Once Arbitration Clause Exists and Proceedings Are Ongoing, Civil Court Must Step Back: Andhra Pradesh High Court Dismisses Suit for Injunction in Partnership Dispute

“Pendency of Arbitration Bars Parallel Civil Suit — Civil Court Has No Jurisdiction Once Parties Are Already Before Arbitral Tribunal,” In a detailed judgment reinforcing the exclusivity of arbitral jurisdiction under the Arbitration and Conciliation Act, 1996, the Andhra Pradesh High Court at Amaravati, on 27 January 2026, dismissed a second appeal filed by a partner of a real estate firm seeking a civil injunction to prevent another partner from claiming his share in profits and losses. Justice V. Gopala Krishna Rao ruled that “where arbitration proceedings are already pending between the parties under a valid arbitration clause, civil court cannot assume jurisdiction for parallel adjudication.”

The Court further clarified that “allegations of fraud, when made in the context of a contractual relationship, do not oust the jurisdiction of the arbitral tribunal under Section 16 of the Act.” Accordingly, the Court dismissed both the Second Appeal filed by the plaintiff and the Cross Objections filed by the defendant, confirming the judgment of the First Appellate Court, which had directed reference to arbitration instead of rejection of the plaint.

“Rejection of Plaint Not the Correct Course — Civil Court Must Refer Parties to Arbitration, Not Dismiss Suit Outright”

The dispute originated in a civil suit filed in 2011 by the plaintiff Voona Sarveswara Rao, who was a Managing Partner of M/s Ajantha Real Estates, Srikakulam, seeking a permanent injunction to restrain the defendant Andhravarapu Govinda Rajulu, another partner, from claiming his 20% share of profits and losses in the firm. However, it was undisputed by both parties that arbitration proceedings under the partnership deed were already ongoing since 2007.

In light of the arbitration clause contained in the partnership deed, the defendant filed an application under Order VII Rule 11 CPC read with Section 8 of the Arbitration and Conciliation Act, 1996, seeking rejection of the plaint and reference to arbitration. While the Trial Court rejected the plaint, the First Appellate Court modified that decision, holding that “the correct course was to refer the parties to arbitration rather than rejecting the plaint.”

The High Court upheld the Appellate Court’s view, stating, “the approach of the First Appellate Court is legally sound and aligned with the statutory framework under Section 8 of the Arbitration and Conciliation Act.”

“Admitted Arbitration Clause and Pending Arbitration — Civil Court Cannot Entertain Suit”

The Court found that the existence of the arbitration clause was admitted, and the original deed was in the possession of the plaintiff, a fact also admitted in pleadings. “Where arbitration proceedings are already in progress, and the parties are governed by an arbitration clause, filing of civil suits to circumvent or delay arbitral determination is impermissible,” the Court observed.

Justice Rao reiterated the legal position that once there is an arbitration agreement and proceedings have already been initiated, “Section 8 of the Act mandates that the civil court must refer the matter to arbitration and must refrain from adjudicating the same dispute on merits.”

Quoting from the Supreme Court's ruling in Sundaram Finance Ltd. v. T. Thankam, the Court noted: “Once there is an agreement between the parties to refer the disputes to arbitration, and a party ignores the agreement and files a civil suit, it is obligatory for the court to refer the matter to arbitration before the first statement is filed.”

“Fraud Allegations No Ground to Evade Arbitration — Tribunal Has Jurisdiction Under Section 16”

The plaintiff had argued that since the defendant alleged fabrication of documents, such matters went beyond the scope of arbitration and could only be tried by a civil court. Rejecting this submission, the Court ruled that “allegations of fraud simpliciter do not nullify the arbitration agreement. These are matters well within the jurisdiction of the arbitral tribunal under Section 16.”

Relying on the Supreme Court’s verdict in Ayyasamy v. Paramasivam and K. Mangayarkarasi v. N.J. Sundaresan, the Court held: “Even if allegations of fraud or criminal wrongdoing are raised, they do not oust arbitral jurisdiction unless they are serious, complex, or go beyond the scope of the arbitration agreement — which is not the case here.”

The Court also observed that “allowing bifurcation of proceedings—civil court dealing with part of the issue and arbitral tribunal with another—would result in conflicting decisions, multiplicity of litigation, and defeat the object of arbitration.”

“Suit Filed in 2011 While Arbitration Was Ongoing Since 2007 — Barred by Pendency and Lacked Jurisdiction”

A crucial fact that weighed with the Court was that arbitration between the parties was already ongoing since 2007, whereas the civil suit was filed four years later in 2011, during the evidence stage before the arbitrator. The Court held that “the plaintiff had full knowledge of the arbitration proceedings and deliberately chose to initiate a parallel suit, which is impermissible under law.”

It ruled that “once arbitration is pending and the dispute is covered by the arbitration clause, the civil court loses jurisdiction to entertain the matter. The correct remedy lies within the arbitral framework.”

“Second Appeal Dismissed — No Substantial Question of Law Arises When Arbitration Clause Is Admitted and Proceedings Are Pending”

The plaintiff sought to bring the matter within the scope of Section 100 CPC by arguing that:

1. The defendant had filed the Section 8 application belatedly,

2. The original arbitration agreement was not filed, and

3. The First Appellate Court erred in directing reference to arbitration.

Rejecting all three arguments, the High Court held:

• “The plaintiff himself admitted pendency of arbitration, making the absence of the deed irrelevant.”

• “Timing of the Section 8 application is not fatal when arbitration was already underway.”

• “There is no perversity or illegality in the Appellate Court’s findings.”

The Court emphasized that “a second appeal under Section 100 CPC is not maintainable unless a substantial question of law is involved. In the present case, none arises.”

Parallel Adjudication Prohibited — Once Arbitration Is Invoked, Civil Suit Must Make Way

The High Court concluded that both the trial court and the appellate court had proceeded correctly, and no grounds existed to interfere under Section 100 CPC. The judgment reinforces a crucial principle in Indian arbitration jurisprudence — where parties have agreed to arbitrate and are already before an arbitrator, the civil courts must abstain from intervening.

Justice Gopala Krishna Rao held: “The entire suit is barred in light of the arbitration proceedings pending since 2007. No substantial question of law arises. The second appeal is devoid of merit.”

Date of Decision: 27 January 2026