Karnataka High Court
Smt Sulochana W/O Sathyanarayan ... vs M/S Galcier Rocks, A Registered ... on 24 November, 2009
Author: Ajit J Gunjal
Bench: Ajit J Gunjal
IN THE HIGH COURT OF KARNATAKA AT BANGAL one DATED THIS THE 24t DAY OF NOVEMBER 2009 . THE HON'BLE Mr. JUSTICE Aur IT J. GUN, J AL CIVIL MISCELLANEOUS PETIPION No. 2 13 OF 2009 BETWEEN: 1. Smt. Sulochana, ee W/o Sathys anara) yan i ar apan lahat 2. Sri Mrityeanjova Harapanahalli, S/o Sri Hanumantappa Harapanahalli Both re siding at Kukanoor, Yelburga Taluk, aa Koppal-5832321, 00 ... PETITIONERS (Sri G.S.Vishweshwara, Sr.Counsel for Sri T.Krishna, Adv.) 1. M/s: Glacier Rocks, A Registered Partnership Firm Having its Registered Office at No.216, lt Main Road, VII Block, mG Koramangala Layout, -. Bangalore-560 095. 2. Sri G.N.Gurusiddappa, S/o G.Ningappa, Partner, M/s.Glacier Rocks, No.216, 1st Main Road, VII Block, Koramangala Layout, Bangalore-560 095, Also at No.319, Ist Main Road,. lst Main, Koramangala Layout, Bangalore-560034. 3. Sri k.B.Somaiah, S/o K.K.Belliappa, Partner M/s.Glacier Rocks, - No.216, 1st Main Read, . VU Block, Koramangala Layout, . Bangalore- "500 O25, an | RESPONDENTS (Sri R.N. Narasimha Murthy, Sr. 'ounsel for Sri Chennakeshava, Adv. For-R1; M/s. K.S.Nagaraj Rao & Assts., Advs. Por R2; M Is. S. Aar en Associates, Advs. For R3) This ¢ "MP is. 'led under 116) of the Arbitration and Conciliation Act,.1996, --praying to appoint an arbitrator nominated by the petitioners, to adjudicate the disputes between. the parties, wach have arisen under the Deed of -. Partnership. dated. 15.11.1997 as the petitioners are _ willing to submit hemeclves for arbitration. If this Hon'ble -.Court.were te appoint any other arbitrator, other than one nominated. by the petitioners, the petitioners are agreeable for the same, in the interest of justice. This CMP coming on for admission this day, the ns Court made the following: ORDER
This petition is under Section 11 of the Arbitration and Conciliation Act, 1996. Af which was constituted on 15. hi. 1997 with the petitioners | and respondents 2 and 3. as partners, The main object of the firm was to carry on business in quarrying, processing and exporting of dimensional granite blocks, polished granite slabs. and granite produicts, It is not disputed before me that the partnership is at will, Pursuant to two registered sale. deeds dated. 10.12.1997, the second respondent purchased 6 acres in Sy.No.47/1 and the petitioner No.2 purchased an extent of 5 acres 35 guntas in. Sy.No.47/2. Both the sale deeds are even dated. The "funds for purchase of the said two lands came from the : partnership firm. According to the petitioner, the account books of the firm would highlight that the schedule : : properties were purchased out of the funds of the firm for 'the purpose of business of quarrying etc. The case of the _ petitioners is that after the purchase, quarrying a commenced in the western edge of Sy.No. 47/ 1.
the partnership firm, inasmuch as, they allowed 'certain unauthorized persons to remove the granite slabs. . Since the partnership was at will, the petitioners isstied a notice om 25.11.2008 dissolving the partnership firm forthwith. It appears, after the notice vias issued, the respondents 2 and 3 have set apa third persors who is the owner of the adjoining land and 'he started removing the granite slabs illegally from the schedute property. The petitioners immediately lodged 2 'Complaint with the jurisdictional
- police and an FIR is registered. Since the partnership ; deed envisaged an arbitral clause at No.21, the petitioners issued a notice calling upon the respondents to agree "upon the panel of arbitrators suggested by them. Indced, according to the petitioners, a dispute has arisen between the petitioners as well as the respondents in respect of certain terms of the partnership deeds and its purposes.
However, the notice issued bv the petitioners. w w as not responded by the respondents. In the eas since 7 the petitioners apprehended that the granite LADS could be removed clandestinely, they : fled an - varias application under Section Gof the, Act against the parinership firm ie., the respondents and its partners. The said a pplication was opposed by ihe firm as well as by its partners, ot Nevertheless, , "eH he. ; leart ied trial Judge accepted t the applicatie ion! é 2nd has gr granted an interim order restraining respon sats. 2 and 3 from operating quarry or fing the granit € blocks 'existing in the schedule property till aai arbitrator is appointed within a period of 120 days.
oe me 3. itis submitted at the Bar that as against the ower passed "by the learned trial Judge, respondents 2 and 3 have preferred MPA 3263/09 and MFA 3264/09 is "ager teved by that. part of the order restraining them from 7 operating the quarry till the appointment of the arbitrator.
Learned coursel submit that the appeals are partly heard. ce But however, I am of the view that pendency et the appeals certainly shall not come in the way of ihis Court - in deciding as to whether a dispute has arisen between the parties and an arbitrator is required: to be: appointed to.
resolve the dispute.
4. Mr. G.8. Vishweshwara, learned senior counsel appearing for the petitioners subtnits that clause 21 of the partnership deed indicates that if ainy dispute has arisen between the partners of the firm, the same is required to be referred to ann: arbitral tribunal. He further submits that notwithstanding the fact that the partnership deed is not registered urider' Section 69 of the Partnership Act, M there is no impediment for this Court to refer the matter to an arbitral iribunal. Anticipating the contention of the "respondents, he submits that notwithstanding the » purchase of the property in the individual name of
- respondent No.2, that by itself cannot take away the arbitral clause in the agreement, notwithstanding the provisions of Benami Transaction Act.
©. Mr. R.N.Narasimha Murthy, learned senior counted appearing for the respondents would submit that. at no :
point of time was the second respondent acting in fiduciary capacity or wes he a trustee of the firm. He submits that the iands in question were purchased by the second respondent in "his. individual capacity. In the circumstances, the question of referring the matter to an arbitral tribunal does not-arise.
6..J have given my anxious consideration to the in submissions made by the learned counsel appearing for the petitioners and the respondents.
7. Hitherto, before the Apex Court rendered the
- : decision in SBP & CO., Vs. PATEL ENGINEERING LTD., AND ANOTHER reported in (2005)8 SCC 618, the law a was that the Courts were not required to enter into the <a merits of the matter. That was the law laid down by, the.
Apex Court in KONKAN RAILWAY CORPORATION ! LTD. - Vs. RANI CONSTRUCTION (P) LED. reported iti » (200232 SCC 388. But however, in the SBP AND COMPANY dase:
the Apex Court has ruled that the proceedings under Section 11 of the Act aire e jncicial proceedings and prima facie, the courts are required to record a nding that there is an arbitral. suse, a a dispat ute bas arisen and the dispute is still alive and hie rot dead and is certainly not barred by statute, Keeping: ihese principles | in. mind one will have to examine whether 1 the. "arbitral clause survives for . consideration having + regard to the fact that it is not 7 registered - and _whether the provisions of Benami Transactions (Prohibitions) Act, 1988 is made applicable.
8. insofar as the non-registration of the partnership ° deed: itself, this question need not detain us any longer, 7 inasmuch as, Section 69 of the Partnership Act, 1932 would specifically deal with a situation of this nature. 4 . | power to realise the property of a dissolved firm, which fi which would read as under:
"The provisions of the sub- "secs. (1) and 7 (2} shall apply also to a claim of set off or other proceedings to enforce a Tight arising. 7 from a contract, but shall not affect, .
(a) the enforcement or any right to sue 'for dissolution of a firm or for. ace ounts of a dissolved firm, or apy. right 'of. power to realise the pro perty of a dissoived firm, or
(b) the powers: or an official assignee receiver or Const under, "the Presidency Town Insolveticy Act, 1920, to realise the property of am insolvent partner."
. Section 69(3) would. yead that Sub-Sections (1) and (2)
- . shall net apply 'to certain exceptions as carved out under Sub-Section' 3(a) and (b). We are concemed with Sub-
» Section 3fa) which would necessarily indicate that the enforcement of any right to sue for the dissolution of a firm or for accounts or a dissolved firm or any right or 10 would necessarily mean that notwithstanding the fact that the partnership deed is not registered, that shall not come 7 tyes in the way of enforcing certain rights: which al ises. < from | the terms of the partnership deed. 'Indeed, in | this regard one can refer to the un- reported ing of the Apex Court oe Court while interpreting the Scope. of sub-Section S{a) of Section 69 of the Act has observed thus:
"6. U nder Sub. Section isa this bar will not affect, the enforcement « or any right to use for the dissolution of the firm or for accounts of a dissolved fitm 'or any right of power to realise' the property of a dissolved firm.
7 "Therefore, although the partnership firm nay. he: unregistered, one partner can sue oO other partners for dissolution of the firm and MS for. accounts. The words "to sue" used in sub: section (3)(a) cannot be construed _ narrowly to refer only to suits for dissolution of partnership and accounts. The exception contained in sub-section (3}(a}) applies not merely to sub-sections (1) and (2} but also to A 11 the first part of sub-section (3) which deals a with proceedings other than suits.
The Apex Court has relied on another decision in the ¢ case 7 of PREM LATA (SMT.) AND ANOTHER Va. M/s.ISHAR DASS CHAMAN LAL AND OTHERS reponcd in (1998)2 SCC 145. Having regard t to the fact. {that , a 'dispute of the present nature | is not bar rod under. See tion 69 of the Act, I am of the view that the nos-regitrotion of the partnership firm will not: come i in the way of this Court examining whether a dispute has « arisen ) between the parties and the matter is required te be. referred to an arbitral Tribunal.
9. "The Apex. Court, ina similar, if not, identical case a dealing, with the scope of Section 11 of the | Arbitration Act when such a situation has arisen where the * aolipsot or the agreement itself has becorme non- | - existent whether an arbitral clause comes to an end, in the case of NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION INDIA LIMITED Vs. GAINS 12 TRADING LIMITED reported im 2007{5) sco 692 has held, even if the performance of the contrac t comes to an.
end on account of repudiation, frustration « or breach of 7 contract, the arbitration agreement would sunvive "for ie purpose of resolution of "digputes arising under or in connection with the contract. ge Section 16(1 ) of the Act clarifies that an arbitration "lanes forming part of the contract is to be treated as an agreement independent of the other terme of the contract. A contract which is null and void would not entail ipso jure the invalidity of the arbitrati fom clau se.
oe 10. Thus, Tam of the view that notwithstanding the fact that the partnership deed is not registered, assuming that it is po longer in existence, the arbitral clause 7 survives for consideration.
"11. This takes us to the next question whether the >. Benami Transaction Act would be applicable since the land in question is purchased by respondent No.2 in his 13 individual capacity as contended by the respondents, Mr.k.N.Narasimha Murthy, learned senior counsel | for. transaction as well as the provisions of Section 3 of the Act. "benami transaction" is 'defined 'under Section 2a) which means a transaction "in which - property is transferred to one person for consideration paid or provided by ancther person, - Section 3 would relate to Prohibition of benanii iransactions, inasmuch as, it would indicat c that ; no person shall enter into ary benami transaction as defined under section 2{a} but however Sub-Section (2) of Section 3 will not apply to purchase of property" by any person in the name of his wife or unmarried ; danghter, inasmuch as, there are certain exceptions carved out in respect of Benami transaction. "What ie 'relevant for our purpose is Section 4 of the Renaimi Transactions Act. Section 4 would relate to prohibition of the right to recover property held as benami.
Sub-Section (3) of Section 4 would start with a non- A 14 obstante clause wherein the said provisions. is _ hot applicable where a person in whose name the » property. is - standing in a fiduciary capacity | and the property iv held for the benefit of another person for whom he Lis a trustee. Indeed, the exceptions are carved out m Sub-Section (3) of Section 4 of the Act.
12. Indeed, Mr Narasimha Murthy, learned senior counsel presses into service the. ruling of the Apex Court in the case of PREM BALLABH KHULBE Vs. MATHURA DATT BHATT reported in AIR 1967 SC 1342 to buttress _ his contention regarding whether a fiduciary relationship = exists between the partners. Indeed, the Apex Court has quoted the Halsbury Laws of England indicating that the "partnership itself does not create a fiduciary relation me between the partners or make one of them a trustee for a -the other or for his representatives. But however, the an | : Apex Court added a caveat that the partner must observe 15 the utmost good faith in his dealings with the, other partners. He is bound to render accounts of the :
partnership assets in his hands. _ But. in the absence of : special circumstances he cannot be regarded asa kind of trustee for the other partners or liable 'to render accounts to them ina fiduciary capacity. Indeed, in the case on hand, it is to be noticed that since there was a prohibition under the Karnatak Aka Land Reforms Act for a partnership firm to eld aarouturat lands, the properties were purche: sed ith: 'the: name e of the second respondent. The main contention of ihe petitioners is that the amount for purchase of the said property flowed from the partnership fim * wheieas the same is disputed by the respondents. Rut however, . same is required to be decided elsewhere but not in the present proceedings.
2. It is also to be noticed that one of the partners ~ would stand as a trustee and in a relationship of a . ; fiduciary capacity for the other partner or even the legal 16 representatives of the partners. Indeed, the: | Benami Transaction Act does uot prohibit the enforcement of ¢ a trust. Sub-Section (3) of Section 4. has. 6 already "been :
referred to above to hold that the present trans ansaction would fall in the exceptions carved out. of Section 4 of the Benami Transaction Act, Indeed, 'the Apex Court in SBP AND COMPANY case | while dealing with the question regarding whe ther the claim i is 'dead: or alive or is barred by statute has observed fins: v "The Chief Justice. can also decide the ques stion whether the claim was a dead one; ora long barred claim that was sought to be ms resurrected and whether the parties have oe concluded the transaction by recording ~. satisfaction of their mutual rights and | obligations or by receiving the final payment without objection. It may not be possible at that stage to decide whether a live claim
- made is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be (| } ' 17 decided by the Arbitral Tribunal on taking --
evidence along with the merits of the claims no supphed| Having given my anxious consideration, | am of | the view that the petition is to be accepted. : Hence, the following order is passed: | | (1) Petition is allowed .
(2) Justice K Shivashankat Bhat, former Judge of "this Count is. appointed as a sole arbitrator to . | resolve the dispute between the parties. (3) Registry to. eoinmunicate this order to the "arbitrator. -
. - | (4) Phe Arbitrator shall enter reference and cause | fiotice to the parties.
Sd/-
JUDGE 7 . Al/-