Report No. 176
6. Amendment of section 8
In section 8 of the principal Act,-
(a) for sub-section (1), the following sub-sections shall be substituted, namely,-
"(1) Subject to the provisions of sub-sections (4) and (5), 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, unless it has to decide any questions referred to in sub-section (4) as preliminary issues under that sub-section, refer the parties to arbitration.
(1A) The judicial authority before which an action is brought shall stay the action before it for the purpose of deciding the questions set out in sub-section (4) and the stay so granted shall be subject to the outcome of the orders that may be passed under the said sub-section and sub-section (5).";
(b) in sub-section (3),the following proviso shall be inserted at the end, namely:-
"Provided that the arbitration proceeding so commenced shall stand terminated if the judicial authority, after hearing all the parties, passes an order under sub-section (4) to the effect that-
(a) a reference to arbitration cannot be made because of its decision on any question referred to in clauses (a) to (e) of that sub-section; or
(b) though a reference to arbitration has to be made ,the proceedings have to be conducted by a different arbitral tribunal.";
(c) after sub-section (3), the following sub-sections shall be inserted, namely:-
"(4) Where an application is made to the judicial authority by a party raising any question -
(a) that there is no dispute in existence;
(b) that the arbitration agreement or any clause thereof is null and void or inoperative;
(c) that the arbitration agreement is incapable of being performed;
(d) that the arbitration agreement is not in existence, , the judicial authority may, subject to the provisions of sub-section (5), decide the same.
(5) Where the judicial authority finds that the questions mentioned in sub-section (4) cannot be decided because-
(a) the relevant facts or documents are in dispute; or
(b) there is a need for adducing oral evidence; or
(c) the inquiry into these questions is likely to delay reference to arbitration; or
(d) the request for deciding the question was unduly delayed; or
(e) the decision on the question is not likely to produce substantial savings in costs of arbitration; or
(f) there is no good reason why these questions should be decided at that stage, it shall refuse to decide the said questions and shall refer the same to the arbitral tribunal for decision.
(6) If the judicial authority holds that though the arbitration agreement is in existence but it is null and void or inoperative or incapable of being performed and refuses to stay the legal proceedings, any provision in the arbitration agreement that the award is a condition precedent for the initiation of legal proceedings in respect of any matter, will be of no effect in relation to the proceedings."