Jurisdiction Of Civil Court To Decide Suit Between Parties Is Not Ousted Unless There Is A Clear-Cut Arbitration Agreement Between Them: Jammu & Kashmir & Ladakh High Court

The Petitioner, through the present Petition had challenged the order of the Trial Court whereby the parties were referred to arbitration and also asked to appear before Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore.

The Single Bench of Justice Sanjay Dhar held, “The reference of parties to arbitration has serious civil consequences because once the disputes between the parties are referred to Arbitral Tribunal, the provisions of the Code of Civil Procedure and Evidence Act are out of picture and the final decision made by the Arbitral Tribunal is binding upon the parties as the same can be challenged only on limited grounds. Thus, reference of disputes to arbitration has serious effect upon the rights of the parties. Therefore, unless there is a clear-cut arbitration agreement between the parties, the jurisdiction of the civil court to decide a suit between the parties is not ousted.”

Advocate Yasir Nabi Rather represented the Petitioner while Advocate Ibrahim Mehraj represented the Respondent.

Factual Background

In the plaint, it was alleged by the plaintiff that the defendant had approached him for the supply of fruit boxes for their further sale. It was also pleaded that the terms and conditions were settled between the parties, whereby the defendant had undertaken to sell the fruit supplied by the plaintiff at higher rates and to deduct a commission of 1% and expenses from the sale proceeds.

It was alleged by the plaintiff that the terms and conditions of the agreement had been violated by the defendant, since the fruit supplied by the plaintiff had been sold at very low rates, which resulted in a loss to the plaintiff. The plaintiff sought a preliminary decree for settlement of accounts and a final decree for recovery of outstanding amount from the defendant. The defendant filed an application under Section 8 of the Act of 1996, in which it was submitted that there is an arbitral clause in the written agreement between the parties which negates the jurisdiction of the civil court. The trial court referred the parties to arbitration, and the Arbitrator was directed to make the award and file the same before the court. It was in such circumstances that the petition came to be filed.

Reasoning

The Bench noted that the the dispute between the parties related to settlement of accounts with regard to supply and sale of fruits. The clause in the agreement read, “God forbid, if a dispute arises between the parties, the same would be resolved only and only by the Union in accordance with the rules of Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore.”

On the issue of what constitutes an ‘arbitration clause’ or an ‘arbitration agreement’, the Bench said, “....nomenclature of the agreement is not the determinative factor for ascertaining as to whether the parties have agreed to resort to arbitration. What is relevant is whether the parties have agreed that dispute arising between them in respect of the subject matter of the contract, would be referred to arbitration and the decision would be binding on them. The agreement between the parties has to clearly specify that the rights of the parties would be determined by the agreed tribunal by adjudication of the disputes which would be binding on the parties. The agreement must contemplate adjudication of disputes on the basis of the evidence that may be produced before the Adjudicatory Forum after hearing the parties. The intention of the parties should be clear and there should be no doubt about their intention of resolution of disputes through arbitration.”

Referring to the Bye-laws of Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore, the Bench noted that the Chairman of the Association is vested with the power to adjudicate the disputes between the traders, orchard owners and other persons associated with the trade of fruits. The Chairman is also empowered to summon the parties. A complete adjudicatory process is provided under the Bye-laws, the Bench mentioned.

The Bench, thus, held that the note appended below the agreement executed between the parties, which provides for decision of the disputes by Union in terms of the bylaws of the Fruit Growers and Dealers Association, when read in conjunction with Section 8 of the Bye-laws, is nothing but an arbitration clause as the same satisfies all the requirements of the arbitration clause. The fact that the said clause provided that disputes between the parties shall be decided only and only in terms of the said clause, shows that the parties intended to make the decision of the Union, taken in accordance with its Byelaws, binding on them.

Considering the fact that an application under Section 8 came to be filed by the respondent/defendant before filing his written statement on merits, the Bench held that there was no option for the trial court but to refer the parties to arbitration. “However, the direction of the learned trial court to the effect that award should be filed before the said court is not contemplated under Section 8 of the Act of 1996. To that extent, the impugned order is not sustainable in law”, it added.

Thus, dismissing the Petition, the Bench upheld the impugned order passed by the trial court except to the extent of directing the Arbitrator to file his award before the said court.

Cause Title: Ghulam Rasool Bhat v. Shafeeq Fruit Company (Case No.: CM(M) No.214/2024)

Appearance:

Petitioner: Advocate Yasir Nabi Rather

Respondent: Advocate Ibrahim Mehraj

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