Holding

Section 8 is peremptory; an arbitration agreement formed during pendency suffices, and the court must refer the parties to arbitration, with challenges to the award to be filed in the court specified in Section 2(e) of the Act.

Summary

During the pendency of an appeal, the parties executed an arbitration agreement and sought to have the Supreme Court refer the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The Court examined whether the phrase "which is the subject of an arbitration agreement" required the agreement to exist before the suit was filed and whether the court was obligated to refer the parties when the agreement was formed later. It held that the phrase does not demand pre‑existence; an arbitration agreement can be created while the action is pending. The language of Section 8 is peremptory, making the court bound to refer the parties to arbitration in accordance with their agreement. The Court also clarified that challenges to the arbitral award must be made in the court defined in Section 2(e) of the Act, not the court where the Section 8 application is filed. Consequently, the application was allowed and the parties were referred to arbitration, and the appeal was disposed of.

Issues considered

Whether Section 8 of the Arbitration and Conciliation Act, 1996 applies when an arbitration agreement is entered into during the pendency of a suit or appeal.
Whether the expression "which is the subject of an arbitration agreement" requires the agreement to pre‑exist the filing of the suit.
Whether the court is obligated to refer the parties to arbitration under Section 8 when the agreement satisfies Section 7.
Which court has jurisdiction to entertain a challenge to the arbitral award under the 1996 Act.

Legislation cited

Arbitration Act, 1940s. 21, s. 22, s. 23, s. 24, s. 25
Arbitration and Conciliation Act, 1996s. 2(e), s. 42, s. 5, s. 7, s. 8

Subjects

ArbitrationSection 8Arbitration agreementJudicial interventionSupreme CourtReference to arbitrationChallenge to arbitral award1996 ActPendency of appeal

Judgment

A P. ANAND GAJAPATHI RAJU AND ORS.
v.
P.V.G. RAJU (DIED) AND ORS.

MARCH 28, 2000

B [D.P. WADHWA AND RUMA PAL, JJ.]

Arbitration and Conciliation Act, 1996 : Sections 2(e}, 5, 7, 8 and 42.

Section 8-Scope and interpretation of-Power of Supreme Court to
refer matter to an arbitrator during pendency ofappeal-Necessary conditions
c forapplic~bility ofsection 8-Exprr!ssion 'which is the subject of an arbitration
agreement'-Held does not necessarily require that the agreement must be
already in existence-Expression also connotes an arbitration agreement being
brought into existence while action is pending before cow1-Woni 'is' nonnally
refers to present-It often has a future meaning-But it is not synonymous with
D "shall have been"-Held language of section 8 is peremptory-In the instant
case arbitratio_n agreement covers all disputes between the parties-It satisfies
the requirnment of section 7-Held it is there/om. obligatory for the court to
rf!ferthe parties to arbitration in tenns of their agreement-However; the Court
to which the party shall have recourse to challenge the Award would be the
Court as defined in clause (e) of Section 2 of the new Act and not the Court to
E
which an application under Section 8 of the new Act is made.

Section 5-0bject of the Act-Encouraging resolution of disputes expe-
ditiously and less expensively and wizen there is an arbitration agreement, the
Coun's inten•ention should be minimal.
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5251 of 1993.

From the Judgment and· Order dated 24.7.92 of the Andhra Pradesh
High Cowt in A. No. 283 of 1980.

K. Madhava Reddy, N.S. Hedge, C. Sitaramiah, Nikhil Nayar, Ms. T.
G Anamika, Guntur Prabhakar, A. Subba Rao, A.T. Rao, B. Parthasarathy,
. A.D.N. Rao, G. Nageswara Reddy, Mrs. B. Reddy, Ms. Promila for the
appearing patties.

The following Order of the Comt was delivered :

H No orders on I.As 3 and 4.
684
P.A.G. RAJU v. P.V.G. RAJU 685

- During the pendency of this appeal all the parties have entered into an
arbitration agreement. They have agreed to refer their disputes in this appeal
and others to Justice S. Ranganathan, a retired Judge of this Court as sole
Arbitrator. The arbitration agreement is in the form of an application and has
A

been signed by all the parties and meets the requirements of Section 7 of the
Arbitration and Conciliation Act. 1996 (new Act).
B
The question that arises for consideration is whether this Court in appeal
can refer the parties to arbitration under the new Act. The Arbitration Act,
1940 expressly provided for the parties to a suit to apply for an order of
reference of the subject matter of the suit (see Sections 21 to 25, Chapter IV
relating to arbitration in suits). There is also autho1ity for the proposition under c
the 1940 Act that with the reference of the disputes, the suit itself may stand
disposed of.

Part I of the new Act deals with domestic arbitrations. Section 5, which
is contained in Pait I of the new Act, defines the extent of judicial intervention
in arbitration proceedings. It says that notwithstanding anything contained in D
any other law for the time being in force, in matters governed by Part I, no
judicial authority shall intervene except where so provided in that Pait. Section
5 brings out clearly the object of the new Act, namely, that of encouraging
resolution of disputes expeditiously and less expensively and when there is an
arbitration agreement, the Court's intervention should be minimal. Keeping
E
the legislative intention in mind, Section 8 of the new Act may be construed.
It reads:

"Power to-refer parties to arbitration where there is an arbitration
agreement.
F
8(1 ). A judicial authority before which an action is brought in a matter
which is the subject of an arbitration agreement. shall if a party so
applies not later than when submitting his first statement on the
substanc~ of the dispute, refer the parties to arbitration.

(1) The application referred to in sub-section (1) shall not be G
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof.

(2) Notwithstanding that an application has been made under sub-
section (1) and that the issue is pending before the judicial
authority, and arbitration may be commenced or continued and H
686 SUPREME COURT REPORTS (2000] 2 S.C.R.
A an arbitral award made."

The conditions which are required to be satisfied under sub-sections (1)
and (2) of Section 8 before the Comt can exercise its powers are : (1) there
is an arbitration agreement; (2) a party to the agreement brings an action in
the Court agains_t the other party; (3) subject matter of the action is the same
B as the subject matter of the arbitration agreement; (4) the other party moves
the Court' for referring the parties to arbitration before it submits his first
......
statement on the substance of the dispute. This last provision creates a right
in the person bringing the action to have the dispute adjudicated by Court,
once the other party has submitted his first statement of defence. But if the
c party, who wants the matter to be referred to arbitration applies to the Court
after submission of his statement and the party who has brought the action
does not object, as is the case before us, there is no bar on the Court referring
the parties to arbitration.

In our view, the phrase "which is the subject of an arbitration agree-
D · ment" does not, in the context, necessarily require that the agreement must be
already in existence before the action is brought in the Court. The phrase also
connotes an arbitration agreement being brought into existence while the
action is pending. Black's Law Dictionary has defined the word 'is' as
follows:
E 'This word, although normally refening to the present, often has a
future meaning, but is not synonymous with "shall have been". It may
have, however, a past signification, as in the sense of "has been".

A further question arises whether the Court is in these circumstances
obliged to refer the parties to arbitration and if so with what effect.
F
In the matter before us, the arbitration agreement covers all the
disputes between the parties in the proceedings before us and even more than
that. As already noted, the arbitration agreement satisfies the requirements
of Section 7 of the new Act. The language of Section 8 is peremptory. It
G is, therefore, obligatory for the Court to refer the parties to arbitration in
terms of their arbitration agreement. Nothing remains to be decided in the
original action or the appeal arising therefrom. There is no question of stay
of the proceedings till the arbitration proceedings conclude and the Award
becomes final in terms of the provisions of the new Act. All the rights,
H obligations and remedies of the parties would now be governed by the new
P.A.G. RAJU v. P.V.G. RAJU 687
Act including the right to challenge the Award. The Court to which the party A
shall have recourse to challenge the Award would be the Court as defined
in clause (e) of Section 2 of the new Act and not the Court to which an
application under Section 8 of the new Act is made. An application before
a Court under Section 8 merely brings to the Court's notice that the subject
matter of the action before it is the subject matter of an arbitration agreement. B

... This would not be such an application as contemplated under Section 42 of
the Act as the Court trying the action may or may not have had jurisdiction
to try the suit to start with or be the competent Court within the meaning
of Section 2 (e) of the new Act.

We, therefore, allow the application and would refer the parties to C
arbitration. No further orders are required in this appeal and it stands
disposed of accordingly.

T.NA. Appeal disposed of.