Can You Approach the Court Despite an Arbitration Clause?
Introduction
One of the most common yet complex dilemmas faced in contractual disputes is this: "Despite having an arbitration clause, how can a party still go to court?" This situation often confuses both litigants and legal practitioners, especially when arbitration was agreed upon initially.
This article delves into this very practical issue through the lens of Section 8 of the Arbitration and Conciliation Act, 1996, exploring when and how it applies, the procedural safeguards involved, and how courts interpret it, especially after the 2015 Amendment.
Understanding the Objective of the Arbitration Act
The primary objective of the Arbitration and Conciliation Act is minimal judicial intervention. This is clearly laid out in Section 5, which reads:
“No judicial authority shall intervene except where so provided in this Part.”
This means that judicial authorities can only intervene in situations explicitly permitted under Part I of the Act — and Section 8 is one such provision.
When Can Section 8 Be Invoked?
Imagine two parties sign a contract with an arbitration clause, but one party later initiates a civil suit, bypassing arbitration. In such a case, the other party can invoke Section 8 and request the court to refer the matter to arbitration.
However, this application must be made before the submission of the first statement (typically the written statement). If delayed, the court will not entertain the application.
Global Context: UNCITRAL Model Law vs. Indian Law
Section 8 is based on Article 8 of the UNCITRAL Model Law, which mandates courts to refer parties to arbitration unless the agreement is null and void, inoperative, or incapable of being performed.
Interestingly, these specific words do not appear in India’s Section 8, giving Indian courts slightly broader discretion — a key reason for earlier judicial inconsistency.
2015 Amendment: Clearing the Confusion
Prior to 2015, court interpretations of Section 8 varied. Some judgments held that courts could examine whether a dispute was arbitrable. Others urged courts to refrain from delving into merits.
To resolve this, the 2015 Amendment introduced a vital line:
“The Court shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”
This change significantly narrowed the court’s role to a prima facie check — not a deep examination of merits.
Procedural Requirements under Section 8
To invoke Section 8, the applicant must attach either:
The original arbitration agreement, or
A duly certified copy.
If one party doesn’t possess the agreement, the court can be requested to direct the other party to produce it. This safeguards the process against false claims.
Further, Section 8(3) allows arbitration to begin or continue even if a Section 8 application is pending before the court.
Key Supreme Court Judgments on Section 8
Here are some landmark cases that have shaped the interpretation of Section 8:
1. Hindustan Petroleum Corp. Ltd. v. Pinkcity Midway Petroleums (2003)
Once a valid arbitration agreement exists, the court is mandated to refer the matter to arbitration under Section 8 — no discretion remains.
2. Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011)
Distinguished between arbitrable (rights in personam) and non-arbitrable (rights in rem) disputes.
Only disputes fit for private adjudication can go to arbitration.
3. A. Ayyasamy v. A. Paramasivam (2016)
Held that mere allegations of fraud do not bar arbitration, but serious and complex fraud cases requiring detailed evidence fall outside arbitral jurisdiction.
4. Vidya Drolia v. Durga Trading Corporation (2021)
Perhaps the most comprehensive ruling on arbitrability. The court provided a four-fold test and reiterated that:
Landlord-tenant disputes under the Transfer of Property Act are arbitrable.
Courts should only check prima facie validity of arbitration clauses and not delve into merits.
5. K.K. Modi v. K.N. Modi (1998)
Clarified that not all settlement clauses qualify as arbitration agreements. The intention to submit to binding private adjudication must be clear.
6. Swiss Timing Ltd. v. Commonwealth Games Organising Committee (2014)
Stressed the importance of a pro-arbitration approach and that courts must refer disputes to arbitration unless the agreement is blatantly illegal or against public policy.
Conclusion
Section 8 acts as a powerful safeguard for parties who have contractually agreed to arbitration but find themselves dragged into court. To effectively utilize this provision:
Invoke it before submitting a written statement,
Ensure the arbitration agreement (or its certified copy) is attached,
Understand that the court's inquiry is limited to a prima facie check on the agreement’s validity.
As the Supreme Court continues to affirm a pro-arbitration stance, Section 8 becomes increasingly significant in upholding contractual commitments and reducing judicial interference.
References:-
- Arbitration and Conciliation Act, 1996 (India) Section 5 – Extent of judicial intervention
- Section 8 – Power to refer parties to arbitration where there is an arbitration agreement
- Section 8(3) – Arbitration may commence or continue even while a Section 8 application is pending
- UNCITRAL Model Law on International Commercial Arbitration- Article 8 – Arbitration agreement and substantive claim before court
- Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503
- Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532
- A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386
- Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1
- K.K. Modi v. K.N. Modi, (1998) 3 SCC 573
- Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677
- Arbitration and Conciliation (Amendment) Act, 2015