A enters into a contract to sell his house to his son B at a nominal price of Rupees Five lakhs, and B agrees to pay Rupees Ten thousand every month of A's daughter, C, for her lifetime. The contract contains an arbitration clause that in the event of any dispute between the parties with respect to the terms of the contract or its implementation, they will refer the matter to arbitration-Later, B stops paying C. C wishes to commence an arbitration proceeding, but B does not agree to arbitration. C files a suit seeking the court's direction that arbitration proceedings be commenced. In light of these facts and the principle below, which of the following statements is most accurate ?

All India Bar Examination (AIBE) 3-III Previous Year Question Papers with Answers

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A enters into a contract to sell his house to his son B at a nominal price of Rupees Five lakhs, and B agrees to pay Rupees Ten thousand every month of A's daughter, C, for her lifetime. The contract contains an arbitration clause that in the event of any dispute between the parties with respect to the terms of the contract or its implementation, they will refer the matter to arbitration-Later, B stops paying C. C wishes to commence an arbitration proceeding, but B does not agree to arbitration. C files a suit seeking the court's direction that arbitration proceedings be commenced. In light of these facts and the principle below, which of the following statements is most accurate ?

Principle

A court may refer parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, only in respect of a matter that is the subject matter of an arbitration agreement. Where a suit is commenced as to a matter that lies outside the arbitration agreement or is between parties who are not parties to the arbitration agreement, there is no question of application of Section 8.

A: There was no 'separate' arbitration agreement between A and B, and therefore C's suit will be dismissed.

B: There was no arbitration agreement between B and C, and therefore C's suit will be dismissed.

C: B's agreement to pay Rupees Ten thousand every month to was an ancillary mater and not the subject matter of the contract, and therefore C' suit will be dismissed.

D: Since arbitration is a voluntary method of alternate dispute resolution and B did not agree to arbitration, no arbitration proceedings can be ordered by the Court.

E: B's failure to pay is clearly a dispute regarding implementation of the contract, which is the subject matter of the arbitration agreement and therefore the court is obliged to refer the matter to arbitration.

The answer is: B

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Explanation

he correct option is B: There was no arbitration agreement between B and C, and therefore C's suit will be dismissed.

The explanation is as follows:

The principle states that a court may refer parties to arbitration only in respect of a matter that is the subject matter of an arbitration agreement and only between parties who are parties to the arbitration agreement.

In this case, the arbitration agreement was between A and B, who entered into a contract to sell A's house to B. C was not a party to the contract or the arbitration agreement. Therefore, C cannot invoke the arbitration clause against B.

Moreover, the matter that C wants to arbitrate is not the subject matter of the contract or the arbitration agreement. The contract was about the sale of A's house to B, not about B's obligation to pay C. The payment to C was an ancillary matter that was not covered by the arbitration clause.

Therefore, C's suit will be dismissed as she has no right to seek arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.