Arbitration Clause in Your Contract: Court or Tribunal? Sections 8 and 9 Explained

Almost every commercial contract contains an arbitration clause, and almost nobody reads it until a dispute arises. At that stage the practical question is where to go: to a civil court, or to an arbitral tribunal. The Arbitration and Conciliation Act, 1996 answers it in two key provisions. Section 8 deals with a court case filed despite an arbitration clause. Section 9 deals with interim relief from the court in support of arbitration.

What Does Section 8 Do?

Section 8 provides that where a suit is brought before a judicial authority in a matter that is the subject of an arbitration agreement, the court must, if a party applies not later than the date of submitting their first statement on the substance of the dispute, refer the parties to arbitration. The 2015 amendment made the position stricter: the court must refer unless it finds that, prima facie, no valid arbitration agreement exists.

Three practical points follow

• The application must be made before the written statement on the merits, or the right may be lost
• The court looks only at whether there is a valid arbitration agreement, and not at the merits of the dispute
• The party applying must be a party to the agreement, or someone claiming through such a party

The Supreme Court in Vidya Drolia v. Durga Trading Corporation (2020) held that courts should refuse to refer only where it is clear that the agreement does not exist or the subject matter is not arbitrable. It also noted that certain disputes are not arbitrable at all, such as matrimonial matters, insolvency and criminal offences, and some rights in rem. A party who wants to avoid arbitration should do so by showing that the clause is invalid or does not cover the claim, not by arguing that the dispute is complicated.

What Words Make a Valid Arbitration Clause?

The clause must show a firm intention that disputes be finally decided by arbitration. Words such as the parties may refer disputes to arbitration have been held by the Supreme Court, in Jagdish Chander v. Ramesh Chander (2007), not to create a binding agreement, because they leave the choice open. A clear clause usually states what disputes it covers, the seat of arbitration, the number of arbitrators and how they are appointed, and the governing law. Any pre-arbitration steps, such as negotiation or notice, should also be followed. An agreement that is unstamped does not become void for that reason, as the Supreme Court held in its 2023 decision on the interplay of the Arbitration Act and the Stamp Act.

What Does Section 9 Do?

Section 9 allows a party to apply to the court for interim measures of protection before or during arbitral proceedings, or at any time after the award is made but before it is enforced. The court can order a range of measures, including:

• Appointment of a guardian or receiver for the subject matter
• Preservation, interim custody or sale of goods that are the subject of the dispute
• Securing the amount in dispute
• Restraining a party from dealing with assets, or an injunction against a breach
• Any other interim measure of protection that appears just and convenient

The court applies the usual principles of a prima facie case, balance of convenience and irreparable harm. In Sanghi Industries v. Ravin Cables (2022), the Supreme Court said that while the court should be guided by the principles in Order XXXVIII Rule 5 of the CPC when asked to secure the amount in dispute, it is not bound by their technicalities. If the arbitration does not start within 90 days of the court's interim order, or such time as the court allows, the order can lapse. Our note on attachment before judgment describes the civil court equivalent.

Once the Tribunal Is Formed, Who Grants Interim Relief?

Once the arbitral tribunal is constituted, the court will not ordinarily entertain a Section 9 application unless the remedy before the tribunal under Section 17 is not efficacious. A tribunal's interim orders under Section 17 are enforceable in the same way as court orders. This means a party who needs relief urgently, before a tribunal exists, should apply to the court, and one who needs it later should first approach the tribunal.

Which Court Has Jurisdiction?

The seat of arbitration is the key. For arbitrations seated in India, the courts at the seat have exclusive jurisdiction to hear applications such as those under Sections 9 and 34, as the Supreme Court held in BGS SGS Soma JV v. NHPC (2019). A clause that names a city as the venue and no other seat is read in light of its terms, and so the choice of seat should be clear in the contract. Courts in Chennai deal with arbitrations seated in Chennai, and commercial disputes related to them are heard by the commercial courts or the Commercial Division of the Madras High Court.

What If There Are Also Non-Arbitrable Claims?

Some claims may fall outside the clause, such as statutory claims reserved for a special forum, or claims against parties who did not sign the agreement. In that case, parts of the dispute may go to arbitration and parts to court, and the court decides how to proceed. For example, a petition for oppression and mismanagement before the NCLT is a statutory remedy that parties often pursue even where a shareholders' agreement has an arbitration clause. See our note on shareholders' agreements and articles of association.

How Should You Handle It Practically?

Before you sue or are sued, read the clause. If you are a plaintiff and the clause applies, consider arbitration directly, and use Section 9 for urgent relief. If you are a defendant sued in court despite a clause, file a Section 8 application at the first opportunity and not after your written statement. And in a commercial suit where the clause does not apply, remember that pre-institution mediation under Section 12A must be completed first.

The arbitration clause often decides the shape of the whole dispute. Our Contract & Arbitration practice advises on arbitration agreements, interim relief and proceedings, and you can request a consultation. Once an award is made, see our guide to setting aside and enforcing arbitral awards.