On July 19, 2022, the Gujarat High Court, while deciding the matter of, Krishna Calibration Services v. Jasmin Bharat Patel, (R/Special Civil Application No. 5682 of 2021), has held that a party can withdraw its consent to send a dispute to arbitration at any time prior to the court acting upon such consent.

Brief Facts:

The petitioners had preferred a petition under Article 227 of the Constitution of India challenging the Order dated November 17, 2018 passed in Special Civil Suit No. 640 of 2013 titled “Jasmin Bharat Patel v. Krishna Calibration Service” pending before the City Civil Court, Ahmedabad wherein the Ld. Principal Senior Civil Judge, Ahmedabad (Rural) at Mirzapur (“Lower Court”) had rejected the application filed by the parties under Section 89 (2) of the Code of Civil Procedure, 1908 (“CPC") to refer the matter to arbitration on account of the withdrawal of the consent by the Respondent (“Impugned Order”).

The petitioners impugned the aforementioned order by way of a petition under Article 227 of the Constitution of India.

Submissions of the petitioners:

a. Once the respondent had consented to send the dispute between the parties to arbitration, the Court is bound to refer the matter to arbitration and no other order can be passed by the Court.

b. In terms of Section 4 of the Arbitration and Conciliation Act, 1996 (“the Act”) read with Section 89 of the CPC, once the respondent has participated in the proceedings before the arbitrator, the respondent cannot now withdraw from the arbitration. 

c. If the matter is sent to the arbitrator jointly selected by the parties, the arbitrator as may be able to dispose- off the two suits pending between the parties. The petitioners were ready to settle the matter with the respondent and were also ready to comply with the legitimate demands of the respondent.

Observations of the Court:

a. The application under Section 89(2) of the CPC was filed by the parties before the Lower Court requesting that the matter be referred to an arbitrator jointly appointed by the parties in view of there being an element of settlement between the parties. However, before the Lower Court could formulate the terms of settlement, seek comments of the parties and refer the same to the arbitrator, the respondent withdrew his consent. Before the Court formulates the terms of settlement between the parties and refers the same to the arbitrator, there arises no question of submitting it to the jurisdiction of the arbitrator.

b. Even if, before the Impugned Order could be passed, any proceedings are initiated, the same cannot be said to be arbitration proceedings as referred to the arbitrator by the Court.

c. The reliance of the petitioners on Section 4 of the Act read with Section 89 of CPC was misplaced as the same refers to deemed waiver of available objections, if the same are not raised within the time period provided for. The same would not be applicable to the matter since there was no element of arbitration, in the absence of an arbitration agreement and the matter would have to be sent to arbitration, with the consent of the parties.

Decision of the Court:

The Court upheld the Impugned Order holding that the respondent was well within its right to withdraw his consent before the Lower Court for sending the dispute between the parties to arbitration, till such time that the consent is acted upon and the dispute is referred to arbitration by the Court. The Court further added that a party may consent to send a dispute to arbitration but before the Court acts upon it and passes any order to refer the same to the arbitrator, the party is free to withdraw the consent so given by it. 

Please find attached a copy of the Order.

This update has been contributed by Poorva Pant (Senior Associate).

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