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2018 DIGILAW 261 (KER)

Beena Thomas W/o Saji Mathew v. Smitha Jody

2018-03-16

P.N.RAVINDRAN, R.NARAYANA PISHARADI

body2018
JUDGMENT : R. NARAYANA PISHARADI, J. Can the plaintiff in a suit seek arbitration in respect of the subject matter of the suit by filing an application in the court? This is the question which essentially falls for consideration in this application filed under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’). 2. The application is one filed by the appellant. She is the plaintiff in the suit O.S. No. 55 of 2017 on the file of the Subordinate Judge's Court, Perumbavoor. The appeal is filed by her challenging the order passed by that court dismissing the application filed by her as I.A. No. 675 of 2017 for the appointment of a receiver. 3. The suit is instituted for granting a decree for dissolution of a firm namely “Ticon Packaging” at Muvattupuzha and for settlement of accounts and other reliefs. The plaintiff and the defendants are the partners of the aforesaid firm. The appellant/plaintiff filed an application as I.A. No. 675 of 2017 in the suit for the appointment of a receiver to manage the business of the firm allegedly being conducted by the first respondent. The plaintiff contended that the defendants were not taking any active role in running the business and they used to withdraw amounts from their personal account over and above the amounts due to them. The plaintiff also alleged that she was prevented by the defendants from entering into the premises of the firm. She further alleged that the defendants took away the books of accounts, computer, records relating to the bank accounts etc. Apprehending that the defendants would manipulate the accounts, stock of materials etc, the plaintiff prayed for the appointment of a receiver to take possession and custody of the business of the firm with all its assets including movable and immovable properties. 4. The respondents/defendants filed objections to the application for the appointment of receiver contending that the suit is not maintainable in view of the provisions contained in Section 69 of the Partnership Act, 1932 and that the partnership constituted as per the deed dated 17.01.2011 had already been dissolved by issuing notice of dissolution. 4. The respondents/defendants filed objections to the application for the appointment of receiver contending that the suit is not maintainable in view of the provisions contained in Section 69 of the Partnership Act, 1932 and that the partnership constituted as per the deed dated 17.01.2011 had already been dissolved by issuing notice of dissolution. They further contended that as per the terms of the partnership deed, the first party in the partnership deed has the right to take over the firm with all assets and liabilities of the dissolved firm and that the first defendant, who is the first party to the partnership deed, has taken over all the assets and liabilities of the dissolved firm. The defendants also contended that the prayer for appointment of a receiver after the dissolution of the firm is against the terms of the partnership deed. 5. During the enquiry in the application for the appointment of a receiver, no oral evidence was adduced, but Exts.Al to A9 documents were marked on the side of the plaintiff. After appreciating the rival contentions raised by the parties, the lower court found that the first defendant has taken over all the assets and liabilities of the dissolved firm as per the terms and conditions of Ext.Al partnership deed and therefore, the prayer for the appointment of a receiver to manage the business of the firm cannot be allowed and accordingly, dismissed LA. No. 675 of 2017. The plaintiff has filed this appeal challenging the aforesaid order passed by the lower court. 6. During the pendency of the appeal, the plaintiff/appellant has filed the present application before this Court for passing an order for referring the parties to arbitration. The appellant has averred in the affidavit filed in support of the application that as per Clause 29 of the partnership deed dated 17.01.2011, resolution of all disputes and questions in connection with partnership arising between the parties or their respective legal representatives, whether during or after the termination of the partnership, shall be governed by the Arbitration Act. It is also averred by her that the date of submitting the first statement on the substance of the dispute is yet to come and as a party to the arbitration agreement it is her requirement that the parties are referred to arbitration. It is also averred by her that the date of submitting the first statement on the substance of the dispute is yet to come and as a party to the arbitration agreement it is her requirement that the parties are referred to arbitration. She has further averred that the institution of the suit by her does not take away her right to seek arbitration. 7. The appellant has filed another application before this court as I.A. No. 194 of 2018 to direct the respondents to produce the original of the partnership deed dated 17.01.2011 on the ground that she is not in possession of the original partnership deed or even a certified copy thereof and the production of the original partnership deed or a certified copy thereof is necessary for deciding the application filed by her under Section 8 of the Act. 8. We have heard Sri. G. Sreekumar (Chelur), learned counsel for the petitioner and Sri. R.D. Shenoy, learned Senior Counsel for the respondents. 9. Learned counsel for the petitioner would contend that under Section 8 of the Act, a party to an arbitration agreement, whether he is the plaintiff or the defendant in the suit, is entitled to maintain an application seeking arbitration. Learned counsel further contended that the right of the plaintiff to seek arbitration is not lost by the institution of the suit. Per contra, learned Senior Counsel for the respondents contended that an application under Section 8 of the Act can be filed only by a defendant or the opposite party. Learned Senior Counsel would contend that the plaintiff has waived her right to seek arbitration by instituting the suit. 10. Section 8(1) of the Act reads as follows: “8. Power to refer parties to arbitration where there is an arbitration agreement.- (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists”. 11. 11. A bare perusal of Section 8(1) of the Act would show that an application under that provision has to be made by a party to the arbitration agreement or any person claiming through or under him not later than the date of submission of his first statement on the substance of the dispute. The provision contained in Section 8(1) of the Act does not contemplate filing of an application by any party to the arbitration agreement. The expression used therein is “a party” to the arbitration agreement. The subsequent expression used in Section 8(1) of the Act is “applies not later than the date of submission of his first statement”. Therefore, the provision in Section 8(1) of the Act can be interpreted only to mean that the person who is entitled to maintain an application under that provision is the defendant or the opposite party and it can never be the plaintiff in a suit. 12. In P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539 : AIR 2000 SC 1886 , the Hon'ble Supreme Court has laid down the conditions for invoking Section 8(1) of the Act as follows: “5. The conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are: (l) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the Court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the Court referring the parties to arbitration”. 13. In Magma Leasing Limited v. NEPC Micon Limited, AIR 1998 Cal 94 , the Calcutta High Court has held as follows: “11. 13. In Magma Leasing Limited v. NEPC Micon Limited, AIR 1998 Cal 94 , the Calcutta High Court has held as follows: “11. The “party” referred to in Section 8(1) to my mind is a party who is entitled to maintain the application thereunder. The party to the arbitration agreement who has himself instituted a suit is clearly not the “party” envisaged. The first defendant although a party to the said arbitration agreement has elected to institute the aforesaid suits in enforcement of its rights and as such it cannot be said to be a “party” within the meaning of that sub-section. It was submitted by the learned Counsel on behalf of the said defendant that the said defendant was not aware of its right to enforce the said arbitration agreement when it instituted the aforesaid suits in this Court and in the Madras High Court. I am not impressed by the said submission. By reason of its conduct in instituting the aforesaid suits the first defendant is estopped from maintaining the present application”. 14. In Raj and Associates v. Videsh Sanchar Nigam Limited, the Delhi High Court has held as follows: “What remains to be considered is whether this Court should continue with the hearing of the present Suit or refer the plaintiff and the only remaining Defendant, VSNL, to arbitration. It has already been mentioned above that in response to the first application all rights for referral of disputes to arbitration the plaintiffs had adopted two positions - firstly that the application was not maintainable and secondly that the disputes may be referred to arbitration ostensibly for an early decision thereon. Significantly, since the plaintiff had already filed a Writ Petition which was disposed of granting liberty to it to initiate civil or arbitration proceedings, the plaintiffs were well aware of the existence of an Arbitration Clause. Clearly and indubitably, instead of pursuing the path of arbitration, the plaintiffs instead filed a civil action for the recovery of its dues. Similarly, fully conscious of the existence of an Arbitration Clause VSNL had decided to renounce its rights to enforce arbitral proceedings and has instead traversed the avenue of the civil suit not merely by resisting the plaintiffs' claim but by filing its own Counter Claim in respect of which Court Fee of Rs. 30,800/- has been paid. Similarly, fully conscious of the existence of an Arbitration Clause VSNL had decided to renounce its rights to enforce arbitral proceedings and has instead traversed the avenue of the civil suit not merely by resisting the plaintiffs' claim but by filing its own Counter Claim in respect of which Court Fee of Rs. 30,800/- has been paid. During the course of arguments of this ‘comedy of errors’ the plaintiffs have joined issue with RITES and has contended that the Court is duty bound to refer the parties to arbitration because the existence of an Arbitration Clause in the Agreement between the parties has been brought to its notice, especially in view of the fact that none of the parties have demurred on its existence. This is also the view taken in Magma Leasing Limited v. NEPC Micon Limited AIR 1998 Cal 94 . In my view once the plaintiff opts to file a suit it is no longer open to him to pray to the Court that the parties be referred to arbitration. The present case is not one where the plaintiff can be heard to plead ignorance of the existence of the arbitration clause”. 15. In Moulana Asad Madani v. Abdul Hafiz, the Delhi High Court has again stated as follows: “Invoking the jurisdiction of a civil Court is a common law right. It is available to every citizen in the country. Arbitration, however, runs as an exception to that rule, and is attracted only when two parties agree to refer their disputes to arbitration. Such an agreement can also be overridden and given up, which is what appears to have transpired in the present case. As has already been seen it is the Respondent which has fired the first arbitration salvo, in terms of the legal notice dated 3.3.2005. Thereafter for reasons best known to it, it decided not to pursue that line of forensic attack. Although this question does not arise for consideration in these proceedings an action such as filing of a civil suit by a party to arbitration must be construed as that party resolve to override the arbitration clause “. 16. We are in respectable agreement with the aforesaid view taken by the Calcutta and Delhi High Courts. The plaintiff/appellant has, by instituting the suit, ignored the arbitration agreement and submitted to the jurisdiction of the civil court. 16. We are in respectable agreement with the aforesaid view taken by the Calcutta and Delhi High Courts. The plaintiff/appellant has, by instituting the suit, ignored the arbitration agreement and submitted to the jurisdiction of the civil court. Institution of the suit by the plaintiff/appellant indicates her unambiguous intention to submit to the jurisdiction of the civil court in preference to the remedy of arbitration. She is the first party who has approached the court ignoring the arbitration agreement. It implies submission of the party (appellant) to the jurisdiction of the judicial authority. It amounts to waiving of the right to invoke the arbitration clause. It amounts to abandonment of her right to seek arbitration. 17. In Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, (2011) 5 SCC 532 : AIR 2011 SC 2507 , the Supreme Court has observed as follows: “Obviously, a party who willingly participates in the proceedings in the suit and subjects himself to the jurisdiction of the Court cannot subsequently turn round and say that the parties should be referred to arbitration in view of the existence of an arbitration agreement. Whether a party has waived his right to seek arbitration and subjected himself to the jurisdiction of the Court, depends upon the conduct of such party in the suit”. 18. Of course, the aforesaid statement was made by the Apex Court in the context of considering the conduct of a defendant in the suit. But, in our opinion, the same principle applies to the plaintiff also. The question to be considered is whether a party to the arbitration agreement has submitted to the jurisdiction of the civil court and waived his right to seek arbitration. 19. The upshot of the discussion above is that when a party to an arbitration agreement institutes the suit and submits to the jurisdiction of the court, he thereby abandons or waives his right to seek arbitration. His prayer for reference to arbitration can be allowed thereafter only if the defendant or the opposite party consents to such reference. Therefore, in the instant case, as the defendants do not consent to such reference we have no hesitation to come to the conclusion that the petitioner/appellant, who is the plaintiff in the suit, cannot maintain an application under Section 8 of the Act. 20. Consequently, the application is dismissed. No costs.