Research › Search › Judgment

Madras High Court · body

2001 DIGILAW 518 (MAD)

K. NARAYANAN v. P. TRIPATHI RAO

2001-04-23

PRABHA SRIDEVAN

body2001
ORDER The revision petitioner is aggrieved by the order dismissing his application under Section 8 of the Indian Arbitration and Conciliation Act, 1996. The respondent and the petitioner entered into a partnership agreement on 27.6.1991. The firm was called 'Everex Associates'. There was an arbitration clause which provide that any dispute among the partners shall be resolved by arbitration. The respondent herein filed O.S. No. 5091 of 1999 for injunction against the petitioner and another from carrying on business as the proprietor under the name and style of 'Everex Associates' and the second defendant is the petitioner herein and the third defendant is the brother of the petitioner. According to the averments in the plaint the partnership was being carried on successfully when suddenly the petitioner herein without informing the respondent removed the plant and machinery from the business premises goods at 123, Vanniyar Street, Choolaimedu, Madras-24 and shifted the same in June, 1999 to 47, Sowrashtra Nagar, 7th Street, Choolaimedu and had entrusted the plant and machinery to his brother who is the third defendant in the suit. It is the allegation of the respondent that the third defendant had opened an account in the Indian Bank, Egmore, Madras-600 008 in the name of 'Everex Associates' and that the petitioner and his brother are diverting the funds from the partnership to the new account. According to the respondent, the partnership has not been resolved in a manner known to law and without dissolution and settlement of accounts, the petitioner cannot carry on a similar business which would only be detrimental to the interest of the respondent. Therefore, the suit has been filed for injunction. Pending suit an application for interim injunctions was also filed. Thereupon, the petitioner filed IA No. 13285 of 1999 under Section 8 of the Arbitration and Conciliation Act. According to the petitioner herein, the partnership had been dissolved in the month of May, 1999 and by mutual agreement between the parties the assets and liabilities of the firm taken over by the petitioner and the respondent has recovered Rs. 2,00,000 as consideration thereof. According to the petitioner these facts have been suppressed by the respondent; all other averments in the plaint were denied. 2,00,000 as consideration thereof. According to the petitioner these facts have been suppressed by the respondent; all other averments in the plaint were denied. According to the petitioner since there is an arbitration clause whereunder the partners were directed to resolve their disputes by arbitration it was not open to the respondent to file a suit for a relief which can be obtained under the Arbitration Act. The Court below dismissed the application and hence the civil revision petition has been filed. Mr. Sai Chandravadhan, learned counsel for the petitioner submitted that though in the suit petitioner's brother has been added as the third defendant that is only camouflage. A perusal of the plaint would show that in essence it deals with disputes inter se the partners. The respondent reluctant to resort to the Arbitration Act has, in violation of the contract between the parties, filed a civil suit. The learned counsel referred to the decision reported in Bombay Gas Co. Ltd. vs. Parmeshwar Mittal and others ( AIR 1998 Bom. 118 ), where the Bombay High Court held that merely because the respondents have made allegations of fabrication of records against the petitioner the dispute cannot be taken out of arbitration. Mr. R. Thiagarajan, learned counsel for the respondent on the other hand submitted that the dispute in this case is not one that can be resolved by arbitration. According to him the plant and machinery had been illegally removed by the petitioner herein and entrusted to his brother who is the third defendant and therefore, he is a necessary party and when the third defendant is not a party to the arbitration agreement the interest of the respondent herein and the rights asserted by him cannot be safeguarded or established before the Arbitrator and therefore, the only recourse available to the respondent is to go before the Civil Court. The learned counsel submitted that there was no illegality on the order of the Court below and it did not warrant any interference. He relied on the following judgments : (1) M/s. Tata Finance Ltd. vs. H. P. Md. Madar, Chennai ( (1999) 3 MLJ 551 ). (2) P. Anand Gajapathi Raju vs. P. V. G. Raju ( (2000) 4 SCC 539 = 2000 (2) Arb. LR 204 (SC)). (3) Willington Associates Ltd. vs. Kirit Mehta ( (2000) 4 SCC 272 = 2000 (1) Arb. LR 690 (SC)). Madar, Chennai ( (1999) 3 MLJ 551 ). (2) P. Anand Gajapathi Raju vs. P. V. G. Raju ( (2000) 4 SCC 539 = 2000 (2) Arb. LR 204 (SC)). (3) Willington Associates Ltd. vs. Kirit Mehta ( (2000) 4 SCC 272 = 2000 (1) Arb. LR 690 (SC)). In this case, the existence of the arbitration agreement is not denied. Para 6 of the plaint runs as follows : "The second defendant shall be entitled to draw Rs. 3,000 per month from and out of the income realized from the business ..... in the event if there is any dispute between the partners the provisions of the Indian Arbitration Act shall apply." The agreement is dated 1991. The dispute arose in 1991 and therefore, the Act that is applicable is the New Act, viz., Indian Arbitration and Conciliation Act. The plaint is the document which sets down the nature of the dispute which is sought to be resolved by judicial adjudication. It is through the plaint that a suitor informs the Court what his grievance is and how he is aggrieved by the actions of the other party. Therefore, to ascertain the nature of the dispute between the parties the Court has looked into the plaint. Para 3 of the plaint deals with the commencement of the partnership and the place of business. Para 4 states that there was an agreement between the petitioner and the respondent regarding the operation of bank account and the investment by the respondent of one lakh as share capital. Para 5 states that the petitioner did not invest any money but instead agreed to be the Managing Partner and spell out the ratio of sharing of profit and loss between the petitioner and the respondent. Para 6 deals with the salary of the petitioner herein and the fact that there is an arbitration clause if there arises any dispute. Para 7 deals with the commencement of business, the opening of account in South Indian Bank and the enjoyment of loan facilities in the Bank by the petitioner and the respondent. Para 8 deals with the liability of the firm to the Bank as on date and that the firm had acquired plant and machinery worth about Rs. 9 to 10 lakhs. Para 9 deals with the growth of the business and its expansion and gives details of the monthly turnover. Para 8 deals with the liability of the firm to the Bank as on date and that the firm had acquired plant and machinery worth about Rs. 9 to 10 lakhs. Para 9 deals with the growth of the business and its expansion and gives details of the monthly turnover. In Para No. 10, the respondent alleges the arbitrary removal by the petitioner of the machinery and goods and entrustment of the same to the petitioner's brother. Para No. 11 alleges opening of an account in Indian Bank by the petitioner's brother in the name of 'Everex Associates' and the diversion of fund. Para No. 12 states that the partnership has not been dissolved as on date. Para No. 13 alleges that the actions of the petitioner and his brother are contrary to the terms of the partnership is illegal and unjustified. Para No. 14 states that the petitioner cannot carry a business similar to the partnership business without proper dissolution and settlement of accounts and therefore, the suit has been filed. The petitioner's case on the other hand is that the suit had been dissolved and the respondent had also received Rs. 2 lakhs as part of the agreement for dissolving the partnership firm and the accounts in the various banks had also been closed because the partnership had been dissolved. The petitioner's case is that though the grievance of the respondent is mainly against the petitioner he has only introduced the petitioner's brother as a third defendant to give a colour to the action as if it goes beyond the scope of the Arbitrator before whom the disputes between the partners should be referred. The plaint makes it clear that the main grievance of the respondent is the removal by the petitioner of the plant and machinery from the place of business. According to the respondent, the partnership has not been dissolved and according to the petitioner the partnership has been dissolved. Clause 13 of the plaint is particularly relevant. "(13) I further state that the actions of defendants 2 and 3 in doing parallel business when the original partnership is intact and when no dissolution has taken place, are neither just and proper and it would not only prejudice the interests of the first defendant firm but also would be prejudicial to the interests of the plaintiff (myself) who had invested more than Rs. 6.5 lakhs in the business over the years." The third defendant is not a partner so he cannot act contrary to the terms of the partnership. This shows that the main grievance of the respondent is against his partner or his erstwhile partner if the case of the petitioner is to be believed. The main question is whether the partnership was dissolved and whether the petitioner was entitled to remove the plant and machinery from the place of business of the firm 'Everex Associates' and carry on the same business elsewhere in the name of another person or opened a fresh bank account. This appears to me to be a dispute solely amongst the partners and for which the arbitration provision applies. The Arbitration and Conciliation Act has been enacted to encourage the resolution of disputes between the parties to the agreement. Section 8 of the Arbitration and Conciliation Act has been enacted to make arbitration agreements effective and to discourage the party to an arbitration agreement from going to Civil Court contrary to the contract. Where there is a consensus to refer disputes to arbitration it is the duty of the Court to give an opportunity to resolve the dispute through arbitration rather than by judicial adjudication. In the decision reported in P. Anand, Gajapathi Raju vs. P. V. G. Raju (supra), the Supreme Court held that the language of Section is peremptory. "In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language in Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings conclude and the award becomes final in terms of the provisions of the new Act. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award." The conditions which are required to be satisfied before the Court can exercise its power under Section 8 of the Act are : (1) The existence of an arbitration agreement, (2) an action brought before a Court by one party to the agreement against another, (3) identify of subject-matter in the suit or action as it is called and the arbitration agreement, and (4) filing of the application under Section 8 of the Act by the party before making the first statement on the substance of the dispute before the judicial authority. Of course, apart from this the applicant will not be entertained unless the original arbitration agreement or a duly certified copy accompanies the application. In this case all the conditions are satisfied. Therefore, Supreme Court underscores the peremptory character of Section 8 and that it obliges the Court to refer the matter to arbitration. In the decision reported in M/s. Tata Finance Ltd. vs. H. P. Md. Madar, Chennai (supra), this Court held that the provisions of the new enactment shall apply in relation to the arbitration proceedings which commenced on or after 1996 Act came into force. In that case the suit was filed for a declaration that the repossession of the bus was illegal and for mandatory injunction to release the same bus. The parties to the suit had entered into a hire purchase agreement which included an arbitration clause. An application under Section 8 was moved by the respondent in the suit. It was resisted by the plaintiff stating that the repossession without resort to arbitration put the scope of the dispute beyond the clauses of the hire purchase agreement which included an arbitration clause. An application under Section 8 was moved by the respondent in the suit. It was resisted by the plaintiff stating that the repossession without resort to arbitration clause was not applicable. An application under Section 8 was moved by the respondent in the suit. It was resisted by the plaintiff stating that the repossession without resort to arbitration clause was not applicable. The learned Judge held that the dispute regarding the legality or otherwise of the repossession is not beyond the scope of the arbitration clauses. Therefore, the learned Judge held that the question whether repossession of the vehicle is valid or invalid and its consequence will be incidental question that is required to be decided by the Arbitrators in this dispute. The decision reported in Bombay Gas Co. Ltd. vs. Parmeshwar Mittal and others (supra), the Bombay High Court held that the provisions of the new Act constitutes a complete departure from the provisions of the old act which gave the Court the discretion to stay the suit. The learned Judge held that Section 8 on the other hand makes it mandatory for the Court to refer the parties for arbitration and that the element of discretion is not there. In that case a second ground of defense was taken that there was fabrication of records which amounted to criminal offence and this cannot be the subject matter of reference to the Arbitrator. This was also rejected by the Court and the Section 8 application was ordered as prayed for. In the decision reported in I.T.C. Classic Finance Ltd. vs. Grapco Mining & Co. Ltd. ( AIR 1997 Cal. 397 = 1998 (1) Arb. LR 1), it was stated that the claim of plaintiff in the suit was not a dispute which cannot be referred to as arbitration under Section 8 of the new Act, the Court is only concerned to see that the matter on which the suit is instituted is also the subject of an arbitration agreement. 397 = 1998 (1) Arb. LR 1), it was stated that the claim of plaintiff in the suit was not a dispute which cannot be referred to as arbitration under Section 8 of the new Act, the Court is only concerned to see that the matter on which the suit is instituted is also the subject of an arbitration agreement. Even in the counter filed by the respondent herein in the application under Section 8 in para No. 7 it is stated as follows : "Since the business of the firm namely the first defendant being diverted by the second defendant to the third defendant who is carrying on similar proprietary concern 'Everex Associates', the present suit has been filed seeking various reliefs as against the defendants, and all the relief claimed in the plaint petitioner, second defendant is acting detrimental to the interest of the firm and also the other partner namely and also the other partner namely myself." Therefore, in the words of the respondent himself his only relief is against the petitioner, since he has been acting detrimental to the interest of the respondent and to the firm. If this is not a dispute that is referable to the Arbitrator under the partnership agreement I do not know what is. The learned counsel for the respondent vehemently urged that the plant and machinery of the partnership business has been secreted and removed and the partnership business is being carried on illegally by the petitioner herein and the respondent's interest will be grievously injured and by referring the matter to arbitration he will be affected. I do not think so. The Arbitration Act has also provided for interim measures to be ordered by a Civil Court before or during arbitral proceedings or at any time after the making of the arbitration award by enacting Section 9 of the Act. In fact, Section 5 clearly lays down the extent of judicial intervention and Section 5 reads as follows : "Notwithstanding anything contained in any other law for the time being in face, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part." When the acts provided for the procedure and the manner in which remedy can be obtained when at least to that extent there can be no intervention by judicial authority. In the decision reported in M/s. Sundaram Finance Ltd. vs. M/s. NEPC India Limited (AIR 1998 SC 565 = (1999) 2 MLJ (SC) 53 = 1999 (1) Arb. LR 305 (SC)), the Supreme Court has held that not only should the provisions of the new Act be construed independently of the consideration that prevailed on the judicial mind while deciding questions under the old Act, since the new Act has been introduced only to encourage alternate dispute resolution mechanisms. Further every effort should be made to encourage parties bound by an arbitration agreement to abide by it and to discourage them from adopting subterfuges to evade the arbitration clause. The pleadings as well as the averments in the counter that I have extracted above clearly show that the respondent's main grievance is against the petitioner. If so, he cannot be allowed to approach the Civil Court merely by adding a third party so that the filing of a civil suit appears to be justified. The Court below has not applied its mind to the provisions of the new Act. In fact, the Court below held and in my opinion rightly so that this is the main issue and the main dispute between the parties. This dispute eminently falls within the arbitration clause. Having come to the correct conclusion, the Court below ought not to have postponed the decision to the end of trial, since that would defeat the agreement between the parties. So according to the Court below the other question is whether the plant and machinery were given to the petitioner herein as his share upon the dissolution of the partnership and defers this decision again to the end of the trial. But this again would be a subject matter of a dispute between partners that must be referred to arbitration. To defer this decision to the end of trial would again defeat the arbitration clause. No doubt the Court below holds that since a relief is sought for against the third defendant and the third defendant is not a party to the agreement the application under Section 8 cannot be awarded, but as I have stated in the foregoing paragraphs though the third defendant has been made a party, even as per the counter of the respondent the relief sought for, is only against the petitioner herein. Therefore, this objection also fails to the ground. Therefore, this objection also fails to the ground. The learned Judge however, holds that, any relief sought under Section 9 of the Arbitration Act can be decided only by the civil suit and therefore, the matter cannot be referred to arbitration. Here again, the learned Judge has failed to understand the scope of Section 9 of the new Act. Section 9 empowers the Civil Court to grant certain interim reliefs before or during the arbitration proceedings. The title of the section itself shows that it is only a interim ensure. In no way does Section 9 take away the right of the parties to resort to arbitration. In fact, Section 5 of the Act makes it clear that except where it is so provided in the act no judicial authority shall intervene in matters covered by an arbitration agreement. The Act gives the respondent the right to approach the Court for any interim orders to protect his interest, but he cannot be allowed to bypass the arbitration clause totally. The order of the Court below therefore, suffers from infirmity and is set aside. The civil revision petition is allowed. No costs. Revision allowed.