Calcutta High Court: Court Must Refer Parties To Arbitration If Plaint Clearly Demonstrates That Subject Matter Is Governed Under Arbitration Agreement

The Calcutta High Court emphasized that the Court must refer the parties to arbitration if the plaint clearly demonstrates that the subject matter of the plaint is governed under an arbitration agreement.

The Court emphasized thus in an Application filed under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act), praying for referring the subject matter of the suit for arbitration.

A Single Bench of Justice Aniruddha Roy observed, “Upon hearing the rival contentions of the parties and on perusal of the materials on record, this Court is of the firm view and the law is also well settled that when an application filed under Section 8 of the Arbitration Act, is taken for consideration the primary obligation of the Court is to read the averments in the plaint as true and correct and to be taken the same as sacrosanct. If a plain reading of the averments in the plaint clearly demonstrates that the subject matter of the plaint is governed under an arbitration agreement, and the defendant applies for reference to arbitration, then it is mandatory for the Court to refer the parties to arbitration. Therefore, at the outset the averments in the plaint are read by the Court.”

The Bench said that Section 8 of the A&C Act postulates that a judicial authority, before which an action is brought in a matter which is the subject matter of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies within the time frame mentioned therein, then, the judicial authority shall refer the parties to the suit to arbitration, if it finds that, prima facie, a valid arbitration agreement exists.

Advocate Rajarshi Dutta appeared for the Petitioner/Defendant, while Advocate Sourojit Dasgupta appeared for the Respondent/Plaintiff.

Factual Background

The Respondent-Plaintiff claimed the unpaid consideration on account of goods sold and delivered to the Petitioner-Defendant-company. The plaint case was that the parties to the suit entered into negotiations and discussions, during which terms and conditions for supply/delivery of goods and the payment of consideration were agreed upon. The Defendant was to place verbal as well as written purchase orders on the Plaintiff, the Plaintiff shall cause delivery of the ordered goods. It was further agreed upon by and between the parties that immediately upon delivery of the goods, the Plaintiff shall raise invoices on the Defendant and upon receiving the invoices, the Defendant shall make payment against the same within a period of 90 days from the date of each invoice. In default, it was agreed upon that the outstanding amount would be carried an interest at the rate of 18% per annum.

The plaint stated that pursuant to such an agreement, the Defendant placed purchase orders upon the Plaintiff from time to time and the goods were duly supplied and delivered. The Defendant made part payment from time to time and requested to make further supplies, assuring that due payment would be made forthwith. Relying on this, the Plaintiff further supplied goods from time to time. It was claimed that despite written assurance by the Defendant, it failed and neglected to make payment towards the price of the goods payable to the Plaintiff. Hence, the Plaintiff claimed a total sum of Rs. 1,07,74,375/- consisting of principal and interest. However, the Defendant failed to file its written statement within the mandatory period of 120 days and therefore, the case was before the High Court.

Court’s Observations

The High Court in the above context of the case, noted, “On reading of the said provisions from the statute, it appears to this Court, firstly, an arbitration agreement shall be in writing. Admittedly, the plaint case shows that there is no agreement in writing between the parties to the instant suit. The plaintiff has denied the averments in the Section 8 application and the defendant has not produced and disclosed any written agreement by and between the parties to the instant suit. It is not a case of the plaintiff that there has been any written agreement between the parties governing the subject matter of the suit.”

The Court said that the plaint case clearly shows that there is no arbitration agreement that exists within the meaning of Section 7 of the A&C Act, as there is no written agreement.

“The plaint case is that the plaintiff and defendant has entered into an understanding and/or a contract which governs the subject matter of the plaint. Therefore, when the defendant is a party to the instant suit the question of claiming any right through or under anybody in the subject agreement does not and cannot arise and the defendant cannot raise such plea”, it remarked.

The Court added that the Defendant not being a party to any arbitration agreement with the Plaintiff, within the meaning of Section 7 of the A&C Act and since there is no arbitration agreement at all within the meaning of Section 7 which governs the subject matter of the suit, as would be evident from the averments made in the plaint, the Defendant has no right to apply under Section 8 of the A&C Act.

Conclusion

“The plaintiff ultimately may not succeed in the suit with its existing plaint case after trial on the merit of the suit and the defendant may dislodge the claim of the plaintiff at the final hearing of the suit on the basis of the existing record but that should not be the guiding principle or consideration for this Court whiling adjudicating a Section 8 application”, it observed.

The Court, therefore, concluded that the application filed by the Defendant under Section 8 of the A&C Act is devoid of any merit and substance.

Accordingly, the High Court dismissed the Application and imposed a cost of Rs. 10,000/- on the Petitioner/Defendant in favour of the West Bengal State Legal Services Authority within two weeks.

Cause Title- Flint Group India Private Limited v. Sujay Lodha (Case Number: IA NO. GA-COM/4/2024 In CS-COM/652/2024)

Appearance:

Petitioner: Advocates Rajarshi Dutta, Asif Hussain, Sarbesh Chaudhury, Alia Gaffar, and Srijata Choudhry.

Respondent: Advocates Sourojit Dasgupta and Souvik Mazumdar.

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