Rajasthan High Court - Jaipur
Smt Alka Gupta And Anr vs Shri Sanjay Gupta And Ors on 4 January, 2019
Author: M.N. Bhandari
Bench: Munishwar Nath Bhandari
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Arbitration Application No. 54/2018
1. Smt. Alka Gupta W/o Shri Raman Gupta B/c Mahajan, R/o
Heera Ice Factory, Kush Marg, Alwar Retired Partner M/s
Modern Machinery Store, Station Road, Alwar Distt. Alwar.
2. Shri Dhruv Satya Gupta S/o Shri Raman Gupta B/c
Mahajan, R/o Heera Ice Factory, Kush Marg, Alwar Retired
Partner M/s Modern Machinery Store, Station Road, Alwar
Distt. Alwar.
----Petitioners
Versus
1. Shri Sanjay Gupta S/o Shri Narayan Dat Gupta, R/o
Heera Ice Factory, Kush Marg, Alwar, Partner M/s Modern
Machinery Store, Station Road, Alwar.
2. Smt. Deepti Gupta W/o Shri Sanjay Gupta, R/o Heera Ice
Factory, Kush Marg, Alwar, Partner M/s Modern Machinery
Store, Station Road, Alwar.
3. M/s Modern Machinery Store, Station Road, Alwar
Through Partner Shri Sanjay Gupta
----Respondents
For Petitioner(s) : Mr.Mohit Gupta For Respondent(s) : Mr.Prakhar Gupta
HON'BLE MR. JUSTICE MUNISHWAR NATH BHANDARI Judgment 04/01/2019 The applicants have filed an application under Sections 10 and 11 of the Arbitration and Conciliation Act, 1996 (for short "the Act of 1996") for appointment of an independent Arbitrator.
Brief facts of the case :
A partnership deed was executed by the parties on 01 st October, 2014. It was after change of partners from time to time. (Downloaded on 05/06/2021 at 07:26:47 PM)
(2 of 11) [ARBAP-54/2018] After the partnership deed, disputes arose between the partners. To resolve it, a mutual settlement was made on 18 th March, 2016. After settlement, the partners started working in the defined areas. Therein, again disputes arose, as the burden was cast on the applicant for payment of loan of a work assigned to the other partner. He gave a legal notice on 30th September, 2017 to disassociate him from the work assigned to the other partners. It was for the reason that huge loan was taken and repayment was claimed from the applicant, being partner of the firm, despite division of work. A public notice was also sent to disassociate from the work given to the other partners.
The applicant thereafter invoked Clause 9 of the partnership deed for resolution of dispute and, accordingly, three members' Arbitral Tribunal was appointed on 10 th June, 2017. The Arbitral Tribunal, instead of taking up the proceedings, prepared a Memorandum of Understanding (for short "MoU"). It has been placed along with the reply. It was not signed by the partners, rather, for it, even an objection was raised by the non-applicants. The Arbitrators did not proceed in the matter and, now, a period of one year has expired.
The applicant, in the meanwhile, preferred a suit for rendition of account, dissolution of firm and permanent injunction. The suit preferred in December, 2017 was dismissed on the objection of the non-applicants regarding its maintainability. It is in reference to arbitration clause in the partnership deed. The order for it was passed on the application under Order VII Rule 11 CPC. After the order on the application under Order VII Rule 11 CPC on 27th March, 2018, the applicant was left with no option (Downloaded on 05/06/2021 at 07:26:47 PM) (3 of 11) [ARBAP-54/2018] but to pray for appointment of the Arbitrator and, accordingly, the notice was given. It is even for the reason that the Arbitrators, earlier appointed, failed to take the proceedings, thereby, mandate stood terminated as per Section 14 of the Arbitration and Conciliation Act, 2015 (for short "the Amending Act of 2015"). During pendency of this application, even a period of one year has expired. Accordingly, a prayer has been made to treat this application under Section 14 of the Amending Act of 2015 and Section 15 of the Act of 1996 and by applying the provisions of the Amending Act of 2015, it may be allowed.
Learned counsel for the non-applicants has raised an objection about maintainability of the application under Section 11 of the Act of 1996. It is stated that pursuant to Clause 9 of the partnership deed, the Arbitrators were nominated. It is due to non-cooperation of the applicants that the Tribunal was forced to terminate the proceedings on 03rd September, 2017. The application under Section 11 of the Act of 1996 would not be maintainable after appointment of the Arbitrators. A reference of the judgment of the Apex Court in the case of Lalit Kumar V. Sanghavi (Dead) through LRs Neeta Lalit Kumar Sanghavi & Anr. Vs. Dharamdas V. Sanghavi & Ors., (2014) 7 SCC 255 has been given.
It is further stated that the partnership entered between the parties has already been terminated, thus the arbitration pursuant to the earlier deed cannot be prayed. The earlier partnership has been superseded with new arrangement. The applicants have resigned from the partnership. (Downloaded on 05/06/2021 at 07:26:47 PM)
(4 of 11) [ARBAP-54/2018] To support the arguments, a reference of judgment of the Apex Court in the case of Union of India Vs. Kishori Lal Gupta & Bros., AIR 1959 SC 1362 has been given apart from the judgment in the case of National Insurance Company Limited Vs. Boghara Polyfeb Private Limited, (2009) 1 SCC
267. It is also submitted that the alleged dispute between the parties is not an arbitrable dispute. The applicants have alleged misappropriation of funds belonging to the partnership firm. The dispute regarding fraud and misappropriation is not an arbitrable dispute as held by the Apex Court in the case of N.Radhakrishnan Vs. Maestro Engineers & Ors., (2010) 1 SCC 72. Accordingly, the prayer is to dismiss the application in reference to the objections raised aforesaid.
Learned counsel for the non-applicants has further submitted that the applicants are not remediless in view of the order passed by the Civil Court on the application under Order VII Rule 11 CPC. The applicants can very well challenge the order passed by the Civil Court or, alternatively, to take remedies under Section 14(2) of the Act of 1996 against termination of the arbitration proceedings. The application under Section 11 of the Act of 1996 is not maintainable in view of the above also. The prayer is accordingly to dismiss the application under Section 11 of the Act of 1996.
I have considered the submissions made by learned counsel for the parties and perused the record carefully.
It is not in dispute that after change of the partners, a fresh partnership deed was executed on 01 st Day of October, 2014. (Downloaded on 05/06/2021 at 07:26:47 PM)
(5 of 11) [ARBAP-54/2018] The said partnership deed is having a clause for arbitration. The partnership deed has been filed along with the application as Annexure - 1. Subsequent to the partnership deed, a settlement was entered between the parties vide Annexure - 2. The document aforesaid shows division of work between the partners along with other arrangements. It was not for dissolution of the partnership.
After division of work amongst the partners, the default in payment of loan remained on the part of the work assigned to the other partner. To disassociate with the liability, a notice was given by the applicants to show retirement from the work assigned to the other partners. It was of M/s.Modern Machinery Store so that the liability, if any, may be borne by the other partner. A public notice to this effect was also given and the aforesaid has been taken by the non-applicants to be a resignation from the partnership firm.
A dispute remained between the parties and, accordingly, to settle it, the Arbitral Tribunal was constituted on 10th June, 2017. The constitution of the Arbitral Tribunal shows not only that the partnership was alive but taking into consideration nature of the dispute between the partners, it was subjected to the arbitration proceedings. The Arbitrators prepared a MoU on 21st January, 2016 and sent it to the partners, though, such a procedure is not provided under the Act of 1996.
In any case, an objection to the MoU was raised by none-else but the non-applicants, as is coming out from the e-mail enclosed along with the rejoinder. The arbitration did not proceed further and, in the meanwhile, the applicants preferred a suit for (Downloaded on 05/06/2021 at 07:26:47 PM) (6 of 11) [ARBAP-54/2018] rendition of accounts, dissolution of the firm and permanent injunction. The non-applicants raised objection on maintainability of the suit by maintaining an application under Order VII Rule 11 CPC. The Civil Court accepted the objection of the non-applicants finding a clause for the arbitration in the partnership deed. After the aforesaid, the applicants gave a notice for appointment of an Arbitrator and when the non-applicants had failed to nominate an Arbitrator, the present application was filed under Section 11 of the Act of 1996.
The non-applicants have raised objection about maintainability of the application under Section 11 of the Act of 1996 after appointment of the Arbitrators earlier. I find the objection of learned counsel for the non-applicants to be of substance. It is in view of the fact that once the Arbitrators were appointed then subsequent to it, the application under Section 11 of the Act of 1996 would not be maintainable.
The issue would, however, not end here because this Court is required to take subsequent events into consideration to do the complete justice and also that merely for the reason that the application was filed by referring a wrong provision, it should not be dismissed when it can be considered under Section 14 of the Amending Act of 2015 and Section 15 of the Act of 1996.
The subsequent developments are in the shape of a suit in the hands of the applicants. It was after appointment of the Arbitrators. The non-applicants raised an objection about arbitration clause and, on it, the suit was dismissed. It was not dismissed on the ground that the arbitration proceedings have already been taken up but taking into consideration the clause for (Downloaded on 05/06/2021 at 07:26:47 PM) (7 of 11) [ARBAP-54/2018] arbitration in the partnership deed. The finding of the Civil Court shows that if the mandate of earlier Arbitrator came to an end, the new Arbitrator can be appointed by giving reference of the judgment of the Apex Court in the case of Shailesh Dhairyawan Vs. Mohan Balkrishna Lulla, (2016) 3 SCC 619.
The aforesaid development is material for the reason that the applicants cannot be made remediless. The suit was dismissed in reference to the clause of arbitration and, if the present application is dismissed on the ground raised by the non- applicants then the applicants would be made remediless, as earlier the Arbitrators have not taken the proceedings as provided under the Act of 1996. Thus, I am dealing with the objections raised by learned counsel for the non-applicants.
(i) Learned counsel for the non-applicants has submitted that there exists no partnership deed between the parties, thus no clause for arbitration exists.
The argument aforesaid has been raised going contrary to the documents on record. A partnership deed was executed on 01st October, 2014 and there is no document to dissolve the said partnership or even supersession of it.
A reference of the settlement entered between the parties (Annexure - 2) has been given. It is not for dissolution of the partnership firm but distribution of the work amongst the partners, as the partnership firm dealing in more than one work. The distribution of the work was with certain arrangements.
After distribution of the work, a dispute arose on account of the practice adopted by the partners for their work. To (Downloaded on 05/06/2021 at 07:26:47 PM) (8 of 11) [ARBAP-54/2018] disassociate with the work of the other partner, the applicants gave a notice to withdraw themselves from the work of other partner so that the liability may not come on them. It remains because there was no dissolution of partnership firm.
Learned counsel for the non-applicants has taken it to be dissolution of the partnership firm, whereas, there is no deed for it and otherwise the settlement vide Annexure - 2 is not dissolution of the partnership firm, thus the argument that there exists no partnership deed between the parties cannot be accepted. The partnership deed still exists with the clause for arbitration, thus the argument raised by learned counsel for the non-applicants, cannot be accepted.
The issue can be dealt with from the other angle as well. It is with the subsequent developments in the case. The settlement between the parties vide Annexure - 2 was entered in the year 2016. The nomination of three Arbitrators is subsequent to it and it is in reference to the dispute between the partners. The appointment of three Arbitrators on 10th June, 2017 is not in dispute. If there was dissolution of the partnership firm, how the Arbitrators were appointed mutually by the parties, has not been answered by learned counsel for the non-applicants. As per their deed itself, it becomes clear that partnership was existing with the clause for arbitration and, therefore, three Arbitrators to resolve the dispute were nominated. It is an arbitrable dispute, thus only, the Arbitrators were appointed.
(ii) The other objection for maintainability of the application is in reference to nature of the dispute. It is submitted that allegation (Downloaded on 05/06/2021 at 07:26:47 PM) (9 of 11) [ARBAP-54/2018] against the partner is for misappropriation of the funds and, for that, arbitration clause cannot be invoked.
The objection aforesaid is to be considered again in reference to nomination of three Arbitrators mutually by the partners. If the dispute was not arbitrable, why the non-applicants agreed for nomination of the Arbitrators followed by appointment of three Arbitrators on 10th June, 2017. The dispute is not only for misappropriation of funds but in regard to the other issues, for which, even a suit was filed. The suit was not only for rendition of accounts and permanent injunction but even for dissolution of the partnership firm. The suit for dissolution would not have been filed, if there was a dissolution of the firm mutually by the partners and otherwise, the Civil Court, while accepting the application of the non-applicants, observed that earlier the Arbitrators were appointed and, if the mandate is terminated, the applicants can invoke the clause for arbitration. It can be only if the dispute is of the nature where the arbitration is permissible.
In the light of the aforesaid, I am unable to accept even the second objection raised by learned counsel for the non- applicants to oppose the application.
(iii) An objection about maintainability of the application under Section 11 of the Act of 1996 has also been raised.
This Court has made observation on it, but, for the ends of justice, referred Sections 14 and 15 of the Act of 1996, as amended by the Amending Act of 2015.
In the instant case, the Arbitral Tribunal was appointed followed by preparation of MoU. It was not signed by the partners, (Downloaded on 05/06/2021 at 07:26:47 PM) (10 of 11) [ARBAP-54/2018] rather, the non-applicants raised objection to it. The Arbitral Tribunal was under an obligation to proceed in the matter by applying the procedure given under the Act of 1996, however, it failed. It is not that the parties have not cooperated with the Arbitrators, thus the proceedings could not be taken up further. In this case, the Arbitrators themselves failed to proceed in the matter and, in the meanwhile, the mandate of Arbitrator stood terminated by virtue of Section 14 of the Act of 1996, as amended, i.e., a period of one year, though, it expired subsequent to the notice by the applicants for appointment of the Arbitrator.
The fact remains that now the arbitration cannot proceed with the Arbitral Tribunal, so nominated, due to termination of mandate by efflux of time and Section 14 of the Amending Act of 2015, as it failed to proceed in the matter. According to the non-applicants, it was terminated by the Arbitrators, but, no letter or an order for it exists on record so as to accept the aforesaid plea. If the mandate is terminated, a new Arbitrator can be appointed as per Section 15 of the Act of 1996 by this Court. It is to do justice and to settle the dispute between the parties.
Taking into consideration Sections 14 and 15 of the Act of 1996, as amended, I am of the view that while rejecting all the objections raised by learned counsel for the non-applicants, an Arbitrator can be nominated to resolve the dispute between the partners. It is not that Section 14(2) of the Act of 1996 comes into play in the instant case. It is for the reason that the Arbitrators failed to act without undue delay, rather, in the present matter, the Arbitrators have not even proceeded in the matter. The period of (Downloaded on 05/06/2021 at 07:26:47 PM) (11 of 11) [ARBAP-54/2018] one year has also expired, thus mandate of arbitration gets terminated.
Accordingly, the arbitration application is allowed. Justice S.K. Keshote (Retd.), 10, Eden Garden, Flat No.302, Bajaj Nagar Enclave, Near Gandhi Nagar Railway Station, Jaipur is appointed as a sole Arbitrator to resolve the disputes between the parties. The fee and cost of arbitration proceedings shall be as per the Fourth Schedule of the Arbitration and Conciliation Act (Amendment) Act, 2015 read with Manual of Procedure for Alternative Dispute Resolution, 2009 of this Court, as amended from time to time.
A copy of this order be sent to Justice S.K. Keshote (Retd.) for needful.
(M.N. BHANDARI),J Preeti/7 (Downloaded on 05/06/2021 at 07:26:47 PM) Powered by TCPDF (www.tcpdf.org)