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1982 DIGILAW 192 (MAD)

R. Rajagopalachariar v. R. Venkatachalam

1982-06-01

V.RATNAM

body1982
JUDGMENT.- The plaintiff in O. S. No. 710 of 1980, Sub Court, Coimbatore, is the appellant in this Civil Miscellaneous Appeal, which is directed against the order of the Court below in I. A. No. 962 of 1980 in O. S. No. 710 of 1980 filed under section 34 of the Arbitration Act, 1940 (herein after referred to as the Act) for staying the further proceedings in the suit. The appellant, his brother, the respondent, P. Ramakrishnan and N. Rajn Naidu entered into an agreement dated 29th April, 1980, for the purpose of carrying on business in partnership under the name and style of Sri Krishna and Co., in accordance with the terms and conditions contained therein. It is not now in dispute that the appellant is entitled to a two anna share in the firm, its business income and assets, while, the respondent is entitled to the balance. According to the case of the appellant’ the firm stood dissolved on 29th April, 1980, by efflux of time and that he is entitled to a decree winding up the affairs of the partnership and also for rendition of true and proper accounts for all the assets, movables and immovables income and profits of the firm Sri Krishna and Co., by the respondent and for payment by the respondent of the share of the appellant in alt the assets, properties movables as well as immovable and also the good will. In I. A. No. 262 of 1980 filed under section 34 of the Act, the respondent claimed that as per clause 15 in the partnership deed dated 29th April, 1960, in case of dispute or difference of opinion, it should be settled by reference to arbitration under the provisions of the Act and there is no right of suit available and that therefore, further proceedings in the suit should be stayed. That application was opposed by the appellant herein on the ground that the respondent was not entitled to invoke section 34 of the Act as there was no mandatory provision for arbitration in the deed of partnership compelling resort to arbitration. The appellant also further pleaded that even assuming that there was a valid arbitration clause in the partnership deed, the claim sought to be agitated in the suit did not relate to dispute or difference of opinion between the parties and therefore would not be covered by clause 15. The appellant also further pleaded that even assuming that there was a valid arbitration clause in the partnership deed, the claim sought to be agitated in the suit did not relate to dispute or difference of opinion between the parties and therefore would not be covered by clause 15. The appellant put forth a plea that the right to secure a decree for the dissolution was available under the provisions of the Indian Partnership Act de hors the terms of the partnership and that the taking of the accounts of a dissolved firm cannot be properly brought within the purview of a dispute between the partners. Another objection was also raised by the appellant to the effect that the respondent cannot invoke the provisions relating to arbitration in the partnership deed dated 29th April, 1980, after the partnership itself ceased to exist by efflux of time. The appellant therefore prayed for a dismissal of the petition. 2. In an additional affidavit filed, the respondent reiterated that as per clause 15 of the partnership deed dated 29th April, 1960, disputes should be settled only by arbitration and that at all material times when the proceedings were commenced and even on the date when the application under section 34 of the Act was filed, the respondent was ready and willing to do all things necessary for the proper condut of the arbitration. The respondent also filed a reply statement to the effect that the relief claimed related to a period when the partnership was in force and disputes arose between the parties and plainly therefore, such a dispute ought to be settled only by reference to arbitration and not by the institution of a suit. The respondent further maintained that the partnership continued in spite of the dissolution of the partnership by efflux of time and that till such time as the affairs of the firm are finally wound up, it would be open to the parties thereto to rely upon the arbitration clause. 3. The respondent further maintained that the partnership continued in spite of the dissolution of the partnership by efflux of time and that till such time as the affairs of the firm are finally wound up, it would be open to the parties thereto to rely upon the arbitration clause. 3. The learned Subordinate Judge, Coimbatore, who enquired into this application found that clause 15 in the partnership deed dated 29th April, 1960, would indicate that the parties thereto contemplated referring the matter to arbitration whenever any difference of opinion among the partners arose, that the dispute between the parties arose out of certain charges made by the appellant against the respondent touching his conduct as a partner in connection with the partnership and that therefore no ground for refusing stay as prayed for by the appellant was made out. On this conclusion, I.A. No. 962 of 1980 in O.S No. 710 of 1980 filed by the respondent herein was allowed and all further proceedings in O.S. No. 710 of 1980 were stayed. It is the correctness of this order that has been challenged in this civil miscellaneous appeal. 4. Before proceeding to deal with the contentions raised on both sides, it is necessary to notice certain undisputed facts. The appellant, respondent and three others entered into a partnership to carry on business under the name and style of Sri Krishna and Co., in accordance with the terms and conditions contained in the agreement Exhibit B-l dated 29th April, 1960. The partnership was to exist for a period of 20 years and the object of the partnership was to put a cinema theatre, exhibit films therein and carry on other allied or related business. The appellant is entitled to 1/8th share while the respondent is entitled to 7/8 share. By efflux of time, the partnership stood dissolved on 59th April, 1960, and the appellant in O.S. No. 710 of 1960 prayed for a decree for dissolution and for accounts of the dissolved firm. In the plaint, after setting out the terms of the partnership deed dated 29th April, 1960, the appellant has referred to the domineering role played by the respondent herein in the conduct of the business and had also charged him with not having acted in the best interest of the firm and also with having manipulated records and the accounts with a view to show loss. The main basis upon which the appellant had sought relief was that the partnership stood dissolved and that the respondent, having been in possession and management of the affairs and assets of the firm, is an accounting party bound to render an account to him and the real income and profits of the business had been secreted away by the respondent. It is also necessary to notice that the cause of action for the suit is stated to have arisen 29th April, 1960, when the partnership was constituted and on 29th April, 1980, when the partnership stood dissolved by efflux of time. 5. In the light of the above claim made in the suit by the appellant and the terms of Exhibit B-l the question that arises for consideration in this appeal is whether the Court below was justified in staying further proceedings in the suit. Mr. T. Raghavan, learned counsel far the appellant, contended that clause 15 in Exhibit B-1 does not amount to an arbitration clause at all as it is vague and indefinite and therefore, cannot be taken advantage of by the respondent for filing an application under section 34 of the Act. Elaborating this argument, the learned counsel, stated that what is contemplated by clause 15 is more than one arbitrator; but how many have to act as such has not been mentioned at all and that this would be contrary to the provisions of section 3 read with Schedule I. 6. Reliance in this connection was also placed by the learned counsel on the decision reported in Tomco Private Limited v. T.M.S. Mani1, In addition, it was pointed out by the learned counsel for the appellant that strictly construed, clause 15 was not compelling or mandatory in that the disputes should and must be referred to arbitration, but the language employed therein left a discretion as it were and made it permissible to refer a dispute or not and that therefore, even if clause 15 of can be construed to be an arbitration clause, it was indefinite, vague, and cannot be relied upon to sustain an application under section 34 of the Act. The learned counsel for the appellant further submitted that it is a matter for consideration and decision by Court whether a dispute is or is not within the arbitration clause and that even if it was so, ultimately, the Court has got to exercise is discretion either in granting or declining to grant stay. Reference was also made to the allegations in the plaint with reference to the fraud played by the respondent and relying on the passage in Lindley on Partnership, Fourteenth Edition at pages 240-241, it was contended that as a matter of exercise of discretion, the Court will refuse to order stay of proceedings in such cases. Attention was also drawn by the learned counsel for the appellant to section 47 of the Indian Partnership Act to contend that after the dissolution of a firm under section 42 (a) section 47 merely empowered the surviving partner to do certain things absolutely essential to wind up the affairs of the firm and to complete unfinished transactions; but that would not mean the partnership continued as before. It was pointed out that on the expiry of 20 years from 29th April, 1960, the partnership ceased to exist by efflux of time and clause 15, which formed part thereof, also ceased to be operative and therefore, an application under section 34 of the Act would not be maintainable by the respondent. Reference in this connection was also made to a passage at page 100 of Russell on Arbitration, Nineteeth Edition, to the effect that where, after the expiry of an agreement containing an arbitration clause, the parties continued the relatica ship regulated by that agreement, the arbitration clause will be regarded as still binding, notwithstanding the absence of anything in writing to that effect and that in this case there was nothing to show that the parties continued their relationship as partners after the dissolution of the firm by efflux of time and therefore, the arbitration clause, though found in Exhibit B-l, cannot by regarded as binding. The learned counsel for the respondent Mr. The learned counsel for the respondent Mr. S. Govinda Swami-nathan, submitted that these points now ‘raised by the learned counsel for the appellant had not been raised at all before the court below, but that clause 15 of Exhibit B-l would constitute a valid agreement to refer disputes to arbitration including one of the nature agitated in the suit and therefore, the Court below was in order in having stayed further proceedings. Clause 15, according to the learned counsel for the respondent, should be a reference of disputes betwenn the parties to arbitration. It was further submitted that at no earlier point of time any fraud was attributed to the respondent by the appellant excepting in the plaint and therefore, merely because of such allegations in the plaint, it cannot be said that the subject-matter of the suit cannot be satisfactorily dealt with and disposed of by the arbitrators. Finally, the learned counsel for the respondent contended that even if the agreement under Exhibit B-l dated 29th April, 1960, had expired by efflux of time, the clause relating to arbitration could still be given effect to and on that footing an application under section 34 of the Act could also be maintained. Reliance in this connection was placed by the learned counsel for the respondent on the decisions reported in The Union of India v. Kishorilal Gupta and others1, Banwari Lal and others v. The Pillibhit Cooperative Development Federation Ltd. and others2 and Union of India and others v. M/s. Allied Construction Company3. 7. In reply to these submissions, the learned counsel for the appellant, besides reiterating what has already been stated, contended that there could be no arbitration outside the provisions of the Act and that since in this case, the agreement under clause 15 of Exhibit B-1 does not conform to the requirement of the Act, there cannot be any scope for arbitration at all. Clause 15 in question in Exhibit B-1 runs as under: This clause has to be construed strictly and if so done, does not indicate anything about the number of arbitrators or the manner of their appointment. It is evident that the word contemplates a plurality of arbitrators but then there is no incidation as to who should be appointed or whether the parties are at liberty to appoint one or more of them as such arbitrators. It is evident that the word contemplates a plurality of arbitrators but then there is no incidation as to who should be appointed or whether the parties are at liberty to appoint one or more of them as such arbitrators. Under section 3 of the Act, an arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference. One of the implied conditions is that the reference unless otherwise expressly provided shall be to a sole arbitrator. Therefore, by its terms Exhibit B-1 has excluded a reference to a sole arbitrator, but has not made any provision for the appointment of arbitrators. Apart from this, the use of the expression indicates that as far as possible matters may be settled by arbitration and that would mean, no obligation is cast on the parties to Exhibit B-1 to resort to arbitration for settlement of disputes. Inasmuch as the language employed in clause 15 appears to vest a discretion in the parties without in any manner indicating how that discretion has to be exercised, it is rather difficult to hold ihat there is a definite concluded agreement compelling parties to submit present or future differences to arbitration. It is useful in this connection to refer to the decision in M/s. Tomco Private Ltd, v. T. M S. Mani4. In dealing with the contention, whether the arbitration clause couched in the following terms: “In case of any dispute arising between the parties, the matter should be referred to the arbitrators, elected by the parties and their decision on the subject will be final.” was vague and indefinite, Sen, J., referred to the use of the expression “arbitrators” and stated that the reference was not to a single arbitrator and therefore expressed a different intention and rules out the applicability of rule 1 of the First Schedule to the Arbitration Act. Reliance was placed in this connection upon the following passage in the decision in India Hosiery Works v. Bharat Woollen Mills Ltd5. “The Rule contemplates an agreement which is silent as to the number of arbitrators. If the agreement attempts to say that the appointment will be otherwise than by consent of all the parties it cannot possibly do so without making some reference to the number. “The Rule contemplates an agreement which is silent as to the number of arbitrators. If the agreement attempts to say that the appointment will be otherwise than by consent of all the parties it cannot possibly do so without making some reference to the number. It will have to say that the arbitrator or arbitrators will be appointed by one or some of the parties or by a third party and as soon as it does so, it will be outside the Rule. If it speaks of the appointment of “the arbitrator” there will be no scope for the application of the Rule because a single arbitrator will be indicated by the agreement itself. If it speaks of the appointment of “arbitrators”, then also it will be “otherwise expressly provided” that there will not be a sole arbitrator. The only type of agreement which can come under the Rule is. therefore an agreement which speaks expressly of arbitration by consent of the parties in which case there is no reference to the number of arbitrators or an agreement which says nothing about the mode of appointment in which consent of all the parties will be a necessary implied condition”. After referring to the above passage, Sen, J., noticed the decision in Ganapatlal Gupta v. Moody Brothers Ltd1., to the effect that arbitration agreements should be strictly construed and clear language should be introduced into any contract which is to have the effect of ousting the jurisdiction of the Courts and compelling the parties to have recourse to arbitration for decision of disputes. The observations of Viscount Maugham in G. Scammel and Nephew Ltd., v. H. C. and J.G Ouston2, to the following effect were also noticed: “In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable decree of certainty. It is plain that unless this can be done, it would be impossible to hold that the contracting parties had the same intention; in other words, the consensus ad item would be a matter of mere conjecture.” Lord Wright observed thus: “……But the test of intention is to be founded in the words used. It is plain that unless this can be done, it would be impossible to hold that the contracting parties had the same intention; in other words, the consensus ad item would be a matter of mere conjecture.” Lord Wright observed thus: “……But the test of intention is to be founded in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the Court can safely act, the Court has no choice but to say that there is no contract.” In the instant case, also the language employed does, not indicate either the number of arbitrators or the manner of their appointment and does not compel the parties to have recourse to arbitration but gives them an option as it were and under those circumstances, the clause in question has necessarily to be held to be vague and invalid and cannot support an application under section 34 of the Act. It may be that this point was not put forth by the appellant in the manner now done before this Court. But since the existence of a valid and clear agreement to refer disputes; to arbitration is a condition precedent for invoking section 34 of the Act, the objection raised by the learned counsel for the respondent that this point had not been raised earlier has no substance. 8. The next question that arises for consideration is whether the legal proceedings commenced by the appellant is in respect of a matter agreed to be referred to arbitration. In other words, the main aspects of the question are what is the dispute that has arisen and what is the dispute referred to in the arbitration clause. It is seen from the plaint filed that the suit is one for accounts of a firm which stood dissolved by efflux of time. Under section 42 of the Partnership Act, subject to a contract between the partners (there is none in this case), a firm is dissolved if constituted for a fixed term, by the expiry of that term. Therefore, on the expiry of the period of 20 years viz., on 29th April, 1980, the partnership between the appellant and the respondent stood dissolved. Therefore, on the expiry of the period of 20 years viz., on 29th April, 1980, the partnership between the appellant and the respondent stood dissolved. section 46 of the Partnership Act confers a right on every partner, on the dissolution of a firm, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights. It is to work out this right that the suit has been instituted by the appellant. section 47 of the Partnership Act is in the nature of an enabling section so that the transactions and activities of a firm which is dissolved do not come to a dead stop on such dissolution but are permitted to be carried on and completed to the extent to which that may be necessary to wind up the affairs of the firm; but that is not the same thing as saying that the firm continues to exist in spite of dissolution. When the right of the appellant thus stems from the statute, it is too much to say that clause 15 would also take in such rights as well as the subject-matter of arbitration proceedings. In other words, the plain intendment of clause 15 is that during the subsistence of the firm, if any differences of opinion should arise between the partners, then such differences shall be resolved as far as possible through arbitrators. Plainly, this does not include the right of a party on dissolution of a firm by efflux of time to secure a decree for accounts and also for a share of the assets of the firm after the payment of its liabilities. So construed, it is obvious that the nature of the dispute in this case falls outside the scope of clause 15 and therefore, that clause cannot be pressed into service by the respondent to say that further proceedings in the suit for accounts of a dissolved firm should be stayed on the strength of such a clause. 9. So construed, it is obvious that the nature of the dispute in this case falls outside the scope of clause 15 and therefore, that clause cannot be pressed into service by the respondent to say that further proceedings in the suit for accounts of a dissolved firm should be stayed on the strength of such a clause. 9. In the view that the dispute in the present case is outside the scope of clause 15 in Exhibit B-1 even assuming that such a clause is valid, it is wholly unnecessary to consider the other question whether in spite of the dissolution of the partnership by efflux of time, the clause relating to arbitration will have any separate or independent existence. 10. There is one other matter which may now be adverted to. In the plaint, the appellant had stated that the respondent had not acted in the best interest of the partnership and had manipulated records and the accounts and had also secreted the income and profits and converted them into valuable assets. Apart from praying for a decree for rendition of accounts and for payment of the amounts found due on such account-taking, the appellant had also prayed for the appointment of a Receiver to take charge of the assets and the business of the dissolved firm. In the light of the serious charges of dishonesty and want of good faith levelled against the respondent and the nature of the reliefs prayed for, the matter is such as not to be left to arbitrators for a decision. In Halsbury's Laws of England, Volume 35, paragraph 172, the law is stated as under: “……A stay of proceedings will usually be refused if charges of fraud or dishonesty or of want of good faith are made in good faith by one partner against the other, or if questions of law are likely to arise which are more fit for the Court than a lay tribunal, or if the action claims dissolution on a ground expressly within the discretion of the Court or if the attempted reference is made vexatiously.” Similarly, in Russell on Arbitration, nineteenth edition, at page 208, it has been stated as follows: “However, the Court has a discretion to refuse a stay. This discretion must be exercised upon the facts involved, but when a dissolution is claimed, the facts involved are very apt to be such as to call for refusal. This had led to the opinion of the Court in Joplin v. Posblathwaita1, that a question of dissolution was not a suitable one to be left to arbitrators to decide”. The reliefs prayed for and the circumstances under which the appellant was obliged to pray for those reliefs are so apt as to justify the refusal of stay under section 34 of the Act as prayed for by the respondent. The Court below was therefore in error in proceeding to stay further proceedings in the suit on the ground that there was a valid agreement to refer the disputes to arbitration and also that the disputes in this case would fall within the scope of clause 15 in Exhibit B-1. Under those circumstances, the order of the Court below cannot he sustained. The result is, the civil miscellaneous appeal is allowed with costs. R.S. ----- Appeal allowed.