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2016 DIGILAW 404 (RAJ)

Abhishek Soni v. Sanjeev Soni

2016-03-11

MOHAMMAD RAFIQ

body2016
JUDGMENT : Mohammad Rafiq, J. This application under Section 11(5) of the Arbitration and Conciliation Act, has been filed by applicant Abhishek Soni for appointment of sole Arbitrator. Applicant and respondent entered into a partnership deed on 04.02.1991 for carrying on business of medicines on retail and wholesale basis with effect from 04.02.1991 from Nayapura, Kota, as well as such other places as may be mutually agreed upon by and between the partners, under the name and style of M/s. Shree Dhar Medical. Both, applicant and respondent, are real brothers. They in accordance with the terms and conditions of the said partnership deed, opened a joint bank account at the Station Road branch of State Bank of Bikaner & Jaipur, in Kota city, which remained operative till 2008 when respondent approached the applicant to close the joint bank account in order to shift it to the Collectorate Circle Branch of State Bank of Bikaner & Jaipur, Nayapura, Kota. However, subsequently, the applicant learnt that respondent went alone and opened a bank account in Collectorate Circle Branch of State Bank of Bikaner & Jaipur, Nayapura, Kota, even without informing the applicant. Respondent started creating hurdles in the way of applicant and coming of the applicant to the shop and prevented him from working there. He refused to show him the books of accounts of the partnership firm. Therefore, applicant served a notice through Advocate on 30.01.2010 calling upon him to render the books of accounts and allow applicant to participate in the working of the business as well as given him share in profits. Respondent did not give any reply thereto even after receiving legal notice dated 30.01.2010, as a result of which, applicant was constrained to file a civil suit for rendition of account and permanent injunction in the court of District Judge, Kota. Respondent filed an application on 24.05.2010 under Section 8 of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act of 1996’), along-with a duly certified copy of partnership deed dated 04.02.1991. Respondent also filed written statement to the main suit on 16.07.2010, in which he maintained that partnership firm was constituted at the behest of his father and respondent never gave any share in the profit of business and that there was no partnership between the parties. Respondent also filed written statement to the main suit on 16.07.2010, in which he maintained that partnership firm was constituted at the behest of his father and respondent never gave any share in the profit of business and that there was no partnership between the parties. Applicant in fact never worked on the shop, therefore, he was not entitled to any share in the profit of business. The said court passed an order on 10.09.2013 on the application under Section 8 of the Act of 1996, observing that partnership deed dated 04.02.1991 contained clause no. 9 in respect of arbitration and therefore directed both the parties to take required steps for appointment of arbitrator. Applicant thereupon sent a notice seeking appointment of Arbitrator, to respondent through Advocate on 31.10.2013, and also calling upon Respondent to provide all books of accounts of the partnership firm since 1991, and pay the amount due to in accordance with the partnership deed dated 04.02.1991. He proposed the names of three retired Judges of this court to be appointed as sole Arbitrator. Despite receiving legal notice, respondent did not reply to the same. Hence, present application. 2. Ms. Sukriti Kasliwal, learned counsel for applicant, has reiterated all the arguments mentioned in the application and submitted that when Respondent, despite order of the court of District Judge passed under Section 8 of the Act of 1996, supra, and service of notice by the applicant, failed to appoint the Arbitrator, applicant was left with no option except to approach this court under Section 11(5) of the Act of 1996. Prayer is therefore made that this court should appoint an Arbitrator for resolution of the dispute between the parties. 3. Shri Pradeep Singh, learned counsel for respondent, opposed the application and submitted that neither was there any partnership between the parties nor were they carrying on joint business. Respondent was carrying on his own business and applicant had no concern therewith. Applicant is trying to take undue benefit by adopting pressure tactics. The arbitration would come into picture only if there is a clause of arbitration in the contractual deed. It is absolutely wrong to say that the parties established business under the partnership firm. Respondent was carrying on his own business and applicant had no concern therewith. Applicant is trying to take undue benefit by adopting pressure tactics. The arbitration would come into picture only if there is a clause of arbitration in the contractual deed. It is absolutely wrong to say that the parties established business under the partnership firm. Even if it is accepted that business was being carried on by the partnership firm, the firm being unregistered in view of the bar contained in Section 69 of the Indian Partnership Act, 1932 (for short, ‘the Act of 1932’), no action can be taken thereabout either before any civil court or under the Act of 1996. Learned counsel in this behalf also relied on provisions of Section 20 of the Arbitration Act, 1940. Relying on judgment of the Supreme Court in Delhi Development Authority v. Kochhar Construction Work, (1998) 8 SCC 559 , learned counsel submitted that arbitral proceedings, at the instance of unregistered firm, are statutorily barred by virtue of provisions contained in Section 69 of the Act of 1932. 4. Ms. Sukriti Kasliwal, learned counsel for applicant, rejoined and submitted that scheme of the Act of 1996, is entirely different than the one contained in its predecessor enactment of 1940. Non-registration of the firm under the Act of 1932 would not be a bar for initiation of proceedings under Section 9 of the Act of 1996. In support of her arguments, learned counsel has relied on judgment of the Madras High Court in Jayamurugan Granite Exports v. Sqny Granites, 2015 (6) Arb. LR 450 (Madras). 5. I have given my anxious consideration to rival submissions and perused the material on record. 6. Section 69(1) of the Act of 1932 provides that no suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person, suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. Subsection (2) of Section 69 provides that no suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. But, subsection (3) of Section 69 carves out three exceptions to sub-sections (1) and (2), supra, and also to the main part of sub-section (3) of Section 69, which are (i) the enforcement of any right to sue for the dissolution of a firm, or (ii) for accounts of a dissolved firm, or (iii) any right or power to realize the property of a dissolved firm. However, the right to sue would not be construed to unqualify the exceptions carved out by sub-section (3) or sub-section (4) of Section 69 of the Act of 1932, as held by the Supreme Court in Prem Lata v. Ishar Dass Chaman Lal, (1995) 2 SCC 145 : AIR 1995 SC 714 . The object thereof appears to be that the partnership having been dissolved or has come to a terminus, the rights of the parties are to be worked out in terms of the contract of the partnership entered by and between the partners and the rights engrafted therein. What therefore subsection (1) of Section 69 bars is a suit to enforce a right arising from a contract or conferred by this Act by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered, and what sub-section (2) bars is a suit to enforce a right arising from a contract by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners. 7. 7. Section 20 of the Act of 1940, the predecessor enactment of the Act of 1996, presently in vogue, provides that a reference may be made by the parties on arbitration agreement entered amongst them with respect to if any such difference has arisen to which the agreement applies, and one of the parties applies to a court having jurisdiction, with the agreement, said application was required to be numbered and registered as a suit between them, and after notice to other party, if it has failed to show sufficient cause, the court could order agreement to be filed and make an order of reference to the Arbitrator appointed by the parties. Such is not the position in the present Act of 1996, which has provided for an altogether different mechanism for the manner of appointment of Arbitrator. Section 11 of the Act of 1996 has provided the method of appointment of Arbitrator. Sub-section (2) of Section 11 provides that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (3) thereof provides that failing any agreement in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. Sub-section (4) provides that if the appointment procedure in subsection (3) applies and a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party or the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Supreme Court or as the case may be, the High Court or any person or institution designated by such court. Sub-section (5) has provided that failing any agreement referred to in sub-section (2) in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such court. Sub-section (6) provides that where, under an appointment procedure agreed upon by the parties, a party fails to act as required under that procedure; or the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. Sub-section (10) provides that the Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it. 8. The Supreme Court in Kamal Pushp Enterprises v. D.R. Construction Company - (2000) 6 SCC 659 , has held that arbitration proceedings cannot be treated as a suit or other proceedings to enforce any rights arising out of contract. Section 69 of the Act of 1932 does permit an unregistered firm for ensuing arbitration proceedings for defending opposite party. Their Lordships in para 9 of the report, made following observations:- “The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any Court by an unregistered firm, and it had no application to the proceedings before an Arbitrator and that too when the reference to the Arbitrator was at the instance of the appellant itself. If the said bar engrafted in Section 69 is absolute in its terms and is destructive of any and every right arising under the contract itself and not confined merely to enforcement of a right arising from a contract by an unregistered firm by instituting a suit or other proceedings in Court only, it would become a jurisdictional issue in respect of the Arbitrators power, authority and competency itself, undermining thereby the legal efficacy of the very award, and consequently furnish a ground by itself to challenge the award when it is sought to be made a rule of Court. ….” 9. ….” 9. The Madras High Court in Jayamurugan Granite Exports, supra, taking note of the observations made by the Supreme Court in S.B.P. and Company v. Patel Engineering Limited, (2005) 8 SCC 618 , especially in para 18 thereof, and another judgment of the Supreme Court in State of West Bengal v. Associated Contractors, (2015) 1 SCC 32 , especially para 17 thereof, observed that the observations made in those judgments were in contrast of applications moved under Section 9 to the ‘court’ as defined for the purpose of passing of interim orders before, during or after the arbitral proceedings, but an application under Section 11 of the Act of 1996 submitted to the Chief Justice of the Supreme Court or the High Court or his nominee, as the case may be, is not to the court. But the power has to be exercised by the Chief Justice of the Supreme Court/High Court or his nominee or delegate under Section 11 of the Act of 1996, and not by the Court. Referring to observations made by the Supreme Court in para 20 of the judgment in West Bengal v. Associated Contractors, supra, it was observed that there are a variety of reasons as to why the Supreme Court cannot possibly be considered to be court within the meaning of Section 2(1)(e) of the Act of 1996 even if it retains seizin over the arbitral proceedings. The Chief Justice does not represent the Supreme Court or the High Court, as the case may be, while exercising power under Section 11, albeit a judicial power, and they not being a court of record, their decision has no precedential value being the decision of the judicial authority. The Madras High Court further held that the scheme of the Act of 1996 is different and the process of mechanism for alternate dispute resolution system has to be construed not identical to the of Act of 1940, considering the difference in their schemes. Therefore, the non-registration of partnership firm would not be a bar under Section 69 of the Act of 1932 for institutions of proceedings under Section 11 of the Act of 1996. 10. Therefore, the non-registration of partnership firm would not be a bar under Section 69 of the Act of 1932 for institutions of proceedings under Section 11 of the Act of 1996. 10. The Supreme Court in Firm Ashok Traders v. Gurumukh Das Saluja (2004) 3 SCC 155 : AIR 2004 SC 1433 , in the context of Section 69 of the Act of 1932, held that the bar enacted by Section 69 of the Act of 1932 does not affect the maintainability of an application under Section 9 of the Act of 1996. The right conferred by Section 9 of the Act of 1996 cannot be said to be one arising out of a contract. The qualification which the person invoking jurisdiction of the Court under Section 9 of the Act of 1996 must possess, is of being a party to an arbitration agreement. A person not party to an arbitration agreement, cannot enter the Court for protection under Section 9 of the Act of 1996. This has relevance only to his locus standi as an applicant and the court has nothing to do with the relief sought for from the Court or the right which is sought to be canvassed in support of the relief. 11. There is no reason why the same analogy should not extend to application filed by one of the parties to the agreement having clause of arbitration and in this case when such an order was passed by the civil court on 10.09.2013 on the application of the respondent filed under Section 8 of the Act of 1996 stating that partnership deed dated 04.02.1991 contained clause no. 9 in respect to arbitration. The civil court therefore directed both the parties to take required steps for appointment of arbitrator. 9 in respect to arbitration. The civil court therefore directed both the parties to take required steps for appointment of arbitrator. Similar situation was before the Supreme Court in Kamal Pushp Enterprises, supra, where reference to arbitrator was at the instance of appellant himself, and in the present case too, it is the respondent himself, who filed an application under Section 8 of the Act of 1996 in the civil suit filed for rendition of accounts and permanent injunction, and on his application, the Civil Court, taking note of clause 9 of the partnership deed, observed that there exists an arbitration clause in the deed and accordingly dismissed the suit of the applicant herein, with liberty to the parties to take steps for appointment of arbitrator for resolution of their disputes. 12. In the afore-stated premises, present application deserves to be allowed and is hereby allowed. Hon'ble Mr. Justice Sunil Kumar Garg (Retired), 851, Ahinsa Path, Mahaveer Nagar, Tonk Road, Jaipur, is appointed as Sole Arbitrator to arbitrate and decide the disputes between the parties. The costs of the arbitration and the fees of the Arbitrator shall be governed by the Arbitration Manual of the Rajasthan High Court. 13. A copy of this order be sent to Hon'ble Mr. Justice Sunil Kumar Garg (Retired).