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Judgment
The present appeal has been filed under section 37 of the Arbitration and Conciliation Act, against the order dated 11.8.2025 passed by 5th Civil Judge, Junior Division, Bhopal, in Ex.A.No.16/2024, whereby the learned court has dismissed the appellants application under section 8 of the Act seeking reference of the subject dispute to the arbitration in terms of clause 8 of the compromise decree dated 17.2.2012 passed in Civil Suit No.490-A/2009 by III Addl. Judge to I Civil Judge, Junior Division, Bhopal.
It is contended by learned counsel for the appellant that the parties had entered into a compromise in an eviction suit filed by the respondent landlord vide order dated 17.02.2012in Civil Suit No.490-A/2009. The said compromise has been recorded by the competent civil court and the suit was disposed of accordingly. As such, the compromise entered into between the parties led to a compromise decree.
It is submitted that the respondent had filed an application under Order XXI Rule 11 of the Code of Civil Procedure (CPC) before the executing court to execute the said compromise decree, which contained a stipulation regarding the payment of a compensatory amount / mesne profits @ Rs. 2,000/- per day for six months if the construction by the appellant was not completed within a year, and thereafter Rs. 5,000/- per day till the construction gets over.
In the said execution proceedings, the appellant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, on the ground that the compromise decree contains a stipulation in Clause 7 that if any dispute arises between the parties in connection with or in relation to the compromise agreement, it shall be decided by the arbitrator agreed upon by the parties.
It is submitted that however, the construction could not be started due to practical reasons not attributable to the appellant, therefore, the appellant is not liable to make any payment as agreed between the parties. Consequently, if the execution proceeding initiated by the respondent is allowed to proceed, the very purpose of deciding the dispute through arbitration and the clause referring the dispute to the arbitrator would be rendered otiose. Therefore, before proceeding with the execution proceedings, the matter ought to have been referred to the arbitrator.
Learned counsel for the respondent has vehemently opposed the prayer on the ground that the respondent had preferred an application under Order XXI Rule 11 of the CPC for execution of the compromise decree, which contains a stipulation for payment of compensatory amount / mesne profits for failure to fulfill obligations within time. As the appellant did not perform its obligation, therefore, the respondent is entitled to the said amount. It is submitted that the appellant was responsible for the delayed initiation of the construction and, therefore, the respondent is entitled to the claimed payment. It is further submitted that the learned court below has rightly rejected the application on the ground that mere filing of an application under Section 8 does not bar the jurisdiction of the civil court to proceed in an execution proceeding.
Heard learned counsel for the parties and perused the record.
It is not disputed that the parties have amicably settled the matter and entered into a compromise, which ultimately resulted in a decree dated 17.02.2012. From a perusal of the said compromise decree, it is found that although it contains a clause for mesne profits or a compensatory amount for not initiating/completing construction within the stipulated time, it also contains an arbitration clause if any dispute arises between the parties.
It is the case of the appellant that they did not get possession of the property to start construction. However, the same has been vehemently denied by the respondent, who states that it was due to the lethargic attitude of the appellant in failing to obtain timely permission from the Municipal Corporation. Nevertheless, this gives rise to a disputed question that requires adjudication. Unless that issue is adjudicated in terms of Clause 7 of the compromise decree, allowing the executing court to proceed on the basis of other clauses of the same agreement would render the very provision of Section 8 otiose.
The Hon'ble Apex Court in the case of P. Anand Gajapathi Raju v.P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539P.V.G. Raju, (2000) 4 SCC 539 has held that the language of Section 8 is peremptory in nature. Therefore, in cases where an arbitration clause exists in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their agreement, and nothing remains to be decided in the original action after such an application is made, except referring the dispute to an arbitrator. The Hon'ble Apex court has held as under :-
8.8.In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in clause (e) of Section 2 of the new Act and not the court to which an application under Section 8 of the new Act is made. An application before a court under Section 8 merely brings to the court's notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as the court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of Section 2(e) of the new Act.
Similarly, in the case of Booz Allen & Hamilton Inc. v. SBI HomeBooz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532,Finance Ltd., (2011) 5 SCC 532, the Hon'ble Apex Court has held that not only the filing of a written statement in the suit, but the filing of any statement, application, or affidavit by a defendant prior to filing the written statement will be construed as "submission of a statement on the substance of the dispute" if the defendant thereby shows an intention to submit to the jurisdiction of the court and waive the right to seek reference to arbitration. The Hon'ble Apex court has held as under :-
25.25.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.
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30.30.When the plaintiffs file applications for interim relief like appointment of a Receiver or grant of a temporary injunction, the defendants have to contest the application. Such contest may even lead to appeals and revisions where there may be even stay of further proceedings in the suit. If supplemental proceedings like applications for temporary injunction on appointment of Receiver, have been pending for a considerable time and a defendant has been contesting such supplemental proceedings, it cannot be said that the defendant has lost the right to seek reference to arbitration. At the relevant time, the unamended Rule 1 of Order 8 of the Code was governing the filing of written statements and the said rule did not prescribe any time-limit for filing written statement. In such a situation, mere passage of time between the date of entering appearance and date of filing the application under Section 8 of the Act, cannot lead to an inference that a defendant had subjected himself to the jurisdiction of the court for adjudication of the main dispute.
31.31.The facts in this case show that the plaintiff in the suit had filed an application for temporary injunction and appointment of Receiver and that was pending for some time. Thereafter, talks were in progress for arriving at a settlement out of court. When such talks failed, the appellant filed an application under Section 8 of the Act before filing the written statement or filing any other statement which could be considered to be a submission of a statement on the substance of the dispute. The High Court was not therefore justified in rejecting the application on the ground of delay.
In the present case, the application was filed by the appellant under Section 8 to refer the matter to arbitration in terms of the clauses of the very compromise decree being executed. Therefore, in the considered opinion of this Court, the executing court, in light of the principles laid down by the Hon'ble Apex Court, ought to have referred the matter for arbitration under Section 8. If the arbitrator concludes that the delay was due to the fault of the appellant, the respondent would definitely be entitled to the claimed amount along with arrears.
Referring the matter to arbitration does not curtail the right of the respondent to execute the compromise decree. If a dispute has arisen regarding the payment of a sum requiring adjudication under the compromise decree, it ought to be adjudicated by the arbitrator first before the executing court proceeds further. The respondent’s apprehension that despite being landlord would be deprived of the fruits of the decree due to unnecessary litigation can be addressed by directing the arbitrator to resolve the dispute within a stipulated timeframe.
Accordingly, the impugned order dated 11.8.2025 (annexure A/1) passed by5th Civil Judge Junior Division, Bhopal in ExA No.16/2024 is set aside and the application under Section 8 is allowed. The executing court having jurisdiction is directed to appoint an independent arbitrator in the matter with a direction to decide the dispute within a stipulated timeframe, following which execution proceedings may proceed.
With the aforesaid directions, the appeal stands disposed of. No order as to costs.