Gajapathi Raju & Ors Vs. P.V.G. Raju & Ors  INSC 153 (28 March
D E R
No orders on I.As 3 and 4.
the pendency of this appeal all the parties have entered into an arbitration
agreement. They have agreed to refer their disputes in this appeal and others
to Justice S. Ranganathan, a retired Judge of this Court as sole Arbitrator.
The arbitration agreement is in the form of an application and has been signed
by all the parties and meets the requirements of Section 7 of the Arbitration
and Conciliation Act, 1996 (new Act). The question that arises for
consideration is whether this Court in appeal can refer the parties to
arbitration under the new Act. The Arbitration Act, 1940 expressly provided for
the parties to a suit to apply for an order of reference of the subject matter
of the suit (see Sections 21 to 25, Chapter IV relating to arbitration in
suits). There is also authority for the proposition under the 1940 Act that
with the reference of the disputes, the suit itself may stand disposed of. Part
I of the new Act deals with domestic arbitrations. Section 5, which is
contained in Part I of the new Act, defines the extent of judicial intervention
in arbitration proceedings. It says 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 that Part.
5 brings out clearly the object of the new Act, namely, that of encouraging
resolution of disputes expeditiously and less expensively and when there is an
arbitration agreement, the Courts intervention should be minimal. Keeping the
legislative intention in mind, Section 8 of the new Act may be construed. It
reads: Power to refer parties to arbitration where there is an arbitration
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.
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
Notwithstanding that an application has been made under sub-section (1) and
that the issue is pending before the judicial authority, and arbitration may be
commenced or continued and an arbitral award made.
conditions which are required to be satisfied under sub-sections (1) and (2) of
Section 8 before the Court can exercise its powers are : (1) there is an
arbitration agreement; (2) a party to the agreement brings an action in the
Court against the other party; (3) subject matter of the action is the same as
the subject matter of the arbitration agreement; (4) the other party moves the
Court for referring the parties to arbitration before it submits his first
statement on the substance of the dispute. This last provision creates a right
in the person bringing the action to have the dispute adjudicated by Court,
once the other party has submitted his first statement of defence.
the party, who wants the matter to be referred to arbitration applies to the
Court after submission of his statement and the party who has brought the
action does not object, as is the case before us, there is no bar on the Court
referring the parties to arbitration. In our view, the phrase which is the
subject of an arbitration agreement does not, in the context, necessarily
require that the agreement must be already in existence before the action is
brought in the Court. The phrase also connotes an arbitration agreement being
brought into existence while the action is pending. Blacks Law Dictionary has
defined the word is as follows: This word, although normally referring to the
present, often has a future meaning, but is not synonymous with shall have
been. It may have, however, a past signification, as in the sense of has been.
further question arises whether the Court is in these circumstances obliged to
refer the parties to arbitration and if so with what effect. In the matter
before us, the arbitration agreement covers all the disputes between the
parties in the proceedings before us and even more than that. As already noted,
the arbitration agreement satisfies the requirements of Section 7 of the new
Act. The language of Section 8 is peremptory. It is, therefore, obligatory for
the Court to refer the parties to arbitration in terms of their arbitration
agreement. Nothing remains to be decided in the original action or the appeal
arising therefrom. There is no question of stay of the proceedings till the
arbitration proceedings conclude and the Award becomes final in terms of the
provisions of the new Act.
the rights, obligations and remedies of the parties would now be governed by
the new Act including the right to challenge the Award. The Court to which the
party shall have recourse to challenge the Award would be the Court as defined
in clause (e) of Section 2 of the new Act and not the Court to which an
application under Section 8 of the new Act is made. An application before a
Court under Section 8 merely brings to the Courts notice that the subject
matter of the action before it is the subject matter of an arbitration agreement.
This would not be such an application as contemplated under Section 42 of the
Act as the Court trying the action may or may not have had jurisdiction to try
the suit to start with or be the competent Court within the meaning of Section
2 (e) of the new Act. We, therefore, allow the application and would refer the
parties to arbitration. No further orders are required in this appeal and it
stands disposed of accordingly.