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2012 DIGILAW 197 (CAL)

Rajeev Maheswari Indu Kocher v. .

2012-03-13

JOYMALYA BAGCHI, KALYAN JYOTI SENGUPTA

body2012
Judgment :- K.J. Sengupta, J. The above appeal has been preferred against the judgment and order dated 5th September, 2007 passed by the learned Single Judge of this Court in the aforesaid Special Suit under Arbitration Act, 1940 (since repealed). The learned Trial Judge has been pleased to pass orders though not expressly but in substance, allowing prayer of the respondents for filing of the arbitration agreement dated 23rd December, 1972, and directing the parties to nominate their respective learned Arbitrators and also to appoint Umpire in anticipation. The short fact leading to preferring this appeal is as follows:- The respondents herein are the heirs and legal representatives of one Mohanlal Kocher since deceased whereas the appellants are the heirs and legal representatives of one Mohanlal Maheswari. The predecessor-in-interest of both the parties namely Mohanlal Maheswari and Mohan Kocher formed a partnership firm in or about January 1955 for the purpose of carrying on business under the name and style of Bharat Industries and Commercial Corporation. The said firm was reconstituted from time to time and thereafter with effect from 23rd December, 1972 both the said Mohans carried on business under the same name on the terms and conditions contained in the deed of partnership dated 23rd December, 1972. The said two persons had been carrying on business as a co-partner thereof, of manufacturing, sale of trailers, aircraft refuellers. That apart the said firm had also business of import agency in India, of tractors, agricultural equipments, tiping trucks, tower cranes from various European countries including former Soviet Union and other eastern European countries. It is stated in the petition that the said firm had substantial assets and properties including land and buildings and factory shed and tenancy right and office accommodation in the heart of city of Calcutta (now Kolkata). Thereafter because of varieties of reasons the said business suffered set back and as such business could not continue as it was doing. Moreover, there was problem between the partners also. On 17th December, 1984 one of the partners Mohanlal Maheswari predecessor-in-interest of the appellants died. After the death of said Mohanlal Maheswari steps were taken for continuation of the business of the said firm and also for preservation of its funds, assets, properties. The bank as well as other creditors filed suit for recovery of their alleged dues. On 17th December, 1984 one of the partners Mohanlal Maheswari predecessor-in-interest of the appellants died. After the death of said Mohanlal Maheswari steps were taken for continuation of the business of the said firm and also for preservation of its funds, assets, properties. The bank as well as other creditors filed suit for recovery of their alleged dues. It appears that Mohanlal Maheswari during his life intended to sell ½ share allegedly wrongfully and illegally, in the assets and properties of the said partnership firm entering into an agreement dated 26th December, 1990 with one Om Prakash Choudhury. Thereafter the said Om Prakash is alleged to have assigned right, title and interest under the said agreement for sale in favour of one Mr. Kishan Mimani, who thereafter in the year 1993 filed a suit for specific performance in this Hon’ble Court for agreement for sale. According to the respondents/plaintiffs the said agreement is illegal and collusive and the said Maheswari had no right, title and interest to enter into such agreement. Thereafter, Mohanlal Kocher died and on his death respondents/plaintiffs asked for effective dissolution of the partnership firm and also demanded for taking steps for early division or disbursement of the shares in the assets and properties of the said firm. In spite of repeated demand and request no step was taken. Various wrongful and illegal step having been taken to deprive the plaintiffs-respondents and refused to share secret profits and also unlawful gain. No accounts have been submitted as to their dealings. Hence the disputes and differences arose and those disputes and differences are mentioned in paragraph 32 of the petition. The said partnership deed contains an arbitration clause which is wide enough a mechanism for resolution of all the disputes not only between the original partners but also their heirs and legal representatives who are parties to the special suit. The aforesaid suit was resisted by filing affidavit. The appellant herein in substance contended that the said special suit is not maintainable and is barred by the limitation and it does not disclose any cause of action for filing the arbitration agreement or for passing order of reference. The aforesaid suit was resisted by filing affidavit. The appellant herein in substance contended that the said special suit is not maintainable and is barred by the limitation and it does not disclose any cause of action for filing the arbitration agreement or for passing order of reference. The arbitration clause as contained in the partnership deed which has been referred to in the petition was earlier invoked by two partners of the said firm during their life time and before the firm stood dissolved in the year 1984. The reference that was made under the said arbitration clause by two partners of the firm proceeded up to the stage of filing of pleadings viz. statement of claim and counter statement of claim followed by a couple of sitting before the Joint Arbitrators being held. Thereafter none of the partners being the parties to the arbitration agreement took any step in furtherance of the arbitration proceedings. One of the partners, Mohanlal Maheswari expired in the year 1984 and by reason of his death the firm stood dissolved under law. Later after about 8 years other surviving partners Mr. Mohanlal Kocher the predecessor-in-interest of the plaintiffs expired in the year 1992 without taking any steps in the arbitration proceeding. Even after demise of the second partner Mohanlal Kocher, his heirs being the petitioners herein did not take any action in respect of the said reference until filing of the present special suit. It is also contended by the appellants herein in their affidavit that disputes now sought to be raised on the strength of selfsame arbitration agreement are same as it was in the earlier reference which was abandoned by the appellant in the year 1984. Besides this arbitration agreement was supplemented and/or modified by agreement dated 4th February 1985 between the surviving partner Mr. Mohanlal Kocher and the heirs of the deceased partner Mohanlal Maheswari. Later, in or about September 1985 the then surviving partner Mohanlal Kocher unilaterally cancelled the said arbitration clause as modified aforesaid by his letter dated 19th September, 1985 which was virtually accepted by the respondents. Thus on the date of filing of the special suit there was no subsisting arbitration agreement that could be invoked. Later, in or about September 1985 the then surviving partner Mohanlal Kocher unilaterally cancelled the said arbitration clause as modified aforesaid by his letter dated 19th September, 1985 which was virtually accepted by the respondents. Thus on the date of filing of the special suit there was no subsisting arbitration agreement that could be invoked. In the affidavit-in-reply dispute between two original partners namely Mohanlal Maheswari and Mohanlal Kocher were not denied and disputed and even the arbitration proceedings in terms of the earlier disputes were not denied and disputed. However it was claimed that the said dispute related to affairs and mismanagement of the firm as well as the accounts of the firm. According to them on death of both the partners now it has become necessary to complete the winding up and also division of the assets and properties in accordance with their shares. This disputes are fresh and for which reference is required to be made. Learned counsel for the appellants highlighting the facts mentioned in the affidavit-in-opposition filed before learned Trial Judge, contends that the learned trial Judge failed to take note of the vital fact that there is no existence of the arbitration agreement as contained in the original partnership deed by reason of supersession by the subsequent agreement dated 15th February 1985, and erroneously held the arbitration agreement still exists. Even assuming there has been valid arbitration agreement the parties has abandoned the same by act and conduct, as during life time of two original partners Mohanlal Maheswari and Mohanlal Kocher, previous arbitration proceeding was not mutually proceeded with by the parties. The right to go to arbitration has become time barred as on the death of Mohanlal Maheswari the partnership firm stood dissolved. Mohanlal Maheswari died on 7th December, 1984 therefore, right to claim for arbitration has started running from the date of his death whereas the present special suit was filed in the year 1995. Learned counsel contends going by the provision of Article 137 of the Limitation Act, 1963, the right to apply for arbitration has become time barred and it ought to have been made within three years from the date of death of Sri Mohanlal Maheswari ending in the year 1987. Learned counsel contends going by the provision of Article 137 of the Limitation Act, 1963, the right to apply for arbitration has become time barred and it ought to have been made within three years from the date of death of Sri Mohanlal Maheswari ending in the year 1987. His next contention is that even if for any reason it is held right to apply for arbitration still subsists, still the Court has to examine whether the claim in the arbitration is a live one or stale. In this case the disputes and differences between the two original partners arose relating to continuation of the firm, as the dissolution of the firm and accounts were claimed in relation thereto, and this was filed on 13th September, 1984. Thus the claim in arbitration has become patently barred by limitation. According to the learned counsel for the appellants the Court while exercising discretion will necessarily examine the nature of the claim which is sought to be referred to arbitration. The Court will not do so when claim will appear absolutely barred by limitation on the face of it. Claim for accounts even for dissolved firm is governed by Article 5 of the Limitation Act, 1963. Learned Trial Judge thus failed to appreciate that sufficient cause has been shown for not filing the arbitration agreement and not referring the dispute to such arbitration. In support of this contention he has referred to the decisions cited before the learned Trial Judge. Learned counsel for the respondents while supporting the judgment of the learned Trial Judge contends that upon reading of the written document being the agreement of 4th February 1985 the learned Trial Judge found that original arbitration agreement contained in the partnership deed of 1972 was neither modified nor superseded, rather in addition thereto by the agreement of 4th February, 1985, the original arbitration agreement has been supplemented to. The coverage of the arbitration agreement contained in the partnership deed is wide enough and this not only binds the original partners but their heirs and legal representatives as well. On interpretation of documents and appreciation of fact when the Hon’ble Trial Judge held factually the arbitration agreement exists, the Appeal Court will not interpret and reappreciate this factual position. The coverage of the arbitration agreement contained in the partnership deed is wide enough and this not only binds the original partners but their heirs and legal representatives as well. On interpretation of documents and appreciation of fact when the Hon’ble Trial Judge held factually the arbitration agreement exists, the Appeal Court will not interpret and reappreciate this factual position. While referring to the point of limitation he contends there has been fundamental distinction between right to apply for arbitration and right to enforce the claim in arbitration. In case of former the Court has to decide the question of limitation regard being had to the arbitrability, not the merit in the arbitration which is within the domain of the learned Arbitrators. In this case the right to apply for arbitration has not extinguished and it is a continuing one, and differences and disputes arose between the two original partners were referred to arbitration and which has not resulted in any award and the same is still pending or deemed to have been pending. Rather by the subsequent agreement of 4th February, 1985 Mohanlal Kocher and the present respondents have accepted and reiterated for resolution of their disputes through arbitration. According to them on death of both the original partners the nature and character of the disputes have been substantially changed. In fact in previous arbitration there was no claim for dissolution of partnership rather it was essentially claim for accounts and for resolution of the dispute relating to management and affairs of the partnership firm itself. The learned Arbitrator has decided this mixed question of fact and law with regard to point of limitation on the question of right to apply to arbitration. He then contends that even prima facie it would appear the claim in the arbitration of the parties are not stale and rather it is live one. He emphasizes that claim in this case would not become matured until and unless the creditors dues are settled and for which the suit is still pending. The accounts can only be finalized between the partners and/or their heirs and legal representatives inter se when the legitimate claim of the creditors are settled and paid of. It is admitted position that bank’s suit as well as those of other creditors for recovery of the dues are still pending. The accounts can only be finalized between the partners and/or their heirs and legal representatives inter se when the legitimate claim of the creditors are settled and paid of. It is admitted position that bank’s suit as well as those of other creditors for recovery of the dues are still pending. Whether these are barred claim or not can be resolved in the arbitration proceedings. The learned counsel has referred to all the authorities which were placed before learned Trial Judge and in support of his argument he adopts what has been observed in all those decisions. He concludes that the learned Trial Judge has exercised discretion while passing order under Section 20 of Act of 1940 and this discretion has not been exercised arbitrarily and illegally. In absence of arbitrariness or absurdity this Court will not interfere with the same lightly. We have heard the learned counsels for the parties and we have examined the pleadings before us. We are to examine in this appeal whether the learned Trial Judge has exercised his discretion judiciously while passing order of reference under Section 20 of the Arbitration Act, 1940 or not. It appears to us following fundamental questions have been raised by the appellants to upset the judgment and order of the learned Trial Judge namely- (i) whether by the subsequent agreement on 4th February, 1985 the arbitration agreement has been rendered non-existent, (ii) whether by the act and conduct of the original partners arbitration agreement has been abandoned, (iii) whether the right to apply for arbitration has become time barred on death of Mohanlal Maheswari in 1984, (iv) whether the claim in arbitration raised are patently barred by limitation by virtue of Article 5 of the Limitation Act, 1963. This Court is to examine the first point raised. We find the learned Trial Judge has read the agreement of 4th February, 1985 between Mohanlal Kocher on one hand and the respondents on the other and held that by this agreement the arbitration agreement contained in partnership deed of 1972 has neither been superseded nor modified and the same has no bearing with the original arbitration agreement. To examine whether this conclusion of the learned Trial Judge is patently possible or not. We read both the documents. To examine whether this conclusion of the learned Trial Judge is patently possible or not. We read both the documents. There is no dispute that the original arbitration agreement contained in partnership deed was valid and subsisting hence we do not need to reiterate the same. We feel that the relevant clauses of the agreement of 4th February, 1985 are required to be examined whether it has got any bearing on the original arbitration agreement or not. The same are reproduced below:- Clause 2-This agreement is made as a supplement to the Agreement of Arbitration contained in said Partnership Deed dated 23rd December, 1972 and both parties agreed that the copies of this Agreement should be handed over to the Joint Arbitrators and the Umpires so that this Agreement may also be carried out in the arbitration and the Arbitration Agreement is modified accordingly. Clause 3 – If there is any difference of opinion or misunderstanding between Joint Custodians about any of the affairs or matters of winding up of the said firm or if the Custodians do not work properly in the affairs of the winding up of the said firm, then the parties would be entitled and/or would be at liberty to have the Court for suitable directions or reliefs in regard to the winding up of the said firm to invoke the power of the Court contained in the Second Schedule of the Arbitration Act. Clause 4 -Subject as aforesaid all the disputes and differences referred to by the parties to the Arbitration shall be decided by the Arbitrators and if necessary by the Umpire and the award by the Arbitrators or the Umpire or a consent award would be binding on both the parties. It appears that subsequently by letter dated 19th September, 1985 Mohanlal Kocher has cancelled the said agreement dated 4th February, 1985. We are not deciding for the time being what would be the effect of this letter of cancellation. But it would appear from the careful reading of the aforesaid clauses of the said agreement of 4th February, 1985 and the subsequent letters of cancellation, that the parties were and still are ready and willing to get their dispute resolved by arbitration mechanism. Validity and invalidity of cancellation of agreement dated 4th February 1985 can be resolved in the arbitration proceeding itself. Validity and invalidity of cancellation of agreement dated 4th February 1985 can be resolved in the arbitration proceeding itself. It is settled position of law that while passing order under Section 20 of the Arbitration Act, 1940 the Court is to look into whether there has been factual arbitration agreement between the parties or not. The learned Trial Judge has answered in affirmative on fact finding and we are of the view that views of the learned Trial Judge is correct and do not call for interference. Next question arises whether there has been abandonment of arbitration agreement by act and conduct of the parties, if arbitration proceeding with reference of all the disputes in connection with the firm is discontinued, question of abandonment of arbitration agreement may be relevant. In the case on hand on reading of the statement of claim and counter statement filed in the earlier proceedings we do not find that all disputes are covered. On earlier occasion Maheswaris never claimed for dissolution of the partnership business rather asked for the accounts and also for proper and effective management of the business of the firm and also its assets and fund. Even the Kochers did not claim for dissolution of the partnership firm. Question of dissolution of the partnership firm cropped up on death of Mohanlal Maheswari. Learned Trial Judge thereafter found on appreciation of fact that right to claim for arbitration is not barred by provision of Section 137 of the Limitation Act. On reading the documents and appreciating the fact the learned Trial Judge held that the right to apply for arbitration in relation to dissolved partnership firm would in this case arise only when the parties would come to know their extent of right to get surplus funds and assets from the business. This can only be possible when the banks dues as well as the other creditors’ legitimate dues are paid off. We find for this proceeding brought by the creditors are still pending. We think the learned Trial Judge has gone to the right direction while deciding this question. We, therefore, quote the relevant portion of the order of the learned Trial Judge with approval as follows:- “Neither the Kochers nor the Maheswaris are in possession of the partnership properties. We find for this proceeding brought by the creditors are still pending. We think the learned Trial Judge has gone to the right direction while deciding this question. We, therefore, quote the relevant portion of the order of the learned Trial Judge with approval as follows:- “Neither the Kochers nor the Maheswaris are in possession of the partnership properties. It is possible that neither set of heirs may be able to seek accounts from the other in view of the receivers retaining the partnership firm properties. But again, it is not necessary to conclusively answer such question, it would suffice to recognise that a claim for accounts, in such circumstances, would remain alive till the partnership properties fall in and all the assets of the firm are converted into money and the debts of the firms are discharged to arrive at the surplus for distribution. Whatever be the position for accounts being sought, surely either set of heirs may seek winding up of the firm and a claim for winding up is one of those enumerated in the petition that is both alive and can be referred to arbitration. Shorn of the legal complexities, the matter at hand can also be viewed from the practical perspective. The claims against the firm have to be discharged upon the value thereof being ascertained. The parties have a right to know if they are liable, to the extent they inherited from the partners of the firm, for discharging such liabilities. The parties also have a right to find out how best the liabilities of the firm may be discharged from the available assets and to apply the surplus, if there by any or ascertain the liability to meet the shortfall.” We think that the right to apply for Arbitration is not barred by limitation as rightly held by learned Trial Judge. But the question is whether the claim in Arbitration is time barred or not. We have gone through the claim and contention of both the parties. According to us recoverable claim in Arbitration cannot conclusively be held without examining the fact and applying the law in details, that the claim is barred under Section 5 of Limitation Act. This requires a great deal of exercise namely receiving evidence, appreciating the same and then applying law which necessarily follows exercise of adjudication of mixed question of fact and law. This requires a great deal of exercise namely receiving evidence, appreciating the same and then applying law which necessarily follows exercise of adjudication of mixed question of fact and law. It is well settled that this can only be dealt with effectively by the learned Arbitrator not by the Court under Section 20 of the Arbitration Act, 1940. The learned Trial Judge has considered the high and best authorities on this point, and no Court can afford to ignore the same on this point. We therefore, leave all these questions for Arbitrator (s) to decide. In view of the aforesaid discussion we think that learned Trial Judge has rightly held that the dispute in the petition between the parties are referable to Arbitration. Thus we are unable to accept the argument of the learned counsel for the appellants on any of the points urged on this issue. We, therefore, uphold the judgment and order except the portion we modify that dispute in relation to the agreement for sale of 50% of the rights of the Maheshwaries in favour of Kishan Mimani being the assignee cannot be the subject-matter of the Arbitration since two separate suits are pending for adjudication of their disputes. This Court by earlier judgment and order held reversing the order of the learned Trial Judge, that those disputes are to be decided in the suit itself. However, parties are given liberty, if they think that the suit filed by the creditors and the suit in relation to this agreement for sale, are required to be resolved first and thereafter their dispute should be resolved, they are at liberty to take steps in accordance with law. Thus the appeal fails and the same is dismissed, however, with little modification of the judgment and order of the learned Trial Judge as aforesaid. (Kalyan Jyoti Sengupta, J.) I agree. (Joymalya Bagchi, J.)