Andhra HC (Pre-Telangana)
Sri Krishna Sarma vs Ramesh Kumar Joshi And Ors. on 24 February, 2006
Equivalent citations: 2006(3)ALD731, 2006(2)ALT724, 2006(3)ARBLR186(AP)
JUDGMENT D.S.R. Varma, J.
1. Heard both sides.
2. Since the parties being common and the issue involved being inter-related, both the Civil Miscellaneous Appeal and the Civil Revision Petition are being disposed of by this common judgment.
3. C.M.A. No. 4381 of 2004 is directed against the order and decree, dt.9-11-2004, passed by the District Judge, East Godavari at Rajahmundry, allowing the application LA. No. 2316 of 2004 in O.S. No. 77 of 2004, filed under Order XL Rule 1 of the Code of Civil Procedure seeking to appoint a receiver in respect of M/s. Venkata Naga Devi Picture Palace, a cinema theatre in Rajahmundry, while C.R.P. No. 5995 of 2004 is directed against the order and decree, dt. 9 -11 -2004, passed by the District Judge, East Godavari at Rajahmundry, dismissing the application LA. No. 2623 of 2004 in O.S.No.77 of 2004, filed under Section 8 of the Arbitration and Conciliation Act, 1996 (for brevity "the Act"), seeking to refer the dispute to an Arbitrator as per Clause 17 of the Partnership Deed of M/s. Venkata Naga Devi Picture Palace, Rajahmundry.
4. Inasmuch as the prime issue is - whether the matter is liable to be referred to an Arbitrator, we will first deal with the Civil Revision Petition and the Civil Miscellaneous Appeal later.
5. The petitioner is defendant No. 1, respondent No. 1 is the plaintiff and respondent Nos. 2 and 3 are defendant Nos. 2 and 3 respectively in the suit.
6. For the sake of convenience, in this common judgment, the parties will be referred to as per their array in the suit.
7. The suit was filed for winding up of the partnership firm and rendition of accounts.
8. The Court below, having heard the learned Counsel appearing for both sides in the above mentioned applications, passed the impugned common order, dt. 9-11 - 2004, allowing the application l.A. No. 2316 of 2004, filed by the plaintiff, while dismissing the application LA. No. 2623 of 2003, filed by defendant Nos. 1 to 3.
9. Challenging the said order of dismissal in application LA. No. 2623 of 2004, defendant No. 1 filed the present Civil Revision Petition.
10. For better appreciation of the case, we deem it imperative to refer to the facts, in brief:
The suit, as already noticed, is filed for windinq up of the partnership firm and rendition of accounts. The backdrop for filing the suit is that one late Narayana Prasada Sarma had three sons. Defendant No. 1 is the eldest son, Hari Ram Khaldelwal is the second son and Bhanwari Lal Sarma is the third son. All the three sons started an enterprise by lending a cinema theatre called 'Venkata Naga Devi Picture Palace'. Originally, the said business had been started, as a partnership, by all the three brothers in the year 1997. Subsequently, a fresh Partnership deed, dated 28-5-1992, was entered into among the three brothers having equal one-third share each. Thereafter, the third son, by name, Bhanwari Lal Sarma, died on 1-1-1999. Defendant Nos. 2 and 3 are his sons. The another brother Hari Ram Khaldelwal also died on 18-1-2000. The plaintiff is the son-in-law of Hari Ram Khaldelwal. His main contention in the suit is that he is the legatee under a Will executed by his father-in-law and hence he claims to become a partner of the firm. It is his further contention that as per the conditions of the Partnership Deed, the firm does not dissolve on the death of any of the partners and that the same would continue with the legal representatives of the deceased partner or partners and, accordingly, defendant Nos. 2 and 3 became partners of the firm. He further claims that he automatically becomes a partner by virtue of the same clause in the Partnership Deed with the further support of the Will said to have been executed by his father-in-law.
11. He further contended that since the other partners have been preventing him from his participation in the business of the firm, he sought for dissolution of the firm since the partnership was one at Will and was liable to be dissolved at the instance of any of the partners. All these contentions have been denied by defendant No. 1.
12. Be that as it may, defendant No. 1 filed LA. No. 2623 of 2004 under Section 8 of the Act seeking to refer the dispute to an arbitrator in view of the presence of Clause 17 of the Partnership Deed.
13. For ready reference, Clause 17 of the Partnership Deed is extracted hereunder, which is thus:
That all matters of difference relating to the said partnership affairs shall be referred to arbitration according and subject to the provision of the Arbitration Act in force for the time being.
14. Now, the question that falls for consideration before this Court is - as to whether the parties are to be referred to arbitration, as contemplated under Clause 17 of the Partnership Deed?
15. In this regard, it is necessary to extract Section 8 of the Act, which is thus:
8. Power to refer parties to arbitration where there is an arbitration agreement: (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in subsection (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
16. A perusal of Sub-section (1) of Section 8 of the Act makes it clear that in order to make an application under Section 8 of the Act, the subject matter of the suit shall also be the subject matter of arbitration. In other words, only those disputes, which are specifically agreed to be arbitrated alone, can be the subject matter of the arbitration and upon satisfaction of the same, the Court can subject the parties to arbitration.
17. The apex Court in P. Anand Gajapathi Raju v. P.V.G. Raju held that the language in Section 8 of the Act is peremptory.
18. However, in a recent decision in SBP & Co. v. Patella Engineering Ltd. 2005 (7) SCJ 461 : (2005) 8 SCC 618 : 2005 (6) ALT 37.1 (DN SC), it was observed by a Larger Bench of the apex Court that it was not peremptory for the Court to refer the matter to arbitration merely because an agreement was presented before the Court. In this contest, the apex Court, in the said decision at paragraph No. 19, held as under:
19. It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the Arbitral Tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other Courts and may even include a special tribunal like the Consumer Forum (see Fair Air Engineers (P) Ltd. v.
N.K. Modi . When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject-matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration....
19. From the above, it is obvious that the Court cannot, mechanically or for mere asking, merely because the arbitration agreement had been presented, refer the parties for arbitration. It implies that it is necessary for the Court or the Judicial authority to go into the facts of the case and arrive at a conclusion as to whether the parties can be referred to arbitration or not.
20. In that context, we feel it necessary to refer to the averments made by defendant No. 1 in the affidavit filed in support of the application I.A. No. 2623 of 2004.
21. It was stated in the affidavit filed in support of the application I.A. No. 2623 of 2004 that, according to the plaintiff, the arbitration clause holds good only if the partnership was continuing. But, the said interpretation was false and baseless and that as per the Clauses 15 and 16 of the Partnership Deed, only the legal heirs are entitled to come in place of the deceased partners. But, under no stretch of imagination, the plaintiff is the legal heir of the deceased Hari Ram Khaldelwal, since, admittedly, he was having one son and two daughters.
22. From the above contentions, it is to be seen that defendant No. 1 has been contesting the suit on different grounds. Most of them are beyond the scope of the exact terms and conditions of the Partnership Deed. In other words, the other aspects like status of the plaintiff, as a partner, being a legatee is by virtue of a Will allegedly executed by Hari Ram Khaldelwal.
23. From a perusal of the other contentions, it appears that the plaintiff had obtained a Probate from the High Court of Calcutta and as such became a partner of the firm. It also appears that defendant No. 1 had filed an application E.A. No. 3658 of 2002 before the High Court of Calcutta and in the said Probate proceedings i.e., P.L.A. No. 155 of 2000 and G.A. No. 3658 of 2002, notices were said to have been ordered and objection petition also was filed by defendant No. 1 and further that the said Probate proceedings have not yet become final and, as such, the same are pending before the High Court of Calcutta. These are all the questions that have to be gone into and a finding has to be recorded eventually, with regard to the validity of Will and the actual stage of Probate proceedings, since this is a serious dispute with regard to the finality of the said Probate proceedings before the High Court of Calcutta.
24. It is to be further seen that only after the said question is decided, including the question of the veracity of execution of Will and the effect thereto, further questions regarding the rights of parties in the firm does not arise and, only in that process, the question of deciding other disputes referred to in the Partnership Deed can be subjected to arbitration.
25. No doubt, under Section 16(2) of the Act, the Arbitrator can decide all the questions, including his own jurisdiction.
26. But, it is to be remembered that, as already noticed, the question of existence of Will in the circumstances in which the Will was brought into existence and the pendency of Probate proceedings before the High Court of Calcutta etc., are all the questions to be decided only by a Civil Court. In other words, these questions are not certainly subject matter of the Partnership Deed.
27. Therefore, it is imperative only for the Civil Court, in order to deal with the main claim in the suit, to go into all these questions and decide before going into the suit claim.
28. Furthermore, from the record, it is seen that an interlocutory application under Section 8(1) of the Act had been filed by defendant No. 1. But, the other defendants, who are said to be the legal representatives of the other deceased partner, did not make any such application nor there is anything on record in this regard.
29. Therefore, it is another question as to whether the parties can be referred to arbitration when the defendant No. 1 alone sought to refer the dispute to arbitration and the other defendants did not pray for the same.
30. In this regard also, we are of the view that the Civil Court cannot automatically refer the parties to the arbitration at the instance of only one defendant in the suit. This aspect is in addition to the aspects, which were already referred to above.
31. Another important aspect on record is that defendant No. 1 filed O.S. No. 164 of 2000 (Ex.A-12) on the file of Additional Senior Civil Judge, Rajahmundry, seeking perpetual injunction against the plaintiff in the instant suit. Initially, the Senior Civil Judge granted ad interim injunction and the same again, admittedly, was vacated by the said Court on the basis of Ex.A-2, dated 5-7-2000, which is the Probate granted in P.L.A. No. 155 of 2000 (with copy of the Will).
32. From the above, it is further clear that defendant No. 1 having filed a suit against the plaintiff, seeking permanent injunction and when the same is pending, cannot now turn down when it comes to the present suit and take shelter under Section 8(1) of the Act in order to have the same referred to arbitration. The conduct of defendant No. 1, in our considered view, obviously amounts to showing double standard.
33. Viewed from any angle, particularly in the light of the decision of the apex Court in SBP& Co.'s case (2 supra), it is obligatory for the Court below to examine all the issues, as contemplated under Section 8 of the Act, and then only arrive at a conclusion as to whether it is a fit case to refer the parties to arbitration.
34. As already stated, there are some other issues, which are to be decided first by the Civil Court before arriving at a conclusion as to whether the matter can be referred to arbitration or not, and those issues cannot be decided by an Arbitrator.
35. Therefore, the conclusion arrived at and recorded by the Court below in dismissing the application LA. No. 2623 of 2004, in our considered view, is correct and accordingly, we confirm the same.
36. For the aforementioned, we see no merits in the Civil Revision Petition and the same is liable to be dismissed.
37. While dealing with C.M.A. No. 4381 of 2004, initially a Division Bench of this Court in C.M.A.M.P. No. 15660 of 2004, by order, dated 23-11 -2004, observed that appointment of a Receiver in similar cases is a matter of course.
38. However, it was pointed out by the Division Bench that it is not desirable to appoint an Advocate as Receiver in matters like the present one and further held that it is always desirable to appoint one of the partners of the firm as Receiver to run the affairs of the properties of a firm with a running business.
39. In other words, apparently, it is the opinion expressed by the earlier Division Bench that in similar matters it is always desirable to appoint one of the partners of the firm as Receiver to run the affairs of the properties of a firm with a running business instead of handing over the entire business administration to a third party like an Advocate, appointing him as Receiver, and accordingly directed the appellant herein i.e., the Defendant No. 1 to act as Receiver with a further direction to deposit a sum of Rs. 1,00,000/- (Rupees one lakh only) to the credit of the suit, every year.
40. After going through the said view recorded by the earlier Division Bench, we are of the view that the said interim order in C.M.A.M.P. No. 15660 of 2004, dated 23-11-2004, is absolutely reasonable and judicious.
41. Therefore, we intend to dispose of the Civil Miscellaneous Appeal making the said interim order in C.M.A.M.P. No. 15660 of 2004, dated 23-11 -2004, passed by the earlier Division Bench, as the final order i.e., the judgment in the present C.M.A. No. 4381 of 2004, particularly in the light of the disposal of C.R.P. No. 5995 of 2004.
42. Accordingly, the C.R.P. No. 5995 of 2004 is dismissed and C.M.A. No. 4381 of 2004 is disposed of making the interim order, dated 23-11-2004, in C.M.A.M.P. No. 15660 of 2004, passed by the earlier Division Bench of this Court, as the final order i.e., the judgment, in the present C.M.A. No. 4381 of 2004, particularly in the light of the disposal of C.R.P. No. 5995 of 2004. However, there shall be no order as to costs.