Gujarat High Court
Jitendrabhai Virjibhai Limbasiya vs Dhirajlal Mohanbhai Sorathiya on 5 June, 2023
C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 14617 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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JITENDRABHAI VIRJIBHAI LIMBASIYA
Versus
DHIRAJLAL MOHANBHAI SORATHIYA
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Appearance:
MR HARNISH V DARJI(3705) for the Petitioner(s) No. 1
MR.RUCHIR R JOSHI(7241) for the Petitioner(s) No. 1
ARPIT R SINGHVI(9524) for the Respondent(s) No. 12,13
MR P P MAJMUDAR(5284) for the Respondent(s) No. 12,13
MR PRATIK Y JASANI(5325) for the Respondent(s) No. 2,7
NOTICE SERVED for the Respondent(s) No. 1,10,11,3,4,5,6,8,9
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CORAM:HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Date : 05/06/2023
CAV JUDGMENT
1. The present petition, under Article 227 of the Constitution of India, is filed by being aggrieved and dissatisfied with the impugned order dated 27.8.2021 passed Page 1 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 below Exh.33 application in Special Civil Suit No.34 of 2020 by the learned 16 th Addl. Civil Judge, Rajkot, whereby the learned trial judge has allowed the said application, which is filed under the provisions of Section 8 of the Arbitration and Conciliation Act, 1996, (for short, "the Act"). 2.1 Brief facts, as per the case of the petitioner in the present petition, are as such that petitioner herein is the original plaintiff and respondents herein are the original defendants of the Special Civil Suit No.34 of 2020. It is averred in the suit that original plaintiff and defendant Nos.1, 2 and 6 to 11 are partners in Registered Partnership Firm M/s Tathya Enterprise having its registered office at Rajkot. Firm is basically registered to do the business of builders, property developers, civil and labour contractors, real estate dealer as well as agent and other related work. The partnership deed is registered at Sr.No.4578 on 03/10/2017. In the partnership firm deed, there is Clause 15, whereby the original plaintiff and defendants Nos.1 and 2 are authorized to execute all the documents, to register all the documents on behalf of partnership firm. After registration of partnership firm, the partnership firm had purchased the property vide registered sale deed No.7730 dated 26/11/2018. 2.2 It is further the case of the petitioner in the present Page 2 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 petition that it came to the notice of the plaintiff that defendant Nos.1 and 2 had tried to enter into agreement to sale and transfer part of firm property by mischief and collusion to defendant Nos.3 to 5 herein at a lower price than market rate. Defendant Nos.1 and 2 had acted without consent of plaintiff. Defendant Nos.1 and 2 had executed a registered banakhat No.3026 dated 25/06/2020 in favour of defendant Nos.3 to 5. Said Banakhat was done without consent of the plaintiff - petitioner herein. Therefore, plaintiff had filed Special Civil Suit No.34 of 2020 for the declaration and injunction and for cancellation of Banakhat and for cancellation of registered sale deed.
2.3 It is further the case of the petitioner in the present petition that plaintiff had got registered lease pendent No.4098 on 28/07/2020, before the Sub-Registrar, Rajkot Zone-
6. After filing of suit and serving of summons and during pendency of the suit, the defendant Nos.1 and 2 had executed a registered sale deed No.5006 dated 27/08/2020 in favour of Respondent Nos.3 to 5 herein, which is registered vide registration No.5006 dated 27/08/2020. Defendant No.3 had registered an agreement to sale in favour of defendant Nos.12 and 13 which is registered vide registration No.5272 dated 02/09/2020. In the said Banakhat, defendant Nos.4 and 5 had signed as confirming party to the said agreement and Page 3 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 sale deed was also came to be executed between the same parties, which is registered with the Registrar vide registration No.7491 dated 27/10/2020. Hence, plaintiff had filed an application below Exhibit-28, under the provisions of Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure. The said application was heard and came to be allowed. The learned trial court had directed the original defendant Nos.12 and 13 to be joined as a party defendants in the suit. Due to above acts of defendants, plaint came to be amended by the plaintiff and prayer came to be amended through which plaintiff had sought declaration to declare all transactions and sale deeds void ab initio and also restrain defendants not to further transfer property of Firm. Thereafter, defendant Nos.1, 2, 6 to 9 and 11 had submitted an application under the provisions of Section 8 of the Arbitration and Conciliation Act, 1996 below Exhibit-33. Said application was given stating that as there is Clause 18 in partnership deed with regard to arbitration clause, question between partners of the firm is related to power given to them by partnership deed or agreement and as per Clause 18 of the partnership deed, it shall be settled by the Arbitration. Defendants have given application under the provisions of Section 8 of the Arbitration and Conciliation Act, 1996.
Page 4 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 2.4 It is further the case of the petitioner in the present petition that the application below Exhibit-33 given by the defendant Nos.1, 2 and 6 to 9 and 11 under the provisions of Section 8 of the Arbitration and Conciliation Act, 1996. After submission of application below Exhibit-33, defendant Nos.1, 2 and 6 to 9 and 11 have submitted their written statement below Exhibit- 34. Thereafter, plaintiff had filed his objection/ reply below Exhibit-39 against Exhibit-33 application and thereafter, the learned trial court has allow the application Exh.33 filed by the respondents and pleased to relegate and refer parties of suit to arbitration. Defendants Nos.1, 2 and 6 to 11 have filed objection below Exhibit-41. Original Defendant Nos.3 to 5 have filed their objection below Exhibit-44. Defendants Nos.3 to 5 have filed written statement to the plaint below Exhibit-46. Plaintiff had filed counter affidavit below Exhibit-47. It is further the case of the petitioner in the present petition that pending the hearing of the Exhibit-33, application, the defendant Nos.3 to 5 and defendant No.12 and 13 had executed registered sale deed No.3366 dated 20/03/2021 in favour of one Manjulaben Rameschandra Lalani. Said registered sale deed No.7491 is executed for 10% of undivided share in the suit property and the said fact is not on the record of the Learned Trial Court. The registered sale deed is not forming part of the suit proceedings, however, to bring on record true and correct Page 5 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 facts and conduct of the defendants, and the petitioner prayed for leave of this Court to rely and refer the subsequent development.
2.5 Thereafter, being aggrieved and dissatisfied with the impugned order, the present petition is filed.
3. Heard learned Senior Advocate Mr. Percy Kavina with Mr. Harnish Darji, learned Advocate for the petitioner assisted by learned Advocate Mr. Ruchir Joshi for the petitioner, learned Advocate Mr. P.P. Majmudar with Mr. Arpit Singhvi, learned advocate for the respondent Nos.12 and 13 and learned advocate Mr. Pratik Jasani for the respondents Nos.2 and 7. Though served, none appears for the respondent Nos.1, 3 to 6 and 8 to 11.
4. With the consent of learned advocates appearing for the respective parties, the matter is taken up for final disposal and accordingly, submissions were made.
5.1 Learned Senior Advocate Mr. Percy Kavina for the petitioner has submitted that the impugned order passed below Exh.33 application by the learned trial court under the provisions of Section 8 of the Act is per se illegal, improper and unjust and is against the settled legal position of law. Page 6 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 He has submitted that impugned order passed by the learned trial court is ex-facie bad in the eyes of law. He has drawn my attention towards the provisions of Section 8 of the Act, which reads as follows:-
"Section 8 of the Arbitration & Conciliation Act, 1996:-
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 sub-section (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."
And has submitted that application below Exh.33 is filed by defendant Nos.1, 2, 6 to 9 and 11, under Section 8 of the Act and thereafter, written statements below Exh.34 are filed by them and thereafter, plaintiff has filed his objection below Exh.34 against written statement below Page 7 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Exh.34 application. He has further submitted that pending the hearing of Exh.33 application, the defendant Nos.3 to 5 and 12, 13 had executed the registered sale deed No.3366 dated 20.3.2021 in favour of one Manjulaben Rameschandra Lalani. He has further submitted that the said registered sale deed No.7491 is executed for 10% of undivided share in the suit property and as the said transaction is entered subsequently. The said registered sale deed is not forming part of the suit proceedings. He has submitted that considering the totality of facts and circumstances, the Court has committed error by allowing the application filed by the defendants concerned and referred the matter to the Arbitration Centre.
5.2 He has further submitted that considering the agreement of partnership deed and considering the parties to the agreement, the impugned application filed by the defendants is required to be dismissed by the learned trial court. He has further submitted that even considering the impugned application, the defendants concerned in the suit have also averred to the extent that there is provisions in the Arbitration and Conciliation Act regardings partnership deed and it is also registered, but the findings of the learned trial court to the extent that consider the Clause in the partnership deed that any two partners jointly out of the Page 8 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 three partners can act on behalf of firm and therefore, the learned trial court had believed that the show called agreement by defendant Nos.1 & 2 was in the authority governed by partnership agreement and cannot be defined as illegal. At this juncture by giving such finding, the trial court has held that the objection raised by the plaintiff that defendant Nos.1 and 2 have no power to do such type of act is declined by the trial court. In support of his case, he has placed reliance on various judgments and has submitted that the impugned order passed by the trial court is apparently erroneous. He has further submitted that the defendant Nos.3 to 5, 12 and 13 are not the partners of M/s Tathya Enterprise - the partnership firm and therefore, they are not signatory to the partnership deed where there is arbitration Clause is existing. He has further submitted that the trial court had materially erred in not appreciating the fact that the subject matter of the suit is not the subject matter of arbitration agreement as agreed between the plaintiff and defendant Nos.1, 2 & 6 to 11. He has further submitted that the suit, which is filed by the plaintiff, wherein subject matter also includes cancellation of registered sale dead executed in favour of defendant Nos.3 to 5, 12 and 13, who are not signatory to the arbitration agreement and therefore, the provisions of Section 8 of the Act is not applicable in the facts of the present case. He has further submitted that Page 9 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 subject matter of the suit is not within the purview of arbitration clause of the partnership deed where Special Civil Suit No.34 of 2020 is filed for seeking declaration and cancellation of registered sale deed No.5006 executed by defendant Nos.1 & 2 in favour of defendant Nos.3, 4 & 5 and for cancellation of registered sale deed No.7491 executed by defendant Nos.3 in favour of defendant No.12 and 13. 5.3 He has further relied upon the mandatory requirements of Section 8 of the Act by indicating that (i) there is an arbitration agreement between the parties, (ii) a party to the arbitration agreement brings an action against the other party and (iii) subject matter of the action is the same as the subject matter of the arbitration agreement, and since the present respondent Nos.3 to 5, 12 & 13 are not the partners of the partnership firm and not signatory to the partnership deed, they are not signatories to the arbitration clause and there is no brevity of contract between petitioner and respondent Nos.3 to 5, 12 & 13 and therefore, arbitration cannot be initiated between petitioner and respondent Nos.3 to 5, 12 & 13. This aspect can only be dealt with by the Civil Court by holding full-fledged trial of the suit proceeding. This aspect is not properly considered by the learned trial court while deciding the application below Ex.33. He has heavily relied on the judgment of the Hon'ble Page 10 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Apex Court in the case of Zenith Drugs & Allied Agencies Private Limited Represented by Its Managing Director, Shri Uday Krishna Paul versus Nicholas Piramal India Limited reported in AIR 2009 SC 3785 and more particularly, paragraphs 14 and 15 are relevant and has submitted that for implication of Section 8 of the Act, it is mandatory that there is an arbitration agreement and one party has brought action against other party and the subject matter of the action is same as of the arbitration agreement and has further submitted that this judgment is not properly considered by the trial court. He has further relied on the judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited versus Jayesh H. Pandya reported in 2003 (5) SCC 531, and more particularly, paragraphs 13 to 17 are relevant and has submitted that in this judgment, the Hon'ble Apex Court has held that the subject matter of the suit which includes subject matter of arbitration agreement as well as other dispute, there is no provision of splitting the cause of the parties and therefore, considering this judgment, the order passed by the trial court below exhibit 33 application is apparently not tenet. He has further relied on the judgment of this Court in the case of Amin Associates a partnership firm versus Bharatbhai Purshottambhai Patel reported in 2018 (1) GLH 380 and more particularly paragraph 6 is relevant and has submitted Page 11 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 that in this judgment, it is held that judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited (supra), still holds the field. He has further relied on the judgment of this Court in the case of Shantilal Shivabhai Jadav versus Kaushikbhai Hiralal Siddhiwala reported in 2019 (3) GLR 2146, and more particularly, paragraphs 5 to 11 are relevant and has submitted that in this judgment also, this Court has observed that judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited (supra), still holds the field and therefore, it cannot be considered that provisions of Section 8 of the Act will apply in rem and not in personam and therefore, he has submitted that the findings given by the trial court while deciding application below exhibit 33 is highly improper and therefore, this court should exercise powers under Article 227 of the Constitution of India which is vested as supervisory jurisdiction and therefore, he praises to allow this petition by quashing and setting side the impugned order passed by the learned trial court.
6. Per contra, learned advocate Mr. Pratik Jasani for the respondents Nos.2 and 7 has raised preliminary objection about the maintainability of the petition under Article to 227 of the Constitution of India and has submitted that the impugned order passed below application exhibit 33 dated Page 12 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 27.8.2021 is implemented and the original suit being Special Civil Suit No.34 of 2020 is not alive and therefore, remedy available to the petitioner is either preferring an appeal under Section 96 read section 105 of the Code of Civil Procedure, 1908 or under Section 37 of the Arbitration and Conciliation Act, 1996 and therefore, on this ground, the petition is required to be dismissed. He has further submitted that without being prejudiced to his first submission, the impugned order is well reasoned order, which takes into account all the submissions advanced by the parties and reasons assigned by allowing the application below exhibit
33. He has further submitted that the dispute in question is arising out of partnership deed and has referred the Clauses regarding the authority of the partners as well as nature of business, and more particularly, has referred Clause 15(viii) of the partnership deed which is for executing deeds/documents on behalf of the firm. He has further submitted that transaction in question has taken place, by considering Clause 4 of the partnership deed and the dispute if any arose in connection with the "nature of business" or "authority of partner", the same is an arbitrable issue as per Clause 18 of the partnership deed. He has also relied on the averments made below exhibit 33 application and has referred paras 1 and 7 and has submitted that the dispute being arbitrable as "it arises out of or in connection with", in the Page 13 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 present case, it is the partnership deed and therefore, the said averments made in the application is getting support of Section 8 of the Act and the trail court has rightly appreciated scheme of Arbitration Act and has rightly applied to the facts of the present case. He has further submitted that no harm will be caused to the petitioner if the dispute is referred to an arbitrator and the same will be facilitated to the parties to get the issue resolved at the earliest, considering the scheme of Arbitration Act, more particularly Section 16 thereof of, which allows arbitrator to rule on its own jurisdiction. Lastly, he has relied on the recent judgment of the Hon'ble Apex Court in the case of Asian Avenues Pvt. Ltd. versus Syed Shoukat Hussain reported in 2023 SCC Online 541 and has submitted that facts of this case is squarely applicable to the facts of the present case. He has further submitted that as the issue which is to be decided by the Arbitrator is "in personam' and therefore, the same is an arbitrable dispute. He has also relied on the judgment of the Hon'ble Apex Court in the case of Deccan Paper Mills Company Limited versus Regency Mahaveer Propertioes reported in (2021) 4 SCC 786, and has submitted that a non- party to an agreement can also be subjected to arbitration and has further submitted that in the present case also, the same facts can be applicable. He has submitted that in view of the recent decisions of this Court, when the order passed Page 14 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 by the court below is well reason and has not over-stapped or exceeded its jurisdiction then in that case, this Court may not interfere with the impugned order by exercising the powers under Article 227 of the Constitution of India. He has further drawn my attention by submitting that respondent Nos.12 and 13, who are not partners, are also not having any objection if the matter is referred to the Arbitrator and therefore, he has submitted that the present petition is required to be dismissed as no case is made out for excising powers under Article 227 of the Constitution of India. 7.1 Learned Advocate Mr. P.P. Majmudar for the respondent Nos.12 and 13 has also supported the submissions made by learned advocate Mr. Pratik Jasani for the respondents Nos.2 and 7 and has submitted that there is an arbitration agreement and suit which is filed and prayers which are made therein are essentially dispute which are arising out of the said arbitration agreement. He has further submitted that since it is the case of the original plaintiff - petitioner herein that the partners have executed the documents without their authority so that concludes the facts that it is an inter se dispute amongst the partners which would be covered under Clause 15 of the partnership deed which provides that out of defendant Nos.1 and 2 and the original plaintiff "any two" partners can act on behalf of the Page 15 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 firm, which is undisputed in the present position. He has further submitted that there is separate and specific arbitration clause being Clause 18 of the said partnership deed, which clearly sheds lights to the fact that if dispute of any nature is encountered by the partnership firm or amongst the partners then the said arbitration clause would be invoked to adjudicate the said dispute. He has further submitted that the contention of the original writ petitioner about non-party to the arbitration agreement is also not sustainable for the reason being that the said question has been answered by the Hon'ble Apex port in the case of Cheran Properties Limited versus Kasturi and Sons reported in (2018) 16 SCC 413 also reported in AIR Online 2018 SC 1229, and more particularly, paras 21, 26 and 29 are relevant and has submitted that whereby the term person claiming under them has been defined where through devolution of the interest of the parties, who are non- signatories to the arbitration agreement can be impleaded as per the theory of implied consent where it has been stated that the principle applies to both private and public entities. He has further relied on the judgment of the Hon'ble Apex Court in the case of Deccan Paper Mills Company Limited (supra), and has submitted that the judgments speaks volumes to the effect that when a party seeks cancellation of the registered written instruction under Section 31 of the Page 16 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Specific Relief Act, 1963 then such a dispute can be referred to the arbitration and the arbitrator has power and jurisdiction to grant specific performance of contracts in relation to immovable property and action under Section 31 of the Specific Relief Act is strictly an action inter-parties or by persons, who obtain derivative title from the parties, and is thus in personal and therefore, the judgment would not be of rem but personam. He has heavily relied on paras 11, 16, 17, 21 & 23 of the judgment of the Hon'ble Apex Court in the case of Deccan Paper Mills Company Limited (supra), and has submitted that learned Civil Judge has rightly relied on the judgment of the Honb'le Apex Court in the case of Ananthesh Bhakta versus Nayana Bhakta And Others reported in (2017) 5 SCC 185, and more particularly, paras 32 to 37 are relevant and has submitted that in this judgment, it has been clearly stated that parties, who have an interest in the subject matter of the proceeding, should be made party to the arbitration agreement. He has further submitted that the present petition is also miss-conceived, which is filed under Article 227 of the Constitution of India, which provides about the scope of jurisdiction of the High Court having superintendence powers to rectify any apparent mistake or any error of law and since the learned Civil Judge has passed well reasoned order and has not committed any error of law, the present petition deserves to be Page 17 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 dismissed.
7.2 Lastly, dealing with the contentions raised by the petitioner by relying on the judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited (supra), he has submitted that it is distinguishable in the facts of the present case as the judgment of Sukanya Holdings Private Limited (supra) talks about bifurcation of cause of action, whereas in the present case, the present respondents have clearly stated in the present case that the entire subject matter falls within the purview as well as scope of the arbitration agreement and therefore, the submission made by the learned advocate for the petitioner is mis-conceived and this Court may exercise its powers by rejecting the petition in view of the recent judgments of the Hon'ble Apex Court in the case of Garment Craft versus Prakash Chand Goel reported in (2022) 4 SCC 181, where this Court has limited powers under Article 226 of the Constitution of India.
8. In rejoinder, to the submissions made by learned advocate for the respondents, learned Senior Advocate Mr. Percy Kavina for the petitioner has submitted that in view of the judgments referred by the respondents, he has replied that the judgment of the Honb'le Apex Court in the case of Page 18 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Cheran Properties Limited (supra), whereby the person who claims through party to arbitration agreement, the arbitration award can be enforced against such person and has further submitted that in the facts of the present case, a person does not claim through any party, civil right has been created in favour of third parties. Hence, said judgment is not applicable in the facts of the present case. He is also referred the judgment relied on by the respondents in the case of Deccan Paper Mills Company Limited (supra), and has submitted that in that case, it was held that "post amendment, it is clear that the judicial authority before which an action is brought shall, if the other conditions of Section 8 of the Act are met, refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists." He has further submitted that in the present case, there is no valid arbitration agreement between petitioner and respondent Nos.3 to 5, 12 & 13. Hence, conditions of Section 8 of the Act is not fulfilled, therefore, the said judgment is not applicable to the facts of the present case. Lastly, he has relied on the judgment of the Hon'ble Apex Court in the case of Asian Avenues Pvt. Ltd. (supra), and has submitted that there was development agreement signed by both the parties, wherein there was clause of arbitration and therefore, the said judgment is not applicable in the facts of the present case and therefore, he Page 19 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 has submitted that the present petition is required to allowed as the learned trial court has committed gross error in not properly appreciating the facts of the present case and also the settle legal position of law.
9.1 I have heard the arguments put forth by the respective parties at length. I have also perused the materials available on the record. I have also gone through the written arguments submitted by the parties in support of their oral submissions made during the course of argument. I have also perused the impugned order passed by the learned trial court.
9.2 It clearly transpires that the present petitioner - original plaintiff, who is one of the partners of partnership firm - M/s Tathya Enterprise, has filed the suit against the present respondents seeking cancellation of agreement regarding sale and for declaration and for permanent injection. The agreement in question was executed by defendant Nos.1 & 2, who are also partners of a partnership firm in favour of defendant Nos.3 to 5. After being served with summons, the defendants appeared in the suit and filed an application below Exh.33 application in the Special Civil Suit No.34 of 2020 before the learned 16 th Additional Civil Judge Court, Rajkot, specifically defendant Nos. 1, 2, 6 to 9, Page 20 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 and 11, under Section 8 of the Act, requesting the matter be referred to arbitration. Subsequently, the defendants filed written statements at exhibit 34 in which they argued that the plaintiff had not joined the partnership firm as a party in the suit. They also contended that defendant Nos. 1 & 2, based on the powers vested in the partnership deed, executed the agreement in favor of defendant Nos. 3 to 5. Consequently, they asserted that the plaintiff had no grounds to file the suit, and according to the arbitration clause, this Court has no jurisdiction to try the suit. In response to the application submitted by defendant Nos. 1 & 2, 6 to 9, and 11 at exhibit 33, the plaintiff filed a reply at exhibit 39 arguing that the suit is filed by the plaintiff for his fundamental civil rights and the application below exhibit 33 is not maintainable since defendant Nos. 3 to 5, 12, and 13 are not partners of the property in question, and therefore the matter could not be referred to arbitration. Furthermore, it is evident that defendant Nos. 12 and 13 also appeared in the suit and filed a written statement at exhibit 51, raising various arguments including the submission that the suit is barred by delay and latches as well as acquiescence, and Clause 18 of the registered partnership deed stipulates that all the disputes are required to be resolved through arbitration and therefore, had no valid reason for the plaintiff
- petitioner herein to file the suit before the trial court. Page 21 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 9.3 It is evident that the suit filed by the plaintiff pertains to immovable property situated within the Rajkot District, within the limits of Rajkot Municipal Corporation, in Village Mavdi, Revenue Survey No. 2 Paiki 1 / Paiki 2, comprising approximately land adm. 6475-00 Sq. Mtrs. The land includes proposed T.P. Road and T.P. Reservation, with a remaining land area of approximately land adm. 4208-75 Sq. Mtrs. This remaining land is now non-agricultural (N.A.) land and is permitted for residential building construction. The suit also involves specific plots, with Paiki Plot No. 1 comprising approximately land adm. 1963-48 Sq. Mtrs. and land of Plot No.2, land adm. about 1824-34 Sq. Mtrs, total land is adm. about 3787-82 Sq. Mtrs. and common plot area is adm. about 420-93 Sq. Mtrs. and reserved areas is adm. about 2266-25 Sq. Mtrs. and total land is adm. approximately 6475-00 Sq. Mtrs. sale deed of that land is executed by registered sale deed No.7730 dated 26.11.2018. The plaintiff has also requested in the suit the cancellation of the registered Banakhat/Satakhat (agreement to sell) No. 3026 dated 25.6.2020. Additionally, the plaintiff seeks for declaration that the registered sale deed No. 5006 dated 27th August 2020 and registered Banakhat/Satakhat No. 5272 dated 2nd September 2020 are null and void and not binding on the plaintiff. The plaintiff has prayed for an injunction against Page 22 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 any further transfer or sale. Furthermore, the plaintiff has also sought declaration that as per partnership agreement, plaintiff has also share of 12.5% in the said property. Upon perusing the impugned order, it transpires that the trial court did not express its views in proper grammatical language. However, considering the content of the order, it is observed that the learned trial court has taken into consideration all relevant aspects of the matter and properly dealt with the cited judgments presented during the proceedings. The main contention raised by learned advocate for the petitioner in relation to Section 31 of the is Specific Relief Act and considering the fact that defendant Nos.3 to 5, 12 & 13 are not partners of the M/s Tathya Enterprise as well as considering the applicability of Section 8 of the Act, the dispute cannot be referred to the arbitrator. It is relevant to consider the fact that the suit is filed by the present positioner, who is original plaintiff for cancellation of sale deed as well as agreement to sale by the defendant Nos.1 & 2 and in turn the subsequent purchaser about the property of the partnership firm. It is also relevant to mention that the plaintiff is one of the partners of M/s Tathya Enterprise, while defendant Nos. 1 and 2 are the other partners. Causes 4, 15, and 18 of the partnership deed are as follows:
Page 23 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023
C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 "4. NATURE OF BUSINESS:-
The Business of Partnership shall be to carry on the business as BUILDERS, PROPERTY DEVELOPERS, CIVIL AND LABOUR CONTRACTORS, REAL ESTATE DEALER AS WELL AS AGENT AND RELATED ACTIVITIES. The parties here to shall be at liberty to carry on business of any other kind as may be mutually agreed upon from time to time amongst them.
15. AUTHORITY TO PARTNERS:-
That the any two partners jointly out of the three partners namely Mr. Dhirajlal Mohanbhaj Sorathiya, Mr. Jayesh Dhirajlal Sorathiya and Mr. Jitendra Virjibhai Limbasiya can act on behalf of the firm to do the following acts. We all the partners do hereby agree to ratify all acts, deeds, things and assurance done or made by them which shall be deemed to be done or made by us personally. The authority is for following acts:
i. To acquire/purchase, sell, exchange, surrender, lease or dispose off any house, building, agriculture land, non agriculture land, immovable property or movable property of any kind in the name of partnership firm.
Ii To construct housing scheme, shopping/office complex, townships, farms, farm houses bundlows, tenements, apartments, flats in the land/property acquired by the partnership.
iii. To represent the firm before local authorities, govemment departments, government offices, state government, central government.
Page 24 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 iv. To carry on business of the firm.
v. To demand, recover and receive rents, manse profits, license fees, maintenance charges, electricity charges, corporation taxes and all other sums of moneys receivable in respect of my properties and to make all just and reasonable allowance therein in respect of rates, taxes, repairs and other outgoings and to take all necessary steps whether by action, distress or otherwise to recover any property or sums of money in arrears.
vi. To sign and give any notice to any octupier of any property belonging to me to quit or to repair or to abate any nuisance or to remedy any breach of covenant or for any other purpose whatsoever. vii. To appoint agents, employees, workmen or other persons and to remove them as when necessary or expedient and pay such remuneration, wages, bonus or other emoluments for and on behalf of the firm. viii. To sign and execute any deeds/documents for and on behalf of the firm.
ix. To work, manage and develop the properties of the firm in such manner as they may think fit.
x. To enter into any kind of contracts on behalf of the firm and to execute and perform all obligations and accept all benefits on behalf of the firm and to enter into any compromise or other agreement in supersession, derogation, Page 25 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 modification or alteration of any such contracts. xi. To enter into make, sing and do all such contracts, agreements, receipts, payments, transfers conveyances, mortgages assurances, instruments and things as may in the opinion of the attorney be necessary or convenient or expedient for carrying on the business of the firm. xii. To adjust, settle, compromise and to submit to arbitration all accounts, debts, claim, demands, dispute and matters, which may subsist or arise between the firm and persons: xiii. To draw, accept, endorse, negotiate, retire, pay or satisfy any bill of exchange, promissory notes, cheques, drafts, orders for payments or delivery of moneys, securities, goods or effects, bills of landing or other negotiable or mercantile instruments or securities which may deemed necessary or proper in relation to the business or affairs of the firm. xiv. To borrow from time to time such sums of money and upon such terms as the attorneys may think fit upon the security of any property of the firm whether movable or immovable and for such purpose, to execute such mortgages, charges, pledges or other securities or debentures upon such terms and conditions as the Attorneys may think proper. xv. To commence and prosecute, and to defend, compound and abandon all actions. proceedings, suits, claims, demands in relation to the business and property of the firm or otherwise in relation to the affairs of the firm and for such Page 26 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 purposes to sign, verity and present any documents, pleadings or other instrument in writing and to appear and make statement or otherwise in relation to the affairs of the firm and to appoint counsel, advocates for the said purposes, and obtain legal advice in any matter affecting the firm. xvi. To refer any disputes arising out of works to arbitration and to bind the firm the Arbitration Award.
18. ARBITRATION :
That any dispute in the course of this partnership relating to the partnership or its management or to the construction and interpretation of these premises or to any other matter pertaining to the partnership, shall be settled by the Arbitrator or Arbitrators to be appointed in accordance with and subject to the provisions of the Indian Arbitration Act, 1996, with amendments thereof for the time being in force. That the Awards of the Arbitrator or Arbitrators shall be final and binding on all the parties to the dispute and that the said award being final, none of the parties to the dispute shall be entitled to take recourse to the court of Law under any circumstances, for the settlement of dispute of whatsoever type among themselves."
Upon reviewing the aforementioned clauses, it becomes evident that the partnership firm engages in various activities related to building, property development, civil and labour contracts, real estate dealings, and acting as an agent. The purpose of the partnership firm revolves around conducting Page 27 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 business in these specified areas. Further, Clause 4 of the partnership deed pertains to the nature of the business, while Clause 15 addresses the authority of the partners, whereby there is specific provision that any two partners out of three partners can act on behalf of the firm to do the act on behalf of firm. Therefore, in the present case, respondent Nos.2 and 7 - the two partners have rightfully acted jointly based on the authority granted under Clause 15 of the partnership deed. However, it is crucial to consider Clause 18, which relates to arbitration. Further, by jointly reading Clauses 4, 15 and 18, and taking into account the prayers made by the plaintiff in the lawsuit, it is evident that the plaintiff's challenge pertains to the actions carried out by defendant Nos.1 and 2 as partners of the partnership firm. Nevertheless, considering Clause 15, it is clear that defendant Nos.1 and 2 have the authority to act on behalf of the partnership firm. Therefore, it cannot be said that they have acted without any authority.
9.4 Now, the arbitrability of the suit is the only aspect that needs to be considered. The main contention raised by the petitioner is that the judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited (supra) still holds the field, and therefore, since the defendants against whom the plaintiff has filed the suit are non-parties to the Page 28 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 partnership deed, and considering the provisions of Section 31 of the Specific Relief Act, and contention raised by the petitioner that the said dispute is not arbitrable and subject matter of the Special Suit Civil Suit No.34 of 2020 does not fall within the scope of the partnership's arbitration clause, this contention appears to be prima facie attractive. However, when I consider the fact that the deed itself provides for the arbitrability of the issue, and by examining Clauses 4, 15, and 18 together, it becomes evident that the subject matter of the suit can also be considered and the subject matter arises from the business transaction, as per the clause available in the partnership deed itself. It is clear from Clause 15(viii) of the partnership deed that respondent Nos. 1 and 2 are authorized by the partnership deed on behalf of firm and therefore, it can be said that dispute if any arises in connection with the "nature of business or authority of partner," it is an arbitrable issue as per Clause 18 of the partnership deed.
9.5.1 Now, it is necessary to discuss the judgment of the Hon'ble Apex Court cited at the Bar by learned advocate for the petitioner in the case of Zenith Drugs & Allied Agencies Private Limited Represented by Its Managing Director, Shri Uday Krishna Paul (supra), more particularly paragraphs 14, 15, 21, and 22 of the judgment are deemed Page 29 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 relevant and are as follows:
"14. The parties can be referred to arbitration in an application filed under Section 8 of the Act only if the subject matter of the action before the judicial authority relates to dispute which is the subject matter of the arbitration agreement. As per Section 8 of the Act, the following conditions have to be satisfied for referring the parties to arbitration:-
(i) there is an arbitration agreement;
(ii) a party to the agreement brings an action in the court against the other party;
(iii) subject-matter of the action is the same as the subject-
matter of the arbitration agreement;
(iv) the opposite party applies to the judicial authority for referring the parties to arbitration before it submits his first statement on the substance of the dispute.
An application under Section 8 of the Act can be made only if the subject matter of the suit is also the same as the subject matter of arbitration. In other words, only those disputes which are specifically agreed to be resolved through arbitration can be the subject matter of arbitration; and upon satisfaction of the same, the Court can refer the parties to arbitration.
15. Observing that filing application under Section 8 of the Act should relate to the arbitration agreement or to be applicable to the dispute, in Yogi Agarwal v. Inspiration Clothes and U and Others (2009) 1 SCC 372, it was held as Page 30 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 under:-
"9. When a defendant invokes Section 8 of the Act by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration. Obviously, the existence of an arbitration agreement with reference to some other transaction/contract to which the plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an "arbitration agreement" in regard to the suit transactions/contracts.
21. It is also pertinent to note that the respondent has challenged the compromise decree alleging that it has been obtained by inducement and fraud. In view of the allegations of fraud levelled by the respondent that the compromise decree is vitiated by fraud, the parties cannot be referred to arbitration. Observing that where there are allegations of fraud which are so complicated that it becomes absolutely essential that such complex issues can be decided only by the Civil Court on apprehension of the evidence adduced by the parties, in A. Ayyasamy v. A. Paramasivam and Others (2016) 10 SCC 386, it was held as under:-
"25......It is only in those cases where the court, while Page 31 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by the civil court on the appreciation of the voluminous evidence that needs to be produced, the court can sidetrack the agreement by dismissing the application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself...".
Since the respondent has raised the plea that the compromise decree is vitiated by fraud, the merits of such a plea could be decided only by the Civil Court upon consideration of the evidence adduced by the parties.
22. As discussed earlier, there is no arbitration clause relating to the dispute between the parties in not appointing the appellant as stockist and the claim of compensation towards loss of goodwill and reputation. The High Court erred in proceeding under the footing that the dispute falls within the ambit of the agreement dated 01.05.1997 and that the appellant-plaintiff admits the existence of the arbitration Page 32 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 clause and the impugned judgment is liable to be set aside." And ratio of this judgment is subsequently considered by the Hon'ble Apex Court in the subsequent judgments of the Hon'ble Apex Court.
9.5.2 Now, it is also relevant to consider the judgment of the Hon'ble Apex Court cited by the learned advocate for the petitioner in the case of Sukanya Holdings Private Limited (supra), more particularly paragraphs 13 to 17 are deemed relevant, are as follows:-
"13. Secondly, there is no provision in the Act that when the subject matter of the suit includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject matter of the suit to the arbitrators.
14. Thirdly, there is no provision as to what is required to be done in a case where some parties to the suit are not parties to the arbitration agreement. As against this, under Section 24 of the Arbitration Act, 1940, some of the parties to a suit could apply that the matters in difference between them be referred to arbitration and the Court may refer the same to arbitration provided that the same can be separated from the rest of the subject matter of the suit. Section also provided that the suit would continue so far as it related to Page 33 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 parties who have not joined in such application.
15. The relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement", Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.
16. The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.
Page 34 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023
17. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."
There is no doubt about the proposition of law laid down by the Hon'ble Apex Court but the facts of the present case are slightly different.
9.5.3 Now, it is also relevant to consider the judgment of the Division Bench of this Court cited by the learned advocate for the petitioner in the case of Amin Associates a partnership firm (supra), more particularly, para 6 is relevant, which is as under:-
[6.0] Heard learned Counsel appearing on behalf of the respective parties at length.
The short question which is posed for consideration of this is whether in the facts and circumstances of the case the learned Judge, Commercial Court has committed any error in rejecting section 8 application relying upon the decision of the Hon'ble Page 35 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Supreme Court in the case of Sukanya Hoardings Pvt. Ltd. (Supra)?
Whereby, the Division Bench of this Court has held that defendant is neither party to arbitration nor the partnership, by relying on the judgment of the Hon'ble Apex Court in the case of Sukanya Holdings Private Limited (supra). The ratio of this judgment has been subsequently dealt with by Hon'ble Apex Court.
9.5.4 Now, it is also relevant to consider the judgment of this Court cited by the learned advocate for the petitioner in the case of Shantilal Shivabhai Jadav (supra), more particularly paragraphs 5 to 11 are relevant, are as follows:-
"5. Having considered the submissions of learned advocates appearing on behalf of the respective parties, what is evident from reading the plaint and the dispute involved in the matter which is though essentially arising out of the partnership deed, what needs to be seen is the reliefs that the plaintiff has sought in context of the averments made in the plaint.
5.1 It is the case of the plaintiff that he and the defendants no. 1 to 3 were partners pursuant to a partnership deed of 1997. The business was of dealing in lands, purchasing them, plotting on such lands, making constructions on such lands Page 36 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 and then selling the properties so constructed. The plaintiff contends that in such pursuit of business, he was the sole signatory to the sale deeds executed in such transactions of sale. The accounts were maintained by the defendants no. 1 to 3. Due to the proximity and the relationship that the defendants no. 2 and 3 had with the defendant no. 4, a fraudulent transaction of sale keeping the plaintiff in dark was entered into by the defendants no .1 to 3 who were partners in favour of the defendant no. 4 - an outsider to the agreement. Averments in paragraphs no. 7 and 10 of the C/SCA/9929/2016 JUDGMENT plaint suggest criminal complicity of the defendants. It is in this context that relief no. 3 of the plaint has to be read. It was a relief for a declaration/cancellation of the sale deed as the same according to the plaintiff was illegal. The transaction of sale entered into by the partners - defendants no. 1 to 3 was in favour of the defendant no. 4 who was not a party to the partnership agreement. Further relief was prayed that the defendant no. 5 Sub-Registrar should not register such a document.
6. Keeping in view the averments in the plaint and the reliefs sought, it was a relief akin to the relief or the prayer claimed under Section 31 of the Specific Relief Act. Clearly, it was not a matter within the domain of the arbitrator. It is in this context that the judgement in the case of Booz Allen (supra) needs to be considered. In a suit filed by one of the parties to the arbitration agreement, if the defendant like the present petitioner, files an application for arbitration, the Court will have to decide whether all the parties to the Page 37 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 suit are parties to the arbitration agreement. That whether the disputes are the subject matter of the suits and whether such subject matter falls within the scope of arbitration and whether the reliefs sought are those which are possible of arbitration. It is a well recognised principle that non arbitrable disputes are disputes relating to rights and liabilities which give rise to or arise out of criminal offences. Not all matters are capable of being referred to arbitration. Reading the averments in the plaint and even the notice that the plaintiff issued for dissolution of partnership, it was a specific averment made in the notice dated 14.09.2010 that the defendants had entered into transactions and executed C/ SCA/9929/2016 JUDGMENT bogus sale deeds giving rights in favour of third parties which was an act revealing criminal complicity for which they were liable to be punished under the penal laws. Therefore, right from the beginning it was the case of the plaintiff that the dispute which are relating to the rights and liabilities of the parties could result into criminal liabilities.
7. It is in this context that the decision of the Supreme Court in the case of Sukanya Holdings (supra) needs to be considered. A suit in order to be arbitrable should be a suit in respect of a matter which the parties have agreed to refer and which comes within the ambit of arbitration agreement. In a suit as to a matter which lies outside the arbitration agreement and is also between some of the parties who are not parties to the agreement, there is no question of application of Section 8 of the Act. In my opinion, therefore, when the facts as averred in the plaint are seen in context Page 38 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 of the reliefs claimed against the defendants no. 4 and 5 the suit is clearly not in respect of a matter which can be referred to arbitration as the defendant no. 4 and 5 are not parties to the arbitration agreement.
7.1 Though Mr. Maulik Shah has relied on a decision of the Supreme Court in the case of Ameet Lalchand Shah (supra), which according to him, distinguishes the judgment rendered in Sukanya Holdings (supra), appreciation of facts in the case of Ameet Lalchand Shah (supra) would suggest that all the contracting parties though had separate agreements, they were connected to a main agreement which interconnection obliged them to be amenable to an arbitration clause. The question therefore was answered by the Supreme C/SCA/9929/2016 JUDGMENT Court in the context of the interconnected dispute between the parties arising out of a contract though not between the signatories to the arbitration agreement but which was integrally connected with the commissioning of land which was the focus of the contract. Mr. Anshul Shah, learned advocate appearing on behalf of the respondent therefore is right in contending that Sukanya Holdings (supra) still holds the field and the amendment to the Arbitration Act as contended to apply to the other party which is discussed in Ameet Lalchand (supra), would not apply in the context of the facts on hand. Secondly, apparent and serious allegations of fraud have been made which is a virtual case of criminal offence revealing complicated allegations of fraud which can only be decided by a Civil Court. It is in this context that Mr. Anshul Shah relied on paragraph 31 of the decision in Ameet Lalchand (supra). Page 39 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 7.2 That Sukanya Holdings (supra) still holds the field is evident from the discussion in the case of Amin Associates (supra) rendered by the Division Bench of this Court. This Court while discussing the judgement in the case of Sukanya Holdings (supra) has categorically held that once an application is filed under Section 8 of the Act, the approach of the Civil Court should be not to see whether the Court has jurisdiction. It should see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the Court that its jurisdiction has been taken away in terms of the provisions prescribed under a special statute, the Civil Court should first see whether there is ouster of jurisdiction in terms. When C/SCA/9929/2016 JUDGMENT there are serious allegations of fraud, the Division Bench has held that they are to be treated as non arbitrable and it is only the Civil Court which should decide such matters.
8. The trial Court while deciding the application against the petitioner has relied on a judgement in the case of N. Radhakrishnan vs. Maestro Engineers and Others reported in (2010) 1 SCC 72. In the said case also, the Supreme Court held that where a case pertains to allegations of fraud and serious malpractices, the dispute can only be settled in a Civil Court.
9. Looking to the aforesaid clear and unequivocal proposition of law, when applied to the facts of the case, what emerges is that the plaintiff has approached this Court for a relief Page 40 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 not only based on the partnership deed against the defendants no. 1 to 3 but also against the defendants no. 4 and 5 who are not partners. A declaration and a direction is sought to cancel the sale deed on the ground of the allegations of fraud. A relief that is sought is one under Section 31(2) of the Specific Relief Act. The dispute, therefore, is evidently not a one which is a matter which falls within Arbitration Act and it is therefore best left for the civil Court to decide.
10. Though the learned advocates for the respective parties have argued on non compliance of Section 8(2) of the Act, it is evident that the mandate of section 8(2) requires the applicant of an application under such section to produce a certified copy or the original of the arbitration agreement.
Having failed to so produce the same, there was a breach of C/SCA/9929/2016 JUDGMENT the mandate and therefore even though a copy Mark 3/1 was on record, the Section is unequivocal that it is the applicant of such application who needs to produce such agreement. The trial court has held against the applicant on a subjective satisfaction and there is no reason to overturn the same in view of the mandate so involved.
11. With regard to the question of the applicability of an arbitration clause to a partnership which is dissolved and whether such an arbitration clause ceases to exist on such resolution need to be answered because the dispute involved in the suit is a matter not within the domain of the arbitrator but the parties involved, namely the defendants no. Page 41 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 4 and 5 who are not parties to the agreement and therefore even otherwise the arbitration clause would not apply to them because they are not parties bound by the agreement. An independent relief of declaration under Section 31(2) of Specific Relief Act is sought by the plaintiff against them which is not arbitrable. Particularly in view of the serious allegations of fraud made, the only remedy is that of a civil suit. So the question therefore whether dissolution of the deed would make the arbitration clause non existent is not a question which needs to be answered on the facts of the case."
Whereby, the learned Single Judge of this Court has held that the dispute in the suit is not arbitrable when the declaration is sought by challenging registered agreement to sell as well as sale deed in the suit and also sought for dissolution of partnership. Here, there is no case for dissolution of partnership and only prayer is made regarding cancellation of sale deed executed by the partners. There is no dispute about the ratios of the judgments laid down by the Hon'ble Apex Court as well as this Court in the abovementioned judgments and the facts of each case are different than the facts of the present case. 9.6.1 Now, it is also necessary to discuss the recent judgment of the Hon'ble Apex Court cited at the Bar by learned advocate for the petitioner in the case of Asian Page 42 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Avenues Pvt. Ltd. (supra), and more particularly paras 1, 3, 4, 5 & 8 are relevant, are as follows:-
"1. The present appeal is by the defendant in a suit filed by the respondent. The respondent-plaintiff claims to be the owner of the suit property, more particularly described in the plaint. There was a Development Agreement-cum-General Power of Attorney (for short, 'the Development Agreement') executed on 23rd October 2008 by and between the appellant Signature Not Verified and the respondent. By the Development Agreement, the appellant was granted permissive possession for the purposes Reason of carrying out development work on the property subject Civil Appeal No.2927/2023 matter of the Development Agreement. There was a dispute between the parties, which led to the respondent cancelling the Development Agreement. The respondent issued a legal notice to the appellant calling upon him to execute a deed of cancellation of the Development Agreement. The prayer in the suit is for a decree directing the appellant to execute a deed of cancellation in respect of the Development Agreement. There is also a prayer for the delivery of possession of the suit property.
3. The learned counsel appearing for the appellant pointed out that the High Court relied upon a decision of the Division Bench of the same Court, which holds that the adjudication on the issue whether there is a cancellation of the Development Civil Appeal No.2927/2023 Agreement will operate in rem and therefore, the arbitration clause cannot Page 43 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 be invoked.
4. The learned counsel appearing for the appellant relied upon a decision of the Bench of three Hon'ble Judges of this Court in the case of Deccan Paper Mills Company Limited v. Regency Mahavir Properties and Ors.1. He submitted that this Court has held that action instituted under Section 31 of the Specific Relief Act, 1963 (for short 'the Specific Relief Act') is not an action in rem. He would, therefore, submit that the order of the High Court is erroneous and, therefore, the order of the Trial Court be restored.
5. The learned counsel appearing for the respondent submitted that the arbitration clause will not apply as the prayer in the suit is for cancellation of the agreement in accordance with Section 31 of the Specific Relief Act. Her submission is that the issues arising under Section 31 of the Specific Relief Act can be adjudicated only by a competent Civil Court.
8. The only ground on which the High Court has interfered is that the adjudication pursuant to invocation of Section 31 of the Specific Relief Act is an adjudication in rem. However, in the case of Deccan Paper Mills Company Limited1, this Court has categorically held that it is impossible to hold that an action instituted under Section 31 of the Specific Relief for cancellation of an instrument is an action in rem. In view of the applicability of the arbitration clause to the dispute subject matter of the suit filed by the respondent, the learned Trial Judge was justified in passing an order Page 44 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 under Section 8 of the Arbitration Act by directing that the dispute be referred to the arbitration."
In this judgment after considering the judgment in the case of Deccan Paper Mills Company Limited (supra), it has specifically been held that it is impossible to hold that an action instituted under Section 31 of the Specific Relief Act for cancellation of an instrument is an action in ram, and the view of the applicability of the arbitration clause to the dispute of subject matter of the suit filed by the respondent, the learned trial judge was justified while passing an order under Section 8 of the Act by directing that dispute be referred to the arbitration, this observation is perfectly applicable in the facts and circumstances of the present case. It is very difficult to accept the contention raised by the petitioner that the adjudication, pursuant to invocation of Section 31 of the Specific Relief Act is an adjudication in rem, and this contention is appropriately replied in the abovementioned judgment.
9.6.2 Further, considering the judgment of the Hon'ble Apex Court in the case of Deccan Paper Mills Company Limited (supra), and more particularly paras 11, 16, 17, 23, 27, 29 & 32 are relevant, are as follows:
"11. The very sheet anchor of Smt. Doshi's case, namely, Page 45 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 the judgment in Booz Allen (supra), refers to the judgment of this Court in Olympus Superstructures v. Meena Vijay Khetan, (1999) 5 SCC 651 [hereinafter referred to as "Olympus"], in which it was held that an arbitrator has the power and jurisdiction to grant specific performance of contracts relating to immovable property (see paragraphs 43 and 44).
16. Sections 29 and 30 are also important, in that a plaintiff instituting a suit for specific performance may pray in the alternative that if the contract cannot be specifically enforced, it may be rescinded and be delivered up to be cancelled. In addition, on adjudging the rescission of the contract, the Court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require. These two sections would also show that following rescission of a contract, it has to be delivered up to the plaintiff to be cancelled - and all of this can be done in a suit for specific performance. Thus far, therefore, it is clear that an action for rescission of a contract and delivering up of that contract to be cancelled is an action in personam which can be the subject matter of a suit for specific performance, making such rescission and delivering up the contract to be cancelled, the subject matter of arbitration.
17. When it comes to section 31(1), the important expression used by the legislature is "any person against whom a written instrument is void or voidable...". An Page 46 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 instructive judgment of the Full Bench of the Madras High Court reported as Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1 involved the determination of the scope of section 41 of the Specific Relief Act, 1877 (section 33(1) of the 1963 Act is the pari materia provision). This judgment, after referring to section 41, then referred to section 39 of the Specific Relief Act, 1877 (which is the pari materia provision to section 31 of the 1963 Act). The Court then went on to notice the distinction between section 35 (which is the pari materia provision to section 27 of the 1963 Act) and section 39 of the Specific Relief Act, 1877 as follows:
"11. ... It may be noticed that the above section applies not merely to the case of an instrument which is voidable but also one that is void. S. 35 provides for the case of rescission of voidable contracts. It is evident that S. 39 covers not only a case contemplated under S. 35, but also a wider field, that is, a case of a void document, which under the law need not be set aside."
23. Also, it must be remembered that the Delhi High Court's reasoning in Sulochana Uppal (supra) that it is the Court alone that can, under the Specific Relief Act, enforce specific performance of an agreement, is contra to the reasoning in Olympus (supra) which overruled it, stating that "the dispute or difference which parties to an arbitration agreement agree to refer must consist of justiciable issues triable civilly". Since specific performance is a justiciable issue triable civilly, obviously, the expression "court" occurring Page 47 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 throughout the Specific Relief Act will have to be substituted by "arbitrator" or "arbitral tribunal". This part of the reasoning in Aliens Developers (supra), in following the same reasoning as an overruled Delhi High Court judgment, would fly in the face of Olympus (supra) and would, therefore, not be good law. We, therefore, overrule the same.
27. Judged by these authorities, it is clear that the proceeding under section 31 is with reference to specific persons and not with reference to all who may be concerned with the property underlying the instrument, or "all the world". Clearly, the cancellation of the instrument under section 31 is as between the parties to the action and their privies and not against all persons generally, as the instrument that is cancelled is to be delivered to the plaintiff in the cancellation suit. A judgment delivered under section 31 does not bind all persons claiming an interest in the property inconsistent with the judgment, even though pronounced in their absence.
29. When sections 34 and 35 are seen, the position becomes even clearer. Unlike section 31, under section 34, any person entitled to any legal character may institute a suit for a declaration that he is so entitled. Considering that it is possible to argue on a reading of this provision that the legal character so declared may be against the entire world, section 35 follows, making it clear that such declaration is binding only on the parties to the suit and persons claiming through them, respectively. This is for the reason that under section 4 of the Specific Relief Act, specific relief is granted Page 48 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 only for the purpose of enforcing individual civil rights. The principle contained in section 4 permeates the entire Act, and it would be most incongruous to say that every other provision of the Specific Relief Act refers to in personam actions, section 31 alone being out of step, i.e., referring to in rem actions.
32. The reasoning in the aforesaid judgment would again expose the incongruous result of section 31 of the Specific Relief Act being held to be an in rem provision. When it comes to cancellation of a deed by an executant to the document, such person can approach the Court under section 31, but when it comes to cancellation of a deed by a non- executant, the non-executant must approach the Court under section 34 of the Specific Relief Act, 1963. Cancellation of the very same deed, therefore, by a non-executant would be an action in personam since a suit has to be filed under section
34. However, cancellation of the same deed by an executant of the deed, being under section 31, would somehow convert the suit into a suit being in rem. All these anomalies only highlight the impossibility of holding that an action instituted under section 31 of the Specific Relief Act, 1963 is an action in rem."
In light of the aforementioned observation made by the Hon'ble Apex Court, it can be said that the court has clearly stated that it is not possible to hold an action initiated under Section 31 of the Specific Relief Act as an action in rem.
Page 49 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 9.6.3 Further, considering the judgment of the Hon'ble Apex Court in the case of Cheran Properties Limited (supra), and more particularly paragraphs 21, 26, and 29 of the judgment are relevant and are as follows:
"21. Explaining the legal basis that may be applied to bind a non-signatory to an arbitration agreement, this Court held thus: (SCC p.694, paras 103.1, 103.2 & 105) "The first theory is that of implied consent, third-party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities.] The second theory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called "the alter ego"), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law.
We have already discussed that under the group of companies doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non-signatory affiliates, if the circumstances Page 50 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non- signatory parties."
26. Russel on Arbitration formulates the principle thus:
"Arbitration is usually limited to parties who have consented to the process, either by agreeing in their contract to refer any disputes arising in the future between them to arbitration or by submitting to arbitration when a dispute arises. A party who has not so consented, often referred to as a third party or a non-signatory to the arbitration agreement, is usually excluded from the arbitration. There are however some occasions when such a third party may be bound by the agreement to arbitrate. For example, ..., assignees and representatives may become a party to the arbitration agreement in place of the original signatory on the basis that they are successors to that party's interest and claim "through or under" the original party. The third party can then be compelled to arbitrate any dispute that arises."
29. The decision in Indowind arose from an application under Section 11 of the Arbitration and Conciliation Act 1996. Indowind was not a signatory to the contract and was held not to be a party to the agreement to refer disputes to arbitration. Indowind held that an application under Section 11 was not Page 51 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 maintainable. The present case does not envisage a situation of the kind which prevailed before this Court in Indowind. The present case relates to a post award situation. The enforcement of the arbitral award has been sought against the appellant on the basis that it claims under KCP and is bound by the award. Section 35 of the Arbitration and Conciliation Act 1996 postulates that an arbitral award "shall be final and binding on the parties and persons claiming under them respectively". The expression 'claiming under', in its ordinary meaning, directs attention to the source of the right. The expression includes cases of devolution and assignment of interest (Advanced Law Lexicon by P Ramanatha Aiyar). The expression "persons claiming under them" in Section 35 widens the net of those whom the arbitral award binds. It does so by reaching out not only to the parties but to those who claim under them, as well. The expression "persons claiming under them" is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. Having derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. The issue in every such a case is whether the person against whom the arbitral award is sought to be enforced is one who claims under a party to the agreement."
Page 52 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 Whereby, the Hon'ble Apex Court has specifically held that the persons claiming under the agreement has been defined, whereby through devolution of interest, the parties, who are not signatories to the arbitration agreement, can be impleaded as per the theory of the implied consent. This principle is applicable to both private and public entities. Considering this well-established legal position and the fact that the plaintiff in the suit is raising the grievance that the defendants, who are other partners, executed the agreement to sell in the name of other co-defendants without his consent, colluding and engaging in fraudulent practices, the trial court has rightly relied on the judgment of the Hon'ble Apex Court in the case of Rashid Raza versus Sadaf Akhtar reported in 2019 LawSuit (SC) 1607, more particularly paras 4 to 6 are relevant, which are as under:
4. Having heard learned counsel for both the sides, it is clear that the law laid down in A. Ayyasamy's case is in paragraph 25 and not in paragraph 26. Paragraph 25 of the said judgment states as follows:
25. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties.
It is only in those cases where the Court, while dealing with Section 8 of the Act, finds that there Page 53 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit CIVIL APPEAL NO.
7005 OF 2019 (Arising out of SLP (C) No. 4061 of 2019) on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted Page 54 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non- arbitrable. Such categories of non-arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public fora, are better suited than a private forum of arbitration.
Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected.
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5. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the plea of fraud as opposed to "simple allegations". Two working tests laid down in paragraph 25 are : (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.
6. Judged by these two tests, it is clear that this is a case which falls on the side of "simple allegations" as there is no allegation of fraud which would vitiate the partnership deed as a whole or, in particular, the arbitration clause concerned in the said deed. Secondly, all the allegations made which have been relied upon by the learned counsel appearing on behalf of the respondent, pertain to the affairs of the partnership and siphoning of funds therefrom and not to any matter in the public domain."
9.7 Considering the totality of the facts and circumstances of the case and more particularly respondent Nos.12 and 13, who are not parties, have also no objection if the matter is decided by the arbitrator and Exh.33 application is filed by the defendant Nos.1, 2, 6 to 9 and 11 and therefore, I am of the opinion that the learned trial court has not committed any error in granting the application filed below Exhibit 33 and referring the dispute to the arbitrator and referring the dispute to the arbitrator as the dispute arising in the present Page 56 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 case cannot be considered as dispute in rem and it can be said the dispute in personam, as supported by the aforementioned judgments and the discussions presented in this case. It is also relevant to refer the recent judgment of the Hon'ble Apex Court in the case of Vidya Drolia and Others versus Durga Trading Corporation reported in (2021) 2 SCC 1, and more particularly paragraphs 47 to 49, 75, 77, and 146 to 153 of the judgment are relevant and are as follows:-
"47. A judgment is a formal expression of conclusive adjudication of the rights and liabilities of the parties. The judgment may operate in 20 (2000) 4 SCC 368 two ways, in rem or in personam. Section 41 of the Indian Evidence Act, 1872 on the question of relevancy of judgments in the context of conclusiveness of a judgment, order or decree provides:
"41. Relevancy of certain judgments in probate, etc., jurisdiction.--A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial admiralty or insolvency jurisdiction which confers upon or takes away from any person any legal character, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specified person but absolutely, is relevant when the existence of any such legal character, or the title of any such person to any Page 57 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 such thing, is relevant.
Such judgment, order or decree is conclusive proof-- that any legal character, which it confers accrued at the time when such judgment, order or decree came into operation;
that any legal character, to which it declares any such person to be entitled, accrued to that person at the time when such judgment, [order or decree] declares it to have accrued to that person;
that any legal character which it takes away from any such person ceased at the time from which such judgment, [order or decree] declared that it had ceased or should cease;
and that anything to which it declares any person to be so entitled was the property of that person at the time from which such judgment, [order or decree] declares that it had been or should be his property."
48. A judgment in rem determines the status of a person or thing as distinct from the particular interest in it of a party to the litigation; and such a judgment is conclusive evidence for and against all persons whether parties, privies or strangers of the matter actually decided. Such a judgment "settles the destiny of the res itself" and binds all persons claiming an interest in the property inconsistent with the judgment even though pronounced in their absence. By contrast, a judgment in personam, "although it may concern a res, merely determines the rights of the litigants inter se Page 58 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 to the res". Distinction between judgments in rem and judgments in personam turns on their power as res judicata, i.e. judgment in rem would operate as res judicata against the world, and judgment in personam would operate as res judicata only against the parties in dispute. Use of expressions "rights in rem" and "rights in personam" may not be correct for determining non-arbitrability because of the inter-play between rights in rem and rights in personam. Many a times, a right in rem results in an enforceable right in personam. Booz Allen & Hamilton Inc. refers to the statement by Mustill and Boyd that the subordinate rights in personam derived from rights in rem can be ruled upon by the arbitrators, which is apposite. Therefore, a claim for infringement of copyright against a particular person is arbitrable, though in some manner the arbitrator would examine the right to copyright, a right in rem. Arbitration by necessary implication excludes actions in rem.
49. Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as a private dispute resolution mechanism, which is only binding on 'the parties' to the arbitration agreement. The courts established by law on the other hand enjoy jurisdiction by default and do not require mutual agreement for conferring jurisdiction. The arbitral tribunals not being courts of law or established under the auspices of the State cannot act judicially so as to affect those who are not bound by the arbitration clause. Arbitration is unsuitable when it has erga omnes effect, that is, it affects the rights and liabilities of persons who are not bound by the arbitration agreement. Equally arbitration as a Page 59 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 decentralized mode of dispute resolution is unsuitable when the subject matter or a dispute in the factual background, requires collective adjudication before one court or forum. Certain disputes as a class, or sometimes the dispute in the given facts, can be efficiently resolved only through collective litigation proceedings. Contractual and consensual nature of arbitration underpins its ambit and scope. Authority and power being derived from an agreement cannot bind and is non-effective against non-signatories. An arbitration agreement between two or more parties would be limpid and inexpedient in situations when the subject matter or dispute affects the rights and interests of third parties or without presence of others, an effective and enforceable award is not possible. Prime objective of arbitration to secure just, fair and effective resolution of disputes, without unnecessary delay and with least expense, is crippled and mutilated when the rights and liabilities of persons who have not consented to arbitration are affected or the collective resolution of the disputes by including non-parties is required. Arbitration agreement as an alternative to public fora should not be enforced when it is futile, ineffective, and would be a no result exercise.
75. In Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, legal proceedings for cancellation of documents under Section 31 of the Specific Relief Act, 1963 were held to be actions in personam and not actions in rem. Significantly, the judgment refers to the definition of action in rem by R.H. Graveson (Conflict of Laws 98, 7th ed. 1974), which reads as under:
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C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 "An action in rem is one in which the judgment of the Court determines the title to property and the rights of the parties, not merely as between themselves, but also as against all persons at any time dealing with them or with the property upon which the Court had adjudicated."
77. Applying the above principles to determine non-
arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralized forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem. Similarly, grant and issue of patents and registration of trademarks are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Such grants confer monopoly rights. They are non-arbitrable. Criminal cases again are not arbitrable as they relate to sovereign functions of the State. Further, violations of criminal law are offenses against the State and not just against the victim. Matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value. The decisions have erga omnes effect. Matters relating to probate, testamentary matter etc. are actions in rem and are a declaration to the world at large and hence are non-arbitrable.
146. We now proceed to examine the question, whether Page 61 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 the word 'existence' in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word "existence'. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of 'existence' requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. Page 62 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023
147. We would proceed to elaborate and give further reasons:
147.1 In Garware Wall Ropes Ltd., this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to 'existence' and 'validity' of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing paragraph 29 thereof:
"29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub- contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with "existence", as opposed to Section 8, Section 16 and Section 45, which deal with "validity" of an arbitration Page 63 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. case, as followed by us.";
Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement.
147.2 The court at the reference stage exercises judicial powers. 'Examination', as an ordinary expression in common parlance, refers to an act of looking or considering something carefully in order to discover something (as per Cambridge Dictionary). It requires the person to inspect closely, to test the condition of, or to inquire into carefully (as per Merriam- Webster Dictionary). It would be rather odd for the court to hold and say that the arbitration agreement exists, though ex facie and manifestly the arbitration agreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyond jurisdiction, if it rejects an application for reference, when the arbitration clause is admittedly or without doubt is with a minor, lunatic or the only claim seeks a probate of a Will. 147.3 Most scholars and jurists accept and agree that the existence and validity of an arbitration agreement are the same. Even Starvos Brekoulakis accepts that validity, in terms of substantive and formal validity, are questions of contract and hence for the court to examine. Page 64 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 147.4 Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. 147.5 Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engineering Ltd.. The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, 'existence of an arbitration agreement'. 147.6 Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute "hands off" approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration.
147.7 Exercise of the limited prima facie review does not in Page 65 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 any way interfere with the principle of competence- competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage.
147.8 Exercise of prima facie power of judicial review as to the validity of the arbitration agreement would save costs and check harassment of objecting parties when there is clearly no justification and a good reason not to accept plea of non-arbitrability. In Subrata Roy Sahara v. Union of India,75 this Court has observed:
"191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending 75 (2014) 8 SCC 470 without any fault on his part. He pays for the litigation from out of his savings (or out of his borrowings) worrying that the other side may trick him into defeat for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for what he has lost for no fault? The suggestion to the legislature is Page 66 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 that a litigant who has succeeded must be compensated by the one who has lost. The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly pays for the same. It is suggested that the legislature should consider the introduction of a "Code of Compulsory Costs".
147.9 Even in Duro Felguera, Kurian Joseph, J., in paragraph 52, had referred to Section 7(5) and thereafter in paragraph 53 referred to a judgment of this Court in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited76 to observe that the analysis in the said case supports the final conclusion that the Memorandum of Understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engineering Ltd. and Boghara Polyfab Private Limited to observe that the legislative policy is essential to minimise court's interference at the pre-arbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Paragraph 48 in Duro Felguera 76 (2009) 7 SCC 696 specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have arisen between the parties. Paragraph 59 is more restrictive and requires the court to see whether an arbitration agreement exists - nothing more, nothing less. Read with the other findings, it would be appropriate to read the two paragraphs as laying down the legal ratio that the court is required to see if the underlying Page 67 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 contract contains an arbitration clause for arbitration of the disputes which have arisen between the parties - nothing more, nothing less. Reference to decisions in Patel Engineering Ltd. and Boghara Polyfab Private Limited was to highlight that at the reference stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions.
147.10 In addition to Garware Wall Ropes Limited case, this Court in Narbheram Power and Steel Private Limited and Hyundai Engg. & Construction Co. Ltd., both decisions of three Judges, has rejected the application for reference in the insurance contracts holding that the claim was beyond and not covered by the arbitration agreement. The court felt that the legal position was beyond doubt as the scope of the arbitration clause was fully covered by the dictum in Vulcan Insurance Co. Ltd. Similarly, in M/s. PSA Mumbai Investments PTE. Limited, this Court at the referral stage came to the conclusion that the arbitration clause would not be applicable and govern the disputes. Accordingly, the reference to the arbitral tribunal was set aside leaving the respondent to pursue its claim before an appropriate forum. 147.11 The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators' primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knockdown ex facie meritless, frivolous and Page 68 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage.
148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time barred and dead, or there is no subsisting dispute. All other cases should be referred to the arbitral tribunal for decision on merits. Similar would be the position in case of disputed 'no claim certificate' or defence on the plea of novation and 'accord and satisfaction'. As observed in Premium Nafta Products Ltd., it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen.
149. We would also resolve the question of principles applicable to interpretation of an arbitration clause. This is important and directly relates to scope of the arbitration Page 69 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 agreement. In Premium Nafta Products Ltd., on the question of interpretation and construction of an arbitration clause, it is observed:
"In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction."
150. In Narbheram Power and Steel Private Ltd., this Court while dealing with the arbitration clause in the insurance agreement, has held that the arbitration clause should be strictly construed, relying on the principles of strict interpretation that apply to insurance contracts. These observations have been repeated in other cases.
151. What is true and applicable for men of commerce and business may not be equally true and apply in case of Page 70 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 laymen and to those who are not fully aware of the effect of an arbitration clause or had little option but to sign on the standard form contract. Broad or narrow interpretations of an arbitration agreement can, to a great extent, effect coverage of a retroactive arbitration agreement. Pro-arbitration broad interpretation, normally applied to international instruments, and commercial transactions is based upon the approach that the arbitration clause should be considered as per the true contractual language and what it says, but in case of doubt as to whether related or close disputes in the course of parties' business relationship is covered by the clause, the assumption is that such disputes are encompassed by the agreement. The restrictive interpretation approach on the other hand states that in case of doubt the disputes shall not be treated as covered by the clause. Narrow approach is based on the reason that the arbitration should be viewed as an exception to the court or judicial system. The third approach is to avoid either broad or restrictive interpretation and instead the intention of the parties as to scope of the clause is understood by considering the strict language and circumstance of the case in hand. Terms like 'all', 'any', 'in respect of', 'arising out of' etc. can expand the scope and ambit of the arbitration clause. Connected and incidental matters, unless the arbitration clause suggests to the contrary, would normally be covered.
152. Which approach as to interpretation of an arbitration agreement should be adopted in a particular case would depend upon various factors including the language, the parties, nature of relationship, the factual background in Page 71 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 which the arbitration agreement was entered, etc. In case of pure commercial disputes, more appropriate principle of interpretation would be the one of liberal construction as there is a presumption in favour of one-stop adjudication.
153. Accordingly, we hold that the expression 'existence of an arbitration agreement' in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the arbitral tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non- arbitrability."
The abovementioned judgment is clearly dealing with the aspect about the test of non-arbitrability vis-a-vis dispute affecting to third party rights and also discussed right in rem and right in personam and therefore, I found that the learned trial court has not committed any error in allowing the application filed below Exh.33 and I did not find any infirmity or illegality by the learned trial court while going through the findings given by the learned trial court while deciding the application below Exh.33.
Page 72 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 9.8 It is also relevant to refer the recent judgment of Hon'ble Bombay High Court in the case of Angsley Investments Limited versus Jupiter Denizcilik Tasimacilik Mumessillik San. Ve Ticaret Limited Sirketi and Others reported in 2023 SCC Online Bom 559, equivalent to (2023) 3 AIR Bom R 296, whereby the Court has of course dealt with the issue about the admiralty suit but has considered the aspect of action in personam and action in rem, specifically para 20 of that judgment is relevant and is as follows:-
"20. Issue No. 8 - "Whether the plaintiffs prove that the suit is tenable against the Defendant No. 2?"
(A) Action in personam against defendant no. 2 (foreign defendant) not within the jurisdiction of the Court is not maintainable:
(i) Respondent (original plaintiff) has sought to make a claim in personam against original defendant no. 2. Original defendant no. 2, however, is a foreign party who neither resides, nor carries on business within the jurisdiction of this Court. There is also no record of defendant no. 2 having voluntarily submitted to the jurisdiction of this Court. In fact, defendant no. 2 has chosen to not enter appearance before this Court. Therefore, the suit filed before this Court against original defendant no. 2 is not tenable.
(ii) It is trite law that a suit in personam qua a foreign defendant who is not within the jurisdiction of the Court and who has not voluntarily submitted himself to the Page 73 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 jurisdiction, is not maintainable. This is evident from the following judgments:
(a) World Tanker Carrier Corporation Services Pvt. Ltd. (Supra)-
"43. The presence of a foreign defendant who appears under protest to contest jurisdiction, cannot be considered as conferring jurisdiction on the court to take action. Unless a foreign defendant either resides within jurisdiction or voluntarily appears or has contracted to submit to the jurisdiction of the court, it is not possible to hold that the court will have jurisdiction against a foreign defendant. See in this connection R. Viswanathan v. Rukn -ul-Mulk Syed Abdul Wajid [AIR 1963 SC 1: (1963) 3 SCR 22] (SCR at p.
51) and Raj Rajendra Sardar Moloji Nar Singh Rao Shitole v. Shankar Saran [AIR 1962 SC 1737 : (1963) 2 SCR 577] (SCR at pp. 587-588). This factor also, therefore, is against respondents in the present appeals.
44. The Bombay High Court, therefore, should not have entertained the two admiralty suits." (emphasis supplied)
(b) Kohinoor (Supra)- Carpet Manufacturers v. Forbes Gokak Ltd.
"6. We then come to the other part of the argument namely whether the suit against defendant No. 2 who does not carry on business and or have the office within the jurisdiction of this Court could be maintained. From the pleadings, though it was contended that the suit is also Page 74 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 filed as an action in rem against vessel, there is nothing on record to show that when the suit was filed that the vessel was within the admiralty jurisdiction of this Court. In other words, there would be no action in rem in so far as facts of the present case are concerned. At the highest it would be action in personam. Therefore, would an action in personam be maintained against defendant No. 2 in this Court. Defendant No. 2 has not submitted themselves to the jurisdiction of this Court. On the contrary they have raised a plea contesting the jurisdiction of this Court. In the light of that, the issue needs to be answered. Gainful assistance may be made from the judgment in the case of (World Tanker Carrier Corporation v. S.N.P. Shipping Services Pvt. Ltd.) 2, (1999) 1 Bom CR 196 (S.C.) : (1998) 5 SCC 310. The Apex Court dealing with this aspect of the matter held as under:
"The presence of a foreign defendant who appears under protest to contest jurisdiction, cannot be considered as conferring jurisdiction on the Court to take action. Unless a foreign defendant either resides within jurisdiction or voluntarily appears or has contracted to submit to the jurisdiction of the Court, it is not possible to hold that the Court will have jurisdiction against a foreign defendant." See in this 4 connection (R. Vishwanathan v.Rukh-ul-Mulk Sayed Abdul Wajid)3, (1963) 3 SCR 22 : AIR 1963 SC 1 (Rajendra Sardar Moloji Nar Singh Rao Shitole v. Shankar Saran)4, (1963) 2 SCR 577 : AIR 1962 SC 1737.
7. This statement of law, therefore, is against plaintiff in Page 75 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 the present suit. That was action in what is known as limitation action. Needless to say that to sue a foreign defendant in this country, the foreigner either must be resident and or carry on business. These are theprinciples applicable in Private International Law. The only exception is if such party submits to the jurisdiction. In the instant case, defendant has not. In view of that, to my mind, suit against defendant No. 2 before this Court as filed was not maintainable. Issue No. 2 therefore, has to be partly answered in the affirmative in as much as the suit against defendant No. 2 will have to be dismissed on the ground of want of jurisdiction." (emphasis supplied) (B) Action in rem not converted to action in personam:
(i) Furthermore, as original defendant no. 2 has neither entered appearance nor furnished security or submitted to the jurisdiction of this Court, the suit filed by respondent (original plaintiff) continues to be an action in rem against m.v. LIMA II, original defendant no. 1. On this ground also the suit is not maintainable against original defendant no.
2.
(ii) It is trite law that an action in rem gets converted into an action in personam if the owner of the vessel enters appearance, furnishes security and submits to the jurisdiction of this Court. Until then, the suit continues to be an action in rem against the vessel. In this regard, the following judgments are of relevance Page 76 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023
(a) Siem Offshore Redri AS v. Altus Uber (Supra)-
"47. It is clear from the above quoted portions from M.V. Smart (Supra) which relies upon paragraphs 55, 56 and 58 of M.V. Elizabeth (Supra) that it is only after the owner enters appearance and submits to jurisdiction and furnishes security that the action in rem gets converted into an action in personam. It is at this stage before proceeding further with the action in personam, the Court will adopt the procedure devised by the Full Bench in Golden Progress (Supra). Until such time as the owner has entered appearance and submitted to jurisdiction and furnished security, the action in rem remains an action in rem and the vessel is available to the Plaintiff as security in respect of its maritime claim which is the subject matter of in personam proceedings by way of arbitration against the owner or the party liable in personam. Furnishing of security is also essential for the action in rem to be converted to an action in personam because until such time security is furnished, the vessel remains under arrest and the action against the vessel continues in rem. (emphasis supplied)
(b) Owners and Parties Interested in the Vessel M.V. Polaris Galaxy v. Banque Cantonale De Geneve (Supra)-
"70. When two or more enactments operating in the same field contain a non obstante clause stating that its provisions will have effect notwithstanding anything inconsistent therewith contained in any other law, the Page 77 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 conflict has to be resolved upon consideration of the purpose and policy underlying the enactments. Mr. Vishwanathan, learned Senior Counsel appearing for the Appellant, argued that Section 14 provides for appeals from an interim order of a Single Judge of a High Court under the Admiralty Act which means an interim order in relation to an action in rem. Once the owner of the Vessel enters appearance and submits to the jurisdiction and provides security for release of the Vessel, the Admiralty Action proceeds to trial as an action in personam as in any other suit. This view finds support from the judgment of this court in MV Elizabeth v. Harwan Investment and Trading Pvt. Ltd." (emphasis supplied) (C) Errors in the findings of the learned Single Judge on this issue:
(I) Though the learned Single Judge has framed the issue and has sought to answer it in paragraph 7, the learned Single Judge held that since the Court had passed an order of arrest against defendant no. 1 (Lima II), it had assumed jurisdiction over the "subject matter" of the suit. The judgment of the learned Single Judge overlooks the position that the arrest of a vessel will only confer jurisdiction over the vessel arrested and not jurisdiction over the "subject matter" or over parties which are not within its territorial jurisdiction. Thus, the learned Single Judge has clearly erred in assuming jurisdiction either over defendant no. 2 or the "subject matter" of the suit.
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C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023
(ii) Defendant no. 2 is a company based in Turkey. Therefore, defendant no. 2 was not within the jurisdiction of this Court. If defendant no. 2 had furnished security for release of defendant no. 1 m.v. LIMA II, we could have held that an action in rem against defendant no. 1 m.v. LIMA II got converted into anaction in personam against the owner, i.e., defendant no. 2, by virtue of defendant no. 2 furnishing security and submitting to the jurisdiction of this Court. None of that happened and, therefore, the suit against defendant no. 2 was a mere action in personam. The Court had no jurisdiction against defendant no. 2. The suit against defendant no. 2 was not maintainable. Therefore, there can be no decree against defendant no. 2." 9.9 After considering the prayers made in the suit by the plaintiff and taking into account the nature of Section 31 of the Specific Relief Act as not being in rem, as well as referring the judgment of the Hon'ble Apex Court in the cases of (i) Deccan Paper Mills Company Limited (supra), (ii) Vidya Drolia and Others (supra), as well as judgements which are relied on by the learned trial court in the impugned order, I find no grounds to exercise my powers under Article 227 of the Constitution of India, more particularly, in view of judgment of the Hon'ble Apex Court in the case of Garment Craft versus Prakash Chand Goel reported in (2022) 4 SCC 181, in which the Hon'ble Apex Court has stated that supervisory jurisdiction of High Court Page 79 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 when to be exercised, more particularly, paragraph 15 to 17 which read as under:
"15. Having heard the counsel for the parties, we are clearly of the view that the impugned order is contrary to law and cannot be sustained for several reasons, but primarily for deviation from the limited jurisdiction exercised by the High Court under Article 227 of the Constitution of India. The High Court exercising supervisory jurisdiction does not act as a court of first appeal to reappreciate, reweigh the evidence or facts upon which the determination under challenge is based. Supervisory jurisdiction is not to correct every error of fact or even a legal flaw when the final finding is justified or can be supported. The High Court is not to substitute its own decision on facts and conclusion, for that of the inferior court or tribunal. The jurisdiction exercised is in the nature of correctional jurisdiction to set right grave dereliction of duty or flagrant abuse, violation of fundamental principles of law or justice. The power under Article 227 is exercised sparingly in appropriate cases, like when there is no evidence at all to justify, or the finding is so perverse that no reasonable person can possibly come to such a conclusion that the court or tribunal has come to. It is axiomatic that such discretionary relief must be exercised to ensure there is no miscarriage of justice.
16. Explaining the scope of jurisdiction under Article 227, this Court in Estralla Rubber v. Dass Estate (P) Ltd. has observed:-
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C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 "6. The scope and ambit of exercise of power and jurisdiction by a High Court under Article 227 of the Constitution of India is examined and explained in a number of decisions of this Court. The exercise of power under this article involves a duty on the High Court to keep inferior courts and tribunals within the bounds of their authority and to see that they do the duty expected or required of them in a legal manner. The High Court is not vested with any unlimited prerogative to correct all kinds of hardship or wrong decisions made within the limits of the jurisdiction of the subordinate courts or tribunals. Exercise of this power and interfering with the orders of the courts or tribunals is restricted to cases of serious dereliction of duty and flagrant violation of fundamental principles of law or justice, where if the High Court does not interfere, a grave injustice remains uncorrected. It is also well settled that the High Court while acting under this article cannot exercise its power as an appellate court or substitute its own judgment in place of that of the subordinate court to correct an error, which is not apparent on the face of the record. The High Court can set aside or ignore the findings of facts of an inferior court or tribunal, if there is no evidence at all to justify or the finding is so perverse, that no reasonable person can possibly come to such a conclusion, which the court or tribunal has come to."
17. The factum that the counsel for the appellant had applied for the certified copy would show that the counsel for the appellant was aware that the ex-parte decree had Page 81 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 been passed on the account of failure to lead defence evidence. This would not, however, be a good ground and reason to set aside and substitute the opinion formed by the trial court that the appellant being incarcerated was unable to lead evidence and another chance should be given to the appellant to lead defence evidence. The discretion exercised by the trial court in granting relief, did not suffer from an error apparent on the face of the record or was not a finding so perverse that it was unsupported by evidence to justify it. There could be some justification for the respondent to argue that the appellant was possibly aware of the ex-parte decree and therefore the submission that the appellant came to know of the ex-parte decree only on release from jail on 6th May 2017 is incorrect, but this would not affect the factually correct explanation of the appellant that he was incarcerated and could not attend the civil suit proceedings from 6th October 2015 to 6th May 2017. If it was felt that the application for setting aside the exparte decree was filed belatedly, the court could have given an opportunity to the appellant to file an application for condonation of delay and costs could have been imposed. The facts as known, equally apply as grounds for condonation of delay. It is always important to take a holistic and overall view and not get influenced by aspects which can be explained. Thus, the reasoned decision of the trial court on elaborate consideration of the relevant facts did not warrant interference in exercise of the supervisory jurisdiction under Article 227 of the Constitution." Page 82 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023 C/SCA/14617/2021 CAV JUDGMENT DATED: 05/06/2023 And the judgement in the case of M/s Puri Investments V/s M/s Young Friends and Co. & Ors. reported in 2022 Law Suit (SC) 306, whereby it is held that supervisory jurisdiction can be exercised if finding of fact would be perverse (1) erroneous on account of non-consideration of material evidence; (2) conclusion contrary to evidence; (3) based on inferences impermissible in law and reappreciation of evidence is not permissible. This Court has very limited powers and correctional jurisdiction and therefore, the present position is required to be dismissed.
10. In view of the above observation, the present petition is dismissed, with no order as to cost.
Notice, if any, stands discharged.
(SANDEEP N. BHATT,J) DIWAKAR SHUKLA Page 83 of 83 Downloaded on : Mon Jun 05 20:41:39 IST 2023