Introduction:

In DIN DAYAL AGRAWAL HUF versus CAPRISO FINANCE LTD, CM(M) 2008/2024 & CM APPL. 12962/2024, the Delhi High Court, through Justice Ravinder Dudeja, delivered a significant judgment on 25 June 2025, clarifying that the mere presence of an arbitration clause in an agreement does not, by itself, justify rejection of a plaint under Order VII Rule 11(d) of the Civil Procedure Code, 1908, unless a proper application is filed under Section 8 of the Arbitration and Conciliation Act, 1996 seeking referral to arbitration. The case arose out of a petition filed under Article 227 of the Constitution by DIN DAYAL AGRAWAL HUF challenging an order dated 19 January 2024 passed by the learned District Judge, Commercial Courts-01, Tis Hazari Courts, which dismissed the petitioner’s application under Order VII Rule 11 CPC in CS (Comm) No. 2242/2022 and closed the petitioner’s right to file a written statement. The dispute stemmed from a ₹35 lakh loan taken by the petitioner on 18 March 2019, secured against 13,113 shares of M/s Trishul Dream Homes Ltd. CAPRISO FINANCE LTD, the respondent, filed a commercial suit for recovery based on this transaction. However, the authorization to sue against the petitioner was initially unsupported by a valid board resolution, as the resolution dated 12 August 2022 only authorized proceedings against Trishul Dream Homes Ltd., a separate entity, not the petitioner-HUF. Subsequently, on 27 September 2023, the respondent submitted a fresh board resolution ratifying the filing of the suit specifically against the petitioner. The petitioner filed an application under Order VII Rule 11 CPC arguing that the suit was barred by law due to the arbitration clause in the loan agreement and lack of proper authorization at the time of suit filing. The trial court rejected these arguments, accepted the subsequent board resolution as curative, dismissed the application, and closed the petitioner’s right to file a written statement. This prompted the petitioner to approach the High Court challenging the legality of the trial court’s order.

Arguments of Both Sides:

Ms. Manpreet Kaur and Ms. Jaya Goyal, representing the petitioner, argued that the learned trial court’s order was fundamentally flawed because the suit was instituted without a valid board resolution authorizing the respondent to proceed against the petitioner-HUF. They submitted that the initial resolution pertained only to M/s Trishul Dream Homes Ltd. and did not extend authority to sue the petitioner. They contended that the subsequent board resolution dated 27 September 2023, submitted after the institution of the suit, could not retroactively cure the defect in authorization because the authority to institute a suit must exist on the date of filing. Relying on Supreme Court judgments in United Bank of India v. Naresh Kumar and Mahanagar Telephone Nigam Ltd. v. Suman Sharma, they argued that lack of a valid board resolution at the inception of the suit renders the plaint incompetent and liable for rejection under Order VII Rule 11 CPC. Further, counsel emphasized Clause 10 of the loan agreement, which mandated pre-litigation negotiation and arbitration, arguing that by bypassing these mandatory dispute resolution steps, the respondent’s suit was barred by law. They submitted that the trial court’s mechanical rejection of the application under Order VII Rule 11 CPC, combined with closing the petitioner’s right to file the written statement, amounted to a gross violation of natural justice.

In response, Mr. Gaurav Pachauri, appearing for the respondent, submitted that the initial defect in authorization was a curable irregularity under Order VI Rule 14 CPC and did not warrant rejection of the plaint. He relied on Palm View Investment v. Ravi Arya, where courts recognized that procedural defects like absence of a valid board resolution are not fatal and can be rectified during the course of proceedings. Counsel highlighted that under Order XXIX CPC, corporations can authorize officers to represent them, and the subsequent board resolution ratified the institution of the suit, curing any procedural defect without causing prejudice to the petitioner. On the arbitration clause, counsel argued that the petitioner failed to invoke Section 8 of the Arbitration Act by filing a proper application along with the original or certified copy of the arbitration agreement. He contended that mere reference to the arbitration clause in an Order VII Rule 11 CPC application is insufficient to seek dismissal of the plaint, as the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. laid down a specific five-factor test for reference to arbitration, including the requirement of a timely Section 8 application before the first statement on the substance of the dispute. Counsel further argued that the arbitration clause did not itself bar the jurisdiction of civil courts but only provided a mechanism for resolution, which must be invoked appropriately by the aggrieved party. The respondent emphasized that since the petitioner did not file an application under Section 8, the trial court rightly held that the suit was maintainable, and the rejection of the Order VII Rule 11 application was legally sound.

Court’s Judgement:

Justice Ravinder Dudeja, after carefully examining the submissions and the applicable legal framework, held that the trial court committed no error in refusing to reject the plaint under Order VII Rule 11(d) CPC. The Court noted that as per the Supreme Court’s judgment in Booz Allen, for a referral to arbitration under Section 8 of the Arbitration Act, four conditions must be met: the existence of a valid arbitration agreement; all parties to the suit being parties to the agreement; the disputes falling within the scope of the arbitration clause; and the filing of an application under Section 8 before submitting the first statement on the substance of the dispute. The Court stressed that the Arbitration and Conciliation Act provides a statutory mechanism under Section 8 to seek reference to arbitration, which requires the applicant to file an application accompanied by the original or certified copy of the arbitration agreement. The petitioner’s failure to file such an application meant that the court was not obligated to refer the parties to arbitration merely because an arbitration clause existed in the agreement. Justice Dudeja clarified that while Section 8 mandates referral upon a proper application, it does not automatically bar the jurisdiction of civil courts or render the plaint liable for rejection under Order VII Rule 11(d) CPC. The Court further observed that the petitioner’s reliance on the arbitration clause in an Order VII Rule 11 application, without a prayer for reference to arbitration, could not substitute for the procedural requirements of Section 8.

Regarding the issue of the authorization to file the suit, the Court held that the subsequent board resolution dated 27 September 2023, submitted during the course of the proceedings, validly ratified the filing of the suit and cured the initial procedural defect, relying on the settled principle that procedural irregularities like lack of initial authorization can be remedied without affecting the maintainability of the suit. The Court noted that no prejudice was caused to the petitioner by accepting the rectifying resolution, as recognized in United Bank of India and Palm View Investment. Finally, on the petitioner’s grievance regarding closure of the right to file the written statement, Justice Dudeja observed that the petitioner had ample opportunity to file the written statement but failed to do so within the statutory timelines prescribed under the Commercial Courts Act and CPC, warranting closure of the right in line with settled law on procedural discipline in commercial litigation. Accordingly, the Court dismissed the petition, affirming the trial court’s order as legally sound and holding that the mere existence of an arbitration clause does not justify rejection of a plaint under Order VII Rule 11(d) CPC in the absence of a proper Section 8 application.