Delhi High Court
Ashok Kumar Malik vs Smt. Vimla Manchanda on 28 April, 2001
Equivalent citations: 2001VAD(DELHI)281, 92(2001)DLT381, 2002(61)DRJ359, 2002(1)RAJ458
Author: Manmohan Sarin
Bench: Manmohan Sarin
ORDER
Manmohan Sarin. J.
1. Petitioner Shri Ashok Kumar Malik has filed this petition under Section 8, read with Section 20 of the Indian Arbitration Act, 1940, seeking appointment of Shri S.K. Choudhary, Advocate, as an arbitrator and reference of the disputes with the respondent for arbitration to the said Shri S. K. Choudhary. It is further prayed that in the event of the respondent not agreeing to the appointment of Shri S.K. Choudhary as the arbitrator, any other independent person may be appointed as the arbitrator by the Court.
2. Petitioner is stated to have entered into a partnership with the respondent Smt. Vimla Manchanda, under the name and style of M/s. Aastha (India) International. A partnership deed dated 1.7.1989 was executed between the parties. The said partnership deed was one at Will and could be dissolved at any time with the mutual consent of the parties. The partnership deed also contained an arbitration clause in the following terms:
"Clause 13: Resolution of Disputes:
That dispute, if any, arising between the partners, whether in respect of the accounts or in the interpretation of this partnership deed, shall be referred to an arbitrator to be appointed with mutual consent of the partners and his award shall be final under the Arbitration Act in force on the date."
3. As per the petitioner, the firm had suffered losses and activities of the firm were almost stopped since April, 1991. Disputed had arisen with the respondent. Petitioner, accordingly, served a notice dated 23.6.1993, for dissolution of the firm. Petitioner by the said notice also nominated Sh.S.K Chaudhary as the Arbitrator for settlement of disputes between the parties and requested for the consent of the respondent. Respondent did not reply to the said notice.
4. Petitioner claims that respondent had turned dishonest and has withdrawn substantial amounts from the firm through her husband and manipulated the accounts, resulting liabilities to various banks and other creditors. Petitioner has listed its claims in para (9) of the petition, which read as under:
1. Advances to M/s. Bansar Pharmaceuticals Pvt. Ltd.
of which your husband/ petitioner's husband is Chairman and director * Rs. 1,00,000.00
2. Advances outstanding against the petitioner * Rs. 6,92,000.00
3. Debit balance of the Capital account on account of business losses Rs. 2,96,606.00
4. Bank penalties along. As may be determined by the with up to date interest bank.
5. Damages to the loss Rs. 10,00,000.00 of reputation (normally assessed).
6. Interest @24% p.a. on the amount found due against the respondent.
7. Arbitration costs.
8. Any other claim which may arise after further scrutiny of the accounts of the firm.
(* It appears that "Petitioner" has been wrongly types instead of "Respondent".) It is also averred that instead of resolving the disputes, with a view to pressurise the petitioner the disputes, with a view to pressurise the petitioner the respondent got false cases registered against him and his brother and father.
5. Respondent has raised several preliminary objections to the maintainability of the petition. Petition is claimed to be barred by limitation. The arbitration agreement between the parties is claimed to be vitiated on account of fraud and cheating indulged in by the petitioner and the present petition has been filed to stall and prolong the criminal prosecution of the petitioner under FIR No. 170/93.
6. Respondent's case is that she being a housewife was only a sleeping and financing partner. The entire business was being managed by the petitioner, whose brother, Shri Jitender Malik, functioned as the Manager of the firm. Respondent also places reliance on a subsequent agreement dated 14.7.1989, in terms of which petitioner was to be the managing partner and responsible for the conduct of the business. It is claimed that petitioner along with his brother had committed the offences of cheating and breach of trust. FIR No.170/93, Police Station Patel Nagar, under Sections 420/406/407, IPC was registered against the petitioner and other co-accused and charge has been framed and the case is pending trial. It is claimed that there was no activity of the firm since February 1990, and the dissolution could be mutual consent and inferred the conduct and circumstanced. The petition would, thus, be barred by limitation and the notice dated 23.6.1993 was of no avail.
7. The very competency of the petitioner, who is a chartered accountant by profession, to enter into a partnership is questioned. It is stated that the said partnership deed stands vitiated as it is not permissible for the petitioner to enter into a partnership firm for carrying on business or any vocation, other than that of Chartered Account under the Chartered Accountants Act. Reference is invited to Section 21(4) and Section 22 read with Schedule 1 part-I clauses 4 and 11 of the Chartered Accountants Act.
This plea cannot non-suit petitioner. The arbitration agreement cannot be said to be void. It may be professional misconduct and may result in attracting disqualification against the petitioner to practice the practice the profession of Chartered Accountant.
8. During the course of proceedings, petitioner had moved an application under Section 340 Cr. P.C, wherein for setting up a false and fabricated agreement dated 14.7.1989. The respondent in view of alleged cheating and breach of trust by petitioner in averse to arbitration, the claims that arbitration agreement stands vitiated and negated.
9. The following issues had been farmed in the matter on 21.7.1997:
1. Whether there is a valid and subsisting arbitration agreement between the parties? If so, to what effect? OPP.
2. Relief.
Evidence by way of affidavit has been filed by the parties.
10. On a perusal of the pleadings, as noticed above, and the evidence adduced by way of the affidavits and the documents filed, I find that while the present petition under Section 20 was filed in July 1993, the respondent, prior to that, on 17.3.1993 itself, had lodged an FIR, alleging commission of offences under Sections 420/406/409, IPC, against the petitioner and his brother Mr. Jitender Malik, who was the Manager. The FIR alleged that petitioner was the managing partner, while his brother Jitender Malik was the manager and were both managing and running the firm. The bank accounts were being operated by the petitioner and his brother. The allegations against the petitioner include forging of 'No Dues Certificate' and, on that basis, opening new accounts. It is alleged that the petitioner diverted the fabrics purchased for the firm and exported it to the firm's overseas buyers through the companies of their friends and the payments so received, of over Rs.10.0 lacs, were put to personal use. Petitioner is alleged to have given fabric, worth Rs.3.3 lacs, to his relation one Mr. Arun Pruthi's for use in latter's factory. The petitioner is also stated to have indulged in over-purchasing of fabric, thus is purchasing more than their requirement for export orders, and diverting the same to his own concerns and use. It is claimed that in this manner the petitioner cheated the respondent. The police, after investigation, presented the challan in January 1994 and criminal prosecution of the petitioner is going on before the Metropolitan Magistrate.
11. For a perusal of the claims, as noticed in para 4 above, it is seen that the subject matter of the pending criminal proceedings are acts and transaction carried on by the petitioner and his brother during the course of business of the firm. The offences alleged to have been committed also arise out of and during the course of business of the firm. The disputes, of which reference is sought, have also arisen almost contemporaneously during and in the course of business of the firm except a claim with regard to the loss of reputation on account of defamation, which part takes a different character. Respondent's case is that as the criminal trial is going on, the present attempt by the petitioner to seek arbitration is to stifle the said criminal prosecution. In case the acts involved are criminal in nature, the arbitrator cannot be expected to go into the same and in fact the criminality of the acts would negate arbitration.
The Supreme Court has had occasion to consider a challenge to criminal proceedings on the ground that either there were civil proceedings pending or there was an arbitration agreement. Reference is initiated to the judgment of the Supreme Court in Usha Ahuja Vs. State of Haryana and Others - . The question was of quashing of the criminal complaint under Section 405/406 of Indian Panel Code, during the pendency of civil litigation between the parties for dissolution of the partnership firm and rendition of accounts. The High Court on account of the pendency of the civil litigation had stayed the filing of the final report under Section 173 of the Cr.P.C. The Supreme Court allowed the appeal holding, "The inherent power of the Court is not an unrestricted power to make any order which the High Court desires to pass. The power is meant to be exercised to give effect to any order under Cr. P.C. or to prevent abuse of the process of any Court or otherwise to secure the ends of justice. By passing the impugned order, the High Court did not achieve any of the purposes for which the power exists. It does no good to anybody. It is of utmost importance that criminal cases be disposed of expeditiously as right of an accused to have speedy trial is a right which flows form Article 21 of the Constitution. Far from ensuring a speedy trial the High Court placed an embargo at the pretrial stage by staying the filing of final report by the police under Section 173 Cr. P.C. It is well known fact that disposal of a civil suit takes a fairly long time, so no useful purpose will a achieved by staying the filing of the final report under Section 173 Cr. P. C. by the police ..... Appeal is accordingly allowed.
From the foregoing, it would be seen that the ratio of the judgment is that mere pendency of civil suit should not result in staying the criminal proceedings, expeditious conclusion of which is of utmost importance.
12. Reference may also be invited to the judgment of the Apex Court in Trisuns Chemical Industry Vs. Rajesh Agarwal and Others - . The appellant in this case had filed the directors of the respondents cheated the appellant company by supplying by goods of sub-standard quality contrary to the representations made. Respondent had filed a petition under Section 482 Cr. P. C. for quashing of the complaint on the ground that disputes were purely of a civil nature. Hence no prosecution should have been permitted. There was also a memorandum of understanding between the parties that disputes, it any, arisen between them in respect of any transaction would be resolved through arbitration. The High Court took the view that where the question whether the appellant/compliant company did not suffer the loss, as alleged, are matters to be adjudicated by the Civil Court, it cannot be the subject matter of the criminal prosecution. The appellant thereupon preferred the appeal in the Supreme Court. The Supreme Court while emphasizing the limitation on the inherent exercise of powers for quashing the complaint observed as under:-
"Merely because an act has a civil profile is not sufficient to denude it of its criminal outfit. The provision incorporated in the agreement for referring the disputes to arbitration is not an effective substitute for a criminal prosecution when the disputed act is an offence. Arbitration is a remedy for affording reliefs to the party affected by breach of the agreement but the arbitrator amounted to an offence albeit the same act may be connected with the discharge of any function under the agreement. Hence, those are not good reasons for the High Court to axe down the compliant at the threshold itself....."
From the foregoing, it would be seen that the rationale and the reasoning in the aforesaid judgment of the Supreme Court, the criminal trial should be permitted to proceed with expedient and dispatch and not lightly interfered with on the ground of mere pendency of the civil litigation. The pendency of civil litigation or the provision of an arbitration agreement would not be an effective substitute for criminal prosecution when the acts complained of are offences. In the instant case the petitioner is accused of offences which are not compoundable.
In the instant case, as noted, the notice of dissolution and disputes is of 23.6.1993 while much prior to that the respondent had lodge an FIR on 17.3.1993. The present petition for arbitration has been filed in the end of July, 1993. Curiously in this case it is the petitioner, who is an accused in the criminal Court, it the one who is seeking arbitration rather than an expedited criminal trial.
In view of the foregoing discussion and the rationale of the judgment of the Supreme Court in Usha Ahuja Vs. State of Haryana and Others - Supra and Trisuns Chemical Industry Vs. Rajesh Agarwal and Others - Supra and considering that in this case the acts complained of in the criminal complaint are those, which have arisen during and in the course of the business of the firm contemporaneously to the civil disputes, which have also arisen during and in the course of the business between the parties, I am of the view that the present petition, seeking reference of disputes be adjourned sine die, pending the conclusion of the criminal trial. Let the criminal trial be expedited. It is made clear that the mere pendency of this petition would not be used as a ground for deferring the criminal trial in FIR No. 170/93 dated 19.3.1993 P.S. Patel Nagar. Ordered accordingly.