New Delhi: A civil suit cannot be entertained by courts in disputes, which are covered by an arbitration agreement between the two parties, the Supreme Court has ruled.

Any such disputes covered under the arbitration agreement has to be mandatorily referred to the Arbitrator for adjudication, a Bench of Justices S B Sinha and Markandeya Katju said while upholding a decision of the Andhra Pradesh High Court.

The apex court passed the ruling while dismissing an appeal filed by M/s Agri Gold Exims Ltd challenging the High Court order, which ruled that courts cannot entertain a dispute if there was an arbitration agreement between the contending parties.

The appellant company had filed a suit in a civil court against M/s Sri Lakshmi Knits and Wovens before a civil court for recovery of Rs 36,14,887.

Lakshmi Knits submitted that it had already paid the disputed amount and also challenged the suit on the ground that courts cannot entertain the same since there was a pre-existing arbitration treaty between the two parties.

While the civil court rejected the arguments, the High Court ruled that when there was arbitration agreement the civil court was wrong in entertaining the suit.