Sanjay Karol, J.
1. The order dated 5.9.2007 passed by Civil Judge (Sr. Division), Dharmshala, has been assailed herein. The appellant is referred to as plaintiff and contesting respondent No. 1 is referred to as defendant No. 1.
2. Plaintiff filed a suit for recovery of Rs. 4,80,000/- against 11 defendants. Defendant No. 1 is Shree Gopal Impex (P) Limited with whom the plaintiff entered into an agreement dated 18.9.2002. Defendants No. 2 to 11 are the agents acting for and on behalf of defendant No. 1. In terms of the agreement certain supplies were effected by the plaintiff to/through the said defendants No. 2 to 11. Since the defendants failed to pay the amount for the supplies effected, plaintiff filed suit for recovery before the Civil Judge (Sr. Division), Kangra at Dharamsala (HP).
3. In the said suit, defendant No. 1 entered appearance on 13.6.2006. On 8.9.2006 the Court directed the appearing defendants to file their written statement before 4.11.2006, on which date defendant No. 1 alone filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). Defendant No. 1 prayed that dispute which has arisen between the parties be referred to the arbitration in terms of Clause 10 of the agreement entered into between the plaintiff and defendant No. 1.
4. The plaintiff filed a reply inter alia stating that since defendant No. 1 had already sought time to file the written statement, the application was not maintainable. Further the disputes could not have been referred to arbitration, particularly when the other defendants were not party to the agreement.
5. The Court decided the said application in favour of defendant No. 1 and returned the plaint. The operative part of the order is reproduced as under:
From the aforesaid facts, I conclude that dispute is covered under Arbitration Clause of the agreement and this Court has no jurisdiction to try and entertain the suit. The perusal of the Arbitration and Conciliation Act, 1996 reflects that Judicial Authority is not authorized to appoint Arbitrators. From the perusal of the aforesaid Act, it appears that Arbitrators in case not appointed by the parties are to be appointed by the Hon'ble Chief Justice. Therefore, this Court is not empowered or authorized to appoint Arbitrator as per Arbitration Act. The parties are hereby referred to Arbitration in view of the Arbitration Clause. I have already held that there is Arbitration Clause and the Civil Court has no jurisdiction to try this suit. Hence, this plaint be returned to the plaintiff with the remarks that dispute is to be settled by the Arbitrators to be nominated by the parties. The plaint be returned to the plaintiff after its necessary endorsement as per rule of procedure as envisaged under the Code of Civil Procedure. The record of the Court proceedings be consigned to the record room after its due completion.
6. The plaintiff has assailed the said order in the present appeal. Original defendants 2 to 5, 7,8 and 9 arrayed as respondents No. 3 to 10 herein, have chosen not to contest the present appeal.
7. Relationship between the plaintiff and defendant No. 1 is governed in terms of the agreement in question is not in dispute. Clause 10 of the Agreement contains an arbitration clause is also not in dispute. However, the question is as to whether in the absence of any binding agreement containing an arbitration clause inter se between the other parties to the suit, the trial Court could have allowed the application filed by defendant No. 1 under Section 8 of the Act and returned the plaint. Does the 'judicial authority', in the present case the Civil Court, not have the jurisdiction to refer the disputes to the arbitration by appointing an Arbitrator?
8. The plaintiff's suit is for recovery of the amount for the value of the goods supplied by/through the plaintiff for and on behalf of defendant No. 1 to defendants No. 2 to 11, who admittedly were appointed sub-agents of defendant No. 1. Individual supplies have been effected to the defendants and defendants No. 2 to 11 are not party to the agreement dated 18.9.2002 entered into between the plaintiff and defendant No. 1.
9. Relevant provisions of Section 8 and Section 11 of the Act are reproduced as under:
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.
(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitrat award made.
11. Appointment of arbitrators.
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in Sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in Sub-section (3) applies and-
(a) A party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) The two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties,-
(a) A party fails to act as required under that procedure; or
(b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justice or the person or institution designated by him is final.
(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to-
(a) Any qualifications required of the arbitrator by the agreement of the parties; and
(b) Other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to him.
(11) Where more than one request has been made under subsection (4) or Sub-section (5) or Sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant subsection shall alone be competent to decide on the request.
(12) (a) Where the matters referred to in Sub-sections (4), (5), (6), (7),(8) and (10) arise in an international commercial arbitration, the reference to Chief Justice' in those subsections shall be construed as a reference to the Chief Justice of India. (b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to Chief Justice in those Sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.
10. The Apex Court in P. Anand Gajapathi Raju and Ors. . v. P.V. G. Raju (dead) and Ors. : [2000]2SCR684 , has held that Section 8 is peremptory and it 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.
11. The Apex Court in Kalpana Kothari v. Sudha Yadav : AIR2002SC404 , has further held the provisions of Section 8 to be all comprehensive and mandatory in character. The Court while contrasting the provisions of Sections 8, 20 and 34 of the Arbitration Act, 1940 and Section 8 of the 1996 Act held that even the new Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the party to arbitration if a party to such an agreement applies not later than when submitting his first statement. The new Act does not envisage the specific obtaining of any stay as was so provided under the old Act for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or making of an application under Section 8(1) of the Act, the arbitration proceedings are enabled, under Section 8(3) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency.
12. The said view was reiterated by the Apex Court in Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens and Ors. : (2007)3SCC686 .
13. In SBP & Co. v. Patel Engineering Ltd. and Anr. 2005 (8) SCC 618, the Constitution Bench, while considering the scope of Sections 8 & 11 of the Act held as under:
The expression used in Section 8 is 'shall' and the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference under Section 8. Section 11 only covers another situation: where one of the parties has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under Section 11 of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority under Section 8 can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned. If it is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. The interpretation of Section 11 that has been adopted would not give room for such an anomaly.
14. Hence, the Court below erred in law in arriving at its conclusion. I am also supported by a decision of this Court in Municipal Council, Mandi v. Kuldip Kumar and Anr. Latest HLJ 2007 (HP) 1281. The authority of the Hon'ble Chief Justice to appoint the arbitrator is not in issue at all. Right to move an application under Section 8 of the Act is independent and not linked to the same. The trial Court has totally misdirected itself by mixing the power of the Hon'ble Chief Justice to appoint an arbitrator and its own jurisdiction to pass appropriate orders in an application filed under Section 8 of the Act. The Court below could not have returned the plaint back to the plaintiff. Plaint can be returned or rejected only in accordance with the provisions of Order 7 Rule 10 or 11, CPC. Admittedly the controversy in issue does not fall within the ambit and scope of the said provisions.
15. As to what is the first statement on the substance of the dispute, it was considered by the Apex Court in Rashtriya Ispat Nigam Ltd. and Anr. v. Verma Transport Co., : AIR2006SC2800 , and it was held that the expression 'first statement on the substance of the dispute' contained in Section 8(1) of the 1996 Act 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 its 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 its right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the 1996 Act, may not be held wholly unmaintainable. In view of the changes brought about by the 1996 Act, what is necessary is disclosure of the entire substance in the main proceeding itself and not taking part in the supplemental proceeding.
16. Submission that the application was not maintainable as time to file the written statement had been sought is thus untenable.
17. The Court was dealing with the case where the defendant had opposed the application for interim injunction and in these circumstances, it was held that the opposing prayer for injunction would not necessarily mean that substance of dispute stood disclosed in the main proceedings. Supplemental and incidental proceedings were held not part of the main proceedings.
18. The Apex Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H.Pandya and Anr. : [2003]3SCR558 , has held as under:
15. The relevant language used in Section 8 is - 'in a matter which is the subject matter of an arbitration agreement'. Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of `a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - 'as to a matter' which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section. The words `a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.
19. It has further been held that it would be difficult to give an interpretation to Section 8 under which bifurcation of cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. It has further been held that if the parties are not parties to the agreement containing the arbitration clause, in that event it would not be possible to bifurcate the suit in two parts one to be decided by the Arbitral Tribunal and other to be decided by the Civil Court. It was held that whole purpose of speedy disposal of dispute and decreasing the costs of litigation would be frustrated if such a procedure was allowed to be adopted.
20. In India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. : AIR2007SC1376 the Apex Court further held that there is no provision in the 1996 Act where the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter can be referred to arbitration. There is also no provision in the Act for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.
21. The issue involved in the present case is no longer res integra as the same stand decided by the decision of the Apex Court in the aforesaid judgment.
22. The plaintiff had effected individual supplies through each of defendants No. 2 to 11. They were not party to the agreement. The dispute cannot be said to be 'in a matter which is the subject matter of an arbitration agreement'. Hence the trial Court erred in its conclusion that the subject matter of the suit is covered under the arbitration clause.
23. The cause of action may or may not be same qua each of the defendants. The suit may or may not be bad for misjoinder of parties or barred by limitation. These are questions which require to be looked into by the trial Court.
24. With the aforesaid reasons, the order passed by the trial Court is set aside. The suit be restored to its original number. The matter is remanded back to the Court below for consideration afresh in accordance with law. It is clarified that it shall be open for the defendants to take all objections including the maintainability of the suit, in accordance with law uninfluenced by the observations made in this judgment. The application under Section 8 of the Arbitration and Conciliation Act, 1996 stands dismissed.
25. Appearing parties, through their learned Counsel are directed to appear before the Court below on 4.5.2009. The Court below shall also issue notices to other defendants (except those deleted by the order of the Court below) as they are proceeded ex parte in this Court. Record be sent back immediately.
26. The appeal is allowed, accordingly.