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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 12066 OF 2016 (Arising out of S.L.P. (C) No. 34016 of 2015)

Greaves Cotton Limited … Appellant

Versus

United Machinery and Appliances …Respondent

J U D G M E N T

Prafulla C. Pant,J.

1. Leave granted.

2. This appeal is directed against order dated 16.09.2015,

passed by the High Court of Judicature at Calcutta in GA No.

2998 of 2015 (in CS No. 2 of 2015), whereby said Court has

rejected  the  application  moved  under  Section  5  read  with

Section 8 of the Arbitration and Conciliation Act, 1996, to get

the dispute referred to arbitral tribunal.

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3. Brief facts of the case are that appellant Greaves Cotton

are manufacturers of,  inter alia, diesel engines.  Respondent

United Machinery and Appliances are manufacturers of diesel

generator  sets.   An agreement  containing  arbitration clause

was executed between them for supply of diesel engines by the

appellant to the respondent for using the same in the diesel

gensets.   Arbitration  clause  contained  in  Article  10.1  of

agreement  dated  02.07.2007  (copy  Annexure  P-1)  reads  as

under: -

“10.1 Any  dispute  or  difference  whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this Agreement or the validity or the breach thereof shall be referred to a Sole Arbitrator to be appointed by Greaves.  The decision of the Arbitrator shall be final and binding upon the parties.  The venue of arbitration  shall  be  Mumbai.   The  arbitration proceedings shall, in all other aspects, be governed by the provisions of the Arbitration and Conciliation Act, 1996 or any subsequent statutory enactment in place thereof.”

The  plaintiff-respondent  filed  civil  suit  (CS  No.  2  of  2015)

seeking decree for an amount of Rs.4,92,76,854/- towards the

loss and damages suffered by it on account of alleged breach

of  contract  on  the  part  of  defendant-appellant.   The  High

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Court,  in  its  original  side,  issued  summons  in  the  suit  on

06.01.2015 to the appellant.  On the other hand, the appellant

sent communication to the respondent claiming that it was the

respondent  who  has  to  pay  outstanding  dues  of

Rs.1,04,53,103/- to the appellant.  The appellant, in response

to the summons, on 07.07.2015 moved an application (copy

Annexure P-6) before the High Court seeking extension of time

for  eight  weeks  to  file  written  statement  and  invoked  the

arbitration  clause  contained  in  the  agreement  dated

02.07.2007  by  sending  a  letter  dated  08.07.2015  (copy

Annexure P-7) to the respondent, in response to which, vide

communication  dated  13.07.2015  (copy  Annexure  P-7),  it

denied the claim of the appellant, and objected to invocation of

arbitration  clause  on  the  ground  of  pendency  of  civil  suit

before  the  High  Court.   Thereafter,  the  appellant  moved

Application GA No. 2998 of 2015 (copy Annexure P-10) under

Section  5  read  with  Section  8  of  the  Arbitration  and

Conciliation Act, 1996 (for short “the 1996 Act”), in the suit

seeking reference of the disputes between the parties forming

the subject-matter of the suit, for arbitration, which is rejected

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by the High Court on the ground that the appellant has, by

moving  application  for  extension  of  time  to  file  written

statement,  waived its  right to seek arbitration.   Hence,  this

appeal through special leave.

4. We have heard learned counsel for the parties.

5. Before further discussion, it is just and proper to refer to

relevant provisions of law applicable to the case.  Section 5 of

the  1996  Act  provides  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 the said Part of the Act.

Sub-section (1) of Section 8 of the 1996 Act, as it existed prior

to 23.10.2015, provided that a judicial authority before which

an action is brought in a matter which is the subject of an

arbitration  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.   

6. The issue before us for consideration is whether filing of

an application for extension of time to file written statement

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before  a  judicial  authority  constitutes  –  ‘submitting  first

statement on the substance of the dispute’ or not.

7. For  appreciating  the  intention  of  the  Legislature,  it  is

necessary for us to examine the change in law brought about

by the 1996 Act.  In Manna Lal Kedia and ors. v. State of

Bihar  and  ors.1,  comparing  the  provisions  contained  in

Section 34 of the Arbitration Act, 1940 and Section 8 of the

1996 Act, High Court of Patna has opined as follows: -

“10. In  terms  of  the  Section  34  of  the  old  Act  a party  was  required  to  apply  for  reference  of  the dispute  to  the  arbitrator  before  filing  written statement  or  taking  any  other  step  in  the proceeding.  The words “or taking any other step” were  interpreted  to  include  even  application  for adjournment,  for  filing  written  statement.   This obviously  created  anomalies,  not  only  frustrating the  objects  of  arbitration  but  also  resulting  in injustice  in many cases.   In order to bring about change in this regard in the New Act in Section 8 (1), provision has been made to the effect that the party intending to go in for arbitration must do so in his “first statement on the substance of the dispute” and not later than that.  In other words, only if in the first statement on the substance of the dispute he does not make such prayer that he is debarred from making that prayer later.  Section 8(1) of the New  Act  is,  thus,  an  Improvement  upon  the provisions of Section 34 of the old Act…….”

1 AIR 2000 Pat 91

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8. In Rashtriya Ispat Nigam Ltd. and another v. Verma

Transport Co.2,  interpreting the expression “first  statement

on  the  substance  of  the  dispute”,  this  Court  has  held  as

under: -

“36. The  expression  “first  statement  on  the substance of the dispute” contained in Section 8(1) of the 1996 Act must be contradistinguished with the  expression  “written  statement”.   It  employs submission of  the  party  to  the  jurisdiction  of  the judicial authority.  What is, therefore, needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause.   If  an  application  is  filed  before  actually filing  the  first  statement  on the  substance  of  the dispute, in our opinion, the party cannot be said to have  waived  its  right  or  acquiesced  itself  to  the jurisdiction  of  the  court.   What  is,  therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not,  if  not,  his application under Section 8 of the 1996  Act,  may  not  be  held  wholly unmaintainable…..”

9. This  Court  in  Rashtriya  Ispat  Nigam  Ltd. (supra)

further held as under: -

“42. Waiver of a right on the part of a defendant to the  lis  must  be  gathered  from  the  fact  situation obtained  in  each  case.   In  the  instant  case,  the court  had  already passed an ad interim ex  parte injunction.  The appellants were bound to respond to the notice issued by the Court.  While doing so, they raised a specific plea of bar of the suit in view

2 (2006) 7 SCC 275

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of the existence of an arbitration agreement.  Having regard to the provisions of the Act, they had, thus, shown their unequivocal  intention to question the maintainability  of  the  suit  on  the  aforementioned ground.”

10. In  Booz  Allen  and  Hamilton  Inc.  v.  SBI  Homes

Finance  Limited  and  others3,  while  dealing  with  the

question,  this Court,  in paragraph 19 of  the judgment,  has

laid down the law on the similar issue as under: -

“19. Where a suit is filed by one of the parties to an arbitration agreement against  the  other  parties  to the arbitration agreement, and if the defendants file an  application  under  Section  8  stating  that  the parties should be referred to arbitration, the court (judicial authority) will have to decide:

(i) whether there is an arbitration agreement among the parties;

(ii) whether  all  the  parties  to  the  suit  are parties to the arbitration agreement;

(iii) whether  the  disputes  which  are  the subject-matter of the suit fall within the scope of arbitration agreement;

(iv) whether the defendant had applied under Section 8 of the Act before submitting his first statement  on  the  substance  of  the  dispute; and

3 (2011) 5 SCC 532

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(v) whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration.”

11. This  Court  in  Booz Allen and Hamilton Inc. (supra),

has further observed in paragraph 25 as under: -

“25. Not  only  filing  of  the  written  statement  in  a suit,  but  filing  of  any  statement,  application, affidavit  by  a  defendant  prior  to  the  filing  of  the written statement will be construed as “submission of a statement on the substance of the dispute”, if by  filing  such  statement/application/affidavit,  the defendant shows his intention to submit himself to the jurisdiction of the court and waives his right to seek reference to arbitration.  But filing of a reply by a  defendant,  to  an  application  for  temporary injunction/attachment  before  judgment/ appointment  of  Receiver,  cannot  be considered as submission of a statement on the substance of the dispute, as that is done to avoid an interim order being made against him.”

12. In view of the law laid down by this Court, as above, we

find it difficult to agree with the High Court that in the present

case  merely  moving  an  application  seeking  further  time  of

eight  weeks  to  file  the  written  statement  would  amount  to

making first statement on the substance of the dispute.  In

our  opinion,  filing  of  an  application  without  reply  to  the

allegations of the plaint does not constitute first statement on

the substance of  the dispute.   It  does not  appear from the

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language of sub-section (1) of Section 8 of the 1996 Act that

the Legislature intended to include such a step like moving

simple application of seeking extension of time to file written

statement as first statement on the substance of the dispute.

Therefore, in the facts and circumstances of the present case,

as  already  narrated  above,  we  are  unable  to  hold  that  the

appellant,  by moving an application for extension of time of

eight weeks to file written statement, has waived right to object

to the jurisdiction of judicial authority.

13. From  the  order  impugned,  it  also  reflects  that  before

disposing of application under Section 8 of the 1996 Act the

High Court has not looked into questions as to whether there

is an agreement between the parties; whether disputes which

are  subject-matter  of  the  suit  fall  within  the  scope  of

arbitration;  and  whether  the  reliefs  sought  in  the  suit  are

those that can be adjudicated and granted in arbitration.  In

view of the above, we think it just and proper to request the

High Court to decide the application afresh in the light of law

laid down by this Court in para 19 of the judgment in  Booz

Allen and Hamilton Inc.  v.  SBI Homes Finance Limited

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and others (supra) except the point, which has already been

answered in the present case by us.

14. Accordingly the appeal is allowed.  The impugned order,

passed by the  High Court  is  set  aside.   The High Court  is

requested to decide the application (GA No. 2998 of 2015 in

CS No. 2 of 2015) in the light of observation, as above.  No

order as to costs.

……………….....…………J.                         [J. Chelameswar]

 .……………….……………J. New Delhi; [Prafulla C. Pant] December 14, 2016.