Judgment :- The revision petitioner, first defendant in O.S.No.26 of 2002 on the file of the Principal District Judge, Nellore, being aggrieved of the order dated 23rd day of October 2006, had preferred the present civil revision petition. 2. Heard Sri Kota Subba Rao, learned counsel representing the petitioner-defendant No.1 and Sri P. Vinayaka Swamy, learned counsel representing the first respondent-plaintiff. 3. The parties hereinafter would be referred to as plaintiff and first defendant for the purpose of convenience. 4. The plaintiff filed the suit O.S.No.26 of 2002 on the file of the Principal District Judge, Nellore, for recovery of damages for the vehicle based on insurance policy. The learned judge in nutshell having referred the respective pleadings of the parties after referring to Clause 7 of the policy in question, came to the conclusion that since the liability under the policy is not disputed and the dispute is only with regard to laches and also correctness of the expenses incurred for the repairs and also the necessity of such repairs, these matters can be effectively determined by the arbitrator and accordingly directed the parties to make submission of their terms of possible settlement for reference to the arbitration and also nominate the arbitrators as per the conditions of the insurance policy. Aggrieved by the same, the present civil revision petition is preferred. 5. Sri Kota Subba Rao, the learned counsel representing the petitioner-defendant No.1 had pointed out that none of the parties made any submissions praying for reference to arbitrators and after arguments had been concluded the learned judge made this order. The counsel also pointed out that this objection was not taken in the written statement and further the very liability is in dispute as can be seen from the written statement filed by the first defendant. The learned counsel also pointed out to that portion of Clause 7 “liability being otherwise admitted” and would maintain that in the facts and circumstances of the case the impugned order cannot be sustained. The counsel also placed strong reliance on the decisions in Hindustan Petroleum Corpn. Ltd., V. M/s Pinkcity Midway Petroleums (AIR 2003 SUPREME COURT 2881) and P.Anand Gajapathi Raju and others V P.V.G.Raju (died) and others (AIR 2000 SUPREME COURT 1886). 6. The counsel also placed strong reliance on the decisions in Hindustan Petroleum Corpn. Ltd., V. M/s Pinkcity Midway Petroleums (AIR 2003 SUPREME COURT 2881) and P.Anand Gajapathi Raju and others V P.V.G.Raju (died) and others (AIR 2000 SUPREME COURT 1886). 6. Sri P.Vinayaka Swamy, learned counsel representing the plaintiff-first respondent also would submit that even the procedure under Section 89 of the Code of Civil Procedure (hereinafter in short referred to as ‘the Code’ for the purpose of convenience) had not been followed and even otherwise the parties are interested in inviting a judgment on merits that is the reason why the respective parties have adduced evidence and advanced arguments also and at that stage the learned judge is not justified in making such an order. 7. Section 89 of the Code reads as hereunder. “89. Settlement of disputes outside the Court:-- (1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for— (a) arbitration; (b) conciliation; (c) judicial settlement including settlement through Lok Adalat; or (d) mediation. (2) Where a dispute has been referred— (a) For arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act; (b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat; (c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (3( of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act; (d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.” 8. Clause 7 of the policy, which had been referred to by the learned judge, reads as hereunder. “If any difference shall arises as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of an arbitrator to the decision of two disinterested persons as arbitrators of whom, one shall be appointed in writing by each of the parties within two calendar months after having been required to do so in writing by the other party in accordance with the provisions of the Arbitration Act, 1940 as amended from time to time and for the time being in force. In case either party shall refuse or fail to appoint arbitrator within two calendar months after receipt of notice in writing requiring an appointment the other party shall be at liberty to appoint sole arbitrator, and in case of disagreement between the arbitrators the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at the meetings. It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided if any Company has disputed or not accepted liability under or in respect of this policy. It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that award by such arbitrators or umpire of the amount of the loss or damage shall be first obtained. It is also hereby further expressly agreed and declared that the Company shall disclaim liability to the insured for such disclaimer have been made the subject matter of a suit in a court of law then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.” 9. In P. Anand Gajapathi Raju and others V. P.V.G.Raju (died) and others (2 supra) the Apex Court at para 5 observed as hereunder. In P. Anand Gajapathi Raju and others V. P.V.G.Raju (died) and others (2 supra) the Apex Court at para 5 observed as hereunder. “The Conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are: (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the Court referring the parties to arbitration.” Likewise in Hindustan Petroleum Corpn. Ltd., V. M/s Pinkcity Midway Petroleums (1 supra) it was observed at para 14 as hereunder. “This Court in the case of P. Anand Gajapathi Raju and others v. P.V.G. Raju (Dead) and others ( 2000 (4) SCC 539 ) has held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear @ page-SC-2886 that if as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the Courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the Courts below. Be that as it may, at the cost of repetition. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the Courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the Courts below. Be that as it may, at the cost of repetition. We may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.” 10. On a careful reading of the respective pleadings of the parties, the written statement as well as additional written statement the revision petitioner herein, the first defendant in the suit, no where had raised such an objection and further specific stand is taken that the liability in fact is a disputed liability and not an admitted liability. The conditions to be satisfied for making a reference to the arbitrators already had been specified supra in P. Anand Gajapathi Raju and others V. P.V.G.Raju (died) and others (2 supra). In the light of the facts and circumstances, this Court is of the considered opinion that even in the light of the language of Section 8 of Arbitration and Conciliation Act, 1996, and also Section 89 of the Code, this is not a fit case where the learned judge could have directed the parties to make submission of their terms of possible settlement for reference to arbitration and to nominate the arbitrators as per the conditions of the insurance policy. 11. Hence, the impugned order is hereby set aside and the civil revision petition is accordingly allowed. No costs. It is needless to say that the learned judge to further proceed with the suit and decide the matter in accordance with law at an earliest point of time.