Right To Seek Arbitration Ends Once Written Statement Stage Is Closed: Karnataka High Court

The Karnataka High Court has reiterated that a defendant cannot seek reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 after its right to file a written statement in a commercial suit has been closed, dismissing an appeal filed by real estate developer Bhagyalakshmi Homes LLP.

A Division Bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha upheld the Commercial Court's order rejecting the developer's plea to refer the dispute to arbitration.

“It is clear from the plain language of Sub-section (1) of Section 8 of the A&C Act that an application under Section 8 can be made not later than the date of submitting his first statement on the substance of the dispute,” the Bench observed.

The court further held, “In the present case, since the right of defendant No.1 to file its written statement stood closed, it was not entitled to file an application under Section 8 of the A&C Act.”

The dispute arose from a recovery suit filed by two individuals seeking Rs. 53,93,279. The individuals alleged that they were induced to invest Rs. 49,50,000 in a real estate project named “Golden Ira,” on assurances that their investment would be doubled within three years.

Summons were served on the developer and counsel appeared before the Commercial Court on August 24, 2024, when a grievance regarding non-receipt of documents was raised and the court directed that the documents be furnished. The High Court noted that no such objection was pursued thereafter.

On December 18, 2024, when the matter was taken up, the developer neither filed its written statement nor sought an extension of time.The Commercial Court recorded that the written statement was “taken as not filed” and proceeded to list the matter for the plaintiffs' evidence. The plaintiffs later examined themselves and tendered affidavits in lieu of examination-in-chief.

The developer thereafter filed applications seeking recall of the order closing its right to file the written statement and for reference of the dispute to arbitration. Those applications were dismissed, leading to the present appeal.

Before the High Court, the developer contended that the limitation period for filing the written statement would commence only upon service of complete documents along with the plaint. It relied on the Supreme Court's decision in Nahar Enterprises v. Hyderabad Allwyn Ltd.

Rejecting the contention, the Bench noted that there was no dispute that summons had been served and that the developer had appeared through counsel. Apart from raising the issue once on August 24, 2024, the developer did not press any objection regarding non-receipt of documents and participated in the proceedings on several dates.

“In our view, it is not open to the defendant No.1 to raise any objections regarding non-receipt of documents, having participated in the proceedings without raising any objections on several occasions,” the court said, adding that the plaintiffs had issued a legal notice prior to filing the suit and that the defendants were invited to pre-institutional negotiations.

Referring to its earlier decision in SPML Infra Ltd. v. Trisquare Switchgears (P) Ltd. and the Supreme Court's ruling in SSCG Contracts (India) (P) Ltd. v. K.S. Chamankar Infrastructure (P) Ltd., the Bench reiterated that in commercial suits a written statement must be filed within 30 days of service of summons, extendable up to 120 days, beyond which the right stands forfeited.

Finding no infirmity in the Commercial Court's reasoning, the High Court dismissed the appeal.

For Appellant: Advocate Venkatesh R Bhagat

For Respondent: Advocate Akshatha P