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CASE NO.: Appeal (civil)  3420 of 2006

PETITIONER: Rashtriya Ispat Nigam Limited & Anr

RESPONDENT: M/s Verma Transport Company

DATE OF JUDGMENT: 08/08/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [Arising out of SLP (Civil) Nos. 1136-37 of 2005]

S.B. SINHA, J :

       Leave granted.

       Interpretation and application of Section 8 of the Arbitration and  Conciliation Act, 1996 (for short, ’the 1996’ Act) is in question in these  appeals which arise out of a judgment and order dated 10.02.2003 passed by  a learned Single Judge of the High Court of Punjab & Haryana, dismissing  the Civil Revision Application filed by the Appellants herein from a  judgment and order dated 03.10.2002 passed by the Civil Judge (Junior  Division), Jalandhar and order dated 15.09.2004  refusing to review the said  order.

FACTS :         The Appellant No.1 is a Public Sector Undertaking.  It is engaged,  inter alia, in the business of manufacturing and marketing of iron and steel  products. The Respondent is a partnership firm.  It is engaged in the business  of consignment agents. It has its office at Jalandhar.  A contract was entered  into by and between the parties hereto in regard to the handling and storage  of iron and steel materials of the Appellant at Ludhiana.  The Appellants  contend that one Shri Anil Verma, Partner of the Respondent-Firm had  constituted various firms and companies and obtained several consignment  agency contracts from the Appellant pertaining to Delhi,  Faridabad,  Chandigarh and Ludhiana etc. who conspired with certain officials of the  Appellants  and obtained payments @ Rs.140/- per M.T. in place of Rs.36/-  per M.T. on a false plea that the Transport Union at Bahadurgarh did not  permit transportation of goods without levy of a fee of Rs.100/- per M.T. on  transportation of such goods.  An investigation was conducted by the Central  Bureau of Investigation and a criminal case was initiated against Shri Anil  Verma and the concerned officials of the Appellants.  Allegedly, with the  object of presenting a clean image to the Appellants and with a view to  avoid termination of all the contracts by them, a  plea was put forth  that Shri  Anil Verma had resigned from the partnership firm as also from his other  firms/companies.  According to the Appellants, the said Shri Anil Verma  was replaced by his family members as a partner of the said firm but he  continued to be in complete control over the firms/companies. The contract  of the Respondent was terminated by the Appellants on 23.05.2002.  On the  same day, a show cause notice was also issued to Shri Anil Verma as to why  he and his firms/companies should not be black listed.   

The Respondent-Firm, however, filed a suit being Suit No.122 of  2002 for grant of permanent injunction restraining the Appellants herein  from in any manner blacklisting the Respondent-Firm or terminating the  consignment agency contract.  On an application for injunction having been

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filed, the Civil Judge, Junior Division, directed the parties to maintain status  quo in regard to the status of the Respondent-Plaintiff herein qua termination  of the contract as also the order of  blacklisting.  The Appellants appeared to  have sought for time to file written statement.  They also filed a rejoinder to  the counter affidavit to the application for injunction wherein it took a  specific plea that the subject-matter of the suit being covered by the  arbitration agreement entered into by and between the parties, it was not  maintainable. On 07.06.2002, they filed an application under Section 8 of  the 1996 Act,  which was rejected by the Civil Judge, Junior Division by an  order dated 03.10.2002, holding :

"The applicants/defendants have already filed a  reply to application u/o 39 Rules 1 and 2 read with Section  151 CPC and sought 15 days time to file written statement  clearly proves that the process of the suit has already  begun and the defendants have already entered into a  defence of the suit meaning thereby they have subjected  themselves to the jurisdiction of the Civil Court.  The  defendants have not spelt out as to what is the dispute or  difference between the parties.  Rather, they have  straightaway black listed the plaintiff firm, without giving  them any notice regarding any dispute or difference, which  was mandatory.  From the perusal of the record, it is very  much clear that there is no dispute or difference between  the present firm and the company with regard to any of the  transactions in the business between both of them.  Rather,  the company is at a dispute with a person, who no more  exists as a partner in the plaintiff firm.  The company also  wrote appreciation letter to the Plaintiff firm for their  cooperation for achieving the desired targets for the year  2001-02.  The same was made possible because of untiring  efforts made by the plaintiff of the present case.  In the  present case, the straightaway of black listing the firm is  not justified, even the principal of natural justice goes in  favour of the respondent/plaintiff\005"

A Revision Application filed by the Appellants before the High Court  thereagainst  was dismissed by the impugned judgment, inter alia, on the  premise that the application filed by them  being not accompanied by the  original arbitration agreement or a duly certified copy thereof, the same was  not maintainable.  A Review Application filed thereagainst pointing out that  such certified copy had in fact been filed, however, was not entertained.

Mr. R.F. Nariman, the learned Senior Counsel appearing on behalf of  the Appellants, inter alia, would submit that the learned Civil Judge and the  High Court committed a serious error in construing the provisions of Section  8 of the 1996 Act, insofar as they failed to take into consideration that :  

(1)     Section 8 of the 1996 Act cannot be equated with Section 34 of  the Arbitration Act, 1940, (for short, ’the 1940 Act) having  been made in terms of UNCITRAL Model Rules and having  undergone a thorough change. (2)     Filing an opposition to the interim injunction would not  preclude a defendant from filing an application under  Section 8  of the 1996 Act. (3)     The High Court committed a serious error in entertaining the  plea raised by the Respondent for the first time before it in  holding that the application filed by the Appellants was not  accompanied by a certified copy of the arbitration agreement.  (4)      Despite the fact that attention of the High Court was  specifically drawn that the said finding was factually incorrect  in the review application, the High Court did not address itself  on the said question.

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Mr. Nagendra Rai, the learned Senior Counsel appearing on behalf of  the Respondent, on the other hand, submitted that :

(1)     The  premise  on  which  the  contract  was  terminated  being  de ’hors the conditions of the contract, the same would not be  arbitrable.  (2)     The suit  having been filed questioning both blacklisting as also  termination of contract being outside the purview of arbitration,  the application under Section 8 of the 1996 Act was not  maintainable.  (3)    The Appellants in their rejoinder having disclosed the substance  of the dispute were not entitled to file the said application. (4)     An application for time having been filed to file written  statement, the impugned orders do not suffer from any  infirmity.   The High Court  in its judgment, inter alia,  held :  (1)     No notice having been served upon the Respondent before  passing an order of blacklisting, the same was bad in law. (2)     The Chairman of the First Appellant having not nominated an  arbitrator in terms of the arbitration agreement, the application  under Section 8 of the 1996 Act was not maintainable.                      (3)     The Appellants having filed the reply to the interim application  of the Respondent and their counsel having made a specific  statement that he wanted to argue on both the applications  together i.e. application under Order 39, Rules 1 and 2 read  with Section 151 of the Code of Civil Procedure as also the  application under Section 8 of the 1996 Act, joined the process  of the suit in their defence and subjected themselves to the  jurisdiction of the Civil Court. (4)     The Appellants have not spelt out the dispute and differences  between the parties and have straightaway blacklisted the  Respondent-Firm. (5)     Anil Verma against whom the allegations had been made  having resigned, the application under Section 8 was not  maintainable. (6)     The original arbitration agreement or the certified copy of the  agreement having not been annexed with the application, the  same was not maintainable.

The 1996 Act makes a radical departure from the 1940 Act. It has  embodied the relevant rules of the modern law but does not contain all the  provisions thereof.  The 1996 Act, however, is not as extensive as the  English Arbitration Act.

       The 1996 Act was enacted by the Parliament in the light of the  UNCITRAL Model Rules.  In certain respects, the Parliament of India while  enacting the said Act has gone beyond the scope of the said Rules.   

With a view to appreciate the said question, we may at the outset  notice the provisions of Section 4 of the English Arbitration Act, 1899,  which was bodily lifted in enacting Section 34 of the 1940 Act,  in the  following terms :

"4. Power to stay proceedings where there is a  submission.-If any party to a submission, or any person  claiming through or under him, commences any legal  proceedings in any Court against any other party to the  submission, or any person claiming through or under him,  in respect of any matter agreed to be referred, any party to  such legal proceedings may at any time after appearance ,  and before delivering any pleadings or taking any other  steps in the proceedings, apply to that Court to stay the  proceedings, and that Court or a judge thereof, if satisfied  that there is not sufficient reason why the matter should not

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be referred in accordance with the submission, and that the  applicant was at the time when the proceedings were  commenced, and still remains, ready and willing to do all  things necessary to the proper conduct of the arbitration,  may make an order staying the proceedings."

       Section 34 of the 1940 Act reads as under :

"34.-Power to stay legal proceedings where there is an  arbitration agreement.- Where any party to an arbitration  agreement or any person claiming under him commences  any legal proceedings against any other party to the  agreement or any person claiming under him in respect of  any matter agreed to be referred, any party to such legal  proceedings may, at any time before filing a written  statement or taking any other steps in the proceedings,  apply to the judicial authority before which the  proceedings are pending to stay the proceedings; and if  satisfied that there is no sufficient reason why the matter  should not be referred in accordance with the arbitration  agreement and that the applicant was, at the time when the  proceedings were commenced, and still remains, ready and  willing to do all things necessary to the proper conduct of  the arbitration, such authority may make an order staying  the proceedings."

       We may furthermore notice that Section 3 of the Arbitration (Protocol  and Convention) Act, 1937 and Section 3 of the Foreign Awards  (Recognition and Enforcement) Act, 1961 contained similar provisions.                       The expression ’steps in the proceedings’, however,  used in Article 8  of the Rules and Section 8 of the 1996 Act in contrast to the aforementioned  provisions and in particular Section 34 of the 1940 Act, may be noticed :

       Article 8 of the Model Rules is as under :

       "(1) A court before which an action is brought in  a matter which is the subject of an arbitration  agreement shall, if a party requests not later than when  submitting his first statement on the substance of the  dispute, refer the parties to arbitration unless it finds  that the agreement is null and void, inoperative or  incapable of being performed.

       (2) Where, in such case, arbitral proceedings  have already commenced, the arbitral tribunal may  continue the proceedings while the issue of its  jurisdiction is pending with the court."                                  

       Section 8 of the 1996 Act reads as follows :

"8. Power to refer parties to arbitration where there is  an arbitration agreement.-(1)  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. (2)     The application referred to in sub-section (1)  shall not be entertained unless it is accompanied by the  original arbitration agreement or a duly certified copy

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thereof.

(3)     Notwithstanding that an application has  been made under sub-section (1) and that the issue is  pending before the judicial authority, an arbitration may  be commenced or continued and an arbitral  award  made."  

Section 8 of the 1996 Act, however, although lifted the first part of the  said Article 8 did not contain the expression contained in the second part  therein.  The Indian Parliament has gone beyond the recommendations made  by the UNCITRAL Model Rules in enacting Sections  8 and 16 of the 1996  Act.  

The provisions of Sections  8 and 16 of the 1996 Act may be  compared with Sections 45 and 54 thereof.  Section 45 deals with New York  Convention, whereas Section 54 deals with Geneva Convention Awards.   The difference can be immediately noticed.  Whereas under Sections 45 and   54, the Court exercises its supervisory jurisdiction in relation to arbitration  proceedings, in terms of Section 16 of the 1996 Act, the arbitrator is entitled  to determine his own jurisdiction.  We, however, do not mean to suggest that  Part II of the 1996 Act does not contemplate determination of his own  jurisdiction by the arbitral tribunal as we are not called upon to determine  the said question.  We have referred to the aforementioned provisions only  for the purpose of comparing  the difference in the language used by the  Indian Parliament while dealing with the domestic arbitration vis-‘-vis the  International arbitration.   

Section 8 confers a power on the judicial authority.  He must refer the  dispute which is the subject-matter of an arbitration agreement if an action is  pending before him, subject to the fulfillment of the conditions precedent.   The said power, however, shall be exercised if a party so applies not later  than when submitting his first statement on the substance of the dispute.   

What is the scope and effect of the expression ’substance of the  dispute’ is also in question to which we shall advert to a little later.

The arbitration agreement is contained in clause 44(a) of the contract  entered into by and between the parties which reads as under :-

"If at any time any question, dispute or difference  whatsoever shall arise between the company and the  Consignment Agent upon or in relation to or in  connection with the contract, either party may forthwith  give to the other notice in writing of the existence of such  question, dispute or difference and the same shall be  referred to the adjudication of an arbitrator to be  nominated by the Chief Executive of the Company.  The  award of the arbitrator shall be final and binding on both  the parties and the provisions of the Indian Arbitrator  Act, 1940 and the rules thereunder and any statutory  modification thereof shall be deemed to apply to and be  incorporated in this contract."

The scope and purport of such a clause was considered in Heyman  and Another v. Darwins Ltd. [(1942) 1 All ER 337]  and it was stated : "The answer to the question whether a dispute falls  within an arbitration clause in a contract must depend on  (a) what is the dispute, and (b) what disputes the  arbitration clause covers.  To take (b) first, the language  of the arbitration clause in this agreement is as broad as  can well be imagined.  It embraces any dispute between  the parties "in respect of " the agreement or in respect of  any provision in the agreement or in respect of anything

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arising out of it.  If the parties are at one on the point that  they did enter into a binding agreement in terms which  are not in dispute, and the difference that has arisen  between them is as to their respective rights under the  admitted agreement in the events that have hampered \026  e.g. as to whether the agreement has been broken by  either of them; or as to the damage resulting from such  breach; or as to whether the breach by one of them goes  to the root of the contract and entitles the other party to  claim to be discharged from further performance; or as to  whether  events supervening since the agreement was  made have brought  the contract to an end so that neither  party is required to perform further \026 in all such cases it  seems to me that the difference is within such an  arbitration clause as this.  In view, however, of phrases to  be found in the report of some earlier decisions, the  availability of the arbitration clause when "frustration" is  alleged to have occurred will require closer  consideration."            

In the instant case, the existence of a valid agreement stands admitted.  There cannot also be any dispute that the matter relating to termination of  the contract would be a dispute arising out of a contract and, thus, the  arbitration agreement contained in clause 44 of the contract would be  squarely attracted.  Once the conditions precedent contained in the said  proceedings are satisfied, the judicial authority is statutorily mandated to  refer the matter to arbitration.  What is necessary to be looked into therefor,  inter alia, would be as to whether the subject-matter of the dispute is covered  by the arbitration agreement or not.  

Section 34 of the repealed 1940 Act employs the expression ’steps in  the proceedings’.  Only in terms of Section 21 of the 1940 Act, the dispute  could be referred to arbitration provided parties thereto agreed.  Under the  1940 Act, the suit was not barred.  The Court would not automatically refer  the dispute to an arbitral tribunal. In the event, it having arrived at  satisfaction that there is no sufficient reason that the dispute should not be   referred and no step in relation thereto was taken by the applicant, it could  stay the suit.                   

Section 8 of the 1996 Act contemplates some  departure from Section  34 of the 1940 Act.  Whereas Section 34 of the 1940 Act contemplated stay  of the suit; Section 8 of the 1996 Act mandates a reference.  Exercise of   discretion by the judicial authority, which was the hallmark of Section 34 of  the 1940 Act,  has been taken away under the 1996 Act.  The direction to  make reference is not only mandatory, but the arbitration proceedings to be  commenced or continued and conclusion thereof by an arbitral award remain  unhampered by such pendency.  [See  O.P. Malhotra’s  ’The Law and  Practice of Arbitration and Conciliation’, 2nd Edition, pp. 346-347]       

Scope of the said provision fell for consideration before a Division  Bench of this Court in P. Anand Gajapathi Raju and Others v. P.V.G.  Raju  (Dead) and Others [(2000) 4 SCC 539], wherein this Court held :

"In the matter before us, the arbitration agreement  covers all the disputes between the parties in the  proceedings before us and even more than that. As  already noted, the arbitration agreement satisfies the  requirements of Section 7 of the new Act. The language  of Section 8 is peremptory. It is, therefore, obligatory for  the Court to refer the parties to arbitration in terms  of  their arbitration agreement. Nothing remains to be  decided in the original action or the appeal arising  therefrom. There is no question of stay of the  proceedings till the arbitration proceedings conclude and  the award becomes final in terms of the provisions of the

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new Act. All the rights, obligations and remedies of the  parties would now be governed by the new Act including  the right to challenge the award. The court to which the  party shall have recourse to challenge the award would  be the court as defined in clause (e) of Section        2 of  the new Act and not the court to which an application  under Section 8 of the new Act is made. An application  before a court under Section 8 merely brings to the  court’s notice that the subject-matter of the action before  it is the subject-matter of an arbitration agreement. This  would not be such an application as contemplated under  Section 42 of the Act as the court trying the action may  or may not have had jurisdiction to try the suit to start  with or be the competent court within the meaning of  Section 2(e) of the new Act."

       In Smt. Kalpana Kothari v. Smt. Sudha Yadav and Others \026 [(AIR  2002 SC 404], this Court observed :

"\005No doubt, at the appellate stage, after filing a written  application for dismissal of the applications filed by the  appellants under Section 34 of the Arbitration Act, 1940,  as not pressed in view of the repeal of the 1940 Act and  coming into force of the 1996 Act and getting orders  thereon, the appellants herein have once again moved the  High Court under Section 8 of the Act, with a request for  stay of proceedings before the High Court as well as the  trial court, but the application came to be rejected by the  learned Judge in the High Court that no such application  could be filed, once the application earlier filed under the  1940 Act was got dismissed as not pressed and also on  the ground of estoppel, based on the very fact. We are of  the view that the High Court did not properly appreciate  the relevant and respective scope, object and purpose as  also the considerations necessary for dealing with and  disposing of the respective applications envisaged under  Section 34 of the 1940 Act and Section 8 of the 1996  Act. Section 34 of the 1940 Act provided for filing an  application to stay legal proceedings instituted by any  party to an arbitration agreement against any other party  to such agreement, in derogation of the arbitration clause  and attempts for settlement of disputes otherwise than in  accordance with the arbitration clause by substantiating  the existence of an arbitration clause and the judicial  authority concerned may stay such proceedings on being  satisfied that there is no sufficient reason as to why the  matter should not be referred to for decision in  accordance with the arbitration agreement, and that the  applicant seeking for stay was at the time when the  proceedings were commenced and still remained ready  and willing to do all things necessary to the proper  conduct of the arbitration. This provision under the 1940  Act had nothing to do with actual reference to the  arbitration of the disputes and that was left to be taken  care of under Sections 8 and 20 of the 1940 Act. In  striking contrast to the said scheme underlying the  provisions of the 1940 Act, in the new 1996 Act, there is  no provision corresponding to Section 34 of the old Act  and Section 8 of the 1996 Act mandates that the judicial  authority before which an action has been brought in  respect of a matter, which is the subject-matter of an  arbitration agreement, shall refer the parties to arbitration  if a party to such an agreement applies not later than  when submitting his first statement. The provisions of the

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1996 Act do not envisage the specific obtaining of any  stay as under the 1940 Act, for the reason that not only  the direction to make reference is mandatory but  notwithstanding the pendency of the proceedings before  the judicial authority or the making of an application  under Section 8(1) of the 1996 Act, the arbitration  proceedings are enabled, under Section 8(3) of the 1996  Act to be commenced or continued and an arbitral award  also made unhampered by such pendency. We have to  test the order under appeal on this basis."  

See also Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway  Petroleums [(2003) 6 SCC 503].           The High Court, in our opinion, proceeded on a wrong premise.  It  posed unto itself wrong question.  It refused to interfere in the matter  opining that no notice had been served by the Chairman of the First  Appellant in terms of the arbitration agreement. For maintaining an  application under Section 8 of the 1996 Act, service of notice under the  arbitration agreement was not mandatory.  The said stage was yet to be  reached.   What was necessary was existence of an arbitration agreement.            So far as the question of blacklisting is concerned, an error was  committed by the High Court in opining that the Respondent-Firm had been  blacklisted without issuing any notice.  In fact, from a perusal of the notice  dated 23.05.2002, it appears, upon recital of the relevant facts, it was stated :

"6.     In view of the above, before taking a final decision  on black listing you and debarring you from participating  in tenders floated by RINL, VSP or entering into any  agreement with RINL, VSP, you are hereby calling upon  to explain as to why you should not be black listed and  debarred as mentioned above.  You may submit your  explanation within seven days of receipt of this notice.   In case we do not receive your explanation within the  above mentioned period, it will be presumed that you  have nothing to say in the matter and decision on further  suitable action will be taken accordingly."

       No final decision had, therefore, been taken.   The basic question  was  whether there had been breaches of contract on the part of the Respondents.  The contention of the Respondent before the trial court had been that the  order of blacklisting had arisen from the terms of the contract itself, as  would appear from the following averments :

"14.    That the plaintiff have learnt that the defendants  without following the basic principles of natural justice  are intending to terminate the consignment agency  contract of the plaintiff and to blacklist the plaintiff on  alleged ground that one of Ex-partner of the plaintiff is  claimed to be guilty of misrepresentation of overcharging  the freight by misrepresentation from the different  company.  Anyhow this is no ground to do so."

       The principal grievance of the Plaintiff-Respondent was the action on  the part of the Appellants terminating the contract.  Grounds on which the  order of termination were based, had been questioned in the plaint.  Such  contentions could well be raised before the Arbitrator.   

       Shri Anil Verma was also acting on behalf of the partnership firm.  It  has not been found that he had no authority to represent the firm.  His  subsequent resignation as a partner was irrelevant for the purpose of  consideration in regard to the maintainability of the application under  Section 8 of the 1996 Act.   

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       Filing of a  reply to the injunction application could also not have  been a ground to refuse to entertain the plea taken by the Appellants that the  suit should be referred to arbitral tribunal  particularly when in its reply to   injunction application, the appellant categorically stated :

       "1.     That the present application under Order 39  Rules 1 and 2 read with Section 151 CPC  is liable to be  dismissed on the short ground that the plaintiff has  himself admitted the existence of the arbitration clause  and therefore, the present application under Order 39  Rules 1 and 2 read with Section 151 CPC is not  maintainable and consequently the order of this Hon’ble  Court is liable to be vacated."

       Thus, they did not submit themselves to the jurisdiction of the court.   They did not waive their right.  They in effect and substance  questioned the  jurisdiction of the court in proceeding with the matter.  In fact, in its  application filed under Section 8 of the 1996 Act, the Appellant raised a  contention that the suit was liable to be dismissed and the order of injunction  vacated in view of the arbitration clause.   

       This aspect of the matter was considered by this Court in Food  Corporation of India & Anr. v. Yadav Enginner & Contractor [1983 (1) SCR  95].  Therein this Court opined that interlocutory proceedings are only  incidental proceedings to the main proceedings and, thus, any step taken in  the interlocutory proceedings does not come within the purview of main  proceedings, stating :  

"\005When ex parte orders are made at the back of the party  the other party is forced to come to the court to vindicate  its right. Such compulsion cannot disclose an unambiguous  intention to give up the benefit of the arbitration  agreement. Therefore, taking any other steps in the  proceedings must be confined to taking steps in the  proceedings for resolution of the substantial dispute in the  suit. Appearing and contesting the interlocutory  applications by seeking either vacation thereof or  modification thereof cannot be said to be displaying an  unambiguous intention to acquiesce in the suit and to  waive the benefit of the arbitration agreement. Any other  view would both be harsh and inequitous and contrary to  the underlying intendment of the Act. The first party which  approaches the court and seeks an ex parte interim order  has obviously come to the court in breach of the arbitration  agreement. By obtaining an ex parte order if it forces the  other party to the agreement to suffer the order, or by  merely contesting be imputed the intention of waiving the  benefit of arbitration agreement, it would enjoy an  undeserved advantage. Such could not be the underlying  purpose of Section 34. Therefore, in our opinion, to  effectuate the purpose underlying Section 34 the narrow  construction of the expression "taking any other steps in  the proceedings" as hereinabove set out appears to advance  the object and purpose underlying Section 34 and the  purpose for which the Act was enacted.

       The expression ’first statement on the substance of the dispute’  contained in Section 8(1) of the 1996 Act must be contra-distinguished with  the expression  ’written statement’.  It employs submission of the party to  the jurisdiction of the judicial authority.  What is, therefore, is needed is a  finding on the part of the judicial authority that the party  has waived his  right to invoke the arbitration clause.  If an application is filed before  actually filing the first statement on the substance of the dispute, in our

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opinion, the party cannot be said to have waived his right or acquiesced  himself to the jurisdiction of the court.  What is, therefore, material is as to  whether the petitioner has filed his first statement on the substance of the  dispute or not, if not, his application under Section 8 of the 1996 Act, may  not be held wholly  unmaintainable.  We would deal with this question at  some details, a little later.                Our attention, however, was drawn by the learned counsel for the  Respondent to  The State of Uttar Pradesh and Another v. M/s. Janki Saran  Kailash Chandra and Another [(1973) 2 SCC 96], which was distinguished  in Food Corporation of India (supra), inter alia, stating that the view taken  therein did not run counter to the view the court had taken.         In Janki Saran Kailash Chandra (supra), an application for time to file  written statement was considered to be a step in the proceedings.  We have  noticed hereinbefore the respective scope of Section 34 of the 1940 Act vis- ‘-vis the scope of Section 8 of the 1996 Act.  In view of the changes brought  about by the 1996 Act, we are of the opinion that what is necessary is  disclosure of the entire substance in the main proceeding itself and not  taking part in the supplemental proceeding.         By opposing the prayer for interim injunction, the restriction  contained in sub-section (1) of Section 8 was  not attracted.  Disclosure of a  defence for the purpose of opposing a prayer for injunction would not  necessarily mean that substance of the dispute has already been disclosed in  the main proceeding. Supplemental and  incidental proceeding  are not part  of the main proceeding.  They are dealt with separately in the Code of Civil  Procedure itself.   Section 94 of the Code of Civil Procedure deals with  supplemental proceedings.  Incidental proceedings are those which arise out  of the main proceeding.  In view of the decision of this Court in Food  Corporation of India (supra), the distinction between the main proceeding  and supplemental proceeding must be borne in mind. We may notice that a distinction has been made between supplemental  proceedings and incidental proceedings by one of us in Vareed Jacob v.  Sosamma Geevarghese and Others  [(2004) 6 SCC 378].

       This aspect of the matter came up for consideration before this Court  again in Sadhu Singh Ghuman v. Food Corporation of India & Ors. [(1990)   2 SCC 68], wherein it was categorically stated that seeking a direction to the  plaintiff to produce the original agreement does not amount to submit to the  jurisdiction of the court, which decides the case on merits, opining :   

"\005The right to have the dispute settled by arbitration has  been conferred by agreement of parties and that right  should not be deprived of by technical pleas. The court  must go into the circumstances and intention of the party  in the step taken. The court must examine whether the  party has abandoned his right under the agreement. In the  light of these principles and looking to the substance of  the application dated January 4, 1985, we cannot form an  opinion that the defendants have abandoned their right to  have the suit stayed and took a step in the suit to file the  written statement."

       Waiver of a right on the part of a defendant to the lis must be gathered  from the fact situation obtaining in each case.  In the instant case, the court  had already passed an ad interim ex pare injunction.  The Appellants were  bound to respond to the notice issued by the Court.  While doing so, they  raised a specific plea of bar of the suit in view of the existence of an  arbitration agreement.  Having regard to the provisions of the Act,  they had,  thus, shown  their unequivocal intention to question the maintainability of  the suit on the aforementioned ground.

       The submission of the learned counsel for the Respondents that the  two different causes of action having been raised, namely, illegal  termination of contract and blacklisting of the firm, Section 8 of the 1996  Act was not attracted is devoid of merit; inasmuch as according to the  Respondents themselves, both the causes of action arose out of the terms of

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the contract.   What was necessary was to consider the substance of the  dispute.  Once it is found that the dispute between the parties arose out of the  contract, Section 8 of the 1996 Act would be attracted.    Furthermore, as noticed hereinbefore, the High Court committed a  manifest error in holding  that the Respondent-Firm had been blacklisted  without any notice  as only a notice to show cause in that behalf had been  issued.  A final decision in regard to  blacklisting of the Respondent-Firm  was yet to be taken.  The Respondents could file their show cause and could  have satisfied the authorities of the Appellant No.1 that no case has been  made out for blacklisting.

       Reliance placed by the learned counsel on Sukanya Holdings (P) Ltd.  v. Jayesh H. Pandya and Another [(2003) 5 SCC 531] is misplaced..   Therein, not only a suit for dissolution of the firm was filed, but a different  cause of action had arisen in relation whereto apart from parties to the  arbitration agreement, other parties had also been impleaded.  In the  aforementioned fact situation, this Court held :

"Secondly, there is no provision in the Act that when  the subject-matter of the suit includes subject-matter of  the arbitration agreement as well as other disputes, the  matter is required to be referred to arbitration. There is  also no provision for splitting the cause or parties and  referring the subject-matter of the suit to the arbitrators.

It was further stated :

"The next question which requires consideration is \027  even if there is no provision for partly referring the  dispute to arbitration, whether such a course is possible  under Section 8 of the Act. In our view, it would be  difficult to give an interpretation to Section 8 under  which bifurcation of the cause of action, that is to say, the  subject-matter of the suit or in some cases bifurcation of  the suit between parties who are parties to the arbitration  agreement and others is possible. This would be laying  down a totally new procedure not contemplated under the  Act. If bifurcation of the subject-matter of a suit was  contemplated, the legislature would have used  appropriate language to permit such a course. Since there  is no such indication in the language, it follows that  bifurcation of the subject-matter of an action brought  before a judicial authority is not allowed.

Secondly, such bifurcation of suit in two parts, one to  be decided by the Arbitral Tribunal and the other to be  decided by the civil court would inevitably delay the  proceedings. The whole purpose of speedy disposal of  dispute and decreasing the cost of litigation would be  frustrated by such procedure. It would also increase the  cost of litigation and harassment to the parties and on  occasions there is possibility of conflicting judgments  and orders by two different forums."

       Such a question does not arise herein as the parties herein are parties  to the arbitration agreement and the question in regard to the jurisdiction of  the arbitrator, if any,  can be determined by the arbitrator himself in terms of  Section 16 of the 1996 Act.

       Strong reliance has been placed by Mr. Rai on a decision of this Court  in Union of India  v. Birla Cotton Spinning and Weaving Mills Ltd.  [AIR  1967 SC 688] contending that when the dispute arises de’ hors the  agreement, Section 8 of the 1996 Act would not be applicable.  The said

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decision has no application in the instant case as a finding of fact was  arrived at therein that the Union of India had withheld payment of a large  sum of money on the specious plea that some amount in relation to another  contract was due to it.  The submission of the respondent therein was that no  such contract had been executed by it.  In the fact situation obtaining therein,    this Court held  :   "The evidence recorded by the Trial Court discloses that  there was no dispute between the Company and the  Union arising under the contract on which the suit was  filed. The Union accepted liability to pay the amount  claimed by the Company in the suit. The Union still  declined to pay the amount asserting that an amount was  due from the Company to the Union under a distinct  contract. This amount was not sought to be set-off under  any term of the contract under which the Company made  the claim. The dispute raised by the Union was therefore  not in respect of the liability under the terms of the  contract which included the arbitration clause, but in  respect of an alleged liability of the Company under  another contract which it may be noted had already been  referred to arbitration. The Union had no defence to the  action filed by the Company : it was not contended that  the amount of Rs. 10,625/- was not due to the Company  under the contract relied upon by the Company. For  enforcement of the arbitration clause there must exist a  dispute : in the absence of a dispute between the parties  to the arbitration agreement, there can be no reference."  

Such is not the case here.

For the foregoing reasons, we are of the opinion that the application  filed by the Appellants under Section 8 of the 1996 Act was maintainable.  Before parting with the case, we may notice a disturbing state of  affairs.  Mr. Nariman made a statement before us that in view of the order of  status quo passed by the learned Civil Judge, the Respondents have not only  been working for the full term of five years contemplated under the  agreement but also for the extended the period of ten years, to which they  were not entitled.  The order of injunction passed by the learned Trial Judge  is not before us.  The contention raised by Mr. Nariman if correct, we are  sure that corrective measures shall immediately be taken by the court  concerned.   For the reasons aforementioned, the impugned judgments cannot be  sustained which are set aside.  The appeals are allowed with costs.  Counsel  fee is quantified at Rs.15,000/-.