Limitation period under Section 8(1), ACA 1996 – A Conundrum of Judicial Precedents and its demystification by the Delhi HC

By Ananya Pratap Singh, MCIArb, MSIArb*

[Editorial Note: In this brilliant article by Mr. Ananya Pratap Singh, he analyses the implication of the phrase ‘not later than the date of’ submission of the first written statement on the substance of the dispute in Section 8(1) of the Arbitration and Conciliation Act, 1996. This article has three parts to it. In the first part, Ananya analyses the evolution of Section 8 and the implications of changes vide the 2015 Amendment. In the second part, he answers what further may constitute an application under Section 8. Finally, in the third part, Ananya comments on the decision in SSIPL Lifestyle v. Vama Apparels (2020) by Justice Pratibha M. Singh and how it resolves the conundrum that had ensued previously.]

PART I

Section 8 of the Arbitration & Conciliation Act, 1996 (‘1996 Act’) mandates a judicial authority, before which an action is brought in a matter which is the subject matter of Arbitration Agreement, to refer the parties to arbitration if a party to the agreement applies ‘not later than the date of submitting his first statement on the substance of the dispute’.[1] Hence, the Court before which an action is brought may refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.[2] The above provision contains a positive mandate that obligates the judicial authority to refer the parties to arbitration in terms of the arbitration agreement.[3] However, there is a divergence of opinion on whether the time limit for filing the written statement would apply for filing of Section 8 application.

Evolution of Section 8

In this respect, the legislative change in the 1996 Act may be noticed. While the erstwhile Section 34 of the Arbitration Act, 1940 used the terminology ‘at any time before filing a written statement or taking any other steps in the proceedings’, the words ‘or taking any other steps in the proceedings’ in the 1996 Act have been done away with.

In the UNCITRAL Model Law (‘Model Law’), the language of Article 8 reads as under:

“Article 8.
Arbitration agreement and substantive claim before court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.”

The Model Law was followed in Section 8 of the 1996 Act. Section 8, as it stood in 1996 Act and as amended by the Arbitration & Conciliation (Amendment) Act, 2015 (‘2015 Amendment Act’) with retrospective effect from 23 October 2015 are set out herein below:

Section 8 under the 1996 Act is as follows:

“8. Power to refer parties to arbitration where there is an arbitration agreement.
(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 substance of the dispute, refer the parties to arbitration.”

Section 8 under the substituted 2015 Amendment Act w.e.f. 23 October 2015 is as follows:

19. Though Section 8 does not prescribe any time limit for filing an application under that section, and only states that the application under Section 8 of the Act should be filed before submission of the first statement on the substance of the dispute, the scheme of the Act and the provisions of the section clearly indicate that the application thereunder should be made at the earliest. Obviously, a party who willingly participates in the proceedings in the suit and subjects himself to the jurisdiction of the court cannot subsequently turn round and say that the parties should be referred to arbitration in view of the existence of an arbitration agreement. Whether a party has waived his right to seek arbitration and subjected himself to the jurisdiction of the court, depends upon the conduct of such party in the suit.”

Thus, it appears that the differences in the texts are in the phrases ‘not later than when submitting’ and ‘not later than the date of submitting’.[4] The only test which the legislature now requires the applicant to satisfy, to make an application or take a plea under Section 8, is that it should not be later than the date of submitting his written statement.[5] The question then arises as to whether the word ‘date’ as inserted by the 2015 Amendment Act makes applicable any particular date as sacrosanct to calculate the limitation period to file an application under Section 8.

The difference between the phrases ‘not later than when submitting’ and ‘not later than the date of submitting’ has been called to question recently before the Delhi High Court in SSIPL Lifestyle Private Limited and Ors. vs. Vama Apparels (India) Private Limited and Ors[6] (‘SSIPL’). The ratio of SSIPL puts the controversy to rest and is discussed in the conclusion of this article.

First Statement on the Substance’

The question as to what constitutes the first statement on the substance of the dispute came before the Supreme Court in Rashtriya Ispat Nigam Limited and Anr. v. Verma Transport Company[7]. In that case, the Court inter alia held that the expression ‘first statement on the substance of the dispute’ contained in Section 8(1) must be contra-distinguished with the expression ‘written statement’. It implies submission of the party to the jurisdiction of the judicial authority.

What is, therefore, needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. Thus, what is material is whether the petitioner has filed his first statement on the substance of the dispute or not. If not, his application under Section 8 may not be held wholly unmaintainable.[8]

Thus, although in Rashtriya Ispat Nigam, it was held that the expression must be contra-distinguished with the expression ‘written statement’, it further goes on to hold that what is needed is a finding of the judicial authority that the party has waived his right to invoke the arbitration clause.[9]

In Greaves Cotton Ltd. v. United Machinery and Appliances[10], the Supreme Court went a step ahead while taking note of the legislative change brought by the 2015 Amendment Act and held that an application for seeking extension of time for filing written statement would not constitute the ‘first statement on the substance of the issue’ under Section 8 as it did not reply to the allegations in the plaint. Further reference in this regard may be made to Vijay Anand & Associates v. Ashraf & Co. Pvt. Ltd.[11], Everest Electric Works v. Himachal Futuristics Communications Ltd.[12], Varun Seacon Ltd. v. Bharat Bijlee Ltd.[13] and Sohani Granites Pvt. Ltd. v. Binny Ltd.[14]

Similarly, in Krishan Radhu v. Emaar MGF Construction Pvt. Ltd.[15] the Delhi High Court inter alia held that in the context of a civil suit, the words ‘first statement on the substance of the dispute’ used in Section 8(1) would obviously mean the written statement. It was further held that under the 2015 Amendment Act, the defendant is now required to invoke the arbitration clause and apply to the court for a reference thereunder by moving an application but not required to file his written statement or any answer to set out his statement on the substance of the dispute. Rather, the submission of the written statement or reply indicating his (first) statement on the substance of the dispute may be construed as waiver of the right to seek reference to arbitration, or even as submission to or acquiescence of the jurisdiction of the court where the action has been brought by the claimant (the plaintiff).

Not later than the date of submitting

As noticed above, the amendment brought by the 2015 Amendment Act in Section 8(1), however, sets out a limit to the period within which such application invoking the arbitration agreement must be presented. It is this limitation period which is indicated by the words ‘not later than the date of submitting’. Thus, as per the dictum of Krishan Radhu, in view of the amended language in Section 8, the limitation for filing of the written statement under Civil Procedure Code, 1908 (‘CPC’) for non-commercial suits and under the Commercial Courts Act, 2015 (‘Commercial Courts Act’) for commercial suits would be applicable for filing of an application under Section 8. In view thereof, in Krishan Radhu, the Court concluded that the maximum period would be 90 days for ordinary civil suits and 120 days for commercial suits.

Similarly, in Anil Mahindra v. Surender Kumar Makkar[16] the Delhi High Court has reasoned that the petitioners therein having appeared and sought time to file written statement and having thereafter deliberately let the period of 90 days expire, could not have thereafter woken up and filed the application under Section 8.

PART II

Does mentioning about Section 8 in the Written Statement suffice the requirements of Section 8 application?

At this stage a reference to the judgment in Sharad P. Jagtiani v. M/s. Edelweiss Securities Ltd.[17] (‘Sharad P. Jagtiani’) can be made. In the said judgment, a learned Single Judge of the Delhi High Court inter alia held that even if an objection is raised on the basis of the arbitration clause in the Written Statement which has been filed that the parties be referred to arbitration, the same would suffice and, there is no requirement for filing a separate application. Thus, a preliminary objection in the written statement qua Section 8, even in the absence of a separate application under Section 8, was held to be sufficient invocation of Section 8.[18]

Subsequently, in Parasramka Holdings Pvt. Ltd. v. Ambience Pvt. Ltd.[19] following Sharad P. Jagtiani,the Delhi High Court has held that once a plea is taken in the written statement, even an application under Section 8 is not required. In this case, the defendant-applicant was held entitled to file its written statement within 120 days after the rejection of its application under Order VII Rule 11 CPC.

In Parasramka¸ the Ld. Single Judge followed the judgment of the dictum of the Division Bench in Sharad P. Jagtiani and held that since the Defendant had taken the objection in the written statement itself that there was an arbitration clause and the said written statement was filed within 120 days, the parties ought to be referred to arbitration.[20]

However later, in Hughes Communications India Ltd. and Ors. v. Union of India[21], another Ld. Single Judge was considering a case in which a Section 8 application was moved after the expiry of 120 days. In fact, Section 8 application was moved on the 130th day from the date of first appearance before the Court. The Court was of the opinion that the only limitation that can be read for filing of the Section 8 application was as contained in the provision itself i.e. not later than the date of submitting first statement on the substance of dispute. The Court then held that the fact that the time for filing of the written statement has expired, would not bar the filing of Section 8 application and referred the parties to arbitration. In that case, the Ld. Single Judge appears to have cited with approval the judgment of Ld. Division Bench of the Madras High Court in M/s Sri Ragavendra Advertising & Anr v. Prasar Bharti (Broadcasting Corporation of India)[22]. However, it is relevant to point out that M/s. Sri Ragavendra Advertising (supra) was under the unamended Section 8 as provided under the 1996 Act.

PART III

Not later than when submittingvsNot later than the date of submitting

Highlighting the expressions used in 1996 Act and 2015 Amendment Act in Section 8 in respect of applicable limitation period, the Ld. Single Judge of the Delhi High Court in SSIPL observed that under the 1996 Act, the objection as to the existence of the arbitration clause could be taken anytime (i) prior to the filing of the written statement (ii) in the written statement (iii) along with the written statement. So long as the written statement was not filed, Section 8 application could be filed.

However, after the 2015 Amendment Act, the Legislature has now made a conscious change by using the language ‘not later than the date of’. The use of the word ‘date’ itself signifies precision. A perusal of the various amendments brought about in 2015 Amendment Act show that the intention was to tighten the time limit within which arbitration proceedings should commence and conclude.

It is in this context that the change of language in Section 8 from ‘when’ to the ‘date of’ is to be construed. In the opinion of the Court, the words ‘not later than the date of submitting’ means that the date of submitting the statement on the substance of the dispute i.e. the written statement in a civil suit, is the outer limit for filing of a Section 8. Hence, in effect, there is a limitation period which is prescribed.

Interestingly, in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.[23] where one of the questions framed by the Supreme Court was whether the application under Section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit, the Supreme Court in paragraph 19 held as under:-

19. Though Section 8 does not prescribe any time limit for filing an application under that section, and only states that the application under Section 8 of the Act should be filed before submission of the first statement on the substance of the dispute, the scheme of the Act and the provisions of the section clearly indicate that the application thereunder should be made at the earliest. Obviously, a party who willingly participates in the proceedings in the suit and subjects himself to the jurisdiction of the court cannot subsequently turn round and say that the parties should be referred to arbitration in view of the existence of an arbitration agreement. Whether a party has waived his right to seek arbitration and subjected himself to the jurisdiction of the court, depends upon the conduct of such party in the suit.”

Thus, as per the above findings of the Supreme Court in Booz Allen, though the Court found that there was no time limit fixed for filing an application under Section 8, there was an obligation to move such an application ‘at the earliest’. Under the 1996 Act, if parties were contesting supplemental proceedings or were in talks of settlement etc., a Section 8 application could be moved any time before the filing of the written statement. Thus, while under the 1996 Act, the emphasis was on filing of the first statement on the substance of the dispute, under the 2015 Amendment Act, the emphasis is on the date of submitting the first statement. Under the 1996 Act, the same was a period and that too an unascertained period, it is not so under the 2015 Amendment Act.

Conclusion

Viewed in the background of the amendments in the CPC including the recent amendments in CPC in the context of the Commercial Courts Act and the amendments brought under 2015 Amendment Act, the Delhi High Court in SSIPL concluded that the amendment is a conscious step towards prescribing a limitation period for filing the Section 8 application. The mention of the word ‘date’ in the 2015 Amendment Act means that it is a precise date and usually incapable of ambiguity. The same is a crystalized date and not a ‘period’ prior to the filing of the first statement on the substance of the dispute. The entire intention is that those parties who wish to proceed for arbitration ought to do so with alacrity and speed and not merely procrastinate.

Thus, in SSIPL, the Ld. Single Judge found itself in conformity with the law settled in Krishan Radhu, Anil Mahindra and Parasramka. The arbitration clause, can thus be waived by a party under dual circumstances – one by filing of a statement of defence or submitting to jurisdiction and secondly, by unduly delaying the filing of the application under Section 8 by not filing the same till the date by which the statement of defence could have been filed. Under both these situations, there can be no reference to arbitration.


* Ananya is a graduate of Symbiosis Law School, Noida. He completed his LL.M in International Business Laws from National University of Singapore and is currently pursuing his M.Phil from University of Colombo. He is an associate at CSL Chambers, New Delhi and manages a blog dedicated to contemporary research on Arbitration across multiple jurisdictions.

[1] Shri Chand Construction and Apartments Private Limited & Anr v. Tata Capital Housing Finance Ltd 2020 SCC OnLine Del 472.

[2] Bhai Manjit Singh (HUF) v. Bhai Manjit Singh and Ors. 2019 II AD(Delhi) 71.

[3] A. Ayyasamy v. A. Paramasivam and Ors. AIR 2016 SC 4675.

[4] SSIPL Lifestyle Private Limited and Ors. v. Vama Apparels (India) Private Limited and Ors. 2020 SCC OnLine Del 472.

[5] Supra 1.

[6] Supra 4.

[7] (2006) 7 SCC 275.

[8] M/s. Semb Corp Logistics (India) Pvt. Ltd. v. M/s. Ratilal Bhagwandas Construction Company 2015 SCC OnLine Bom 5109.

[9] Supra 1.

[10] (2017) 2 SCC 268.

[11] 2016 SCC OnLine Del 3743.

[12] (2004) 113 DLT 304.

[13] AIR 1998 Guj 99.

[14] [2003] 115 CompCas 630 (AP).

[15] 2017(1) AD (Delhi) 781.

[16] 2017 SCC OnLine Del 11532.

[17] 2014 SCC OnLine Del 4015.

[18] Supra 1.

[19] 2018 SCC OnLine Del 6573.

[20] Supra 4.

[21] 2018 SCC OnLine Del 7408.

[22] 2009 -5-L.W.439.

[23]  (2011) 5 SCC 532.


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