Time period for filing an application u/s 8, Arbitration and Conciliation Act, 1996

On February 19, 2020, the Delhi High Court in the matter of SSIPL Lifestyle Private Limited v. Vama Apparels (India) Private Limited adjudicated on the issue of time period for filing of an application under section 8(1) of the Arbitration and Conciliation Act, 1996 (“Act”). Facts The plaintiff filed two suits against the defendants on February 17, 2018 seeking recovery of amounts due to the plaintiff for supply of certain products to the defendants. Summons were issued in the suit on March 15, 2018 and, on May 16, 2018, time was given for filing of the written statement. However, on May 17, 2018, insolvency proceedings were commenced against the defendant no. 1 before the NCLT which were closed on October 8, 2018. Thereafter, the defendants moved two applications under section 8 of the Act and sought reference of the dispute to arbitration as per the arbitration clause in the agreement between the plaintiff and the defendants. The said applications remained under objection till February 11, 2019 and finally, notice was issued on February 22, 2019. The plaintiff contended that that no arbitrable dispute existed between the parties as the period of limitation for filing of the section 8 application had expired. Issues Whether there is a limitation period prescribed for filing of an application under section 8 of the Act; and Whether the limitation for filing of written statement as prescribed in the Code of Civil Procedure, 1908 (“CPC”) and the Commercial Courts Act, 2015 would be applicable for filing of an application under section 8 of the Act. Analysis The court compared the language of section 8(1) of the Act, prior to and post the Arbitration and Conciliation (Amendment Act), 2015, which is as follows Pre-Amendment 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. Post Amendment A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. Placing reliance on various judgments, it was observed that the words, ‘first statement on the substance of the dispute’ would mean the written statement filed by the defendant. It was further observed that under the unamended provision, the objection as to the existence of the arbitration clause could be taken (i) prior to filing of the written statement; (ii) in the written statement; or (iii) along with the written statement. So long as the written statement was not filed, an application under Section 8 of the Act could be filed.e., the written statement in a civil suit is the outer limit for filing of an application under section 8 of the Act. Accordingly, it was held that there is a limitation period prescribed for filing of an application under section 8 of the Act. The court also observed that the limitation period for filing of the written statement under CPC for non-commercial suits (90 days from the date of service of the summons) and under the Commercial Courts Act, 2015 for commercial suits (120 days of the date of service of the summons) would be applicable for filing of an application under section 8 of the Act. The arbitration clause can be waived under dual circumstances — one by filing a statement of defence and secondly by unduly delaying the filing of application under Section 8 of the Arbitration Act, by not filing the same till the date by which the statement of defence could have been filed. In the present case, the opportunity to file the written statement was closed on July 13, 2018. The court further observed that even if the period when the insolvency proceedings were underway are deducted from the total period for filing of the written statement, the applications was filed only on February 11, 2019, i.e. after the expiry of 120 days from October 8, 2018 (when the moratorium came to an end). According, the defendant’s application under section 8 of the Act was dismissed. Subsequently, in the case of Shri Chand Constructions and Apartments Private Limited v. Tata Capital Housing Finance Limited (decided on March 4, 2020) the Delhi High Court once again dealt with this issue of limitation. In this case, the plaintiff had brought an action against the defendant for recovery of damages. The defendant failed to file its written statement within the prescribed time period and, therefore, the court held that the right of the defendant to file written statement was closed. However, upon appeal, the Division Bench granted the defendant further time to file its written statement. Meanwhile, the defendant’s application under Section 8 of the Act came up before the court which was contested by the plaintiff on the ground that since the plaintiff had filed the abovementioned appeal, it had opted to proceed with the suit by filing a written statement and cannot now claim arbitration. The court, relying on its aforesaid decision in SSIPL Lifestyle Private Limited v. Vama Apparels (India) Private Limited , held that since the Division Bench had extended the time for filing the written statement, it has to be held that the time for filing application under section 8 of the Act also stands extended. However, in the instant case the application under section 8 of the Act was rejected on the ground that the dispute was not covered by the arbitration clause under the agreement. Links to the judgments are provided herein below a. SSIPL Lifestyle Private Limited vs Vama Apparels (India) and b. Shri Chand Constructions and Apartments Private Limited v. Tata Capital Housing Finance Limited This update has been contributed by Aastha (Partner) and Kartik Jigyasi (Associate).