From a combined interpretation of the provisions of the Arbitration and Conciliation Act, of 1996, it can be seen that the intention of the Legislature was to restrain judicial interferences. The judicial proceedings have a reputation for being costly, delaying, and long. The Arbitration act was created to minimize the interference and primary role of the courts in the disposal of disputes. Furthermore, section 19 of the Act excuses the arbitral proceedings from the boundaries and rules of the Code as well as the rules presented in the Indian Evidence Act, 1872. However, the Act in itself rules for remedy by turning to civil courts, in Sections 36 and 37.
On Monday, 23rd July 2018, the Supreme Court of India answered the extent of applicability of the provisions of the Code of Civil Procedures, 1908 in Arbitration proceedings. Supreme Court issued a notice in a petition posing the question, “Can an Arbitration application be rejected on the ground that a party has sought leave to defend in a Summary Commercial Suit?” The Bench of Justices Kurian Joseph and Sanjay Kishan Kaul on Monday noted that no Supreme Court judgement has yet been passed on this question of law. In the case of ITI Ltd. vs. Siemens Public Communications Network Ltd., it was held that that the applicability of Civil Procedure Code (CPC) is not barred in an arbitration appeal proceedings under Section 37 of the Arbitration and Conciliation Act, 1996. However, division bench of the Supreme Court has raised doubts about the validity of this judgment and the matter has now been referred to a larger bench for modification.
The petitioner was represented by Advocate Dhruv Mehta, assisted by Advocates Udayaditya Banerjee and Durgesh Kulkarni while the respondents were represented by Dr. Abhishek Manu Singhvi. The chief issue involved in this case is whether an application seeking leave to defend under Order 37 Rule 3 of the Code of Civil Procedure (CPC) totals to “first statement on substance of the dispute” in terms of Section 8 of the Arbitration and Conciliation Act, 1996. In this particular case, the petitioner respondent companies had been into business with each other and had a Logistics Agreement and a Product Purchase Agreement containing Arbitration clauses. The petition also states that at the stage of filing an application seeking leave to defend, questions concerning maintainability of the suit are raised without going into the merits of the case. Filing this application cannot mean that the petitioner has accepted the jurisdiction of the court and given up the right to invoke Arbitration. This question of law has been debated over in various courts of states, including Bombay and Madras.
The Code will be valid to an arbitration proceeding to the extent the Act allows (section 36 and section 37 of the Act). Moreover, the original jurisdiction of the Civil Courts will not be restrained unless provided by the statute. Although an Arbitration proceeding does not have to strictly followed in accordance with the provisions of Civil Procedure Code and Evidence Act, yet it should be carried out with the basic principles of fair trial and evidence presentation and appreciation which in turn are derived from the fundamental principle of natural justice. These principles are also the fundamental pillars of the Acts and Codes which should not be ignored in an Arbitration dispute as well. The further judgement and hearings of this case will provide clarity but till then the existing laws and judgments would be binding.