Trial courts must refer parties to arbitration under Section 8 instead of rejecting the plaint.

The Appellant/Plaintiff, a construction firm, filed a civil suit for the recovery of Rs. 11,00,000/- with interest for work completed under a 2008 work order

The Respondent/Defendant filed a written statement followed by an application under Order 7 Rule 11 of the CPC read with Section 8 of the Arbitration and Conciliation Act, 1996 ("the Act"), citing Clause 15 of the agreement which mandated dispute resolution through arbitration

The Trial Court (4th Additional District Judge, Raipur) allowed the application and rejected the plaint on 09.08.2017, holding that the dispute must be settled through arbitration

The Appellant challenged this, arguing that the Trial Court should have referred the parties to arbitration rather than dismissing/rejecting the suit entirely

1. Whether the Trial Court committed a legal error by rejecting the plaint under Order 7 Rule 11 CPC instead of referring the parties to arbitration under Section 8(1) of the Act?

2. Whether the judicial authority’s power under Section 8(1) of the Act to refer parties to arbitration includes the jurisdiction to appoint an arbitrator?

Section 8(1) of the Arbitration and Conciliation Act, 1996, which mandates that a judicial authority refer parties to arbitration if the dispute is subject to an arbitration agreement

Atul Singh v. Sunil Kumar Singh, emphasizing the necessity of a valid agreement for Section 8 to apply

Rashtriya Ispat Nigam Ltd. v. Verma Transport Company, which clarified that a party must not have waived their right to arbitrate

P. Anand Gajapathi Raju v. P.V.G. Raju (Dead) to establish that the language of Section 8 is peremptory, making it obligatory for the Court to refer parties to arbitration once the requirements are met

The Court observed that Clause 15 of the work order constituted a valid arbitration agreement

While the Respondent had properly invoked the arbitration clause, the Court found the Trial Court’s procedure flawed. Under Section 8(1) of the Act, once a valid arbitration agreement is identified, the Court’s mandate is to "refer the parties to arbitration," not to reject the plaint under Order 7 Rule 11 CPC

The High Court characterized the straightway rejection of the plaint as a "grave legal error," reasoning that the power to refer parties to arbitration inherently includes the jurisdiction to facilitate the process by appointing an arbitrator

Exercising powers under Section 8(1) of the Act and with the consent of the parties, the Court appointed Hon’ble Shri Justice Deepak Tiwari (Retired) as the sole arbitrator to resolve the dispute. The appeal was allowed to this extent, and the Registry was directed to communicate the order to the appointed arbitrator