SUBHASH INDUSTRIES v. BHAGWANDAS RATANJI PANCHAL — 1979 DIGILAW 200 (GUJ)

M. K. SHAH, J. ( 1 ) AN interesting question which arises in this revision application is as to whether a party to a partnership deed who repudiates the contract with regard to partnership can be permitted to rely upon a term in the deed of partnership itself and demand a reference to arbitration based on the arbitration clause contained in the said deed of partnership. ( 2 ) PLAINTIFF Bhagwandas Ratanji Panchal and two of the three defendants viz. Manchharam Morarji Panchal (defendant No. 2) and defendant No. 3 Subhaschandra Manchharam Panchal (son of defendant No. 2 Manchharam) entered into partnership to do business in the name and style of M/s. Subhash Industries (deft. No. 1) doing business at Vapi district Bulsar. A deed of partnership was executed on 15th November 1968 and was signed by all the three partners viz. the plaintiff and the said two defendants. The business continued for sometime and thereafter the plaintiff addressed a notice through his advocate on 14th December 1976 inter alia asking for dissolution of the partnership and winding up of the partnership business and accounts from the defendants. The defendants by their reply dated 21st December 1976 inter alia contended that the plaintiff was never a partner in the said firm and was not entitled to any account or any other rights in the said partnership business. It was the defendants case that as the plaintiff was a near relative of the defendants viz. son of their sister they having compassion on him employed him as an employee in the said firm on a salary of Rs. 200. 00 per month and the partnership deed was executed only in the names sake in order to maintain status of the plaintiff. But the plaintiff in fact had not acted as a partner now done any work therein and he was an employee therein and after sometime he left the service of the said firm and was doing his own business. He was therefore not entitled to any accounts or share in the profits of the firm. The plaintiff thereafter filed regular civil suit No. 60 of 1977 in the court of the Civil Judge (Junior Division) at Pardi for dissolution and accounts. The defendants while appearing in the said suit filed an application Ex. He was therefore not entitled to any accounts or share in the profits of the firm. The plaintiff thereafter filed regular civil suit No. 60 of 1977 in the court of the Civil Judge (Junior Division) at Pardi for dissolution and accounts. The defendants while appearing in the said suit filed an application Ex. 11 inter alia contending that as there was a clause with regard to arbitration being clause 14 in the deed of partnership the plaintiff was not entitled to file the suit and to have recourse to the court of law without getting the matter first referred to arbitration. The defendants therefore prayed for stay of the suit under sec. 34 of the Arbitration Act without prejudice to their right to file a written statement in the suit later. The learned Civil Judge (Junior Division) at Pardi by his order dated 20th October 1977 on Ex. 11 dismissed the said application inter alia holding that the question regarding dissolution of partnership and accounts would not come within the purview of the Arbitration Act contained in clause 14 of the partnership deed. He therefore ordered the defendants to file the written statement within three weeks. The defendants carried the matter further up in appeal being civil appeal No. 44 of 1977 to the court of the learned District Judge Bulsar at Navsari and the learned District Judge by his order dated 13th January 1978 dismissed the appeal; and hence this revision by the petitioners that is original defendants. . . . . . . . . . . . . . . . . . . . . . ( 3 ) MR. Amin secondly submitted that in the instant case the defend ants themselves having repudiated the contract of partnership between them and the plaintiff it would not be open to them to have recourse to the partnership deed and the arbitration clause contained therein for the purpose of seeking stay of the proceedings under sec. 34 of the Arbitration Act. ( 4 ) I find considerable force in the second submission of Mr. Amin the learned Advocate appearing for the opponent plaintiff and as the matter can be disposed of on the short question which arises as submitted by Mr. Amin it would not be necessary to go into and consider the other submissions made by Mr. ( 4 ) I find considerable force in the second submission of Mr. Amin the learned Advocate appearing for the opponent plaintiff and as the matter can be disposed of on the short question which arises as submitted by Mr. Amin it would not be necessary to go into and consider the other submissions made by Mr. Vyas the learned Advocate for the petitioner as also the first contention raised by. Mr. Amin. ( 5 ) NOW in the instant case it was the case of the defendants as it emerges from the correspondence prior to the filing of the suit that the plaintiff was not a partner in the said business that he was merely a servant to whom salary of Rs. 200. 00 per month was being given and that his name was entered in the partnership deed for name sake that is to give him status meaning thereby that it was nominal and sham and that he never acted as a partner and was not a partner in the firm. The defendants themselves completely repudiated the contract between the parties viz. agreement of partnership as contained in the deed of partnership. They denied the existence of a genuine partnership agreement between the parties and they therefore cannot be permitted to rely upon a subsidiary term in the contract and demand a reference to arbitration. It would be seen that in the instant case the very existence of the contract of partnership is denied by the defendants though they admit that they executed an ostensible deed of partnership. Their case as it emerges from the correspondence which preceded the filing of the suit by the plaintiff discloses that the said document of partnership was a sham document not to be acted upon and in fact was not acted upon. It was entered into with the sole idea of giving some status to the plaintiff and was a document entered into for name sake that means a document which has no existence in reality. It was also their case that that document was never acted upon and by that document no relationship of partnership came into existence between the parties but the relationship between the parties was that of an employer and employee. It is evident that the defendants contended that there was no contract at all between the parties. It was also their case that that document was never acted upon and by that document no relationship of partnership came into existence between the parties but the relationship between the parties was that of an employer and employee. It is evident that the defendants contended that there was no contract at all between the parties. The contract is repudiated completely by the defendants and the very existence of the contract is denied. Can the defendants in such a case be permitted to rely on a term in the very contract with regard to arbitration ? In my opinion the defendants can not be allowed to say in one breath that there is no operative and bind. ing contract of partnership between them and the plaintiff as is embodied in the deed of the partnership and also to say in another breath that as per the terms of a clause contained in the very deed of partnership the plaintiff is bound to refer the matter to arbitration before having recourse to a court of law and that therefore the suit must be stayed by virtue of the provisions contained in sec. 34 of the Arbitration Act. ( 6 ) I am fortified in the view which I take as expressed above by a decision of the Calcutta High Court in the case of the Chartered Bank v. The Commissioner for the Port of Calcutta A. I. R. 1972 Cal. 198. As observed by a Division Bench of that court :"where a party had repudiated the contract and such repudiation in effect raised the contention that there was no contract at all between the parties it was not open to that party to take advantage of that portion of the contact which enjoined arbitration". A reference was made by the Division Bench to the observations of Viscount Simon L. C. in Heyman v. Darwins Limited 1 All ER 337 at p. 341 to the effect " If the respondents were denying that the contract had ever bound them at all such an attitude would disentitle them from relying on the arbitration clause which it contains". TO the facts of the present case the said observations of Viscount Simon L. C. would appropriately apply because here also the defendants denied that the contract of partnership bound them at all on the ground that the contract was entered into in the name sake and was not acted upon and the real relationship between the parties was that of an employer and employee; and therefore such attitude on the part of the defendants would disentitle them from relying on the arbitration clause contained in the very agreement which they repudiate. The lower courts therefore in my opinion were perfectly justified in rejecting the defendants application for stay of the suit under sec. 34 of the Arbitration Act. ( 7 ) MR. Vyas lastly drew my attention to A. M. Mair ard Co. v. Gordhandas Sagarmull A. I. R. 1951 S. C. 9 in support of his contention that as the plaintiff in the instant case will have to have recourse to the contract of partnership to establish his case for dissolution and accounts it would be a dispute under the contract and the arbitration clause therefore will apply. The Supreme Court decided the said matter on an entirely different footing and it was concerned with a case having distinct facts. In a contract for sale of certain goods the arbitration clause provided for reference to arbitration of all matters questions disputes differences and/or claims arising out of and/or concerning or relating to this contract and the dispute was as to whether the party to the contract was acting merely as a broker or was the principal bound by the contract. Taking a view that as the question turned upon the true interpretation of the contract and the parties had to take recourse to the contract to establish the claim the Supreme Court held that it was a dispute under or arising out of the contract and thus within the jurisdiction of arbitration. Such are not the facts in the instant case. Here the contract itself is repudiated. Such are not the facts in the instant case. Here the contract itself is repudiated. The defendants contend that no such relationship in the nature of partnership came into existence by the said contract; denied existence of the contract and repudiated it on the ground that it was a sham one ostensibly entered into in the name sake and in fact was not acted upon and the real relationship between the parties was that of an employer and employee. The question therefore which would arise would be as to whether the defendants contention that the contract was a sham one not to be operative will have to be decided de hors the contract and not by having recourse to the contract and therefore the ratio laid down by the Supreme Court in A. M. Mairs case (sup will not apply. Again in the instant case the provisions with regard to reference to arbitration are contained in a document whose existence is challenged by the defendants. If the existence of the document in challenged by the defendants the arbitrator would not be competent to enter into and decide the arbitration unless it is established that the deed of partnership embodying the contract was a validity executed document and binding on both the parties. Therefore when the very existence of the document from which flows the power to refer the matter to arbitration is in dispute it would be incompetent for the arbitrator to entertain the dispute referred to him on the basis of a clause in the said document because that would amount to assuming the validity and the existence of the contract as embodied in the document which itself is the bone of contention between the parties. Thus in any view of the matter it would be for the court to decide the suit in view of the various contentions raised by the defendants and the arbitration clause therefore cannot be availed of by the defendants for the purpose of staying the suit. Rule discharged. .