Chunilal Kapurchandji Shah vs Sangramsinh Pratapsinh Gaekwad & 3 on 27 January, 2015

[Cites 8, Cited by 0]

Gujarat High Court

Chunilal Kapurchandji Shah vs Sangramsinh Pratapsinh Gaekwad & 3 on 27 January, 2015

Bench: Akil Kureshi

         O/IAAP/53/2014                            ORDER




         IN THE HIGH COURT OF GUJARAT AT AHMEDABAD


          PETN. UNDER ARBITRATION ACT NO. 53 of 2014
                                With
          PETN. UNDER ARBITRATION ACT NO. 54 of 2014


===========================================================
           CHUNILAL KAPURCHANDJI SHAH....Petitioner(s)
                            Versus
     SANGRAMSINH PRATAPSINH GAEKWAD & 3....Respondent(s)
================================================================
Appearance:
MR SN SOPARKAR, SR. ADV. WITH MR CHAITANYA S JOSHI, ADVOCATE
for the Petitioner(s) No. 1
MR SUDHAKAR B JOSHI, ADVOCATE for the Petitioner(s) No. 1
MR MIHIR THAKORE, SR. ADV. WITH MR DHAVAL D VYAS, ADVOCATE for
the Respondent(s) No. 1 - 3
MR PARTHIV B SHAH, ADVOCATE for the Respondent(s) No. 4
================================================================

        CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI

                          Date : 27/01/2015


                           ORAL ORDER

Since both these petitions arise out of common background, we may peruse the facts as emerging from Arbitration Petition No.53 of 2014.

All the respondents belong to the Gaekwad family of Baroda. Respondent Nos.1 and 2 are husband and wife. Respondent No.3 is their son. Respondent No.4 is nephew of respondent No.1. The petitioner and respondent Nos.1 to 3 had entered Page 1 of 22 O/IAAP/53/2014 ORDER into an agreement dated 9th July 1999 titled as the deed of Joint Venture (hereinafter referred to as 'the said agreement') for development of certain immovable properties in which the respondent Nos.1 to 3 had a share. Under the said agreement, the parties agreed to carry on business of development as joint venture partnership business. The petitioner agreed to pool in a sum of Rs.16 lacs by way of initial contribution. Such contribution and further contribution that may be made by the petitioner would be treated as the capital contribution to the joint venture. The said respondent Nos.1 to 3 would bring in the benefit of the said property as their contribution to the capital of the partnership. It was clarified that the said property was brought in the benefit of the right to receive and enjoy a share in the said property, namely, Laxmi Vilas Palace Estate situated in the city of Baroda admeasuring about 707 acres bearing survey No.1 of the City Tikka Nos.9/C and 10/C of Baroda Taluka and District. The said respondent Nos.1 to 3 had a joint share in the said property. The parties agreed that the net profits and losses of the partnership would be divided between the petitioner and respondent Nos.1 to 3 in the ratio of 33 : 67 per cent. The said respondent Nos.1 to 3 had to obtain physical partition and subdivision of Page 2 of 22 O/IAAP/53/2014 ORDER their undivided share in the said property and ensure clear and marketable title of the property. It was agreed that the development of the property shall commence as and from the date that the share of the said respondents was finally determined or partitioned and vest in them. As a negative covenant, it was provided that none of the partners without the previous consent in writing of other partner or unless he/she is authorized in writing by the other partners under duly executed power of attorney shall have the authority to do various things including to sell, mortgage, charge or otherwise encumber part either his/her share right, title or interest in the firm; or to sell, mortgage, hypothecate, pledge, encumber or prejudicially deal with the goods, assets and/or rights and/or claims and/or chosesinaction and/or benefits in any transaction or contracts of the firm and/or any other assets of the firm or whatsoever kind or nature.

Such agreement contained an arbitration clause in following terms:

"20. All disputes which shall arise between the Sangransing Group on the one hand and the said Chunnibhai on the other hand or between their legal representatives, whether during or after the determination of this joint Page 3 of 22 O/IAAP/53/2014 ORDER venture partnership and whether in relation to the interpretation of this deed or to any act which ought to be done by the parties to the dispute or either of them or in relation to any other matter whatsoever touching the partnership affairs shall be referred to a single Arbitrator in case the parties agree upon one, or otherwise or two Arbitrators one to be appointed by each party to the dispute in accordance with and ;subject to the provisions of the Indian Arbitration and Conciliation Act of 1996 or any statutory modification thereof for the time being in force."

It is undisputed that the petitioner did contribute Rs.16 lacs towards his share in the partnership business. The receipt issued by respondent Nos.1 to 3 dated 9.7.99 is on record which confirmed that they had received a sum of Rs.16,72,058/ towards payment of the initial capital contribution by the petitioner under the agreement. For some time, the parties also attempted to have the properties cleared of all legal complications and have the shares of respondent Nos.1 to 3 partitioned. The legal disputes between the said respondents and other family members who were coowners of the property went on before different courts. The case of the petitioner is that the petitioner had also borne the expenditure of such legal disputes which the said respondents deny. Be that as it may, it appears that eventually partition of the property Page 4 of 22 O/IAAP/53/2014 ORDER never happened and the same could not be developed as intended under the said agreement.

The reason for filing the present arbitration petition arose when respondent Nos.1 to 3 entered into a settlement on 23.10.2013 with other family members of the Gaekwad family and under such settlement, the said respondents relinquished their right in the property in question in favour of respondent No.4 herein. The petitioner thereupon issued a notice to respondent Nos.1 to 3 on 11.5.2014 through his advocate conveying that he had come to know that on 23.10.2013, members of the Gaekwad family had arrived at an amicable settlement. Certain pending court proceedings have been withdrawn under such settlement. As a part of the settlement, the said respondent Nos.1 to 3 had relinquished their right in the property in question in favour of respondent No.4 without any proper intimation to the petitioner. In the notice, reliance was placed on clause 13(c) of the agreement providing that none of the partners without the previous consent in writing of the other partner shall have any authority to sell, mortgage, hypothecate, pledge, etc. the property in question. It was asserted that the action of respondent Nos.1 to 3 was thus without authority and was prejudicial to the petitioner. In the Page 5 of 22 O/IAAP/53/2014 ORDER notice, therefore, the said respondents were called upon to rescind the said contract of family settlement and to compensate the petitioner for the loss of profit and damages on account of breach of contract by such respondents. Time limit of 15 days was provided failing which, it was informed that, the petitioner would take legal recourse.

Such notice of the petitioner was replied by respondent Nos.1 to 3 through their legal representative under communication dated 9th June 2014. It was conveyed that the petitioner had undertaken to bring and contribute from time to time such sums as would be required by the said respondents for making out a marketable title of the property in question. He had undertaken to fund the entire litigation and the amount so expended by him was to be treated as capital contribution of the joint venture. In good faith, therefore, the said respondents had entered into the agreement. The petitioner, however, had failed to act in terms of the agreement. The cheques issued by the petitioner in favour of legal advisers and consultants were dishonoured when presented for realization. This was also brought to the notice of the petitioner by respondent No.2 under communications dated 26.11.2001 and 22.1.2002. On 18th March 2002, he Page 6 of 22 O/IAAP/53/2014 ORDER was informed that unless the said respondents hear from the legal advisors regarding receipt of dues, they will not entertain any further correspondence and shall treat the matter closed for all purposes. Inter alia on such grounds, the claims of the petitioner were opposed.

The petitioner issued yet another legal notice dated 27.6.2014 asking the said respondents to suggest the name of the Arbitrator. If they failed to do so within 15 days, the petitioner would take legal proceedings in terms of clause 20 of the said agreement. The said respondents replied under communication dated 7th July 2014 and refused to nominate any Arbitrator. At that stage, the petition has been filed.

Though the property involved is different, but the basic facts are similar in the second petition, they are not separately recorded.

Learned counsel Shri Soparkar for the petitioner submitted that there was an arbitration clause in the agreement between the parties. Respondent Nos.1 to 3 had failed to act in terms of the agreement. A dispute, therefore, arose between the petitioner and the said respondents. Despite notice, the said respondents Page 7 of 22 O/IAAP/53/2014 ORDER refused to submit to arbitral proceedings. The need, therefore, had arisen to appoint an arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996. At this stage, the merits of the dispute cannot be gone into. The question of limitation also cannot be examined beyond a prima facie stage. If it can be demonstrated that the question of limitation would depend on the evidence that may be brought on record and that claim cannot be stated to be clearly and hopelessly barred by limitation, reference to arbitration should be made even while keeping the question of limitation open. In this context, he relied on the decision of Constitution Bench of the Supreme Court in the case of M/s. S.B.P. & Co. v. M/s. Patel Engineering Ltd., AIR 2006 SC 450. The counsel, however, clarified that this arbitration petition is not being pressed against respondent No.4 since he was not a party to the agreement in question.

On the other hand, learned counsel Shri Mihir Thakore for respondent Nos.1 to 3 opposed the petition contending that the disputes are old one and clearly hit by limitation. He placed heavy reliance on certain correspondence between the parties. He drew my attention to a letter dated 26th November 2001 sent by respondent No.2 Page 8 of 22 O/IAAP/53/2014 ORDER to the petitioner raising the dispute of unpaid dues by the petitioner. One such similar letter was written by respondent No.2 on 22.1.2002. On 18th March 2002, respondent No.1 wrote to the petitioner again raising the dispute of the unpaid dues. Such letter was replied by the petitioner under letter dated 4.10.2004. On the basis of such communication, counsel vehemently contended that long back in the year 2002, the petitioner had stopped funding the joint venture. He had to bring in funds for covering all the legal proceedings for partition of the property and for ensuring that the property titles are clear and marketable. He failed to do so. As far back as on 18th March 2002, this issue was closed. If the petitioner had any further dispute, he had to raise the same within the period of limitation which would be three years for filing a suit. An arbitrator cannot enforce any right which had become timebarred. He placed reliance on the following decisions:

(1) In the case of State of Orissa v. Damodar Das, (1996) 2 SCC 216 in which it was observed that subject to Limitation Act, every arbitration must be commenced within the prescribed period and an arbitration claim is not to be put forward after the expiration of the specified number of years from the date when the Page 9 of 22 O/IAAP/53/2014 ORDER claim accrued.

(2) In the case of Panchu Gopal Bose v. Board of Trustees For Port of Calcutta, (1993) 4 SCC 338, it was held and observed as follows:

"12.Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of civil actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued."

The counsel also relied on the decision of the Supreme Court in the case of M/s.S.B.P. & Co. (supra).

Having thus heard the learned counsel for the parties and having perused the documents on record, the position in law with respect to the question of limitation while making reference for arbitration is well settled. While the Chief Justice or his designate decides to make reference to the arbitrator, it would be necessary to first ascertain that there is a contract between the parties containing an Page 10 of 22 O/IAAP/53/2014 ORDER arbitration clause. While doing so, it would also be open to examine the question whether the claims sought to be raised is an old one, a long time barred claim or that the claim which has been finally given up is sought to be re agitated. If it is so found, reference to the arbitrator would not be made. However, such issues would be examined by way of prima facie consideration and if the same is either disputed or disputable at the stage of making a reference, detailed inquiry would not be undertaken. This is on the premise that if an issue can be examined on the strength of evidence which may be brought on record, it should be left for the Arbitrator to do so by permitting both the sides to lead evidence. It would not be open to the Chief Justice or his designate to refuse to make a reference on the issue of limitation which requires a thorough examination.

In the case of M/s.S.B.P. & Co. (supra), the Supreme Court observed as under:

"39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration Page 11 of 22 O/IAAP/53/2014 ORDER agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a longbarred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal."

In the case of Anil Kumar v. B.S.Neelkanta, (2010) 5 SCC 407, referring to the above observations in the case of M/s.S.B.P & Co., the Supreme Court observed as under:

"27. It is clear from the above extracted Page 12 of 22 O/IAAP/53/2014 ORDER paragraph that in order to set into motion the arbitral procedure, the Chief Justice or his designate has to decide the issues, if raised, regarding :

(i) territorial jurisdiction;

(ii) existence of an Arbitration Agreement between the parties; and

(iii) whether the claim made by the applicant was a dead one in the sense that the parties have already concluded the transaction by recording satisfaction of their mutual rights and obligations or have recorded satisfaction regarding their financial claims.

Nevertheless, the Court made it clear that at that stage it may not be possible to decide whether a live claim made, is one which comes within the purview of the arbitration clause and this question should be left to be decided by the Arbitral Tribunal on taking evidence.

28. It is, therefore, plain that purely for the purpose of deciding whether the arbitral procedure is to be set into motion or not, the Chief Justice or his designate has to examine and record his satisfaction that an Arbitration Agreement exists between the parties and that in respect of the agreement a live issue, to be decided between the parties, still exists. On being so satisfied, he may allow the application and appoint an Arbitral Tribunal or a sole Arbitrator, as the case may be. However, if he finds and is convinced that the claim is a dead one or is patently barred by time or that he lacks territorial jurisdiction, he may hold so and decline the request for appointment of an Arbitrator."

Page 13 of 22

O/IAAP/53/2014 ORDER In the case of National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267, the Supreme Court observed as under:

"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under section 11, the duty of the Chief Justice or his designate is defined in SBP and Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1 The issues (first category) which Chief Justice/his designate will have to decide are :

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement.

22.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are :

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording Page 14 of 22 O/IAAP/53/2014 ORDER satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3 The Issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are :

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP and Co., that in regard to issues falling under the second category, if raised in any application under section 11 of the Act, the Chief Justice/his designate may decide them, if necessary by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice of his Designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue."

With this background in mind, we may peruse Page 15 of 22 O/IAAP/53/2014 ORDER the documents on record. Undisputedly, the petitioner and respondent Nos.1 to 3 entered into an agreement for development of the landed property in which such respondents had joint share with other family members. The petitioner had agreed to pool in a sum of Rs.16 lacs as his initial capital contribution. He was thereafter to fund respondent Nos.1 to 3 in legal disputes and other formalities in order to ensure partition of the property and its marketable clear tittles. It is equally true that in the year 2002, disputes surfaced between the petitioner and respondent Nos.1 to 3. Respondent No.2 on 26th November 2001, pointed out to the petitioner that the cheques issued by him and which were handed over to the lawyers and solicitors at New Delhi were returned dishonoured with a remark insufficient fund. He was, therefore, requested to send a demand draft in view of such dishonoured cheques. On 22nd January 2002, she again wrote to the petitioner pointing out that for several months, he has not made payment to the advocates which has created great embarrassment. It was further conveyed as follows:

"So, inspite of our good relationship, I have no choice but to consider our agreement as null and void.

Page 16 of 22

O/IAAP/53/2014 ORDER However, if you make the full payment to all our advocates within the next 10 days time, I am willing to go along with you.

I look forward to hearing from you".

On 8.2.2002, the petitioner wrote to respondent No.2 and pointed out the background in which the joint venture agreement was signed by the parties. He further referred to a sum of Rs.10,39,622/ paid by him through cheques. He was assured that joint venture agreement for various other properties would be entered into between the same parties. He stated that after 31.3.2000, at her request, he had issued various cheques. He had also issued various other cheques to various persons as informed by respondent No.2 during 1.4.2000 to 21.11.2001 He had thus paid capital by issuing cheques totalling to Rs.13,53,134/ and requested for joint venture agreement for various other properties. Despite this, joint venture agreement with respect to other properties was not entered into. He pointed out that he had not failed to discharge any of his obligations. None of the expenditures are incurred pertaining to the joint venture agreement. The cheques were bounced only because the parties did not enter into further joint venture agreement with respect to other properties.

Page 17 of 22

O/IAAP/53/2014 ORDER In response to the letter dated 8.2.2002, respondent No.1 wrote to the petitioner on 18 th March 2002 stating that till date, he had spent money for certain matters only which was part of the agreement under which it was undisputedly the obligation of the petitioner. It was further stated that even as on that date, the said respondents were not backing out from any of the agreements, it was the petitioner who had willfully failed to comply his part of the obligations. Many cheques issued in favour of the lawyers and solicitors had returned dishonoured leading to a great deal of embarrassment. It was finally conveyed that :

"Please note that you have willfully chosen to back out from these three agreements which are in existence as on date. However, if you will comply with your p[art of the obligation, by making payments to our lawyers and by clearing all their dues, we are still ready to go ahead with these agreements, which please note.

Since all the payments are made as a part of your obligation, pursuant to these three agreements only, the issue of Refund raised by you is in gross contradiction of your own Declarations made in this regard, at the time of entering into these three agreements and also violates its terms, which please note.

Please note that unless we hear from all our lawyers, solicitors regarding the receipt of Page 18 of 22 O/IAAP/53/2014 ORDER their dues, we will not entertain any further correspondence in this regard from your side and we will be compelled to treat this matter as closed for all purposes, which please note."

Lastly on 4.10.2004, the petitioner wrote to respondent No.1 as under:

"We are thankful for the courtesy given to me & my son, Varun, during our meeting at your office on 14.09.2004. After thorough discussion on the above mentioned subject, you concluded that we should settle this matter amicably and for that we will be meeting in next 15 days.

We are in Mumbai on 8th & 9th of October 2004. We kindly request you to spare some time for us to discuss the matter.

Looking forward for your reply, informing us your convenient time for meeting."

It appears that there was no further correspondence between the parties and the matter rested there for a considerable period of time till it was activated by virtue of the said respondents entering into a family settlement relinquishing their right in the property in question in favour of respondent No.4. This led to the petitioner to issue notices and thereafter filing of this arbitration petition.

Page 19 of 22

O/IAAP/53/2014 ORDER From the above materials on record, it can be seen that from time to time, the parties tried to work out the agreement. Relations ran into rough weather when according to respondent Nos.1 to 3, the petitioner failed to discharge his obligations under the agreement for covering the legal expenses. According to the petitioner, he had fully funded the legal disputes insofar as the property in question is concerned. Dishonour of cheques was connected with other properties in respect of which there was an intention of the parties to enter into a joint venture agreement but due to refusal by the respondents Nos.1 to 3 it did not materialise. Be that as it may, it cannot be stated that the issues were closed finally between the parties on 18 th March 2002, as is sought to be canvassed before me. The letters dated 26th November 2001 and 22nd January 2002 of respondent No.2 do not give a final closure to the relations between the parties. In fact while stating that she had no choice but to consider the agreement as null and void, she further conveyed to the petitioner that if he still made full payment to all the advocates within ten days, she was willing to go along with the petitioner and she looked forward to hear from him. There was thus no final termination of agreement by respondent No.2 on that date. Further in the letter dated 18th March Page 20 of 22 O/IAAP/53/2014 ORDER 2002, though respondent No.1 took up various issues which were highly contentious, reiterated that the said respondents were still ready to comply with their part of their obligation and conveyed that they were not backing out from the agreement. He also conveyed that if the petitioner still complies his part of the obligation by making payments to the lawyers, they were ready and willing to go ahead with the agreements already executed. In fact, on 4th October 2004, the petitioner conveyed to respondent No.1 his appreciation of the meeting and showed desire to have another formal meeting.

The only conclusion possible from this discussion is that the question of limitation is one which would need further evidence and must, therefore, be left open for the Arbitrator to judge. Whether the petitioner failed to make any further payments and therefore, the parties terminated the agreement and respondent Nos.1 to 3 were free to deal with the property in question as they desire at least 3 years therefrom or whether the bilateral relations survived along with all the disputes noted above, is a question which can be decided only on full evidence being led on record. Whether the bounced cheques pertained to the joint venture agreement or as contended by the petitioner they were for other Page 21 of 22 O/IAAP/53/2014 ORDER properties for which similar agreements had to be drawn but it did not materialise for what ever reasons is also an issue which would have a bearing.

It is clarified that none of the observations made in this order and in particular in the preceding paragraphs would prejudice either side before the Arbitrator in the context of the question of limitation which will be decided once full evidence is led.

Under the circumstances, I request Shri Justice C.K.Thakker (Retired Judge, Supreme Court), to act as Sole Arbitrator to resolve the disputes between the petitioner and respondent Nos.1 to 3 arising out of the said agreements as at Annexure A in respective petitions. Both the petitions are disposed of accordingly.

At the request of the learned counsel for the respondents, this order is stayed upto 28th February 2015.

(AKIL KURESHI, J.) (vjn) Page 22 of 22

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