Delhi District Court
Sh. Deepak Dhingra vs Sh. Rakesh Dhingra Dhingra on 2 November, 2022
IN THE COURT OF SH. ARUN KUMAR GARG,
ADDITIONAL DISTRICT JUDGE-05, CENTRAL DISTRICT,
TIS HAZARI COURTS, DELHI
RCA DJ 11/2018
CNR No. DLCT-01-000906-2018
Sh. Deepak Dhingra
S/o Late Sh. Bodh Raj Dhingra
R/o. H. No. A-123, 2nd Floor
Gujrawalan Town Part-I,
Delhi-110009 ...Appellant
Versus
1. Sh. Rakesh Dhingra Dhingra
S/o Late Sh. Bodh Raj Dhingra
Shop No. 72, Gokhle market
Delhi-110054
Also At:
R/o. H. No. A-123, 1st Floor
Gujrawalan Town Part-I,
Delhi-110009
2. Smt. Raj Rani Dhingra
W/o Late Sh. Bodh Raj Dhingra
Shop No. 72, Gokhle market
Delhi-110054
Also At:
R/o. H. No. A-123, Ground Floor
Gujrawalan Town Part-I,
Delhi-110009 ...Respondents
RCA DJ No.11/2018
Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 1 of 23
Regular Civil Appeal from and on behalf of the appellant/Plaintiff
under Section 96 CPC for setting aside the impugned Order/judgment
dated 14.12.2017 by virtue of which the Hon'ble Ld. Trial Court
presided over by Sh. Mayank Mittal, Ld. Civil Judge, Central District,
Tis Hazari Courts, New Delhi in Civil Suit no. 17/17 (old no. 172/17)
under title Sh. Deepak Dhingra v. Sh. Rakesh Dhingra & Another ,
allowed the application of defendants/respondents under Section 8 of
the Arbitration and Conciliation Act, 1996 read with Order 7 Rule 11
CPC.
JUDGMENT
1. The present appeal has been filed by the plaintiff in CS No.17/17 against Order dated 14.12.2017 passed by Ld. Civil Judge-08 (Central), Delhi on an application of defendant no.1 under Section 8 of the Arbitration and Conciliation Act, 1996 r/w Order 7 Rule 11 CPC, whereby, the application of defendant no.1 was allowed referring the parties to arbitration in terms of Clause 11 of the Partnership Deed dated 24.07.2003.
2. As per Trial Court Record of the aforesaid suit, the civil suit for dissolution of partnership between the plaintiff and the defendants, while declaring the plaintiff a co-owner/partner of the partnership business under the name and style of M/s R.K.Radiators, shop no.72, Gokhale Market, Delhi-54 to the extent of 40% as per partnership deed dated 24.07.2003, was filed by the plaintiffs against the remaining two partners/defendants on 26.12.2016, simultaneously, paying for a decree of partition/rendition of accounts, permanent injunction restraining the defendants from parting with possession and from creating third party interest in the RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 2 of 23assets/properties of the partnership business and a decree of mandatory injunction against the defendants for explanation regarding all withdrawals/investments of the partnership business and to pay the entire dues of the plaintiff.
3. In the plaint, it was alleged by the plaintiff that the defendant no.1 was the real brother of the plaintiff, whereas, defendant no.2 was his mother and they had been carrying on a partnership business of sale of radiators and its accessories/parts since long under different partnership deeds. Lastly, according to him, the business was being carried in partnership by the parties to the suit under the partnership deed dated 24.07.2003 when the mother of plaintiff and defendant no.1 i.e. defendant no.2 was admitted to the partnership as a sleeping partner with the share of profits from the business to the extent of 20%, consequent upon death of father of plaintiff and defendant no.1. He submits that since beginning, all the accounts were being maintained exclusively by defendant no.1, whereas, he had been looking after the partnership business and had been involved in earning goodwill for the said business. It has further been alleged by him that he came to know that the defendant no.1 and 2 had withdrawn huge amounts from the firm from time to time and had manipulated/forged the account books and since the defendants had failed to render the accounts of the firm to the plaintiff despite repeated requests and demands including legal notice dated 16.08.2016 and had given a false and frivolous reply dated 09.09.2016, he was constrained to file the RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 3 of 23aforesaid suit for dissolution of partnership, rendition of accounts, partition of assets of the business and for permanent and mandatory injunction against the defendants.
4. Upon receipt of the plaint by Ld. Trial Court, summons of the suit were directed to be issued to the defendants vide Order dated 02.01.2017, which were duly served upon both the defendants on 19.01.2017. Thereafter, defendant no.1 appeared and filed an application under Section 8 of Arbitration and Conciliation Act 1996 r/w Order 7 Rule 11 CPC seeking dismissal of the suit of the plaintiff and referral of the parties to the arbitration in view of the arbitration agreement contained in partnership deed dated 24.07.2003. The aforesaid application was filed by defendant no.1 on 25.07.2017 and reply to the same was filed by plaintiff on 10.10.2017. It is significant to note that no written statement had been filed by either of the defendants before Ld. Trial Court and eventually vide Order dated 14.12.2017, Ld. Trial Court has disposed of the aforesaid application of defendant no.1 by allowing the same and referred the parties to arbitration.
5. It is the aforesaid Order, which has been challenged by the plaintiff in the present appeal inter-alia on the ground that the application of the defendant no.1 has been allowed by Ld. Trial Court without consideration of pleadings of the parties and reply of the plaintiff to the aforesaid application, on the basis of conjectures and surmises and out of anguish as the proxy Counsel for plaintiff had sought an adjournment due to non-
RCA DJ No.11/2018Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 4 of 23availability of main counsel for the plaintiff on account of illness of his wife.
6. It has further been alleged in the appeal that the dispute sought to be raised by the plaintiff in his suit was non-arbitrable and the matter could not have been referred to Arbitration by Ld. Trial Court until compliance by the defendants of the legal notice of the plaintiff. It has further been alleged that there was no sufficient material before Ld. Trial Court to form an opinion about arbitrability of the dispute in the absence of any written statement filed on behalf of the defendants and that since no arbitrator was ever appointed by the parties to the suit, the partnership being at will, there was no dispute referrable to the arbitrator regarding dissolution of the same. The appellant has thus prayed for setting aside the impugned order dated 14.12.2017 passed by Ld. Trial Court and consequential dismissal of the application of defendant no.1 while remanding the matter back to Ld. Trial Court for fresh adjudication on merits.
7. No reply to the aforesaid appeal has been filed by the respondents. Respondent no.2 has not even entered appearance despite service, whereas, oral arguments were advanced on behalf of respondent no.1, besides, Ld. Counsel for appellant.
8. Ld. Counsel for the appellant has by and large re-emphasized all the grounds taken by the appellant in his appeal in support of her submissions while relying upon the judgment of Hon'ble Calcutta High Court in IDCOL Cement Limited Vs. P. Roy Chowdhury and Company 2005 (1) CHN158 RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 5 of 23to contend that the matter could not have been referred to Arbitration on an application of only one of the partners.
9. On the other hand, it has been submitted on behalf of respondent no.1 that Ld. Trial court has rightly allowed the application of respondent no.1 under Section 8 of the Arbitration and Conciliation Act 1996 since the existence of arbitration agreement between the parties has not been denied by the plaintiff and all the disputes sought to be raised by the plaintiff in the aforesaid suit were arbitrable. It has further been submitted by him that none of the disputes sought to be raised by the plaintiff in the suit before Ld. Trial Court are excluded from the jurisdiction of the arbitrator and as per Section 5 of the Arbitration and Conciliation Act, there has to be minimal interference with the arbitration proceedings. In support of his submissions, Ld. Counsel for respondent no.1 has relied upon the judgment of Hon'ble Supreme Court of India in Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and Ors. (2011) 5 SCC 532 and in V H Patel and Company and Ors. Vs. Hirubhai, Himabhai Patel and Ors. (2000) 4 SCC 368.
10. I have heard the submissions made on behalf of the parties and have also perused the material available on record. I have also carefully gone through the judgements relied upon by Ld. Counsels for the parties in support of their respective submissions.
11. Bare perusal of Ld. Trial Court Record reflects that the plaintiff himself has filed the civil suit before Ld. Trial Court by relying upon the RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 6 of 23partnership deed dated 24.07.2003. Clause 11 of the aforesaid deed reads as under:-
"11. That in case of dispute the matter will be referred to an arbitrator mutually appointed by the partners and decision of such arbitrator shall be binding on the partners"
12. Clause 7 of the partnership deed states that the bank accounts will be continued to be operated by all the partners severally and as per Clause 8, all the partners shall have right to withdraw any amount with their mutual consent for personal expenses which shall be debited in their respective accounts in the books of the firm.
13. The plaintiff in the suit has alleged that he had come to know about withdrawal of huge amounts from the firm by the defendants from time to time and manipulation in the books of account of the firm by them and since the defendant no.1, who had been maintaining the books of the firm, had failed to render the accounts of the firm to the plaintiff on demand, he was constrained to file the aforesaid suit. The aforesaid dispute, in my considered opinion, squarely falls within the scope of Clause 11 of the deed and hence, should have been the subject matter of arbitration proceedings to be initiated in terms of Arbitration Agreement contained in Clause 11 of the Partnership Deed.
14. The legal principles relating to determination of non-arbitrability have been succinctly stated by Hon'ble Supreme Court of India in Vidya RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 7 of 23Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549 : 2020 SCC OnLine SC 1018 in the following words:-
76. In view of the above discussion, we would like to propound a fourfold test for determining when the subject-matter of a dispute in an arbitration agreement is not arbitrable:
76.1. (1) When cause of action and subject-matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.
76.2. (2) When cause of action and subject-matter of the dispute affects third-party rights; have erga omnes effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable.
76.3. (3) When cause of action and subject-matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable. 76.4. (4) When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s). 76.5. These tests are not watertight compartments; they dovetail and overlap, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject-matter is non-
arbitrable. Only when the answer is affirmative that the subject-matter of the dispute would be non-arbitrable.
76.6. However, the aforesaid principles have to be applied with care and caution as observed in Olympus Superstructures (P) Ltd. [Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651] : (SCC p. 669, para 35) "35. ... Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 8 of 23divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman [Keir v. Leeman, (1846) 9 QB 371 : 115 ER 1315] ). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst [Soilleux v. Herbst, (1801) 2 Bos & P 444 : 126 ER 1376] , Wilson v. Wilson [Wilson v. Wilson, (1848) 1 HL Cas 538] and Cahill v. Cahill [Cahill v. Cahill, (1883) LR 8 AC 420 (HL)] )."
77. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem. Similarly, grant and issue of patents and registration of trade marks are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Such grants confer monopoly rights. They are non-arbitrable. Criminal cases again are not arbitrable as they relate to sovereign functions of the State. Further, violations of criminal law are offences against the State and not just against the victim. Matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights, etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value. The decisions have erga omnes effect. Matters relating to probate, testamentary matter, etc. are actions in rem and are a declaration to the world at large and hence are non- arbitrable."
15. Merely because, the appellant has made allegations of forgery of the account books by defendant no.1, in the plaint, in my considered opinion, the same by itself is not sufficient to render the aforesaid dispute non-
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Judgment dated 02.11.2022 Page 9 of 23arbitrable. While taking the aforesaid view, I draw support from the following observations made by Hon'ble Supreme Court of India in Vidya Drolia v. Durga Trading Corpn., (supra):
"73. A recent judgment of this Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine SC 656] has examined the law on invocation of "fraud exception" in great detail and holds that N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] as a precedent has no legs to stand on. We respectfully concur with the said view and also the observations made in para 34 of the judgment in Avitel Post Studioz Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine SC 656] , which quotes observations in Rashid Raza v. Sadaf Akhtar [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4 SCC (Civ) 503] :
(Rashid Raza case [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4 SCC (Civ) 503] , SCC p. 712, para 4) "4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the plea of fraud as opposed to "simple allegations". Two working tests laid down in para 25 are : (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain."
to observe in Avitel Post Studioz Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine SC 656] : (SCC para 35) "35. ... it is clear that serious allegations of fraud arise only if either of the two tests laid down are satisfied and not otherwise. The first test is satisfied only when it can be RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 10 of 23said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof but questions arising in the public law domain."
74. The judgment in Avitel Post Studioz Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine SC 656] interprets Section 17 of the Contract Act to hold that Section 17 would apply if the contract itself is obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud, and post-contract fraud and cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the remedy for damages would be available and not the remedy for treating the contract itself as void.
75. In Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties [Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, (2021) 4 SCC 786 : 2020 SCC OnLine SC 655] , legal proceedings for cancellation of documents under Section 31 of the Specific Relief Act, 1963 were held to be actions in personam and not actions in rem. Significantly, the judgment refers (at SCC para 24) to the definition of action in rem by R.H. Graveson (Conflict of Laws 98, 7th Edn. 1974), which reads as under:
"An action in rem is one in which the judgment of the court determines the title to property and the rights of the parties, not merely as between themselves, but also as against all persons at any time dealing with them or with the property upon which the court had adjudicated."RCA DJ No.11/2018
Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 11 of 23............
78. In view of the aforesaid discussions, we overrule the ratio in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] inter alia observing that allegations of fraud can (sic cannot) be made a subject-matter of arbitration when they relate to a civil dispute. This is subject to the caveat that fraud, which would vitiate and invalidate the arbitration clause, is an aspect relating to non-arbitrability. We have also set aside the Full Bench decision of the Delhi High Court in HDFC Bank Ltd. [HDFC Bank Ltd. v. Satpal Singh Bakshi, 2012 SCC OnLine Del 4815 :
(2013) 134 DRJ 566] which holds that the disputes which are to be adjudicated by the DRT under the DRT Act are arbitrable. They are non-arbitrable."(Emphasis mine)
16. Power of a referral Court to prima facie review the validity of an arbitration agreement has been recognized by Hon'ble Supreme Court in the aforesaid judgment in following words:
"147. We would proceed to elaborate and give further reasons: 147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to "existence" and "validity" of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing para 29 thereof : (SCC p. 238) "29. This judgment in Hyundai Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co.
Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what was specifically under consideration was an arbitration clause which would get activated only if RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 12 of 23an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with "existence", as opposed to Section 8, Section 16 and Section 45, which deal with "validity" of an arbitration agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] , as followed by us."
Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement. 147.2. The court at the reference stage exercises judicial powers.
"Examination", as an ordinary expression in common parlance, refers to an act of looking or considering something carefully in order to discover something (as per Cambridge Dictionary). It requires the person to inspect closely, to test the condition of, or to inquire into carefully (as per Merriam-Webster Dictionary). It would be rather odd for the court to hold and say that the arbitration agreement exists, though ex facie and manifestly the arbitration agreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyond jurisdiction, if it rejects an application for reference, when the arbitration clause is admittedly or without doubt is with a minor, lunatic or the only claim seeks a probate of a will.RCA DJ No.11/2018
Deepak Dhingra v. Rakesh Dhingra and Anr.Judgment dated 02.11.2022 Page 13 of 23
147.3. Most scholars and jurists accept and agree that the existence and validity of an arbitration agreement are the same. Even Stavros Brekoulakis accepts that validity, in terms of substantive and formal validity, are questions of contract and hence for the court to examine. 147.4. Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, "existence of an arbitration agreement".
147.6. Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute "hands off" approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration.
147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence-competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage.
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Judgment dated 02.11.2022 Page 14 of 23147.8. Exercise of prima facie power of judicial review as to the validity of the arbitration agreement would save costs and check harassment of objecting parties when there is clearly no justification and a good reason not to accept plea of non-arbitrability. In Subrata Roy Sahara v. Union of India [Subrata Roy Sahara v. Union of India, (2014) 8 SCC 470 : (2014) 4 SCC (Civ) 424 : (2014) 3 SCC (Cri) 712] , this Court has observed : (SCC p. 642, para 191) "191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending without any fault on his part. He pays for the litigation from out of his savings (or out of his borrowings) worrying that the other side may trick him into defeat for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for what he has lost for no fault? The suggestion to the legislature is that a litigant who has succeeded must be compensated by the one who has lost. The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly pays for the same. It is suggested that the legislature should consider the introduction of a "Code of Compulsory Costs"."
147.9. Even in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] , Kurian Joseph, J., in para 52, had referred to Section 7(5) and thereafter in para 53 referred to a judgment of this Court in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 :
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(2009) 3 SCC (Civ) 271] to observe that the analysis in the said case supports the final conclusion that the memorandum of understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engg. Ltd. [SBP & Co. v.
Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] to observe that the legislative policy is essential to minimise court's interference at the pre-arbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Para 48 in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have arisen between the parties. Para 59 is more restrictive and requires the court to see whether an arbitration agreement exists -- nothing more, nothing less. Read with the other findings, it would be appropriate to read the two paragraphs as laying down the legal ratio that the court is required to see if the underlying contract contains an arbitration clause for arbitration of the disputes which have arisen between the parties -- nothing more, nothing less. Reference to decisions in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] was to highlight that at the reference stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions.
147.10. In addition to Garware Wall Ropes Ltd. case [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , this Court in Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co. Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 : (2018) 3 SCC (Civ) 484] and Hyundai Engg. & Construction Co. Ltd. [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 :
(2019) 2 SCC (Civ) 530] , both decisions of three Judges, has rejected the application for reference in the insurance contracts holding that the RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.Judgment dated 02.11.2022 Page 16 of 23
claim was beyond and not covered by the arbitration agreement. The Court felt that the legal position was beyond doubt as the scope of the arbitration clause was fully covered by the dictum in Vulcan Insurance Co. Ltd. [Vulcan Insurance Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA Mumbai Investments Pte. Ltd. [PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 : (2019) 1 SCC (Civ) 1] , this Court at the referral stage came to the conclusion that the arbitration clause would not be applicable and govern the disputes. Accordingly, the reference to the Arbitral Tribunal was set aside leaving the respondent to pursue its claim before an appropriate forum.
147.11. The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators' primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage.
...........
154. Discussion under the heading "Who Decides Arbitrability?"
can be crystallised as under:
154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable.
154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.RCA DJ No.11/2018
Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 17 of 23154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of "second look" on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub- clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably "non-arbitrable" and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism."(Emphasis mine)
17. The tests to determine the scope of arbitration agreement by the referral Court has been laid down by Hon'ble Supreme Court in the aforesaid judgment in following words:
"149. We would also resolve the question of principles applicable to interpretation of an arbitration clause. This is important and directly relates to scope of the arbitration agreement. In Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)] , on the question of RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.Judgment dated 02.11.2022 Page 18 of 23
interpretation and construction of an arbitration clause, it is observed :
(Bus LR p. 1723, para 6) "6. In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt.
The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction."
150. In Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co. Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 : (2018) 3 SCC (Civ) 484] , this Court while dealing with the arbitration clause in the insurance agreement, has held that the arbitration clause should be strictly construed, relying on the principles of strict interpretation that apply to insurance contracts. These observations have been repeated in other cases.
151. What is true and applicable for men of commerce and business may not be equally true and apply in case of laymen and to those who are not fully aware of the effect of an arbitration clause or had little option but to sign on the standard form contract. Broad or narrow interpretations of an arbitration agreement can, to a great extent, effect coverage of a retroactive arbitration agreement. Pro-arbitration broad interpretation, normally applied to international instruments, and commercial transactions is based upon the approach that the arbitration clause should be considered as per the true contractual language and what it says, but in case of doubt as to whether related or RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 19 of 23close disputes in the course of parties' business relationship is covered by the clause, the assumption is that such disputes are encompassed by the agreement. The restrictive interpretation approach on the other hand states that in case of doubt the disputes shall not be treated as covered by the clause. Narrow approach is based on the reason that the arbitration should be viewed as an exception to the court or judicial system. The third approach is to avoid either broad or restrictive interpretation and instead the intention of the parties as to scope of the clause is understood by considering the strict language and circumstance of the case in hand. Terms like "all", "any", "in respect of", "arising out of", etc. can expand the scope and ambit of the arbitration clause. Connected and incidental matters, unless the arbitration clause suggests to the contrary, would normally be covered.
152. Which approach as to interpretation of an arbitration agreement should be adopted in a particular case would depend upon various factors including the language, the parties, nature of relationship, the factual background in which the arbitration agreement was entered, etc. In case of pure commercial disputes, more appropriate principle of interpretation would be the one of liberal construction as there is a presumption in favour of one-stop adjudication.
153. Accordingly, we hold that the expression "existence of an arbitration agreement" in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability."
18. Applying the aforesaid principles to the facts and circumstances of the present case, in my considered opinion, prima facie there exists a valid arbitration agreement between the parties in terms of clause 11 of the Partnership Deed dated 24.07.2003 and the dispute sought to be raised by RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 20 of 23the plaintiff in the suit falls within the scope of the said arbitration agreement and by no stretch of imagination can be said to be non- arbitrable. While taking the aforesaid view, I draw support from the following observations of Hon'ble Supreme Court in V.H. Patel & Co. v. Hirubhai Himabhai Patel, (2000) 4 SCC 368:
"12. So far as the power of the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a clause in the articles of partnership or agreement or order referring all the matters in difference between the partners to arbitration, the arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. (See Phoenix v. Pope [(1974) 1 All ER 512 (Ch D)] .) Power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the court to it. If under the terms of the reference all disputes and difference arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal with all matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine such a question. Although the learned counsel for the petitioner relied upon a passage of Pollock & Mulla, quoted earlier, that passage is only confined to the inherent powers of the court as to whether dissolution of partnership is just and equitable, but we have demonstrated in the course of our order that it is permissible for the court to refer to arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence between the partners which is the foundation therefor."
19. There is no substance in the plea of Ld. Counsel for Appellant that in the absence of any written statement on behalf of the defendants/respondents, there is no sufficient material before the Court to determine the arbitrability of the dispute, since filing of an application under Section 8 of the Arbitration and Conciliation Act, 1996 is RCA DJ No.11/2018 Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 21 of 23contemplated before filing of the first statement of defence by the defendants. Moreover, merely because one of the defendants in the suit alone has filed the application under Section 8 of the Arbitration and conciliation Act, 1996 does not mean that the parties may not be referred to arbitration in terms of the arbitration agreement so long as all the parties in the present suit are also the parties to the arbitration agreement.
20. The judgment of Hon'ble Calcutta High Court in IDCOL Cement Limited Vs. P. Roy Chowdhury and Company 2005 (1) CHN158, in my considered opinion, is not applicable on the facts of the present case. In the case before Hon'ble Calcutta High Court, the suit was filed by the plaintiff against a partnership firm (defendant no. 1), two of its partners (defendants no. 2 and 3) and 13 other defendants who were not a parties to the arbitration agreement between plaintiff and defendant no. 1 firm. Under the aforesaid circumstances, it was held by Hon'ble Calcutta High Court that the matter could not have been referred to arbitration on an application u/s 8 of the Arbitration and Conciliation Act, 1996 filed by one of the partners of defendant no. 1 firm in his individual capacity and not for and on behalf of partnership firm. On the other hand, in the present case the dispute is between the partners of a firm who all are parties to the arbitration agreement in their individual capacity.
RCA DJ No.11/2018Deepak Dhingra v. Rakesh Dhingra and Anr.
Judgment dated 02.11.2022 Page 22 of 2321. In view of the aforesaid discussion, in my considered opinion, there is no error in the impugned order dated 14.12.2017 passed by Ld. Trial Court and the present appeal is liable to be dismissed.
22. There is another reason for dismissal of the present appeal which has been filed by the appellant challenging an order passed by Ld. Trial Court allowing an application of defendant no. 1 under Section 8 of the Arbitration and Conciliation Act, 1996 thereby referring the parties to arbitration. As per provisions of Section 37 of the Arbitration and Conciliation Act, 1996, although an Order refusing to refer the parties to arbitration under Section 8 of the Act has been made appealable, however, the order referring the parties to Arbitration is not appealable.
23. The present appeal is thus dismissed. Parties to bear their own costs.
24. Ordered Accordingly.
Announced in the open court on this 2nd day of November, 2022.
This judgment consists of 23 number of signed pages. ARUN Digitally signed by
ARUN KUMAR GARG
KUMAR Date: 2022.11.02
GARG 16:23:31 +05'30'
(ARUN KUMAR GARG)
Additional District Judge-05(Central)
Tis Hazari Courts, Delhi
RCA DJ No.11/2018
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Judgment dated 02.11.2022 Page 23 of 23