Madhya Pradesh High Court
Dr. Siddharth Sinha vs Mukesh Kumar Mittal on 26 August, 2019
Author: Subodh Abhyankar
Bench: Subodh Abhyankar
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HIGH COURT OF MADHYA PRADESH:JABALPUR
SINGLE BENCH: Hon'ble Mr. Justice Subodh Abhyankar
Arbitration Case No.47 of 2017
Dr. Siddharth Sinha.
Vs.
Mukesh Kumar Mittal & another.
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Shri Rajendra Babbar, learned counsel with Shri Vikram
Johri, Advocate for the petitioner.
Shri Sanjay Agrawal, learned counsel for the
respondents.
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ORDER
(Passed on this 26th day of August, 2019) This application has been filed by applicant Dr. Siddharth Sinha under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter `AC Act') for appointment of an Arbitrator in terms of deed of partnership dated 22.3.2013.
2. In brief, the facts of the case are that the deed of partnership was entered into between the applicant and the respondents No.1 and 2 on 22.3.2013 for conducting the business of Architectural work, Civil Construction, Contractor-ship, Buildership, Development and sub-contracting of the aforesaid activities. It is the further case of the applicant is that the aforesaid 2 partnership firm was registered and its account was also opened in the Corporation Bank, Bhopal authorizing all the three partners, namely, the applicant and the respondents No.1 and 2 herein to sign the cheques of the partnership business and any two partners were entitled to operate the account of the partnership firm for the business purposes.
3. The case of the applicant is that the respondent No.1 had withdrawn more than Rs.71 lakhs from the account of the firm despite the fact that he had invested around Rs.29 lakhs in the firm whereas the respondent No.2 had obtained a sum of Rs.1.40 lakhs from the said account of the firm although he has not invested any amount in cash in the partnership firm but has sold his land situated in village Bhojpur District Raisen through a registered sale deed dated 04.09.2013. Thus a dispute has arisen between the partners which, according to the applicant can only be settled through the arbitration as as per clause 14 of the deed of partnership.
4. Counsel for the applicant has submitted that thereafter a notice was sent to the respondents for appointment of arbitrator vide letter dated 25.6.2017. The aforesaid notice was replied by the respondents 3 dated 17.7.2017 refuting the allegations made in the notice sent by the applicant and also mentioning that the partnership deed itself has come to an end on account of subsequent agreement entered into between the parties. Counsel has further submits that although the subsequent agreement was indeed entered into between the parties, however en assuming the partnership has come to an end, that would not preclude the applicant to invoke the arbitration clause of the original deed of partnership as the arbitration clause would still survive. Counsel for the applicant has drawn the attention of this Court to clause 14 of the deed of partnership and has submitted that the arbitrator be appointed as the respondents have failed to appoint the arbitrator or to agree on a name as an arbitrator for the settlement of dispute between them.
5. Learned counsel for the applicant in support of his contentions that arbitration clause would still survive despite subsequent settlement/agreement with the consent by the parties, has also relied upon the decision rendered by the Apex court in the case of Branch Manager, Magma Leasing & Finance Ltd. and 4 another Vs. Potluri Madhavilata and another, (2009) 10 SCC 103.
6. On the other hand, counsel for the respondents has vehemently opposed the prayer and has submitted that no case for appointment of arbitrator is made out as the deed of partnership has already come to an end. It is further submitted that subsequently the other two partners respondent nos. 1 and 2 herein were replaced by two other persons viz., Rajeev Saxena and Pratibha Sinha vide a separate agreement for reconstitution of partnership dated 1.4.2015. As per this agreement, it was agreed between the parties that the applicant herein shall pay a sum of Rs. 1,40,00,000/- to the respondent no.1 and Rs. 1,76,00,000/- to the respondent no.2 after settlement of all accounts. It was also specifically provided that in case of failure to pay the aforesaid lump sum amount as agreed between the parties on or before 31.1.2016, the aforesaid amount shall carry interest @ 36% which shall be paid by the applicant to the respondent nos. 1 and 2. The applicant also issued post dated cheques for the aforesaid amount. In the aforesaid agreement dated 01.04.2015 Clause 13 provides as under:
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"XIII That after retirement from the old Firm, the First Party and the Second Party shall not be made liable for any liability either against the old or new reconstituted firm or against the First and the Second Party for any act done by them in the capacity of partners of the old Firm."
7. It is further submitted that although, the aforesaid agreement was also acted upon by the applicant by payment of Rs. 71 lacs to the respondent no.1 and Rs. 65 lacs to the respondent no.2, however, the cheques issued in respect of remaining amount were dis- honoured which led to another agreement dated 10.10.2017, which was styled as Agreement for Resolution of dispute dated 10.10.2017, whereby the parties agreed to settle their disputes by payment of Rs. 75 lacs by the applicant to the respondent no.1 in the manner indicated therein and subsequently another document Memorandum of Understanding also entered into between the applicant and the respondent no.2 for payment of Rs. 1,76,00,000/-. It is further submitted by Shri Agrawal that in Clause V of the aforesaid Memorandum of Understanding, it was clearly mentioned that it was an agreed legal liability of the applicant to comply with its terms. Thus, it is submitted that nothing survives to be decided by an arbitrator as the partnership 6 agreement has effectively been replaced and restructured hence the earlier deed of partnership and its arbitration clause would not survive and as such the applicable for appointment of arbitrator under Section 11(6) of the AC Act is not maintainable.
8. Counsel for the respondents has submitted that the application under Section 11 (6) of the AC Act for appointment of Arbitrator was filed on 31.7.2017 but there is no reference of the Agreement for Reconstitution of Partnership Firm dated 1.4.2015 and that the applicant has deliberately suppressed the aforesaid facts and documents. It is further submitted that during the pendency of the application Agreement for Resolution of Dispute was entered into between the parties on 10.10.2017 as also the document i.e Memorandum of Understanding dated 16.10.2018 and this document has been brought on record by the respondents herein and have not been rebutted by the applicant and is binding upon him. Thus, it is submitted that the application for appointment of arbitrator being devoid of merits be dismissed.
9. Heard the learned counsel for the parties and perused the record. Under the facts and circumstances, 7 this Court is required to examine if the arbitration clause as contained in the deed of partnership dated 22.03.2013 would still survive after execution of the subsequent agreements.
10. From the record, this Court finds that the deed of partnership was executed by the applicant and respondents No.1 and 2 on 22.03.2013 which contains the arbitration clause, which reads as under :
"14. That in the event of dispute amongst the partners in respect of partnership such disputes shall be referred to an arbitration and its award shall be final and binding on the partners, their heirs and assignees, in terms of the provisions of Arbitration Act, then in force."
The aforesaid deed of partnership also provides that all the three partners would be entitled to 1/3rd share each in the profit and loss of the partnership business. Although it is not averred in the application, however on the pleadings of the respondents it is found that the aforesaid deed of partnership was amended and an agreement for reconstitution of partnership firm was executed between the parties on 01.04.2015 which is titled as agreement for reconstitution of the partnership firm and other two partners, namely, Shri Rajeev Saxena and Smt. Pratibha Sinha were also inducted in the partnership firm whereas the present respondents No.1 8 and 2, namely Mukesh Kumar Mittal and Sanjay Tiwari stood retired from the said partnership firm.
11. It is not in dispute that the applicant herein, in the subsequent agreement for reconstitution of partnership firm agreed to pay a sum of Rs.75 lacs to the respondent No.1 and Rs.1.76 Crore to the respondent No.2. It is also not disputed that as the applicant defaulted in making the payment to the respondents No.1 and 2 hence an agreement for resolution of dispute was also entered into between the applicant and the respondent no.1 on 10th October, 2017 and the applicant was also required to give certain post-dated cheques to the respondent No.1 and subsequently a memorandum of understanding was also entered into between the applicant and the respondent No.2 on 16th October, 2018 wherein also the applicant agreed to pay to the respondent No.2 a certain amount of money along with post dated cheques. Thus the admitted position in the present case is that initially a deed of partnership was entered into between the parties and subsequently other agreements were also executed by them including reconstitution of the partnership firm, resolution of dispute and memorandum of understanding. 9
12. On due consideration of the documents filed by the parties on record, this Court is of the considered opinion that after execution of the initial deed of partnership, the other documents which have been executed by the parties herein nowhere provides that the deed of partnership has been rescinded by the parties. Even assuming that the deed of partnership has come to an end on account of the subsequent agreements between the parties, still, it cannot be held that the arbitration clause contained in the deed of partnership would also come to an end by the subsequent acts/conduct of the parties. Reference in this regard may also be had to the judgment rendered by the Apex Court in the case of Magma Leasing & Finance Ltd (supra), the relevant excerpts of the same read as under :
"12. In National Agricultural Coop. Mktg. Federation India Ltd. v. Gains Trading Ltd., this Court held thus: (SCC pp. 695-96, para 6) "6. The respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the arbitration agreement which forms part of the contract, also came to an end. Such a contention has never been accepted in law. An arbitration clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration or 10 breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. (Vide Heyman v. Darwins Ltd., Union of India v. Kishorilal Gupta & Bros. and Naihati Jute Mills Ltd. v. Khyaliram Jagannath.) This position is now statutorily recognised. Sub-section (1) of Section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract; and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."
13. Recently in P. Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corpn., while dealing with the argument of the respondent therein that in terms of the contract the claim for extra work or additional work should have been raised during the pendency of the contract itself and not after it came to an end, this Court considered the concept of separability of the arbitration clause from the contract and made the following observations: (SCC p. 507, paras 27-28) "27. An arbitration clause, as is well known, is a part of the contract. It being a collateral term need not, in all situations, perish with coming to an end of the contract. It may survive. This concept of separability of the arbitration clause is now widely accepted. In line with this thinking, the UNCITRAL Model Law on International Commercial Arbitration incorporates the doctrine of separability in Article 16(1). The Indian law--the Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts this approach in Section 16(1)(b), which reads as under: 11
'16. Competence of Arbitral Tribunal to rule on its jurisdiction.--(1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.' (emphasis in original) Modern laws on arbitration confirm the concept.
14. The statement of law expounded by Viscount Simon, L.C. in Heyman as noticed above, in our view, equally applies to the situation where the contract is terminated by one party on account of the breach committed by the other particularly in a case where the clause is framed in wide and general terms. Merely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor is rendered inoperative; rather it survives for resolution of disputes arising "in respect of" or "with regard to" or "under" the contract. This is in line with the earlier decisions of this Court, particularly as laid down in Kishorilal Gupta.
15. In the instant case, Clause 22 of the hire- purchase agreement that provides for arbitration has been couched in the widest possible terms as can well be imagined. It embraces all the disputes, differences, claims and questions between the parties arising out of the said agreement or in any way relating thereto. The hire-purchase agreement having 12 been admittedly entered into between the parties and the disputes and differences have since arisen between them, we hold, as it must be, that the arbitration Clause 22 survives for the purpose of their resolution although the contract has come to an end on account of its termination."
(emphasis supplied)
13. Reference is also made to Section 11(6A) of the AC Act as has been inserted by the Arbitration and Conciliation (Amendment) Act, 2015 which provides that, 'the Supreme Court or, as the case be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement'. Thus, this Court's powers are confined to the examination of existence of an arbitration agreement only which in the considered opinion of this Court exists in the case as per the deed of partnership and this Court has no hesitation to hold that the respondents' contention that the arbitration agreement has come to an end on account of the subsequent conduct of the parties is not tenable.
14. This Court is also of the considered opinion that after having entered into an arbitration agreement, if the parties, without resorting to the arbitration clause, 13 tried to settle the dispute between themselves, this in itself would not dis-entitle them to resort to the arbitration agreement and appointment of arbitrator thereof.
15. Accordingly, the application stands allowed and Shri A.K.Saxena, Former Judge of the High Court of Madhya Pradesh, R/o 315, Ruchi Lifescapes, Jatkhedi behind Bhabha College, Bhopal (MP) is appointed as proposed arbitrator to settle the dispute between the parties. Registry is directed to seek declaration/consent from the proposed arbitrator as per the provisions of Section 11(8) of the Arbitration and Conciliation Act, 1996 and place the same on the next date of hearing.
List the case on 1.10.2019.
(Subodh Abhyankar) Judge 26/08/2019 Dubey.
Digitally signed by ARVINDKUMAR DUBEY Date: 2019.09.19 11:20:40 +05'30'