A party cannot invoke the arbitration mechanism under Section 8 of the Arbitration and Conciliation Act, 1996 while simultaneously challenging the very existence and validity of the agreement containing the arbitration clause. The Calcutta High Court has reaffirmed that judicial intervention under the Act requires a foundational acceptance of the arbitration agreement’s authenticity.
Background & Facts
The Dispute
The dispute arises from a tenancy relationship over immovable property in Calcutta. The respondents, as plaintiffs, filed a suit for eviction against the appellant, Sharad Goenka, alleging unlawful occupation. The appellant, in turn, filed an application under Sections 8 and 5 of the Arbitration and Conciliation Act, 1996 seeking to refer the matter to arbitration, relying on three agreements dated 27.01.2006.
Key Facts
- Three agreements were executed on 27.01.2006: one for tenancy, one for maintenance, and one for service.
- The tenancy agreement initially stipulated a term of five years but contained no express provision for renewal or termination upon expiry.
- All three agreements contained arbitration clauses.
- The appellant, as plaintiff in a prior Title Suit No. 433 of 2019, pleaded an agreement dated 25.01.2006 for sale of the same property.
- In the present suit, the respondents relied on the 27.01.2006 agreements as the basis of tenancy.
- In an affidavit-in-opposition filed in response to an application under Chapter XIIIA of the Original Side Rules, the appellant alleged that the three agreements dated 27.01.2006 were "manufactured".
- The appellant further contended in the same affidavit that no proper stamp duty had been paid and that the agreements were unregistered, rendering them inadmissible in evidence under the Indian Stamp Act and Registration Act.
Procedural History
- 27.01.2006: Three agreements executed between the parties.
- 2019: Appellant filed Title Suit No. 433 of 2019 in City Civil Court, Calcutta, seeking declaration and injunction based on a different agreement dated 25.01.2006.
- 2022: Respondents filed suit for eviction in the Original Side of Calcutta High Court (GA/2/2022).
- 2022: Appellant filed application under Sections 8 and 5 of the Arbitration Act seeking reference to arbitration.
- 30.01.2024: Learned Single Judge dismissed the application under Sections 8 and 5.
- 20.04.2026: Appeal heard by Division Bench of Calcutta High Court.
Relief Sought
The appellant sought to have the dispute referred to arbitration under Sections 8 and 5 of the Arbitration and Conciliation Act, 1996, on the basis of arbitration clauses in the three agreements dated 27.01.2006.
The Legal Issue
The central question was whether a party can invoke Section 8 of the Arbitration and Conciliation Act, 1996 to refer a dispute to arbitration when it has itself denied the validity, authenticity, and enforceability of the agreement containing the arbitration clause.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the three agreements dated 27.01.2006 contained valid arbitration clauses and that the suit for eviction fell within their scope. He contended that even if the validity of the agreements was in dispute, the arbitration clause, being severable, could still be enforced under the principle of kompetenz-kompetenz. He relied on the doctrine that arbitration clauses are independent of the main contract and urged the Court to refer the matter to arbitration pending determination of the validity issue by the arbitrator.
For the Respondent
The respondents’ senior counsel argued that the appellant’s own affidavit-in-opposition had categorically denied the existence of the three agreements, labelling them as "manufactured". He further highlighted that the appellant had challenged the agreements on grounds of non-payment of stamp duty and non-registration, which rendered them legally inadmissible. He relied on Zenith Drugs and Allied Agencies Private Limited v. Nicholas Piramal India Limited to argue that an arbitration clause cannot be invoked when the underlying agreement is repudiated at its root. He submitted that the appellant’s conduct was contradictory and amounted to abuse of process.
The Court's Analysis
The Court examined the foundational requirement for invoking Section 8 of the Arbitration and Conciliation Act, 1996: the existence of a valid arbitration agreement. The Court emphasized that Section 8 is not a mechanical provision; it requires the applicant to establish not merely the presence of an arbitration clause, but the existence of a binding agreement containing such a clause.
"The appellant is not accepting that it executed such documents. Therefore, the existence of the arbitration agreement is denied by the appellant itself."
The Court noted that the appellant’s affidavit-in-opposition to the Chapter XIIIA application was unequivocal: the agreements were "manufactured", stamp duty was unpaid, and registration was lacking. These allegations went to the very root of the document’s validity and enforceability. The Court held that such a position is irreconcilable with the requirement under Section 8 that the party must be seeking enforcement of an agreement it acknowledges as binding.
The Court distinguished Zenith Drugs not on its facts but on its principle: an arbitration clause cannot be invoked to enforce a dispute arising from a contract that the party itself denies ever existed. The Court observed that the appellant’s conduct was not merely inconsistent but fundamentally contradictory - seeking to rely on the agreements for arbitration while simultaneously seeking to have them declared void and inadmissible.
The Court further held that the doctrine of severability of arbitration clauses does not permit a party to invoke arbitration while denying the document’s authenticity. The existence of the agreement must be prima facie accepted before the Court can proceed under Section 8.
The Verdict
The appeal was dismissed. The Calcutta High Court upheld the order dated 30.01.2024 dismissing the application under Sections 8 and 5 of the Arbitration and Conciliation Act, 1996. No costs were awarded. The Court held that the appellant’s denial of the agreements’ validity precluded any invocation of the arbitration clauses contained therein.
What This Means For Similar Cases
Arbitration Cannot Be Invoked on a Fabricated Foundation
- Practitioners must ensure that their client’s pleadings on the existence and validity of the arbitration agreement are consistent across all forums.
- A party cannot simultaneously allege forgery or non-execution in one proceeding and invoke arbitration under the same document in another.
Validity Challenges Must Be Resolved Before Section 8 Application
- If a party intends to challenge the stamp duty, registration, or authenticity of an agreement, such challenges must be raised before the arbitrator or in a separate suit - not as a basis to defeat arbitration while relying on the same document.
- Courts will not entertain Section 8 applications where the party’s own pleadings negate the existence of the arbitration agreement.
Judicial Scrutiny of Contradictory Stands Is Mandatory
- Courts are empowered to examine the party’s conduct holistically before granting a reference to arbitration.
- Contradictory affidavits or pleadings will be treated as an abuse of process and a bar to invoking statutory arbitration mechanisms.
