2003 (4) TMI 435 - SC - Companies Law

Arbitration petition under section 8 of the Act - Held that - Appeal dismissed. The Court has to apply its mind to the condition contemplated under section 89 CPC and even if application under section 8 of the Act is rejected the Court is required to follow the procedure prescribed under the said section. Considering the language used in section 8 it is not necessary to refer to the decisions rendered by various High Courts interpreting section 34 of Indian Arbitration Act 1940 which gave a discretion to the Court to stay the proceedings in a case where the dispute is required to be referred for arbitration.

Summary

Issues:
Parties entered into a partnership agreement - Dispute arose regarding dissolution of partnership and accounts - Application under section 8 of the Arbitration & Conciliation Act, 1996 filed - High Court rejected the application - Appeal challenging the High Court's decision.

Analysis:
The case involved a partnership agreement between the parties for business development where disputes arose leading to a suit for dissolution and accounts. An application under section 8 of the Arbitration & Conciliation Act, 1996 was filed, seeking arbitration. The High Court rejected the application, prompting an appeal against this decision.

The appellant contended that the dispute arising from the partnership's dissolution should be referred to arbitration as per the arbitration clause. It was argued that the High Court's interpretation could allow interested parties to defeat the arbitration clause by adding unrelated reliefs or parties not bound by the clause. The appellant emphasized the need to uphold the Act's purpose and spirit.

On the other hand, the respondent argued that the High Court's decision was justified as the plaintiffs sought various reliefs in the suit that couldn't be referred to arbitration. It was highlighted that several defendants were not part of the arbitration agreement.

The interpretation of sections 5 and 8 of the Act was crucial. Section 5 limited judicial intervention in matters governed by the Act, while section 8 empowered the judicial authority to refer parties to arbitration if an arbitration agreement existed. The Act did not mandate referral to arbitration if certain conditions were not met, indicating that the Civil Court could decide disputes in such cases.

The Act lacked provisions for referring disputes involving both the subject matter of the arbitration agreement and other issues to arbitration. It also did not address situations where some parties to the suit were not part of the arbitration agreement. The Act's language required the entire subject matter of the suit to fall within the arbitration agreement for referral.

The Court emphasized that bifurcating a suit between arbitration and civil court proceedings would delay the resolution, increase costs, and potentially lead to conflicting judgments. Section 89 of the Code of Civil Procedure (CPC) was deemed inapplicable for interpreting section 8 of the Act, as they served different purposes.

Ultimately, the Court dismissed the appeal, stating that the Act did not allow for bifurcation of suits for arbitration and civil court proceedings. The parties were advised to seek expeditious disposal of the suit, emphasizing the need for efficient resolution of disputes.