Court Rules Section 8 Arbitration Application Cannot Bypass Mandatory Timeline Under Commercial Courts Act, 2015, Affirming Forfeiture of Defendant's Right After 120 Days
In a significant judgment delivered on October 6, 2026, the Madras High Court (Division Bench) has clarified the scope and limits of invoking arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, in commercial disputes. The court held that once a defendant's right to file a written statement in a commercial suit is forfeited after the expiry of the mandatory 120-day period prescribed under the Commercial Courts Act, 2015, the defendant cannot subsequently seek a reference of the dispute to arbitration as a procedural device to circumvent the timeline.
The case arose from a commercial suit filed by TUV SUD South Asia Private Limited (plaintiff/respondent), a company engaged in certification, testing, auditing, and inspection services, against M/s. BGR Energy Systems Limited (defendant/appellant), which provides engineering, procurement, and construction services. The plaintiff claimed recovery of Rs. 37,45,109/- for services rendered under a contractual agreement that included an arbitration clause.
Summons were served on the defendant on April 2, 2026. However, the defendant failed to file its written statement within the initial 30-day period and also failed to file it within the extended 120-day limit mandated by the Commercial Courts Act, 2015, which amends the Code of Civil Procedure (CPC) to introduce stringent timelines for commercial suits. Consequently, the defendant was set ex parte. Although the court later allowed the defendant to participate in proceedings, including cross-examining the plaintiff's witnesses, it explicitly held that the defendant's right to file the written statement was forfeited.
Subsequently, the defendant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the dispute to arbitration based on the arbitration clause in the contract. The Commercial Court rejected this application, holding that the right to invoke Section 8 expires with the forfeiture of the right to file a written statement.
Challenging this order, the defendant contended that Section 8 allows seeking arbitration reference "not later than when submitting his first statement on the substance of the dispute," which they argued should not be confined to the written statement deadline and that no independent limitation exists for filing a Section 8 application. The defendant further argued that participation in proceedings after setting aside the ex parte order should revive their right to arbitrate.
The Madras High Court analyzed the interplay between Section 8 of the Arbitration Act and the amended provisions of the CPC under the Commercial Courts Act, 2015, which specifically caps the time to file a written statement at 120 days from service of summons, beyond which the right is forfeited, and no further extensions are permissible. The court observed that the expression "not later than when submitting his first statement on the substance of the dispute" in Section 8 clearly coincides with the filing of the written statement in a suit.
Relying on authoritative precedents, including the Supreme Court's ruling in SCG Contracts India Pvt. Ltd. v. K.S. Chamankar Infrastructure Pvt. Ltd. (2019), and decisions from the Delhi, Calcutta, Karnataka, and Bombay High Courts, the Division Bench held that once the statutory timeline for filing the written statement lapses, the defendant cannot invoke Section 8 as a procedural escape route to arbitration. The court emphasized the legislative intent behind the Commercial Courts Act, 2015, which aims to ensure speedy disposal of commercial disputes by enforcing strict timelines.
The court further rejected the argument that mere participation in proceedings post ex parte order reinstates the right to arbitrate, clarifying that such participation cannot override the statutory forfeiture of the right to file a written statement or the time limit for invoking arbitration.
Consequently, the Madras High Court dismissed the appeal filed by M/s. BGR Energy Systems Limited, affirming the Commercial Court's order rejecting the arbitration reference application and underscoring that Section 8 cannot be used as a device to circumvent mandatory procedural timelines.
This judgment reinforces the binding effect of the amended procedural provisions under the Commercial Courts Act, 2015, and clarifies that commercial litigants must adhere strictly to the 120-day deadline for filing written statements, failing which their right to seek arbitration under Section 8 also expires.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 8 In a commercial suit, once the defendant's right to file written statement stands forfeited on expiry of 120 days from service of summons under the Commercial Courts Act, 2015 and amended CPC, the defendant cannot thereafter seek reference of the dispute to arbitration under Section 8, Section 8 cannot be used as a device to circumvent the mandatory timeline for filing written statement.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 8, Commercial Courts Act, 2015, Code of Civil Procedure Order V Rule 1, Order VIII Rules 1 and 10
