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REFERRING MATTER TO ARBITRATION INVOLVING MULTIPLE PARTIES AND CLAIMS

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Background: In this case, a suit was filed involving multiple parties and claims, some of which fell within the scope of an arbitration agreement while others did not. Some of the parties were signatories to the arbitration agreement, while others were not. The defendant(s), relying on Section 8 of the Arbitration and Conciliation Act, 1996, sought to refer the dispute to arbitration, arguing that part of the subject matter of the suit was covered by an arbitration agreement.

Legal Issue: The central issue before the court was whether Section 8 of the Arbitration and Conciliation Act, 1996 could be invoked when a suit is commenced on a subject matter that falls partly within the arbitration agreement and partly outside it, and where some of the parties to the suit are not parties to the arbitration agreement.

Court’s Conclusion: The court concluded that Section 8 of the Act would not be attracted in such a situation. The reasoning behind this decision was based on the interpretation of the word “matter” in Section 8, which implies that the entire subject matter of the suit should be subject to the arbitration agreement.

The court held that there is no provision in the Arbitration and Conciliation Act to bifurcate a suit into two parts — one part to be referred to arbitration and the other part to be adjudicated by a civil court. Therefore, when the dispute involves claims or parties that are not covered by the arbitration agreement, the entire suit cannot be referred to arbitration. This ensures that the civil court retains jurisdiction over the entirety of the matter when bifurcation is not legally permissible.

Implications: This ruling highlights the limited scope of Section 8 and clarifies that the courts cannot refer only part of a dispute to arbitration while retaining the remaining claims within their jurisdiction. In cases where the suit involves mixed issues — some within the arbitration agreement and some outside — the court retains the authority to adjudicate the entire matter.

Key Takeaway: For Section 8 of the Arbitration and Conciliation Act, 1996 to be applicable, the entire subject matter of the suit must be covered by the arbitration agreement. If the matter involves claims or parties outside the arbitration agreement, Section 8 cannot be invoked, and the civil court will handle the dispute in its entirety.

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