1. The respondents are not represented despite service. The respondents were not represented before the Single Bench either.
2. The appeal involves a short question of law: whether during the pendency of an application for the subject-matter of a civil suit to be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, the party seeking the reference is entitled to maintain a petition under Section 9 of the said Act in respect of matters covered by the arbitration agreement.
3. This is the usual hire purchase matter which is the staple of the Arbitration Bench in this Court. The appellant claims that upon the respondents failing to adhere to the payment terms under the finance agreement, the respondents instituted a civil suit before the City Civil Court at Calcutta and made an interlocutory application therein. Surprisingly, as has been noticed in course of several matters, notwithstanding the finance agreements providing for specific amounts to be paid on a periodic basis, Civil Courts have often tended to rewrite the terms by allowing some remission or a lesser amount to be paid on a monthly basis without the concurrence of the finance company.
4. In this case, the finance company applied under Section 8 of the said Act, read with Section 5 thereof, for the virtual arrest of the civil suit and for the subject-matter of the suit to be referred to arbitration in accordance with the arbitration clause contained in the finance agreement. The arbitration clause is as follows:-
"9.11 Dispute Resolution
Any disputes or differences arising out of or in connection with the agreement during its subsistence or thereafter between the parties Including any disputes and differences relating to the Interpretation of the agreement or any clause thereof shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and rules framed there under and any amendment, modification, statutory enactment thereto from time to time and shall be referred to the sole Arbitration of an Arbitrator appointed by Company on its own or upon request of the Customer and/or guarantors. In writing, upon intimation to all parties to this agreement.
It is made clear that the venue of Arbitration proceedings will be at Kolkata and no objection shall be entertained from any parties in this regard. The cost of the Arbitration proceedings shall be borne by the parties to this agreement.
The award of the arbitrator shall be final, conclusive and binding on all the parties."
5. Such application of the appellant herein has not been taken up for consideration. In any event, it may be presumed, for the present purpose that such application may be rejected by the Civil Court. What is of relevance is that such an application has been made and the appellant herein has evinced a desire to adhere to the arbitration clause and have the disputes between the parties resolved by way of an arbitral reference.
6. Section 8 of the said Act of 1996 mandates that a judicial authority in receipt of a matter which is the subject-matter of an arbitration agreement shall refer the parties to arbitration. The only caveat is that the arbitration agreement should be valid and in existence and a prima facie view as to its validity and existence has to be taken before the reference is made. The non-obstante clause contained in sub-section (1) of the relevant provision permits judgments, decrees and orders of the Supreme Court and other Courts to be disregarded in referring the subject-matter to arbitration if the same is covered by an arbitration agreement.
7. It is elementary that resolution of disputes by arbitration has to be consensual. In other words, the parties to an agreement have to agree that the dispute resolution mechanism would be by way of arbitration. Once such consensus is reached, the same would be reflected in a writing. The writing may be a part of the written matrix contract or may be independent of the underlying contract. It may even be culled out from the correspondence exchanged by the parties.
8. Again, merely because there is an arbitration clause contained in an agreement or there is an independent agreement between the parties for their disputes to be resolved by way of arbitration, does not imply that the parties have to have the disputes resolved by arbitration and by no other method. Just as it is possible that a clause in any contract may be waived or the operation thereof may be disregarded by the parties, it is open to a party to an arbitration agreement to act in derogation thereof. Upon a party instituting a civil suit notwithstanding the disputes being covered by an arbitration agreement, it is not for the Court to point out to the party that it should go to an arbitral reference. As Section 8 of the said Act of 1996 recognises, an application in the nature of specific performance of the agreement to go to arbitration must be filed, whereupon the Court has to make a prima facie assessment as to whether the arbitration agreement is valid and in existence. Upon a positive prima facie opinion in such regard being formed, the Court is obliged, under the command of the relevant provision, to refer the parties to arbitration.
9. The 1996 Act deposed the arbitration regime under the Arbitration Act, 1940. As would be evident from the Act of 1996, it was intended to be an amending and consolidating statute. As a result, the entirety of the law on arbitration has to be traced to the Act of 1996 which has to be regarded as a complete code for matters pertaining to arbitration in this country. The Act of 1996 is based on the Uncitral model and there are several instances where in matters of interpretation of the 1996 Act, Courts have taken the liberty of looking at the Uncitral model to ascertain the scope or purport of a clause or a provision in the 1996 Act introduced in this country. What is apparent from the Uncitral model and the said Act of 1996 is that arbitration and the authority of arbitrators were given a degree of primacy that was alien to the scheme that existed under the Act of 1940. For instance, there is no provision similar to Section 35 of the Act of 1940 in the present Act of 1996. Under Section 35, the moment the validity of an arbitration agreement was challenged by way of a suit it would operate as an automatic stay on the arbitration proceedings and the arbitrator would not have authority to proceed with the matter without the matter before the Court being resolved first.
10. Section 16 of the Act of 1996 is also a complete departure from the ethos of the Act of 1940 and an arbitral tribunal may now rule on its own jurisdiction, including on objections as to the existence or validity of the arbitration agreement. Further, Section 5 of the Act of 1996 limits the extent of judicial intervention as it mandates that "no judicial authority shall intervene" in matters governed by Part-I of the said Act "except where so provided in this Part."
11. Section 8(3) of the Act of 1996 has to be read in the same vein. That a suit may be pending before a civil court on the subject-matter of a dispute covered by an arbitration agreement is no longer a bar to arbitral proceedings being commenced or continued or even an arbitral award being made. It is necessary to notice such provision:
"8(3). Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."
12. It is possible, therefore, that even during the pendency of a civil suit covering the subject-matter of what ought to be the subject-matter of an arbitral reference, a defendant to such suit may apply under Section 8 for the virtual dismissal of the suit; and, simultaneously, commence arbitral proceedings, prosecute the same and even obtain an award therein. Once Section 8(3) of the said Act allows the arbitral reference to be initiated and concluded, notwithstanding the pendency of a civil suit covering the subject-matter of the reference, it cannot be said that the machinery available under the said Act of 1996 to parties to an arbitral reference would otherwise remain suspended till the application under Section 8 of the said Act were to be decided.
13. It is inconceivable that notwithstanding Section 8(3) of the said Act of 1996, whereunder a party to the arbitration agreement would be entitled to commence arbitral proceedings, but such party would not be entitled to obtain the interim measures provided for under Section 9 thereof. The preference to arbitration over a suit or like matter that may be pending before a judicial authority as evident from Section 8(3) of the said Act of 1996 unmistakably indicates to the availability of Section 9 of the said Act of 1996 to a party to a reference, notwithstanding such reference having been commenced or proceeded with in the shadow of a civil suit or like proceedings covering the same subject-matter, provided that an application under Section 8 of the Act of 1996 has been made in such civil suit or like proceedings.
14. Section 9 of the Act of 1996 contemplates an application being made for interim measures "before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36" of the Act. Despite the introduction of subsection (3) into Section 9 of the Act of 1996 by the Amendment of 2015, it is evident that the appropriate court, within the meaning of Section 2(1)(e) of the said Act, has due authority to entertain an application for interim measures in respect of the subject-matter of an arbitral reference. When the subject-matter of an agreement governed by an arbitration clause is carried to a civil court or like judicial authority, as long as another party to such agreement applies under Section 8 thereof for a reference of the disputes to arbitration, such party is entitled to approach the relevant arbitration court with an application under Section 9 of the Act of 1996 for interim measures. The pendency of the civil suit or like proceedings may not be a relevant consideration in the proceedings under Section 9 of the Act of 1996, though any interlocutory order subsisting in the civil suit or like proceedings may be looked into by the arbitration court to uphold the principles of comity and avoid any conflict. But even here, the arbitration court should not be embarrassed in exercising its authority in any manner whatsoever by the mere pendency of the civil court or like proceedings; or the subsistence of any interlocutory order therein.
15. As a consequence, i
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t appears to be fairly evident from the said Act of 1996 that the pendency of a civil suit or like proceedings on the subject-matter covered by an arbitration agreement will not be an impediment to Section 9 of the said Act being invoked by a party to such civil suit or like proceedings, as long as an application has been made under Section 8 of the said Act in the relevant civil suit or like proceedings. 16. The order impugned dated August 30, 2016 is set aside. In any event, no reasons have been furnished in support of the view expressed therein that during the pendency of an application under Sections 5 and 8 of the Act of 1996 in a civil suit or like proceedings covering the subject-matter of any arbitral reference or proposed arbitral reference, the jurisdiction under Section 9 of the said Act cannot be invoked. The legal question framed in the second paragraph hereinabove is answered in the affirmative. 17. APO No. 341 of 2016 succeeds. The Single Bench is now requested to take up the petition under Section 9 of the said Act and deal with the same on merits. 18. GA No. 3068 of 2016 also stands disposed of. 19. There will be no order as to costs.