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IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE  JURISDICTION

CIVIL APPEAL NO.      2079         OF 2015 (Arising from S.L.P. (C) No. 20140/2014)

M/s. Sundaram Finance Limited and another  … Appellant (s)   

Versus

T. Thankam … Respondent (s)

J U D G M E N T  

KURIAN, J.:

Leave granted.    

2. Once an application is duly filed in terms of Section 8 of  

The Arbitration and Conciliation Act, 1996 (hereinafter referred  

to as ‘Arbitration Act’) before the civil court, what should be the  

approach  of  the  court,  is  the  short  question  arising  for  

consideration in this case.

3. In  a  suit  for  injunction  filed  by  the  respondent,  the  

prayer  made was to restrain the first  and second defendant  

institutions and their men from illegally taking away from the  

possession of plaintiff or her employee, or interfering with the  

use and enjoyment of  ambassador or causing damage to the  

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car  bearing  registration  number  KL-11-AA-1473  in  the  

ownership and possession of the plaintiff by way of a decree of  

injunction.   The  car  was  purchased  on  loan  granted  by  the  

appellant.

4. Duly complying with the procedure under Section 8 of  

the Arbitration Act, the appellant filed an application bringing to  

the notice of the trial court that in view of the agreement for  

arbitration  between  the  parties  regarding  resolution  of  the  

disputes, the court did not have jurisdiction to try the case and  

the parties were to be directed to the process of arbitration in  

terms  of  the  agreement.  The  trial  court,  by  order  dated  

21.06.2010, declined the relief holding that:

“…  Even  though  clause  22  of  the  Ext.A1  agreement provides that of disputes should be  referred to arbitration this will not prevent the  plaintiff  from approaching this court especially  when one of the parties to the agreement are  trying to commit an act opposed to public policy  and per se illegal. The arbitration clause in the  agreement  cannot  be put  forward as a shield  when  one  of  the  parties  to  the  agreement  commit an act opposed to public policy. In such  circumstances the plaintiff can seek protection  under the common civil law. In this matter what  the respondent alleged that the petitioners are  trying to take forcible possession of the vehicle  which is being run by her. Her relief sought for  in the plaint is only against the illegal acts of  the  defendants.  The  apprehended acts  of  the  

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plaintiff are against the public policy and per se  illegal and hence this suit is maintainable. …”    

5.  The  appellant  pursued  the  matter  before  the  High  

Court. By the impugned order dated 17.03.2014, it was held as  

follows:

“…  Going by Section 8 of  the Arbitration and  Conciliation Act, I am of the opinion that mere  inclusion  of  an  arbitration  clause  in  the  agreement does not  bar  or  cause to oust  the  jurisdiction  of  the  civil  court  provided  under  Section 9 of  the Code of  Civil  Procedure.  The  above view is further supported by Section 5 of  the Arbitration and Conciliation Act, which says  that “in  the matters governed by first  part  of  the Arbitration and Conciliation Act, no judicial  authority  shall  intervene  except  where  so  provided  in  the  first  part”.  It  means  that  jurisdiction of the Civil Court is not completely  ousted  by  Section  8  of  the  Arbitration  and  Conciliation Act. Section 5 of the Arbitration and  Conciliation  Act  does  not  bar  the  exercise  of  general power of the civil court to grant interim  relief  including  specific  injunctive  relief  under  Order XXXIX of the CPC and the Specific Relif  Act. …”

6.  Aggrieved, the appeal.

7. Heard the learned counsel appearing for the appellants.  

None appeared for the respondent.

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8. Two clauses of Annexure-P1-Loan Agreement between  

the  parties,  executed  on  29.06.1997,  are  relevant  for  the  

consideration of the disputes. Clause 14.6 reads as follows:

“14.6. Notwithstanding  anything  contained  in  this  Agreement,  the  Lender  shall  be  entitled  to  reposess  the  hypothecated  Asset, whether the entire Loan Amount  has been recalled or not,  whenever,  in  the  absolute  discretion  of  the  Lender,  there  is  likelihood  of  the  dues  of  the  Lender not being paid by the borrower  and  or/the  Asset  is  likely  to  be  transferred  by  the  Borrower  to  defeat  the security and or payment of the due  any units of the Lender.”

9. Clause  22(a),  as  to  the  extent  relevant,  reads  as  

follows:

“22. (a)  All  disputes,  differences  of  any  claim  arising  out  of  this  Agreement  whether  during  its  subsistence  or  thereafter  shall  be  settled  by  arbitration  in  accordance  with the provisions of the Arbitration and  Conciliation  Act,  1996,  or  any  statutory  amendments thereof and shall be referred  to  the  sole  Arbitration  of  an  Arbitrator  nominated by the Managing Director/Joint  Managing  Director  of  the  Lender.  The  award given by such an Arbitrator shall be  final  and binding on the Borrower to  the  agreement.”  

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10. Once  there  is  an  agreement  between  the  parties  to  

refer the disputes or differences arising out of the agreement to  

arbitration, and in case either party, ignoring the terms of the  

agreement, approaches the civil court and the other party, in  

terms of the Section 8 of the Arbitration Act, moves the court  

for referring the parties to arbitration before the first statement  

on  the  substance  of  the  dispute  is  filed,  in  view  of  the  

peremptory language of Section 8 of the Arbitration Act, it is  

obligatory  for  the  court  to  refer  the parties  to  arbitration  in  

terms of the agreement, as held by this Court in                 P.  

Anand Gajapathi Raju and others v.  P.V.G. Raju (Dead)  

and others1.

11. The  position  was  further  explained  in  Hindustan  

Petroleum  Corporation  Limited v.  Pinkcity  Midway  

Petroleums2. To quote:  

“14. This  Court  in  the  case  of  P.  Anand  Gajapathi Raju v.  P.V.G. Raju has held that the  language of Section 8 is peremptory in nature.  Therefore, in cases where there is an arbitration  clause in the agreement, it is obligatory for the  court to refer the parties to arbitration in terms  of  their  arbitration  agreement  and  nothing  

1 (2000) 4 SCC 539 2 (2003) 6 SCC 503

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remains  to  be  decided  in  the  original  action  after  such  an  application  is  made  except  to  refer the dispute to an arbitrator. Therefore, it is  clear  that  if,  as  contended  by  a  party  in  an  agreement between the parties before the civil  court,  there  is  a  clause  for  arbitration,  it  is  mandatory for the civil court to refer the dispute  to  an  arbitrator.  In  the  instant  case  the  existence of an arbitral clause in the Agreement  is accepted by both the parties as also by the  courts  below  but  the  applicability  thereof  is  disputed  by  the  respondent  and  the  said  dispute is accepted by the courts below. Be that  as  it  may,  at  the  cost  of  repetition,  we  may  again state that the existence of the arbitration  clause is admitted. If that be so, in view of the  mandatory language of Section 8 of the Act, the  courts below ought to have referred the dispute  to arbitration.”

12. In  Branch Manager, Magma Leasing and Finance  

Limited and another v. Potluri Madhvilata and another3,  

the position has been restated holding that no option is left to  

the court,  once the pre-requisite  conditions  of  Section 8 are  

fully satisfied.

13. The attempt of the trial court and the approach made  

by  the  high  court  in  bifurcating  the  cause  of  action,  is  

fallacious. It would only lead to delaying and complicating the  

process. The said issue is also no more res integra. In Sukanya  

3 (2009) 10 SCC 103

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Holdings (P) Limited v.  Jayesh Pandya and another4 at  

paragraphs-16 and 17, it was held as follows:

“16. The  next  question  which  requires  consideration is — even if there is no provision  for  partly  referring  the  dispute  to  arbitration,  whether such a course is possible under Section  8 of the Act. In our view, it would be difficult to  give an interpretation to Section 8 under which  bifurcation of the cause of action, that is to say,  the subject-matter of the suit or in some cases  bifurcation of the suit between parties who are  parties to the arbitration agreement and others  is possible. This would be laying down a totally  new procedure not contemplated under the Act.  If bifurcation of the subject-matter of a suit was  contemplated, the legislature would have used  appropriate language to permit such a course.  Since  there  is  no  such  indication  in  the  language,  it  follows  that  bifurcation  of  the  subject-matter  of  an  action  brought  before  a  judicial authority is not allowed.

17. Secondly,  such  bifurcation  of  suit  in  two  parts, one to be decided by the Arbitral Tribunal  and the other to be decided by the civil court  would  inevitably  delay  the  proceedings.  The  whole  purpose  of  speedy  disposal  of  dispute  and decreasing the cost of litigation would be  frustrated  by  such  procedure.  It  would  also  increase the cost of litigation and harassment to  the parties and on occasions there is possibility  of  conflicting  judgments  and  orders  by  two  different forums.”

14. In Orix Auto Finance (India) Limited v. Jagmander  

Singh and another5, referring to public policy, this Court has  4 (2003) 5 SCC 531 5 (2006) 2 SCC 598

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taken the view that if agreements permit the financer to take  

possession  of  the  finances  vehicles,  there  is  no  legal  

impediment  on  such  possession  being  taken,  unless  the  

contract  is  held  to  be  unconscionable  or  opposed  to  public  

policy”.

15. Once an application in due compliance of Section 8 of  

the Arbitration Act is filed, the approach of the civil court should  

be not to see whether the court has jurisdiction. It should be to  

see whether its jurisdiction has been ousted. There is a lot of  

difference between the two approaches. Once it is brought to  

the notice of the court that its jurisdiction has been taken away  

in terms of the procedure prescribed under a special statue, the  

civil court should first see whether there is ouster of jurisdiction  

in  terms  or  compliance  of  the  procedure  under  the  special  

statute.  The  general  law  should  yield  to  the  special  law  –  

generalia  specialibus  non  derogant.  In  such  a  situation,  the  

approach shall not be to see whether there is still jurisdiction in  

the civil court under the general law. Such approaches would  

only  delay  the  resolution  of  disputes  and  complicate  the  

redressal of grievance and of course unnecessarily increase the  

pendency in the court.

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16. The order dated 21.06.2010 passed by the trial court  

and order dated 17.03.2014 passed by the High Court, are set  

aside.  The trial  court is directed to pass fresh orders on the  

application filed by the appellant-defendant under Section 8 of  

the Arbitration Act. The needful shall be done within a period of  

two months from the date of receipt of this order.

17. The appeal is disposed of as above. There shall be no  

order as to costs.

                                         ..…….…..…………J.

          (M.Y. EQBAL)

..……………………J.           (KURIAN JOSEPH)

New Delhi; February 20, 2015.  

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ITEM NO.1B              COURT NO.11               SECTION XIA [for judgment]                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS C.A. No. 2079 of 2015 @ Petition(s) for Special Leave to  Appeal (C)  No(s).  20140/2014 (Arising  out  of  impugned  final  judgment  and  order  dated  17/03/2014 in WP No. 21076/2010 passed by the High Court of  Kerala At Ernakulam) M/S SUNDARAM FINANCE LIMITED AND ANR.            Petitioner(s)                                 VERSUS T. THANKAM                                       Respondent(s)

Date : 20/02/2015 This appeal was called on for judgment today.

For Petitioner(s) Mr. Balaji Srinivasan,Adv.                       For Respondent(s)                       

Hon'ble Mr. Justice Kurian Joseph  pronounced  the judgment of the Bench comprising Hon'ble Mr. Justice  M.Y. Eqbal and His Lordship.

Leave granted. Appeal  is  disposed  of  in  terms  of  signed  

reportable judgment. No costs.

(INDU POKHRIYAL)    (PARDEEP KUMAR)   COURT MASTER           AR-cum-PS

[SIGNED REPORTABLE JUDGMENT IS PLACED ON THE FILE]

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