POWER OF THE COURT TO REFER PARTIES TO ARBITRATION WHERE THERE IS ARBITRATION AGREEMENT

Section 8 of the new Act imposes a mandatory duty on the judicial authority to refer the parties to arbitration in respect of which action is brought in a matter which is subject matter of an arbitration agreement provided such references is sought before filing written statement and at appropriate stage.

The Hon’ble Supreme Court in the case of P. Anand Gajpati Raju vs. P. V. G. Raju, reported in (2000) 4 S.C.C. page 539 has held that dealing with the reference of parties to arbitration must be construed bearing in mind object of the Act which is the encouragement of expeditious and less expensive resolution of disputes with minimum interference of Court. The Supreme Court has further held that the language of section 8 is peremptory and therefore it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement.

The Hon’ble Supreme Court in the case of Haryana Telecom vs. Starlite Industries (India) reported in (1999) 5 S.C.C. page 688 has held that section 8(1) of the Act provides that only such disputes or matters which an Arbitrator is competent or empowered to decide can be referred to arbitration. It has been held that an arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company since such power is conferred only on the company court by the Companies Act. In the case of Jivan Service Centre vs. Hindustan Petroleum Corporation Ltd., reported in 1999 (101) 1 B.L.R., 441"; i.e., in a suit filed by a party for declaration, the Court directed the parties to approach appropriate Court for referring the matter to arbitration and also for appropriate interim relief, if so advised under section 9 of the said Act in view of section 8 of the new Act, there being an arbitration agreement between the parties in relation to the same subject matter. The Hon’ble Bombay High Court in case of Bombay Gas Co. Ltd. vs. Parameshwar Mittal reported in A.I.R. 1998 Bombay page 118 held that the enforcement of arbitration clause cannot be denied merely because of allegation of fraud having been made by one of the parties. It has been held that the person against whom the fraud is alleged has an option to have the matter decided by the Civil Court. Merely because the Respondents have made allegation of fabrication of record against the Petitioner, the dispute cannot be taken out of arbitration. It has been held by the Hon’ble Bombay High Court in the case of Rajendra J. Joshi vs. Dilip J. Joshi reported in 2000 (3) Mah. L. J. page 205 that the Arbitrator had no authority to direct retirement of the Petitioner from the firm. The arbitrator had rejected the prayer of the party concerned for dissolution of the firm. In this situation, the Hon’ble Bombay High Court was pleased to set aside the impugned Award.

The Hon’ble Bombay High Court in the case of Prem Laxmi & Co. vs. Trafalgar House Construction India Ltd. reported in 1998 (3) M.L.J. page 695 held that where the terms of the agreement were mentioned in a letter which inter alia provided for incorporation of all conditions of contract "as per the Tata Electric Companies tender document" on back to back basis, it was obvious that the incorporation of a document containing an arbitration clause in the contract constituted an arbitration agreement between the parties.