Bifurcation of cause of action not permissible to bring in applicability of Section 8 of the Arbitration & Conciliation Act, 1996

Cause of action in one matter cannot be bifurcated,  one to be decided by the arbitral tribunal and 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.

What is the scope of Section 8 of the Arbitration & Conciliation Act, 1996 (‘Act’) while entertaining the petition filed under the said provision when dispute referred includes both the contracting as well as non-contracting parties, was the subject matter of adjudication in the present matter.

It was held in the impugned High Court judgment that procedure including all the parties, as mentioned above, is not contemplated under the Act. The object and purpose of the Act is to avoid multiplicity of the proceedings and not to allow two forums simultaneously to proceed with the matter.

In the instant matter dispute had arisen upon the filing of petition for dissolution of partnership besides claim of other reliefs. Appellant submitted that under Section 8 of the Act, the Court was required to refer the dispute arising because of the dissolution of the partnership to the arbitrator as contemplated by the arbitration clause. It was further submitted that in any case there is no bar in referring the dispute arising between the contracting parties who are bound by the agreement to the arbitrator as envisaged in the partnership deed and if the interpretation given by the High Court is accepted, arbitration clause could be defeated by an interested party by adding some reliefs which are not covered by the arbitration clause or by adding a few parties who are not bound by the arbitration clause. This interpretation was contended to be against the object and purpose of the Act and against the spirit of Section 89 of Code of Civil Procedure (CPC).

It was observed, in response to contention, that for interpretation of Section 8, Section 5 would have no bearing because it only contemplates that in the matters governed by Part-I of the Act, Judicial authority shall not intervene except where so provided in the Act. Except Section 8, there is no other provision in the Act that in a pending suit, the dispute is required to be referred to the arbitrator. Further, the matter is not required to be referred to the arbitral Tribunal, if:

(1) the parties to the arbitration agreement have not filed any such application for referring the dispute to the arbitrator; (2) in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof. The above would therefore, mean that Arbitration Act does not oust the jurisdiction of the Civil Court to decide the dispute in a case where parties to the Arbitration Agreement do not take appropriate steps as contemplated under sub- sections (1) & (2) of Section 8 of the Act.

Secondly, there is no provision in the Act that when the subject matter of the suit includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject matter of the suit to the arbitrators.

Thirdly, there is no provision as to what is required to be done in a case where some parties to the suit are not parties to the arbitration agreement. As against this, under Section 24 of the Arbitration Act, 1940, some of the parties to a suit could apply that the matters in difference between them be referred to arbitration and the Court may refer the same to arbitration provided that the same can be separated from the rest of the subject matter of the suit. The Section also provided that the suit would continue so far as it related to parties who have not joined in such application.

The relevant language used in Section 8 is “in a matter which is the subject matter of an arbitration agreement”, Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of ‘a matter’ which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced – “as to a matter” which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words ‘a matter’ indicates entire subject matter of the suit should be subject to arbitration agreement.

It was held as 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.

Then, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and 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.

On the issue of reference and applicability of Section 89 of the CPC it was held that Section 89 CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the Court has to apply its mind to the condition contemplated under Section 89 CPC and even if application under Section 8 of the Act is rejected, the Court is required to follow the procedure prescribed under the said Section.

[Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya and Anr.]

(SC, 14.04.2003 – Civil Appeal No. 1174 of 2002)