Diamond Jewel, A partnership firm rep by its Partner Sri. S. S. Krishnamurthy v. T. R. C. Muralidharan Partner
2013-01-23
R.S.RAMANATHAN
body2013
DigiLaw.ai
JUDGMENT 1. Defendants are the revision petitioners. 2. The respondents/plaintiffs filed the suit for dissolution of the partnership firm, the first revision petitioner and for account. In that suit, the revision petitioners filed application under section 8 of the Arbitration and Conciliation Act, 1996 to refer the case to arbitration as there is a clause in the partnership deed for referring any dispute to arbitration and that application was dismissed and aggrieved by the same, this revision is filed. 3. It is submitted by the learned counsel for the revision petitioners that the court below, without appreciating the purpose of enactment of Arbitration and Conciliation Act, 1996 and without appreciating the law laid down by the Honourable Supreme Court that whenever there is a clause in the agreement to refer the dispute to arbitration, the court has no option except to refer the dispute to arbitration, erred in dismissing the application. The court below also erred in holding that the suit was filed for the relief of dissolution of firm and rendition of accounts and when the partnership was one at will, the firm no longer exists after issuance of notice of dissolution and therefore, the arbitration clause cannot be invoked, without properly appreciating the judgments of the Honourable Supreme Court reported in BRANCH MANAGER, M/S.MAGMA LEASING AND FINANCE LTD. AND ANOTHER v. POTLURI MADHAVILATA AND ANOTHER ( AIR 2010 SC 488 ), REVA ELECTRIC CAR CO. (P) LTD. v. GREEN MOBIL ( (2012) 2 SCC 93 ), HINDUSTAN PETROLEUM CORPORATION LTD. v. M/S.PINKCITY MIDWAY PETROLEUMS ( AIR 2003 SC 2881 ) and V.H.PATEL & COMPANY v. HIRUBHAI HIMABHAI PATEL ( (2000) 4 SCC 368 ). He, therefore, submitted that the court below ought to have referred the matter to arbitration having regard to the arbitration clause in the agreement and therefore, the revision has to be allowed. 4. On the other hand, it is submitted by the learned counsel for the respondents/plaintiffs that it is not necessary in all cases to refer the dispute to arbitration and when complicated questions of law are involved and fraud and misrepresentation are alleged against the parties, the civil court has got jurisdiction to entertain the suit even though there is a clause to refer the dispute to arbitration.
The learned counsel further submitted that the clause in the partnership deed is not an absolute clause by which the parties shall be directed to refer the dispute to arbitration and there is no mandatory obligation on the part of the party to refer the dispute to arbitration having regard to the clause in the partnership deed and as per the partnership deed, only when the parties mutually agree to refer the matter to arbitration, then the matter can be referred to arbitration and therefore, having regard to the clause in the partnership deed, there is no need to refer the matter to arbitration. The learned counsel relied upon the judgments reported in JAGDISH CHANDER v. RAMESH CHANDER ((2007) 6 MLJ 317 (SC)), OOMOR SAIT, H.G. v. O.ASLAM SAIT ( 2001 (3) CTC 269 ) and N.RADHAKRISHNAN v. MAESTRO ENGINEERS ( (2010) 1 SCC 72 ) in support of his contention. 5. To appreciate the contention of the parties, we will have to see whether there is any arbitration clause in the agreement which mandates the parties to refer the dispute to arbitration. Clause 18 of the partnership deed reads as follows:- "In case of any dispute between the parties with regard to the Partnership Agreement or any other matter relating to the Firm, the same shall be decided by an Arbitration mutually agreed upon by the Parties." 6. It was contended by the learned counsel for the respondents that having regard to the above clause, unless the parties mutually agree to refer the dispute to arbitration, there is no need to refer the matter to arbitration and relied upon the judgment reported in (2007) (6) MLJ 317 (SC). 7. I am unable to accept the contention of the learned counsel for the respondents in this regard. In the judgment reported in (2007) 6 MLJ 317 SC, the relevant clause which was interpreted by the Honourable Supreme Court is as follows:- "If during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine." 8.
While interpreting the said clause, the Honourable Supreme Court held that if the clause had merely stated that in the event of dispute arising between the parties, they shall be referred to arbitration, then, the parties should be directed to refer the matter to arbitration as there is an arbitration agreement. But, the use of the words "shall be referred for arbitration if the parties so determine" completely changes the complexion of the provision and held that the dispute shall be referred for arbitration if the parties so determine would only mean that it is not an arbitration agreement but a provision which enables arbitration only if the parties mutually decide after due consideration whether the dispute should be referred to arbitration or not. But, in the present case, the arbitration clause is not so worded and a reading of clause 18 of the partnership deed in the present case as stated supra, makes it clear that any dispute between the parties with regard to the partnership agreement or any matter relating to the firm shall be decided by an arbitration. The rest of the clause viz., "mutually agreed upon by the parties" would only mean that the arbitrator can be mutually agreed upon by the parties and no option is given to the parties except to refer the matter to arbitration. Therefore, according to me, a reading of clause 18 of the partnership deed makes it very clear that in case of any dispute arising between the parties with regard to the partnership agreement or any other matter relating to the firm, the same shall be decided by an arbitration and the agreement mandates the parties to refer the matter to arbitration. Therefore, the judgment reported in (2007) 6 MLJ 317 (SC) cannot be applied to the facts of the case and according to me, there is a specific reference to arbitration and no option is given to the parties in referring the dispute for arbitration. 9.
Therefore, the judgment reported in (2007) 6 MLJ 317 (SC) cannot be applied to the facts of the case and according to me, there is a specific reference to arbitration and no option is given to the parties in referring the dispute for arbitration. 9. The second ground of objection regarding reference to arbitration according to the learned counsel for the respondents is that having regard to the serious allegations of fraud made in the plaint, there is no need to refer the matter to arbitration and in support of the said proposition, the learned counsel relied upon the judgment reported in 2001 (3) CTC 269 which was considered and confirmed in the decision reported in (2010) 1 SCC 72 . 10. In the judgment reported in 2001 (3) CTC 269 , this court has held that where substantial questions of law arise for consideration or issues which require serious consideration of evidence relating to fraud and misrepresentation, etc., are involved, such cases are best left to the civil court and that the arbitrator will not be competent to go into the said issues. In the judgment reported in 2010 (1) SCC 72 , the Honourable Supreme Court also approved the above said finding that the civil court can refuse to refer the matter to arbitration if complicated questions of fact or law are involved or where allegations of fraud is made. But, in the present case, having regard to the allegations made in the plaint, it cannot be said that serious allegations of fraud or misrepresentation are made in the plaint. 11. A reading of paragraphs 8, 9 and 10 of the plaint would make it clear that there was a dispute between the partners and the mutual trust between the partners was lost and therefore, the plaintiffs did not want to continue in the partnership firm and filed the suit for dissolution of the firm. Therefore, having regard to the allegations made in the plaint, the above judgment cannot be relied upon to support the case of the respondents.
Therefore, having regard to the allegations made in the plaint, the above judgment cannot be relied upon to support the case of the respondents. Further, in the judgment reported in (2000) 4 SCC 368 , it is held as follows:- "So far as the power of the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a clause in the articles of partnership or agreement or order referring all the matters in difference between the partners to arbitration, arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. [See Phoenix v. Pope ((1974) 1 All E.R. 512)]. Power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the court to it. If under the terms of the reference all disputes and difference arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal with all matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine such a question. Although the learned counsel for the petitioner relied upon a passage of Pollock & Mulla, quoted earlier, that passage is only confined to the inherent powers of the court as to whether dissolution of partnership is just and equitable, but we have demonstrated in the course of our order that it is permissible for the court to refer to arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence between the partners which is the foundation there for." 12. In the judgment reported in AIR 2003 SC 2881 , it is held that in view of the mandatory language of section 8 of the Arbitration and Conciliation Act, 1996, the courts below ought to have referred the dispute to arbitration. In the judgment reported in AIR 2010 SC 488 , after referring to section 8, the Honourable Supreme Court held as follows:- "22.
In the judgment reported in AIR 2010 SC 488 , after referring to section 8, the Honourable Supreme Court held as follows:- "22. An analysis of Section 8 would show that for its applicability, the following conditions must be satisfied: (a) that there exists an arbitration agreement; (b) that action has been brought to the court by one party to the arbitration agreement against the other party; (c) that the subject-matter of the suit is same as the subject-matter of the arbitration agreement; (d) that the other party before he submits his first statement of the substance of the dispute, moves the court for referring the parties to arbitration; and (e) that along with the application the other party tenders the original arbitration agreement or duly certified copy thereof. 23. Section 8 is in the form of legislative command to the court and once the prerequisite conditions as afore-stated are satisfied, the court must refer the parties to arbitration. As a matter of fact, on fulfillment of conditions of Section 8, no option is left to the court and the court has to refer the parties to arbitration. 24. There is nothing on record that the pre-requisite conditions of Section 8 are not fully satisfied in the present case. The trial court, in the circumstances, ought to have referred the parties to arbitration as per arbitration clause 22." 13. In the judgment reported in (2012) 2 SCC 93 , the Honourable Supreme Court has held that the arbitration clause continues to be enforceable even if the contract is terminated and the arbitration clause survives for the purpose of referring the dispute to arbitration. Therefore, the contention of the learned counsel for the petitioners that the court below, without appreciating the provisions of section 8 of the Arbitration and Conciliation Act, erred in dismissing the application has to be accepted and having regard to the judgments of the Honourable Supreme Court referred to above, in the absence of any allegations of fraud or misrepresentation and having regard to clause 18 of the partnership deed, the court ought to have referred the matter to arbitration and committed serious error in dismissing the application filed by the revision petitioner. In the result, the revision is allowed and the order of the court below is set aside. No costs. The connected miscellaneous petition is closed.