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2014 DIGILAW 288 (KER)

T. Baburaj v. K. Faizal

2014-03-28

V.CHITAMBARESH

body2014
Judgment 1. Can the arbitration request for appointment of an arbitrator to resolve the dispute and differences between the partners be declined when there are serious allegations of fraud and misappropriation in the conduct of the partnership business? 2. The petitioners as well as the respondent were the partners of a registered partnership firm by name M/s. Blue Chip Mines and Industries engaged in the business of granite, broken stones and other allied activities. The partnership was one at will and the deed of partnership permitted the respondent to draw a monthly remuneration of Rs.8,000/-and also to share 15% of the profit or loss of the firm. The petitioners allege that the respondent did not offer any service to efficient operation of the partnership business and that he is also liable to contribute Rs.901882.87 towards his share of the loss. It is the case that all other partners unanimously decided to expel the respondent from the partnership and that the partnership business is being continued by the petitioners alone. The petitioners also accuse the respondent for having preferred false complaints to the banks, income tax authorities, sales tax authorities, police etc. regarding the conduct of the partnership business. 3. The dispute essentially stems from the attempt of the petitioners to recover the proportionate share of the loss of the partnership firm from the respondent and the unwillingness of the respondent to accede to the claim. The petitioners did issue a registered notice to the respondent demanding arbitration for the resolution of the dispute which however was replied to hurling counter allegations. The respondent asserts that the petitioners committed fraud and misrepresentation in the conduct of the partnership business and that the same was against public policy. The respondent maintains that the petitioners had siphoned off a sum of Rs.14.65 crores from the Union Bank of India, Aluva alone contrary to the authority given under the partnership deed to operate the accounts. The respondent in short denies his liability to share the alleged loss of the partnership firm and points out that the remedy of arbitration cannot at all be called in aid. 4. I heard Mr. N.K. Dileepan, Advocate on behalf of the petitioners and the respondent appearing in person who claims to be a law student at Bengaluru. 5. The respondent in short denies his liability to share the alleged loss of the partnership firm and points out that the remedy of arbitration cannot at all be called in aid. 4. I heard Mr. N.K. Dileepan, Advocate on behalf of the petitioners and the respondent appearing in person who claims to be a law student at Bengaluru. 5. It now transpires that the respondent has preferred a protest complaint against the petitioners alleging offence under: Sections 200, 406, 419, 420, 460, 468, 470 and 471 read with Section 120 B of the Indian Penal Code. The court of the Judicial First Class Magistrate I, Aluva has taken the criminal case (CC No. 904/2012) on file and issued summons to the petitioners arrayed as accused Nos. 1 and 2. But further proceedings thereon have been stayed in Crl. M.C. No. 212/2013 on the file of this court filed by the petitioners under Section 482 of the Code of Criminal Procedure. Suffice it to say that the parties are at daggers drawn at each other due to the alleged civil and criminal liability and the plea of fraud, forgery, falsification of accounts etc. by the respondent is not an after thought. 6. The relevant clause of the reconstituted deed of partnership dated 17.12.2004 is as follows: “Any dispute or difference of opinion that may arise amongst the partners shall be settled amicably and in case the same is not settled, the matter shall be referred to arbitrators as per the provision of the Arbitration and Conciliation Act, 1996 or any modified enactment of law thereof.” It is in accordance with the above clause has the petitioners filed this arbitration request seeking to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 ('the Act' for short). The fact that the petitioners have earlier filed OP (Arb.) No. 1112/2011 on the file of the court of the District Judge of Ernakulam for interim measures under Section 9 of the Act and that the same is pending is also highlighted. 7. I am however hesitant to make a reference for arbitration since there are serious allegations as to fraud and malpractices in the conduct of the partnership business hurled by the respondent against the petitioners. 7. I am however hesitant to make a reference for arbitration since there are serious allegations as to fraud and malpractices in the conduct of the partnership business hurled by the respondent against the petitioners. Large scale siphoning of funds from the Union Bank of India by the petitioners is alleged in addition to several other acts detrimental to the partnership firm even against public policy. Voluminous evidence may have to be let in by the parties which requires to be meticulously analysed and only the civil court has the proper machinery to adjudicate the issues. The pendency of a criminal case between the parties alleging offence of cheating, forgery, criminal breach of trust and false statements also deters me from making a reference to arbitration. 8. It has been held that a reference to arbitration is not warranted despite the existence of an arbitration agreement if the dispute requires detailed investigation and production of elaborate evidence in the following cases: (i) Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak [ AIR 1962 SC 406 ]. (ii) H.G.Oomor Sait Vs. Aslam Sait [ (2001) 3 CTC 269 (Mad)]. The Supreme Court approved the above stand and has held in N. Radhakrishnan Vs. Maestro Engineers and others [ 2010 (1) SCC 72 ] as follows: “In the present dispute faced by us, the appellant had made serious allegations against the respondents alleging them to commit malpractices in the account books and manipulate the finances of the partnership firm, which, in our opinion, cannot be properly dealt with by the arbitrator. As such, the High Court was justified in dismissing the petition of the appellant to refer the matter to an arbitrator.” 9. I am conscious of the fact that the above decision was rendered in the context of an application filed under Section 8 of the Act to stay the suit in view of the arbitration agreement between the parties. The said decision was followed in Idukki District Cricket Association Vs. Athulya Cricket Club, Nediyasala and another [2012 (1) KHC 677] and the suit allowed to continue. There is no reason as to why the same principles shall not also apply to an application filed under Section 11 (6) of the Act to have an arbitrator appointed as in the instant case. Athulya Cricket Club, Nediyasala and another [2012 (1) KHC 677] and the suit allowed to continue. There is no reason as to why the same principles shall not also apply to an application filed under Section 11 (6) of the Act to have an arbitrator appointed as in the instant case. The parties can after all move other forums including the civil court for ventilation of their grievances even though the resolution of the disputes and differences by arbitration may not be appropriate. The Arbitration Request is declined. No costs.