Submission of first statement on the substance of dispute amounts to waiver of arbitration clause
In a contract which provides for arbitration in case of dispute between parties, if a party files its first statement on the dispute before a court of law without resorting to Section 8 of the Arbitration and Conciliation Act, 1996, this will be deemed to be a waiver of its right to invoke the arbitration clause.
This was held by the Hon’ble High Court of New Delhi in the matter of MI2C Security Facilities Pvt. Ltd. v. North Delhi Municipal Corporation, W. P. (C) No. 8197 of 2017, on 23rd October 2018.
Challenge:
The Petitioner had filed a writ petition before the High Court at New Delhi seeking direction against the Respondent Corporation to comply with the statutory obligation to pay/release incremental wages to the persons provided by the Petitioner in furtherance of a contract awarded to it by the Corporation in November 2014. In the contract between the two parties, there existed a clause for dispute resolution which provided that disputes arising out of the said contract, if remain unresolved, will be referred to a sole Arbitrator appointed by the Corporation for adjudication.
The Respondent Corporation challenged the maintainability of the present petition on the basis of the said arbitration clause. Therefore, the question before the Court was to decide whether the writ petition was maintainable in light of the arbitration clause in the contract between the parties.
Held:
The Hon’ble Court took note of the fact that the Respondent had filed a short affidavit in response to the writ petition of the Petitioner, followed by affidavit in reply to the additional affidavit by the Petitioner. The said short affidavit and reply affidavit filed by the Respondent Corporation are the first statement on the dispute by the Corporation without resorting to Section 8 of the Arbitration and Conciliation Act, 1996. Therefore, it was held that the submission of first statement on the dispute by the Corporation amounts to submission of itself to the jurisdiction of the Hon’ble High Court, thereby waiver of its right to invoke arbitration.
Further, the Court reiterated the law settled by the Apex Court in case of Rashtriya Ispat Nigam Ltd. v. M/S. Verma Transport Company, (2006) 7 SCC 275, that the expression “first statement on the substance of dispute” as provided in Section 8 (i) of the Arbitration and Conciliation Act, 1996 is different from the expression “written statement”. It is only when an application under Section 8 is filed before first statement on the substance, a party cannot be said to have waived its right to invoke the arbitration clause.
Since the Respondent Corporation had submitted its short affidavit on the merit of the dispute in the present writ petition, without filing an application under Section 8, the Corporation has waived its right to seek reference to arbitration. The dispute was adjudicated and decided vide the present judgment dated 23.10.2018.