statement, alongwith or within the written statement and in any case within 90 days from the receipt of summons in ordinary suits and within 120 days in case of commercial suits. This means that an application under Section 8 of the A & C Act seeking a reference to arbitration even if filed along with a written statement, which is time barred (beyond 90 or 120 days), is liable to be rejected on the ground of limitation. This judgment is surely a step in the right direction and upholds the core principles of deciding commercial disputes with a sense of business efficacy. It reiterates the principle that when it comes to arbitration, a party which intends to arbitrate, must do so with alacrity and speed instead of procrastinating.

1 CS (COMM) 735/2018&736/2018, judgment dated 19 February 2020.
2 CS(OS) 3281/2014.
3 C.M.(M) 243/2016 ; 2017 SCC OnLine Del 11532.

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