2017 (4) TMI 536 - SC - Indian Laws

Reference to the parties to arbitration - Permanent injunction - whether suit is bad for misjoinder of parties as well as for causes of action? - Held that - The appellants even though had different causes of action against the respondent but it was a continuity of the agreement dated 06.06.2009 and oral agreement is evidenced by the transcript of conversation between the appellant No. 2 and the respondent on 6/07.04.2011, therefore, both the appellants could have joined as plaintiffs in a suit and the suit is not bad for misjoinder of parties or causes of action. Hence, learned single Judge as also the division bench, was not right in giving an option to the appellants to pursue reliefs qua appellant No. 1 or qua appellant No. 2 only. In the present case, the prerequisites for an application under Section 8 are fulfilled, viz., there is an arbitration agreement; the party to the agreement brings an action in the court against the other party; the subject matter of the action is the same as the subject-matter of the arbitration agreement; and the other party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. We have come to the conclusion that the civil court had no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration. In such a situation, refusal to refer the dispute to arbitration would amount to failure of justice as also causing irreparable injury to the defendant. As we have already held that the oral agreement as evidenced by the transcript of conversation between the appellant No. 2 and the respondent on 06/07.04.2011 substituting the alleged written agreement dated 06.06.2009 and which contained a clause for arbitration, the same clause for arbitration would also be applicable to the oral agreement. The Division Bench has also erred in law in affirming the order passed by learned single Judge. Both the orders, therefore, cannot be sustained and are set aside and, therefore, in view of the decision in P.R. Shah (supra), there can only be one arbitrator and there can only be a single arbitration. The appeal succeeds and is allowed. However, instead of remitting the matter back to the learned single Judge for deciding the suit itself on merits, we refer the disputes raised by the appellants to the sole arbitrator already appointed, viz., Hon ble Mr. Justice V.K. Gupta (Retd.) and request the arbitrator to decide the disputes expeditiously in accordance with law.

Summary

Issues Involved:
1. Misjoinder of parties and causes of action.
2. Validity and applicability of the arbitration clause.
3. Jurisdiction of the civil court in the presence of an arbitration agreement.

Issue-wise Detailed Analysis:

1. Misjoinder of Parties and Causes of Action:
The appellants filed a suit for declarations, permanent injunction, and recovery of money, claiming the agreement dated 06.06.2009 was terminated by mutual consent and replaced by an oral agreement. The respondent argued that the suit was bad for misjoinder of parties and causes of action, as the claims were based on separate agreements involving different parties. The High Court's single judge found the suit bad for misjoinder and gave the appellants an option to amend the plaint. The Division Bench upheld this decision. However, the Supreme Court held that the causes of action were a continuity of the original agreement and the subsequent oral agreement, thus allowing both appellants to join as plaintiffs in the suit. The Court concluded that the suit was not bad for misjoinder of parties or causes of action.

2. Validity and Applicability of the Arbitration Clause:
The agreement dated 06.06.2009 contained an arbitration clause, which the respondent invoked by appointing a sole arbitrator. The appellants contended that the arbitration clause was superseded by the oral agreement. The Supreme Court found that the oral agreement, evidenced by a transcript of conversation, substituted the written agreement but did not nullify the arbitration clause. The Court emphasized that the arbitration clause remained operative even after the agreement's termination by mutual consent. Consequently, the arbitration clause applied to disputes arising from both the written and oral agreements.

3. Jurisdiction of the Civil Court in the Presence of an Arbitration Agreement:
The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the matter to arbitration, claiming the subject matter of the dispute was already pending before the Arbitral Tribunal. The Supreme Court reiterated that Section 8 of the Act mandates the civil court to refer parties to arbitration if an arbitration agreement exists and the subject matter of the suit is covered by the agreement. The Court held that the civil court had no jurisdiction to entertain the suit once an application under Section 8 was made. The Supreme Court concluded that the prerequisites for an application under Section 8 were fulfilled, and the dispute should be referred to arbitration.

Conclusion:
The Supreme Court allowed the appeal, setting aside the orders of the High Court. The Court referred the disputes raised in CS(OS) 1532 of 2012 to the sole arbitrator already appointed, requesting the arbitrator to decide the disputes expeditiously in accordance with the law. The judgment emphasized the binding nature of arbitration clauses and the limited jurisdiction of civil courts in the presence of such agreements.