If there is an arbitration agreement in a contract, whenever dispute arises between the parties, the aggrieved party is required to initiate arbitration proceedings instead of approaching the court of law by way of a suit. In case, the aggrieved party without resorting to arbitration, if it goes for a suit, the other party prior to the filing of the written statement should file an application under section 8 of the act, seeking a direction from the court referring the matter to arbitration. Even though the above said provision is a mandatory provision, if the opposite party fails to seek reference under Section.8 prior to filing of the written statement, the court may later refuse to refer the matter to arbitration considering the participation of the opposite party in the suit as a waiver to the arbitration clause. Hence, timely objection to the suit is necessary to avail the benefit of section 8 of the act. By way of an amendment1 to Section 8 of “the Act2 ” the words “unless it finds that prima facie no valid arbitration agreement exists” were incorporated. The above said amendment entitles the court to adjudicate the validity of the arbitration agreement while adjudicating an application under S.8 of the Act. In a way it is a good amendment empowering courts with the power to examine the validity of the arbitration agreement prior to referring the matter to arbitration.

The above said section 8 was dealt with by various courts in India, on various occasions. For example, in Booz Allen3 case, the Supreme Court of India examined the issue “whether the application under section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit?”. Though section 8 does not prescribe any time limit for filing an application under section 8 of the act, it 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 around and say that the parties should be referred to arbitration in view of the existence of an arbitration agreement. It was further held that 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. But at the same time participation in the proceedings for interim relief/ appeals prior to filing of the first statement on the substance of the dispute will not amount to waiver even though substantial time was passed in the proceeding relating to interim relief.

Courts also have held that there is no separate application under section 8 is to be filed and even an objection incorporated in the written statement itself is sufficient for the court to refer the matter to arbitration. As held in Sharad P. Jagtiani4 and Parasramka Holding Pvt. Ltd.5 By the Delhi High Court the requirement of a separate application is not mandatory and as long as there is a clear objection to proceed with the suit is expressly stated in the first statement of substance in dispute. The Supreme Court of India in the case of Rashtriya Ispat Nigam6 case held that the expression “first statement on the substance of the dispute” means either filing of the written statement. It further held that it is important that the conduct of the party that does not give an inference of waiver of the arbitration clause or submitting to the jurisdiction of the court. The Delhi High Court also held in Krishan Radhu7 case that the words “first statement on the substance of the dispute” means the written statement in a suit. It is also important to note that the words “or taking any other steps in the proceedings” which was there in the 1940 act was removed in the 1996 act and hence participation of a party in the incidental proceedings to a main suit will not amount to waiver of the arbitration clause. But in SSIPL8 case, it was held that unduly delaying the statement of defense by not filing the same till the date by which the statement of defense could have been filed also can be treated as waiver

The next important issue to be considered by the court before referring the proceeding to arbitration is the existence of a valid arbitration clause and the following are some of the interesting cases where courts refused reference. In the case of Wellington Associates9 , the arbitration clause stated as “any dispute or differences arising in connection with the contract may be referred to arbitration” and hence the court found that in the absence of a mandatory arbitration clause, the matter cannot be referred to arbitration. Similarly, in the case of Jagdish Chander10, the arbitration agreement expressed merely a possibility of referring the matter to arbitration and hence the court refused to refer the matter to arbitration. In Union of India11 case, the arbitration clause provided arbitration only at the instance of Union of India, hence the court refused to refer the matter to arbitration holding that it not a valid arbitration clause. Similar views were taken in Bhartia12 case, A.V.N tube13 case, Dharma Prathishthanam14 case, Emmsons International15 case and Lucent Technologies16 case. Hence, the law is well settled that the objection to the continuance of the court proceedings should be filed prior to or at the time of filing of the written statement if not it can be treated as waiver of the arbitration clause. Moreover, the court while exercising jurisdiction under section 8 also should determine the validity of the arbitration agreement.