Calcutta High Court
Rajeev Maheshwari And Others vs Indu Kocher And Others on 6 May, 2011
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
1
GA No. 3582 of 2010
CS No. 195 of 2010
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
RAJEEV MAHESHWARI AND OTHERS
-Versus-
INDU KOCHER AND OTHERS
For the Defendant Nos. 1 to 3: Mr Anindya Mitra, Sr Adv.,
Mr Debangshu Basak, Adv.,
Mr Anumoy Basu, Adv.,
Mr Diptangshu Basu, Adv.
For the Plaintiffs: Mr Hirak Kumar Mitra, Sr Adv.,
Mr Sandwip Mukherjee, Adv.
Ms Pooja Das Chowdhury, Adv.,
Mr G.S. Asopa, Adv.
For the Defendant No. 5: Mr Utpal Bose, Adv.,
Mr S.N. Singh, Adv.
Hearing concluded on: May 2, 2011.
BEFORE
The Hon'ble Justice
SANJIB BANERJEE
Date: May 6, 2011.
SANJIB BANERJEE, J. : -
The application is by the first three defendants under Section 8 of the
Arbitration and Conciliation Act, 1996 seeking reference of the disputes to
2
arbitration in terms of an arbitration agreement contained in a deed of
partnership. The reliefs claimed in the suit include a declaration that the
defendants do not have any right, title or interest in respect of the dissolved
partnership firm by the name of Bharat Industries and Commercial Corporation
including the assets specified in paragraph 10 of the plaint and the consequential
injunction relating to such properties. The plaintiffs are the sons of one Mohanlal
Maheshwari who, along with Mohanlal Kocher, the predecessor-in-interest of the
defendants other than the defendant no.5, commenced a partnership business
under a deed of December 23, 1972. Senior Maheshwari died in December, 1984
and senior Kocher died in March, 1992. The fifth defendant is described in the
plaint as the assignee of a purported agreement for sale of senior Kocher's
interest in the firm.
The plaint claims that disputes and differences arose between the two
partners of the firm which were referred to two arbitrators in August, 1984 and
the arbitrators appointed an umpire. According to the plaint, by reason of the
death of partner Maheshwari, the firm stood dissolved and no effective steps were
taken in the arbitral reference. The plaintiffs claim that on the expiry of three
years from the date of such dissolution of the firm, "the claim of the defendants
for accounts and a share of the profits of the dissolved partnership firm, if any,
arising out of or concerning the erstwhile partnership business came to an end
and became barred by limitation." The plaint proceeds to record that in 1985 the
first plaintiff and the third defendant made "some infructuous attempts" to wind
up the partnership business but nothing came out of the endeavour though an
agreement was entered into on February 4, 1985. However, this subsequent
agreement appears to have been executed by the then heirs of senior Maheshwari
and Mohanlal Kocher. The plaintiffs suggest that on December 26, 1990 senior
Kocher assigned his share in the assets and liabilities of the firm in favour of one
Om Prakash and such Om Prakash has apparently transferred such beneficial
interest by a deed of transfer of May, 1991 in favour of the fifth defendant.
Paragraph 8 of the plaint records that the fifth defendant, Kishan Mimani, has
3
filed a suit in this Court for specific performance of "the said agreement for sale."
In the same breath the plaintiffs contend that the agreement relied upon by
Mimani is "wrongful and void." The plaint narrates that in 1995, about three
years after senior Kocher's death, his heirs applied in this Court under Section
20 of the Arbitration Act which was allowed in September, 2007 by directing
filing of the arbitration agreement. That arbitration agreement is the same which
has been cited by the applying defendants in support of the present application.
The plaintiffs herein have preferred an appeal against the order made in the
Section 20 proceedings and the operation thereof has been stayed though the
appeal remains pending. At paragraph 10 of the plaint certain immovable
properties have been referred to which the plaintiffs claim to be exclusively under
their possession. The claim is founded on Section 27 of the Limitation Act, 1963
on the plaintiffs' assertion that since the period prescribed by the Limitation Act
for seeking possession of any of the properties has expired, the defendants' right
to such property has been extinguished.
The applying defendants say that the substance of the action is covered by
the arbitration agreement contained in the partnership deed of 1972 and the
institution and continuation of the suit would be in derogation thereof. The
arbitration agreement that was contained in the partnership deed of 1985
provides,
"13. That if any dispute or difference arises between the partners or
between any one of them and the legal representatives of the other or others
or between their respective legal representatives in connection with the
business of the partnership or regarding the construction of the partnership
deed during or after the partnership it shall be referred to the arbitration of
two Arbitrators one to be appointed by each partners whose decision shall
be conclusive and binding on all parties and such arbitration shall be under
the Indian Arbitration Act 1940 and any statutory modification thereof in
force for the time being."
The applying defendants say that the presence of the fifth defendant in the
array of parties is irrelevant since the claim is that the firm stood dissolved at the
4
death of senior Kocher and, upon the expiry of a period of three years therefrom,
the Kochers' rights therein have stood extinguished. They contend that since the
existence of the partnership deed is not in dispute and has been accepted in the
plaint and in the subsequent agreement of 1985 that has also been referred to in
the plaint, there is no impediment to the disputes being referred to arbitration in
accordance with the arbitration agreement. They point out that the two principal
reliefs are not distinct and stem from the same cause of action. The relief of
injunction, the applying defendants assert, is only consequential to the principal
relief of declaration and the plaint does not carve out any separate basis therefor.
The applying defendants say that the fifth defendant is a mere extension, in the
legal sense, of the other defendants as, if senior Kocher had no right in 1990 to
assign his interest in the firm, the fifth defendant would get no rights in respect
thereof. They submit that there is no allegation that the fifth defendant is in
possession of any of the assets of the firm or that there has been any transfer of
title relating to the assets of the firm in favour of the fifth defendant.
Several grounds of defence have been adopted by the plaintiffs. To begin
with, they say that the arbitration agreement itself is of restricted application.
They suggest - though the submission in such regard is at variance with the
pleadings - that the 1985 agreement superseded the arbitration clause contained
in the partnership deed of 1972. They indicate that the application is not
maintainable since neither the original agreement nor a duly certified copy
thereof has been appended thereto. They also cite their independent cause of
action against the fifth defendant, who is not a party to the arbitration
agreement, as the final plank to resist the effective scuttling of the present action.
In support of the contention that the arbitration clause is restricted in its
operation, the plaintiffs say that only disputes or differences in connection with
the business of the firm or disputes or differences regarding the construction of
the deed would be amenable to arbitration. They insist that the "or" between the
expressions "in connection with the business of the partnership" and "regarding
5
the construction of the partnership deed" is disjunctive; such that disputes
arising out of any third situation would not be covered by the clause. It is the
plaintiffs' submission that the word "business" in the relevant phrase would
imply the continuing operations of the firm and matters pertaining to the conduct
thereof. They say that since the business of the firm came to an end upon the
death of their predecessor-in-interest, the entitlement of the partners or their
heirs after the business of the firm came to an end cannot be covered by the
limited arbitration agreement.
The argument on such count does not appeal. The arbitration agreement,
in its essential part, covers any dispute or difference between the partners or
between any one of them (ideally, it should have been "either" instead of "any
one") and the legal representatives of the other or between the legal
representatives of the two partners "in connection with the business of the
partnership or regarding the construction of the partnership deed during or after
the partnership ..." There is no special indication that the expression "during or
after the partnership" should operate only in the circumstance captured by the
expression "regarding the construction of the partnership deed" and not in the
situation covered by the phrase "in connection of the business of the
partnership." There is also no indication that the word "business" should be read
to imply only continuing commercial operations and not otherwise. In
partnership law, the business of a firm does not cease upon its dissolution or
upon the termination of its commercial operations. Section 46 of the Partnership
Act, 1932, for instance, provides for the right of partners to have the business of
the firm wound up after dissolution. The word "business" in the arbitration
agreement has to be understood in its ordinary sense and would include the
entire set-up of the firm, its commercial operations and its assets. Neither the
partnership deed nor the arbitration clause permits the word "business" to be
read in the constricted sense that the plaintiffs impute.
The second contention of the plaintiffs can be disregarded since it is not a
case made out on pleadings. In any event, clauses 2, 3 and 4 of the subsequent
6
agreement of February 4, 1985 expressly stipulate that the subsequent
agreement was a "supplement to the agreement of arbitration" contained in the
partnership deed. The subsequent agreement is incapable of being seen as
having superseded the original arbitration agreement. The third clause of the
subsequent agreement gave the arbitral tribunal further authority in matters
relating to the winding-up of the firm.
As to the technical ground urged by the plaintiffs that in the absence of the
present application being accompanied by the original arbitration agreement or a
duly certified copy thereof it is incompetent, it only needs to be said that
notwithstanding Section 8(2) of the 1996 Act, the mandatory requirement would
have to be met if there is a dispute as to the existence of the arbitration
agreement. The plaint relating to the present suit admits the partnership deed of
1972 and refers to the arbitration agreement therein.
That the fifth defendant is party to this suit but is not a party to the
arbitration agreement is of little consequence in the light of the cause of action
against such defendant. The essence of the plaintiffs' claim is that senior Kocher
had no right as in 1990 qua the partnership firm or its assets and, consequently,
could not pass on his non-existent rights to any other. The plaint case is not that
even if senior Kocher had a valid right in the firm and its assets, he did not or
could not have transferred the same to any other. That is not to suggest that if
such assertion had been made in the plaint the present application would
certainly have failed. The right canvassed by the plaintiffs is that the firm stood
dissolved upon the death of their predecessor-in-interest and in the surviving
partner not having sought his share of the assets or funds or even sought
accounts within the time permitted, the rights that he once had could never be
enforced and, as such, such rights were effectively extinguished. It is not
necessary to comment on the case run by the plaintiffs as that would encroach
on the arbitrators' domain since the entirety of the present action appears to be
covered by the arbitration agreement.
7
The parties have referred to several judgments. The decisions reported at
(2009) 1 SCC 267 (National Insurance Company Ltd v. Boghara Polyfab Private
Ltd); (2003) 5 SCC 531 (Sukanya Holdings (P) Ltd v. Jayesh H. Pandya); (2005) 8
SCC 618 (SBP Ltd v. Patel Engineering Ltd); (2006) 7 SCC 275 (Rashtriya Ispat
Nigam Ltd v. Verma Transport Co.); (2008) 16 SCC 774 (Everest Holding Ltd v.
Shyam Kumar Shrivastava); (1964) 1 W.L.R. 633 (Taunton-Collins v. Cromie);
(2008) 2 SCC 602 (Atul Singh v. Sunil Kumar Singh); (2010) 1 SCC 72 (N.
Radhakrishnan v. Maestro Engineers); (2010) 5 SCC 306 (Indowind Energy Ltd v
Wescare (India) Ltd) have been cited.
Taunton-Collins has been placed by the plaintiffs for the proposition that if
separate proceedings have the possibility of throwing up conflicting results, it
would be undesirable to permit adjudication before two fora. The plaintiff in that
case engaged an architect and a building contractor for the construction of a
house. Upon the plaintiff finding the work unsatisfactory, he issued a writ
against the architect claiming damages. He later joined the building contractor as
a party to the action whereupon the contractor applied for stay of the proceedings
on the strength of an arbitration agreement between the contractor and the
plaintiff. The plea was refused in view of the undesirability of separate
proceedings where there might be inconsistent findings. But the dictum rested on
the exercise of discretion in rejecting the prayer for stay of the action. There is no
discretion available to a judicial authority under Section 8 of the 1996 Act which
is applicable here.
In Boghara Polyfab, in the context of the Section 11 of the 1996 Act, the
Court considered the question whether a dispute raised by an insured, after
giving a full and final discharge voucher to the insurer, could be referred to
arbitration. The Supreme Court enumerated the issues that the Chief Justice or
his designate would have to decide on an application under Section 11 of the Act,
certain other issues that the Chief Justice or his designate may choose to decide
8
or leave them to the decision of the arbitral tribunal and a third set of issues
which the Chief Justice or his designate should leave exclusively to the arbitral
tribunal to assess. The majority opinion of the Constitution Bench in SBP & Co.
and a more recent opinion in Indowind Energy have been referred to in the
context of the Boghara judgment.
There is a distinction between the role of the Chief Justice or his designate
under Section 11 of the 1996 Act and the role of a judicial authority receiving an
application under Section 8 of the Act. Once the dissimilarity is recognised, it
may be better appreciated that the reliance on judicial pronouncements on
Section 11 of the 1996 Act may not necessarily be of telling impact in a Section 8
scenario. Under Section 11 of the 1996 Act, the party applying first asserts the
existence of an arbitration agreement. But the mere assertion of such agreement
would not entitle a party to apply thereunder if there is an agreed procedure for
appointing the arbitrator or arbitrators. Where a party applying under Section 11
of the 1996 Act asserts both an arbitration agreement and an agreed procedure
for the appointment of the arbitral tribunal, the right to apply accrues upon the
other party failing to act as required under that procedure; or upon the parties,
or the two appointed arbitrators, failing to reach an agreement expected of them
under that procedure; or upon a person, including an institution, failing to
perform any function entrusted to him or it under that procedure. In other
words, when a party applying under Section 11 of the 1996 Act asserts an
arbitration agreement and an agreed procedure for the appointment of the
arbitral tribunal thereunder, the party has to allege the breach of the agreed
procedure for him to be entitled to invoke the provision. It is also of utmost
significance to appreciate that an application under Section 11 of the 1996 Act
would almost invariably precede any claim before any forum entitled to
adjudicate upon the substance of the claim.
Section 8 of the 1996 Act, on the other hand, entitles a party to arbitration
agreement to apply before the judicial authority seized of an action with the plea
9
that the action is covered by an arbitration agreement. In the one case the claim
is yet to be made, in the other the claim has already been lodged. Though the
broader tests to be applied may be the same in either case, there is a gulf of
difference between the two. The Chief Justice or his designate paves the road for
the claim to be launched before the arbitral forum on the acceptance of the
existence of the arbitration agreement and the recognition of either there being
no agreed procedure for the implementation thereof or the breach of the agreed
procedure. The Chief Justice or his designate cannot, at the time of the
adjudication of the matters then available for judicial assessment, fathom or
speculate on the yet unborn claim. The necessary measure that a Chief Justice
or his designate may take under Section 11 of the 1996 Act would not obliterate
the operation of Section 16 of the 1996 Act, though a substantial part thereof
may be eclipsed thereby. The constitution or the appointment of an arbitral
tribunal by the Chief Justice or his designate under Section 11 of the 1996 Act
would not permit the reference of any or every head of claim to the tribunal if
such claim were otherwise not covered by the arbitration agreement. Section 11
of the 1996 Act does not require the disputes to be enumerated. It is not
impossible that a party applying under Section 11 of the 1996 Act secures the
appointment of an arbitral tribunal, but makes a claim which travels beyond the
scope of the arbitration agreement. It cannot be said that merely because the
appointment of the tribunal has been made under Section 11 of the Act, it would
lack the authority to assess whether the claims lodged before it are covered by
the arbitration agreement. An arbitral tribunal constituted under the authority of
Section 11 of the Act would still leave a substantial window for Section 16 of the
Act to be taken recourse to thereafter by the arbitral tribunal depending on the
nature of the claim made before it.
When an application is made under Section 8 of the 1996 Act, the claim is
already before the judicial authority. The judicial authority then assesses
whether the entirety of the claim - not a substantial part thereof - is subject to
the arbitration agreement; if it is, the judicial authority has to refer the parties to
10
arbitration. There is a flip-side to the discretion of the judicial authority being
taken away by the statute. The previous avatar of the present Act allowed some
room to maneouvre under Section 34 of the 1940 Act. The mandatory provision
of Section 8 of the 1996 Act carried with it the baggage of the strict interpretation
thereof. Unlike in a Section 11 case where the Chief Justice or his designate
assesses the arbitration agreement or if there is a live claim thereunder, the
judicial authority under Section 8 has only to see whether the adjudication of the
entirety of the action before it would fall within the arbitrator's domain under the
arbitration agreement relating thereto. It is true that both under Section 11 and
under Section 8 of the 1996 Act, the existence of the arbitration agreement has to
be conclusively decided, yet despite a party securing the appointment of an
arbitral tribunal under Section 11 it might still have to satisfy the tribunal upon
the claim being lodged that the entirety thereof is covered by the arbitration
agreement. Upon a judicial authority referring the parties to arbitration following
an application under Section 8 of the 1996 Act, if the same claim (without any
addition thereto or enlargement of the scope thereof) is carried before the arbitral
tribunal, it would have no authority to rule that a part of the claim is not covered
by the arbitration agreement. That issue would already have been conclusively
answered upon the application under Section 8 of the Act being allowed and
attaining finality. If, however, any additional claim or matter is introduced before
the arbitrator that did not form part of the action before the judicial authority
which allowed the application under Section 8 of the Act, it is only such
additional claim or matter that can be scrutinised as to whether it is covered by
the arbitration agreement. Qualitatively, the approach for assessment of a matter
under Section 11 of the 1996 Act is quite removed from that under Section 8
thereof.
The plaintiffs have relied on Sukanya Holdings for the proposition that a
suit cannot be bifurcated to refer a part to arbitration and to allow the rest to
continue. The judgment is an authority for the principle that if the arbitration
agreement does not cover the entire subject-matter of the suit or if some of the
11
parties to the suit are not parties to arbitration agreement, an application under
Section 8 of the 1996 Act cannot be allowed by carving out that part of the suit
which is, and those parties which are, covered by the arbitration agreement for a
reference to arbitration. In Sukanya Holdings, the cause of action against the
defendant who was not a party to the arbitration agreement was real and integral
to the claim in the suit.
The judgments rendered in Verma Transport and Everest Holding must also
be seen in the context. In Verma Transport the appellant before the Supreme
Court entered into an agreement with the respondent firm for the handling and
storage of iron and steel products of the appellant at Ludhiana. The appellant contended that a partner of the respondent firm had constituted various firms and companies and obtained several consignment agency contracts from the appellant pertaining to various centers. The appellant alleged that such partner had conspired with certain officials of the appellant and obtained payments in excess of the entitlement of the consignment agents. Following an investigation by the Central Bureau of Investigation a criminal case was initiated against such partner and the concerned officials of the appellant. The respondent firm filed a suit seeking a permanent injunction against the appellant from blacklisting the firm or terminating the contract on the ground that the premise on which the contract was threatened to be terminated was de hors the conditions of the contract. An application under Section 8 of the 1996 Act filed by the appellant was rejected and the revisional application before the High Court failed since the Section 8 application was not accompanied by the original arbitration agreement or a duly certified copy thereof. The additional ground urged before the Supreme Court was that since the basis for attempting to terminate the contract was beyond the purview of the contract, it was not an arbitrable dispute under the relevant arbitration clause. Sukanya Holdings was noticed in Verma Transport and it was observed that in Sukanya Holdings there was a distinct cause of action against one of the defendants therein who was not a party to the arbitration agreement. It was held that whatever may be the grounds for 12 termination, since the termination of the contract was a matter covered by the arbitration agreement, the plea for referring the subject-matter of the suit to arbitration had to succeed. In Everest Holding it was observed that the decision in Sukanya Holdings came to be distinguished in Verma Transport.
Sukanya Holdings is not an authority for the proposition that if some parties have been impleaded in an action with a view to avoid the enforcement of the arbitration agreement, the judicial authority in seisin of the action has to reject the application under Section 8 of the 1996 Act merely on such ground. What the judicial authority has to ascertain upon receipt of an application under Section 8 of the 1996 Act is as to the relevance of the non-party to the arbitration agreement in the scheme of the action before such authority. If a person who is not a party of an arbitration agreement is impleaded in an action, the judicial authority is called upon to scrutinise the basis of the claim against such person on an application under Section 8 of the 1996 Act. If the cause of action of the suitor against the party to the action who is not a party to the arbitration agreement flows from the right of the suitor against a party to the arbitration agreement, the reference sought should not be denied. That follows from the scheme of the 1996 Act and the underlying thought behind it of giving primacy to the arbitration agreement. The plaintiffs' cause of action in the present suit against the fifth defendant is inextricably linked with the plaintiffs' cause of action against the other defendants and such cause of action is covered by the arbitration agreement.
Atul Singh and Maestro Engineers have been cited by the plaintiffs in support of the contention that this application is not maintainable in view of the original arbitration agreement or a duly certified copy thereof not being appended to the petition. The decision in Atul Singh on such aspect was upon recognising that the existence and validity of the arbitration agreement was in serious dispute. In Maestro Engineers the view taken was that notwithstanding the subject-matter of the suit being found to be covered by the arbitration agreement, 13 if complicated questions of facts or law are involved or where a serious allegation of fraud is made, the civil court can refuse to refer the matter to arbitration. The judgment also found that the procedural requirement under Section 8(2) of the Act was mandatory. In Verma Transport the same question arose and the Court disregarded the objection on the ground of non-compliance of Section 8(2) of the Act on the reasoning that the existence of a valid arbitration agreement stood admitted. The judgments rendered in Verma Transport, Maestro Engineers, and Atul Singh were all rendered by two-judge benches of the Supreme Court. In both Atul Singh and Maestro Engineers, the primary ground for rejecting the applications under Section 8 of the 1996 Act was other than under Section 8(2) thereof, though the procedural requirement was found to be mandatory. It is the decision in Verma Transport, however, that is found to be more apposite in the present context since the arbitration agreement has been referred to in the plaint and the existence thereof has not been questioned by the plaintiffs.
GA No. 3582 of 2010 is allowed by referring the disputes in the suit to arbitration in accordance with the arbitration clause contained in the deed of partnership of December 23, 1972. As a consequence, CS No. 195 of 2010 stands disposed of.
There will be no order as to costs.
Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J) Later :
The plaintiffs seek a stay of the operation of the order which is declined.14
(Sanjib Banerjee, J)