Madras High Court
Smiline Rushida And 2 Ors. vs N. Ramesh on 29 June, 2006
Equivalent citations: AIR2006MAD368, 2007(1)ARBLR33(MADRAS), AIR 2006 MADRAS 368, (2007) 1 ARBILR 33
Author: S. Rajeswaran
Bench: S. Rajeswaran
ORDER S. Rajeswaran, J.
1. (I) O.A. No. 1109 to 1111 of 2005:
O.A. No. 1109/2005 has been filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') for an order of interim injunction restraining the respondent his men, agents or any other person(s) claiming under him from in any manner promoting, marketing, selling or dealing with any product competing with the products of the firm "Hindustan Life Care", as contemplated in the deed of partnership dated 21-6-2004 entered into between the parties herein and/or in any manner engaging in any business in competition with the business of the firm 'Hindustan Life Care', pending arbitral proceedings.
2. O.A. No. 1110/2005 has been filed under Section 9 of the Act, 1996 to grant an order of interim injunction restraining the respondent from in any manner interfering with the operation of the bank accounts of firm 'Hindustan Life Care' under Current Account No. 01600050335 with State Bank of India, Kodambakkam Branch, Chennai and Current Account No. 0042320003760 with HDFC Bank, ITC Nagar, Anna Salai, Chennai or otherwise preventing the continuance of the business of the firm 'Hindustan Life Care' (HLC) pending disposal of the arbitral proceedings.
3. O.A. No. 1111/2005 has been filed under Section 9 of the Act, 1996 to grant an order of mandatory injunction directing the respondent to deliver possession to the applicants of the moulds in his custody as described in the (sic) II to the Partnership Deed dated 21-6-2004, more fully described in the schedule to the petition pending disposal of the arbitral proceedings.
II. O.A. 17/2006:
4. This application has been filed under Section 9 of the Act, 1996 to grant an order of interim injunction restraining the respondents herein from, in any manner carrying on business of the firm Hindustan Life Care, having its office at No. 24, Old No. 33, Postal Colony, 3rd Street, West Mambalam, Chennai-33, but for the beneficial winding up of the said firm, pending arbitral proceedings.
III. A. Nos. 103 to 105 of 2006:
5. A. No. 103/2006 has been filed under Section 9 of the Act, 1996 to issue a direction, directing the respondents herein, to make available books of accounts and related documents of the firm Hindustan Life Care, at its registered office at No. 24, Old No. 33, Postal Colony 3rd street, West Mambalam, Chennai 33 for being perused by the applicant herein pending final settlement of accounts through arbitration.
6. A. No. 104/2006 has been filed under Section 9 of the Act, 1996 to vacate the injunction granted in O. A. No. 1109/2005 on 16-12-2005 by this Court.
7. A. No. 105/2006 has been filed under Section 9 of the Act, 1996 praying to vacate the injunction granted by this Court by order dated 16-12-2005 in O. A. No. 1110/2005 pending disposal of the arbitral proceedings towards beneficial winding up of the business.
8. The three applicants in O. A. Nos. 1109 to 1111 of 2005 and the respondent in those applications entered into a deed of partnership on 20-2-1995. Thereafter, they entered into another partnership deed on 1-4-1995 to give effect to certain changes in the earlier partnership agreement entered into on 20-2-1995. As per the terms of the partnership deed between the parties the parties were to constitute a firm under the name and style of "Hindustan Life Care" with the object of dealing in surgical disposables and surgical equipments. As per Clause 6 of the partnership deed dated 1-4-1995, there was a specific bar on the partners to carry on any business activities which would compete with the business of the firm.
9. On 21-6-2004, a fresh deed of partnership was entered into to incorporate certain changes and as per Clause 9 of the deed dated 21-6-2004 any personal borrowings of any partner shall not be binding on the other partners and on the assets of the firm. Clause 13 prohibits any of the partners from entering into any agreement directly or indirectly with the principals with whom the firm is associated and Clause 16 prohibits the partners from promoting any competitive brand. There is also a specific agreement between the parties that none of the partners shall market the anesthesia and respiratory range of products or any other specialty products, which the HLC is dealing with. If any of the partners intends to commence any business activities, which is connected with the firm's business, the same shall be brought to the notice of the other partners. There is a specific clause that the firm can be dissolved only when the majority of the partners agreed, to do so. There is a specific annexure to the deed of partnership which contains a list of moulds which are the assets of the firm and if any new moulds are to be prepared, the same can be manufactured only after obtaining permission from other partners.
10. The respondent has declared vide Annexure-I of the deed that he would start a company in the name and style of Hindustan Health Care Systems and that he would not compete with the Hindustan Life Care and further would not involve in the promotion of such products in the territorial limits of Hindustan Life Care.
11. After starting Hindustan Life Care, the respondent's contribution in the development of partnership firm Hindustan Life Care started dropping to such an extent that it eroded the profitability of the firm. The respondent has not taken serious efforts to develop the business of the firm. In the first week of November 2005, it came to light that the respondent had made serious inroads into the business activity of the firm and started to compete with the products promoted by the firm. Therefore, it was immediately brought to the notice by the applicants letter dated 7-11 -2005 informing that his activities are detrimental to the interest of the firm. The respondent sent a reply dated 12-11-2005 containing unsubstantiated allegations and irrelevant issues. Very curiously, a copy of the letter dated 12-11-2005 was sent to the bank where a loan application for a sum of Rs. 35 lakhs was submitted on behalf of the firm. A rejoinder letter was also sent by the applicants in response to the respondent's letter dated 12-11-2005. The respondent has candidly admitted in another detailed letter that he has been marketing the Novamedix AV Impulse system for the past about one year which is a competitive to sequential compression device promoted and sold by the partnership firm. Thus the respondent is indulging in activities blatantly violating the deeds of partnership, distribution agreement and his own declaration.
12. The applicants are apprehending that the respondent may, by resorting to improper means, cause the freezing of the firm's bank accounts. The applicants were also informed by the bankers that if any dispute between the partners is brought to the notice of the bankers in writing by any one of the partners, the account of the firm would be frozen pending resolution of disputes between the parties.
13. As per the deed of partnership dated 21-6-2004, all the moulds mentioned in Annexure II to the deeds are the assets of the firm. As per the arrangement, the moulds are to be in possession of the respondent. They are utilised for the purpose of manufacturing Anesthesia components and the respondent was to manufacture the same and supply exclusively to the firm. But the 1st respondent has now become very slow in supplying the components affecting the firm's business. As against orders of 1000 numbers, only 200 numbers would be supplied by the respondent causing embarrassment and loss to the firm. The applicants also apprehend that the moulds would be utilised by the respondent herein contrary to the partnership deed 21-6-2004. Therefore the respondent has to restore possession of the above moulds to the applicant.
14. The Original partnership dated 1-4-1995 contains an arbitration clause and the applicants intend to arbitrate the disputes that have arisen between the parties. Pending initiation of arbitration proceedings, the applicants have filed the above applications for interim orders under Section 9 of the Act, 1996.
15. By order dated 16-12-2005, this Court granted interim injunction in A. No. 1109 and 1110 of 2005 and ordered notice in A. No. 1111/2005.
16. The respondent entered appearance through his counsel and filed application Nos. 104 and 105 of 2006 to vacate the interim injunction granted in O. A. Nos. 1109 and 1110 of 2005 respectively. He has also filed Application No. 17/2006 for an injunction restraining the other three partners from carrying on business of the firm and another A. No. 103/2006 for a direction directing the other partners to make available books of accounts and related documents of the firm at its registered office.
17. For the sake of convenience, the parties are referred to as they are referred to in O. A. Nos. 1109 to 1111 of 2005.
18. It is the case of the respondent that as he had unearthed a fraud committed by the applicants in getting a loan of Rs. 35 lakhs from the firm's bank, the applicants herein have filed the above applications as a counter-blast to harass him. The 2nd applicant, namely, Mr. Gopinath N. Goswami had obtained loans from various banks in his individual capacity and the same remained unpaid. The said N. Goswami has been a defaulter and this information was very much available in the internet and the banks could get the information about him by logging on in the web-site. Therefore, the 2nd applicant has deliberately changed his name from Gopinath N. Goswami, S/o. Narayanan Goswami to N. Gopinath, S/o. Narasimhan and submitted a loan application form. His date of birth was already changed in the application. Consequently, a fabricated partnership deed showing the changed name of the 2nd applicant was submitted to the bank for availing the loan of Rs. 35 lakhs. All the three applicants are hand-in-glove in this transaction to get the loan. On coming to know about the same, the respondent duly intimated the fraudulent activities to the bank as such kind of cheating would badly affect the reputation of the firm and its business activities.
19. As the applicants did not come forward to recall the loan application, the respondent sent a letter dated 19-11-2005 to the bank withdrawing his signature in the loan application. The respondent has also filed M.P. No. 5133/2005 before the Chief Metropolitan Magistrate, Egmore complaining about the commission of offence by the applicants under Section 120B, 420 read with Section 511 of I. P. C. By order dated 28-12-2005, the Magistrate forwarded the complaint to the Central Crime Branch, Egmore to register a case and investigate the same and to file a final report.
20. The respondent denies that AV Impulse System is identical to the equipment SCD Express promoted by the partnership firm. The respondent launched AV Impulse System in India way back in April 2004 itself, whereas partnership firm launched SCD express in its limited territory of South India only in June 2005. The respondent has stated that as per Clause 15 in the partnership dated 21-6-2004 even such cases of competitive activity being done without informing the other partner, he shall not be entitled for monthly remuneration for six months only and even in their letter 7-11-2005 the applicants have specified only the damages for the alleged competitive activity.
21. Insofar as the moulds are concerned, the respondent denied that he was short supplying the product but specifically stated that he shall not manufacture the products using moulds and to supply to any other third parties until the dissolution of the firm and settlement of disputes through arbitration. The respondent herein has stated that his notice dated 20-12-2005 is for the dissolution of the firm under Section 44(c) and 44(g) of the Indian Partnership Act on the ground of fraud and breach of trust. Therefore, the applicants cannot be allowed to say that the firm can be dissolved only when the majority of the partners agreed to the same.
22. Counter affidavit, reply affidavit and rejoinder were filed by both the parties reiterating their stand and denying the allegations.
23. Heard the learned Counsel for the applicants and the learned Senior Counsel appearing for the respondent. I have also perused documents filed in support of their submissions.
24. Though elaborate arguments have been advanced by the learned Counsel on both sides with reference to the identical nature of medical equipment marketed by the respondent thereby competing with the business activities of the firm, I am able to find that by order dated 6-1-2006 in A. No. 104/2006, this Court has vacated the interim injunction granted in O. A. No. 1109/2005 restraining the respondent in any manner promoting, marketing, selling or dealing with any product competing with the products of the applicants' firm herein. The learned Judge, after referring to Clause 15 of the partnership deed dated 21 -6-2004 and the letter/notice dated 7-11 -2005 issued by the applicants, came to the conclusion that the applicants are entitled to stop six months remuneration payable to the respondent and no injunction could be granted.
25. Clauses 15 and 16 of the deed of partnership dated 21-6-2004 deals with the consequences of a partner if he promotes any product competitive to the existing list of products within the territorial limits of Hindustan Life Care.
26. These clauses are extracted below:
15. Any partner shall not, without bringing to the notice of other partners, promote either directly or indirectly, any product competitive to the existing list of product within the territorial limits of Hindustan Life Care. At the time of entering into this supplement deed, Hindustan Life Care is entitled to promote Tyco's Vascular Therapy products in the southern States of India and to promote Ventilator and Anaesthesia Circuits throughout India. If he does so, he shall not be entitled for his monthly remuneration for a span of six months.
16. Any partner shall not promote any competitive brand of TED Anti Embolism Stockings of Tyco Healthcare, either directly or indirectly, within the territorial limits or outside the territorial limits of the firm. In the event of any partner doing so, he shall be liable to pay a compensation of Rs. 25.00,000/- (Rupees Twenty Five Lakhs only) to each of the other partners of Hindustan Life Care. This condition is valid as long as Hindustan Life Care is in distribution agreement with Tyco Healthcare to deal with their TED Anti Embolism Stockings.
27. A close reading of these two clauses would show that for any breach or violation, a specified sum of compensation has been specifically mentioned therein. Only invoking these clauses, the applicants' have also issued a letter/notice dated 7-11-2005, wherein they have clearly stated that the respondent is not entitled to monthly remuneration for six months with immediate effect, due to his involvement in the competitive activities.
28. Therefore, the learned Judge has rightly vacated the interim injunction against which no appeal appears to have been filed. The Clauses 15 and 16 of the partnership deed dated 21-6-2004 which has been extracted above is a bar for granting the relief of injunction in O. A. No. 1109/2005 and accordingly the said application is to be dismissed.
29. Insofar as Application No. 1110/2005 is concerned, the order of interim injunction restraining the respondent from any manner interfering with the operation of the bank account of the firm granted by the Court on 16-12-2005 is still in force and for the smooth running of partnership business, I am of the opinion that the partners should be allowed to run the bank accounts without any intervention. Even though the conduct of the applicants in not taking immediate steps to apparent an arbitrator to resolve the dispute after obtaining an order of injunction, could be held against them, considering the continuity of the firms business. I am of the view that it is just and necessary to let the order of injunction continue until the dispute is resolved by the arbitrator. At the same time, in the interest of partnership firm, I make it very clear that on and from 16-12-2005 if the applicants indulge in any activities detrimental to the interest of the partnership firm in the operation of the Current Account of the partnership firm as mentioned in A. No. 1110/2005, the applicants alone are responsible for the same.
30. In A. No. 1111/2005 the applicants prayed for mandatory injunction directing the respondent to deliver possession of the moulds in his custody as described in Annexure II to the partnership deed dated 21 -6-2004.
31. The applicants are apprehending that the moulds could be used by the respondent contrary to expressed intention contained in the deed of partnership dated 21 -6-2004.
32. But the respondent in his counter affidavit has given an undertaking that he will not manufacture the product using the moulds and supply to any third parties until the dissolution of the firm and the settlement of the dispute through arbitration.
33. In view of the above undertaking given by the respondent and the terms of the deed of partnership, the moulds are allowed to be in the custody of the respondent recording the above undertaking given by the respondent in the counter affidavit. The applicants are at liberty to approach this Court in case of any breach or violation of this undertaking given by the respondent.
34. As regards A. No. 103/2006 filed by the respondent praying to issue a direction, directing the other three partners to make available books of accounts and related documents of the firm at its registered office, I am of the opinion that there is some justification in the request of the respondent asking for the account, books and related documents. The question whether he is still continuing as a partner or whether the partnership firm has been dissolved or still continuing is to be decided by the arbitrator in the proposed arbitration proceedings. I am leaving all these questions open to be determined by the arbitrator. Till such time, I consider it proper to direct the applicants, who are the respondents in A. No. 103/2006 to make available the books of accounts and related documents of the firm Hindustan Life Care at its office at No. 24, Postal Colony, Third Street, West Mambalam, Chennai 33 for being perused by the respondent, who is the applicant in A. No. 103/2006 pending final settlement of the issues through arbitration.
35. In O. A. No. 17/2006, the respondent prayed for an order of interim injunction restraining the applicants from in any manner carrying on the business of the firm Hindustan Life Care, but for the beneficial winding up of the said firm pending arbitral proceedings.
36. Serious disputes arose between the applicants and the respondent in the conduct of the partnership business. The applicants alleged that the respondent is freely violating all the clauses in the deed of partnership and other agreements binding the parties. The applicants alleged that the respondent is competing against the partnership firm itself and thereby reducing its value day by day. But the respondent alleges that as he refused to be a party to the clandestine and shabby loan transaction entered into with the bank by the applicants, he was harassed unnecessarily by the applicants by filing the above three applications without any basis and without any merits too. He asserts that he is not dealing in any medical equipment which is a competitive product of the partnership firm. These allegations and counter allegations were levelled against each other resulting in institution of criminal proceedings against the applicants by the respondent and the applicants approaching the Court by getting Anticipatory Bail. Therefore, it is imperative that the arbitration proceedings ought to be commenced at the earliest to adjudicate the serious disputes and differences involved in the above matter.
37. The applicants maintain that the partnership cannot be dissolved unless majority of the partners decided to do so as per Clause 21 of the partnership deed dated 21-6-2004. But the respondent relies on Section 44(c) and 44(g) of the Indian Partnership Act, 1932 to dissolve the firm on the ground of fraud and breach of trust. Whether Clause 21 of the deed of partnership is to be applied or the provisions of Section 44 of the Partnership Act is to be invoked is an issue that is to be settled by the arbitrators on the basis of evidence that would be let in by both the parties. Therefore, at this juncture, this Court cannot restrain the applicants from carrying on the business of the firm as prayed for by the respondent.
38. In the result, (I) O. A. Nos. 1109/2005 is dismissed. No costs.
(II) O. A. 1110/2005 is allowed with observations. Consequently, A. No. 105/2005 is dismissed. No costs.
(III) O. A. No. 1111/2005 is disposed of in terms of the undertaking given by the respondent.
(IV) A. No. 103/2006 is allowed. No costs.
(V) A. No. 17/2006 is dismissed. No costs.
When the order was made ready by me and about to be pronounced, a mention was made by the learned Counsel for the respondent to post the matter "for being mentioned" to bring it to the notice of this Court, about certain new facts, which according to her were suppressed by the applicants. Accordingly, the matter was posted before this Court.
2. An additional affidavit was filed by the respondent stating that a new company by name Hindustan Life Care Pvt. Ltd. was started by the applicant and the respective spouses of applicants 2 and 3 and the product list of the new company had anti embolism stockings and medical equipments. The company was registered on 18-11-2005.
3. To this additional affidavit, a counter has been filed by the applicants stating that they were well within their rights to register the name Hindustan Life Care Pvt. Ltd., as per the majority decision of the partners.
4. Learned Counsel for the respondent submitted that by their clandestine activity of registering a company in the name of Hindustan Life Care Pvt. Ltd., and their suppression of the same before this Court, the applicants are not entitled to any of the reliefs prayed for by them and similarly all the applications filed by the respondent are to be allowed.
5. Learned Counsel for the applicants would submit that even though a new company was formed as stated by the respondent, they have not commenced any business operation and they would not also enter into any business activity or transaction in future till the disposal of the arbitration proceedings and the learned Counsel has requested this Court to record the statement made by him.
6. I have already passed a detailed order taking into consideration the rival contentions of the parties and the facts involved in the case. The new material brought to the notice of this Court, namely, formation of the above said private ltd. company would not amount to any alteration or modification, in the orders passed by me, excepting to record the undertaking given by the learned Counsel for the applicants that the newly formed company would not venture into any business activity till the initiation of the arbitral proceedings.
7. In the light of the above new materials and subsequent developments, the parties should show urgency to initiate arbitration proceedings immediately to resolve their disputes without any further loss of time.