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CS Professional · Arbitration, Mediation and Conciliation · Arbitration: Introduction, Agreements and its Institutions

Sundaram Textiles Ltd, Coimbatore, signed a supply contract with Kaveri Yarns Pvt Ltd containing a clause referring all disputes to arbitration. When Kaveri Yarns sued for unpaid invoices in a civil court, Sundaram Textiles wants the matter sent to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. What must the court do if there is a valid arbitration agreement and the application is made in time?

The court must refer the parties to arbitration. Under Section 8(1), a judicial authority shall refer parties where the subject matter is covered by an arbitration agreement and a party applies in time, unless prima facie no valid agreement exists. The reference is mandatory, not discretionary.

  1. ARefer the parties to arbitrationCorrect
  2. BDecide the suit itself and treat the clause as advisory
  3. CStay the suit until the parties agree to appoint an arbitrator in writing again
  4. DTransfer the suit to the High Court for deciding whether to refer

Explanation

Section 8(1) says the judicial authority shall refer the parties to arbitration where the matter is the subject of an arbitration agreement and a party applies in time, unless it finds prima facie that no valid arbitration agreement exists. Here the clause is valid and the application is timely, so reference is mandatory. Treating the clause as advisory ignores the word 'shall'.

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