ORDER : This arbitration application is filed under Section 11(5) & (6) of the Arbitration & Conciliation Act, 1996 (for short, “the Act”) seeking to appoint sole Arbitrator to resolve the disputes between the parties arising under the Partnership Deed dated 27-10-2011 and the amended Partnership Deed dated 18-09-2014 of the dissolved firm M/s. Reliance Developers. 2. The facts of the case briefly stated are:- The parties in this arbitration application are members of one family. The applicant is the daughter-in-law and respondents 1 and 2 are her father-in-law and mother-in-law, the 3rd respondent is her sister-in-law, respectively. All four family members established partnership firm in the name and style of M/s. Reliance Developers (for short, “the firm”) to do business in construction activity viz., construction of roads and highways, bridges, buildings, commercial and residential complexes etc. It was agreed in the registered partnership deed, dated 27-10-2011, that 1st respondent would function as managing partner, applicant as working partner and respondents 2 and 3 as partners of the firm. That as per clause 9 of the partnership deed, after tallying the profit and loss accounts of the firm, less the charge of interest, remuneration and expenses of the firm, remaining proceeds of the firm was agreed to be shared at 25 % by the applicant, 10% by the 1st respondent, 40% by the 2nd respondent and 25% by the 3rd respondent. The remuneration to be paid to the partners was also stipulated under clause 7 of the deed. That with the active support of the applicant’s father (Sajja Prabhakar), they have undertaken construction of 14 projects at various places. In the year 2014, all the partners intended to amend the partnership deed dated 27-10-2011, and reallocate the share in the firm and accordingly vide the amended partnership deed dated 18-09-2014, the share of the applicant was at 65%, the shares of respondents 1 and 2 at 5% each and the share of 3rd respondent at 25%, without altering any other terms and conditions of the partnership deed dated 27-11-2011. That due to the unfruitful acts of the 1st respondent, being the managing partner of the firm, the other projects at Hyderabad and Vijayawada were half completed and the construction of those projects could not proceed and on that count the firm incurred losses.
That due to the unfruitful acts of the 1st respondent, being the managing partner of the firm, the other projects at Hyderabad and Vijayawada were half completed and the construction of those projects could not proceed and on that count the firm incurred losses. Purportedly for these reasons, the applicant got issued legal notice dated 06-05-2020 to the partners seeking their consent to refer the inter-se disputes to arbitrator by invoking the arbitration clause under clause 12 of the partnership deed dated 27-10-2011 by naming a retired Judge of this Court. The respondents 1 and 2 having received notices got issued reply notice dated 26-05-2020 denying the allegations made against them and also refused to give consent for appointment of the named arbitrator suggested by the applicant. That the applicant having coming to know from the official website of the registration department, that the 1st respondent, being the managing partner of the firm, clandestinely executing registered documents with the connivance of some land owners in the name of benami persons, she addressed letters to the banks to stop all transactions of the firm and based on the letters of the applicant, all accounts of the firm were freezed by the respective banks. That to protect her interest, she got issued notice dated 09-06-2020 to the respondents informing them of her decision to dissolve the firm, as per clause 10 of the partnership deed dated 27-10-2011 and the amended partnership deed dated 18-09-2014 since the partnership is at will. This notice was replied to by the respondents 1 and 2 vide reply notice dated 20-06-2020. The 3rd respondent also issued reply notice to the notice issued by the applicant dissolving the firm. Respondents in their reply notices once again refuted the allegations made by the applicant and refused to give consent to appoint the named arbitrator, suggested by the applicant on the ground that there is no arbitrable dispute. 3. Counter affidavit is filed by 1st respondent wherein inter alia it is stated that he is a retired Government officer and having worked as the executive engineer gained good experience in construction line. That he established the firm by investing his life savings and also raised personal loans. His wife, the 2nd respondent also invested money in the firm by selling immovable property and also availed mortgage loan of Rs.100 lacs against her villa at Mokila.
That he established the firm by investing his life savings and also raised personal loans. His wife, the 2nd respondent also invested money in the firm by selling immovable property and also availed mortgage loan of Rs.100 lacs against her villa at Mokila. That his daughter, the 3rd respondent also invested money in the firm by sale of immovable property. The applicant or her husband have not invested a single rupee in the firm and in- spite of the same, the 1st respondent for the prosperity of his son and at the request of his son, joined the applicant as partner of the firm and made her working partner and allotted share. That the applicant operated bank accounts and the transactions are done by her and she utilised the firm’s monies for her personal purposes and to meet their family luxuries. That his signature on the amended partnership deed dated 18-09-2014 was obtained by fraud. The amended partnership deed dated 18-09-2014 has not been signed by the respondents 2 and 3 and they refuse to sign the same and, therefore, the said deed never came into existence and the alleged amended partnership deed, if any exists, it is only a forged document. That under Section 43 of the Partnership Act, even after the dissolution of the firm there is a duty cast on the partners to complete the transactions which are already commenced and pending and discharge the firm’s liability. That the applicant and her husband misused the firm’s funds for their and for the applicant’s parents luxuries and have diverted the funds and raised loans from the banks for purchase of luxury cars and went on foreign trips by business class and stayed in luxury hotels by spending money from the firm’s account. That as the criminal activities of the applicant and her husband went on unabated, respondents were compelled to initiate criminal proceedings against them and the same are pending with different Police stations. That the applicant having dissolved the firm, could not have filed this application for appointment of arbitrator as by virtue of Section 43 of the Partnership Act, once the firm is dissolved, the contract of partnership between the partners come to an end. That the firm was not added as party respondent, therefore application is liable to be dismissed for non-joinder of necessary party.
That the firm was not added as party respondent, therefore application is liable to be dismissed for non-joinder of necessary party. That the applicant did not specify the disputes that are to be referred to the arbitrator and, therefore, the application is also liable to be dismissed on this count. 4. The 2nd and 3rd respondents filed common counter affidavit wherein inter alia, the 3rd respondent, who also deposed on behalf of the 2nd respondent stated that respondent 2 and 3 are sleeping partners and they have not indulged in any activities of the firm except investing their substantial monies and, as such, they are entitled to their share of profits. That though the 1st respondent was willing to settle the matter amicably and called upon the applicant to come forward with books of accounts along with the auditor, the applicant failed to do so and thus, there is no arbitrable dispute. That there are serious allegations of fraud, forgery, breach of trust, submission of false statements before the Income Tax authorities, creating document without the knowledge of the respondents and as such criminal complaints are lodged. 5. The respondents denied the revised allocation of shares under the amended partnership deed dated 18-09-2014 and they have not signed the said deed at any point of time and it is nothing but concocted and brought up document. That the applicant’s father (Sajja Prabhakar) never supported the projects undertaken by the firm and he has nothing to do with the partnership business of the firm. The applicant being the working partner has captured the accounts of the firm and mismanaged the funds of the firm, opened several bank accounts and swindled the monies of the firm without the knowledge of the other partners. That as the amended partnership deed dated 18-09-2014 was forged and non-exists in the eye of law, the proposal of the applicant to refer the disputes to named arbitrator was not accepted as there was no arbitrable dispute. That the 1st respondent is duty-bound and under obligation being the managing partner of the firm, to proceed with the works scrupulously inasmuch as there is lot of involvement of public money, institutional loans and other loans obtained from the investors as well as prospective purchasers and to complete the projects.
That the 1st respondent is duty-bound and under obligation being the managing partner of the firm, to proceed with the works scrupulously inasmuch as there is lot of involvement of public money, institutional loans and other loans obtained from the investors as well as prospective purchasers and to complete the projects. That the applicant and her husband cannot escape from their liability and from punishment for committing fraud, forgery, mis-management and siphoning of funds of the firm. Mere issuing notice dated 09-06-2020 to dissolve the firm, will not absolve the liability of any partner, more particularly applicant, being the working partner till the accounts of the firm are settled in all respects. 6. Reply affidavit is filed by the applicant to the counters filed by the respondents 1 to 3. It is stated that though the respondents admit the dissolution of the firm, nonetheless they proclaim that the 1st respondent can continue the business in the name of the dissolved firm, as if a running firm, which is unlawful, impermissible and unsustainable under law. That the firm is not a necessary party, as a dissolved and non-existent firm cannot be made as party, as none can represent a dissolved firm. That the 1st respondent despite dissolving the firm, still executing the sale deeds and other deeds of conveyance in favour of third parties in the name of the dissolved firm. 7. Heard Sri P. Rajesh Babu, learned counsel for applicant, Sri Maganti Satyanarayana, learned counsel for 1st respondent and Sri Keerthi Prabhakar, learned counsel for respondents 2 and 3. 8. Arguments on behalf of the applicant:- (i) that the partnership deed and the amended partnership deed contains arbitration clauses invoked by the applicant as there exist disputes among the partners. (ii) that after the firm was dissolved at will by the applicant vide notice dated 09–06–2020, matter needs to be referred to arbitrator in order to settle the disputes as amicable rendition of accounts among the partners could not materialise. (iii) that though the partnership is firm dissolved at will the arbitration clause contained therein subsists as an independent agreement and binds the parties.
(iii) that though the partnership is firm dissolved at will the arbitration clause contained therein subsists as an independent agreement and binds the parties. (iv) that there is no clause in amended partnership deed dated 18–09–2014 dissolving the original partnership deed dated 27-10-2021 and it is to be delinked for the purpose of arbitration in view of Section 16 (1) (a) of the Act by collecting deficit stamp duty under Section 35 and 36 of the Stamp Act. (v) that non-joinder of dissolved partnership firm as party respondent, cannot be a ground for refusing the relief of appointment of arbitrator. (vi) that applicant’s husband is also not a necessary party as he was an employee of the firm, not a party to the partnership deeds. (vii) that the allegation of fraud, forgery and mismanagement attributed against the applicant not being serious fraud, but fraud simpliciter would not nullify the arbitration agreement. 9. Arguments on behalf of the respondents:- (i) that since the firm is dissolved at will of the applicant, all the rights and obligations among the partners cease and the contract between the partners come to an end, and the arbitration clause ceases to operate and the only recourse is to avail the common law remedy before the civil Court. (ii) that the amended partnership deed dated 18-09-2012 not being a registered document and it substituted the original partnership deed dated 27-10-2011; in view of the statutory bar under Section 69 of the Partnership Act, no suit to enforce a right arising from a contract would lie against any of the partner unless the firm is registered except for the enforcement of any right to sue for the dissolution of a firm or for rendition of accounts of a dissolved firm and; even if the arbitrator is appointed, he shall confine to the issues of rendition of accounts and to realize the property of the dissolved firm. (iii) that the amended partnership deed is seriously disputed as it is created by the applicant and her husband by acts of fraud and forgery. (iv) that pending criminal cases against the applicant and her husband, the applicant cannot seek for arbitration of the matter.
(iii) that the amended partnership deed is seriously disputed as it is created by the applicant and her husband by acts of fraud and forgery. (iv) that pending criminal cases against the applicant and her husband, the applicant cannot seek for arbitration of the matter. (v) that the application is liable to be dismissed for non-joinder of the firm and the husband of the applicant who was actively involved with his wife in the affairs of the firm and caused losses to the firm. 10. Having heard the rival contentions of the learned counsels on both the sides, the following points arise for adjudication:- (i) whether there exist disputes between the partners arising out of and in connection with the partnership deed dated 27-10-2011 and the amended partnership deed dated 18-09-2014 and the arbitration clause mentioned therein subsists as an independent contract to refer the matter for arbitration; (ii) whether the matter can be referred to arbitration in light of the criminal cases lodged by the respondent-partners alleging fraud and forgery; & (iii) whether the firm as an entity and the applicant’s husband are necessary parties to this arbitration application. Points (i):: 11. On 27-10-2011, a partnership deed was entered into by the parties to this application for the purpose of doing business activity in construction line. Under clause 9 of the deed, the profits and losses of the partnership business, less the charge of interest and remuneration shall be shared and borne by the partners in the agreed proportions at 25% to the applicant, 10% to the 1st respondent, 40% to the 2nd respondent and 25% to the 3rd respondent. Under clause 7 of the deed, the remuneration to be paid to the partners was also detailed by way of a tabular form in the deed. There is no dispute among the parties as to the existence of the arbitration clause in the partnership deed 27-10-2011, clause 12 reads as follows:- “12. In the event of any dispute arising amongst the partners in respect of any matter relating to the partnership, the provisions of Indian Arbitration Act shall apply.” (emphasis supplied) 12. The amended partnership deed dated 18–09–2014 also contained arbitration clause under clause 13, which is in the same terminology as in the partnership deed dated 27-10-2011, hence not extracted.
In the event of any dispute arising amongst the partners in respect of any matter relating to the partnership, the provisions of Indian Arbitration Act shall apply.” (emphasis supplied) 12. The amended partnership deed dated 18–09–2014 also contained arbitration clause under clause 13, which is in the same terminology as in the partnership deed dated 27-10-2011, hence not extracted. The partnership deed did not refer to any pre-conciliation effort as a necessary corollary before making a claim to refer the disputes for arbitration. 13. So far as disputes among the partners are concerned, it is fortified from legal notice dated 06-05-2020 got issued by the applicant wherein it was stated that the 1st respondent taking advantage of the family relationship and being the father-in-law of the applicant and father of her husband acted as per his wish and will and never disclosed about any of the borrowings either from the banks/ institutions or from private individuals, nor even any sales effected of the projects to the applicant, though she being working partner of the firm and that other partners sailed with him in all his misdeeds. The applicant also referred to the bank accounts opened by the 1st respondent in the name of the firm and the fictitious transactions allegedly done by him as the managing partner of the firm. There are also details of how the applicant’s father (Sajja Prabhakar) fought for the upliftment of the partnership business of the firm using his clout, which are not necessary for the purpose of this application. 14. In reply notice dated 26-05-2020, the 1st respondent also made the self-same allegations against the applicant in handling the affairs of the firm. He stated that based on his experience as an engineer, he along with his wife much prior to the marriage of his son with the applicant were business partners of a highly reputed construction company. The 1st respondents also given the details of the bank accounts opened by the applicant, transactions done by her and funds of the firm allegedly mis-utilised for her personal purposes and meeting the family luxuries. Both parties also filed commercial OPs against each other before the Commercial Court seeking restraint orders not to deal further in the matter after dissolution in the name of the firm.
Both parties also filed commercial OPs against each other before the Commercial Court seeking restraint orders not to deal further in the matter after dissolution in the name of the firm. The sequence of allegations and counter allegations of mis-management of the affairs of the firm by both parties against each other and they both want rendition of the accounts of the firm, as they expressed doubts and propriety of their functioning against each other, as managing partner by the 1st respondent and as working partner by the applicant, which goes to show that there exist disputes between the parties arising out of the partnership deed dated 27-10-2011 in the course of their business activity. 15. There is no dispute as to the understanding of the parties that the partnership firm could be dissolved at will by any of the partners by following Section 43 of the Partnership Act. Clause 10 of the partnership deed dated 27-10-2011 which speaks of dissolution of the firm at will is as follows:- “10. The partnership business shall be deemed to have come into existence from 27-10-2011, and shall remain as such AT THE WILL of the parties hereto. The partners can admit new partners after mutual discussion depending on the necessities of the business. Any partner desiring to retire from the partnership shall give one month's notice in writing to the other partners of his/her intention to do so and the same partner shall be deemed to have retired from the partnership on the expiry of the period of the said notice.” Section 43 of the Partnership Act reads as under:- “Section 43-Dissolution by notice of partnership at will— (1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. (2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.” 16. Avowedly, the notice dated 09-06-2020 was issued by the applicant to the respondents to dissolve the firm as provided under clause 10 of the deed and in compliance of Section 43 of the Partnership Act in exercise of her statutory right and the notices issued are received by the respondents.
Avowedly, the notice dated 09-06-2020 was issued by the applicant to the respondents to dissolve the firm as provided under clause 10 of the deed and in compliance of Section 43 of the Partnership Act in exercise of her statutory right and the notices issued are received by the respondents. Since the partnership business is at will each and every partner has a right to dissolve the same, even without specifying any specific reason for the statutory provision gives such leverage. No provision is made in the partnership deed fixing the duration of the deed and therefore, by virtue of Section 7 of the Partnership Act, where no such provision is made by contract between the partners, the partnership is a partnership at will. Section 43 of the Partnership Act provides that the firm may be dissolved by any of the partners giving notice in writing to all other partners of his/her intention to dissolve the firm and once such a notice is given the firm is dissolved, if no date is mentioned in the notice, from the date of receipt of notice by the other partners. It is settled proposition of law. In this case as no date is mentioned, the firm is deemed to be dissolved from the date of receipt of notice of dissolution by the respondents, by operation of law. None of the parties to the partnership deed dispute dissolution of the firm at will by the applicant on the ground of legality. 17. Now the question that is to be looked into is as to the applicability of the arbitration clause after the termination of the contract on dissolution of the firm. As understood from the framework of the Arbitration and Conciliation Act it does not expressly exclude any dispute as being non-arbitrable. However, the Courts have used the ‘public policy’ reason to restrict arbitration with respect to certain subject matters. 18. It is mainly argued by the learned counsel for the respondents that when once the firm is dissolved by the applicant herself at will and the contract is terminated, the applicant cannot invoke the arbitration clause in the partnership deed inasmuch as such a clause also ceases to exist. 19. An Arbitration clause in a contract is generally regarded as an autonomous agreement that may survive the termination of the contract that contains it.
19. An Arbitration clause in a contract is generally regarded as an autonomous agreement that may survive the termination of the contract that contains it. Doctrine of separability in essence postulates the independence of an arbitration clause from the underlying contract; this enables the arbitration agreement to survive breach of the contract of which it is a clause. In the same context, Russell also states that, “the reasoning behind the doctrine of separability was, therefore, that the arbitration clause constitutes a self contained contract collateral or ancillary to the underlying or “main” contract.” Under the doctrine of implied terms, it has long been held that an arbitration agreement can continue to be implied as one of the terms of the relationship between the parties after the formal expiry of an agreement between them containing an arbitration clause: typically, this is found in leases and partnership deeds. [see Russell on Arbitration, 21st Edition, Pages 34, 57]. 20. The doctrine of separability of arbitration agreement from main agreement finds expression in the Act under Section 16(1)(b) which states that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Interpreting this provision and applying the doctrine, the Supreme Court in National Agricultural Co-op Marketing Federation India Ltd vs. Gains Trading Ltd, (2007) 5 SCC 692 held as under:- “An arbitration clause is a collateral term in the contract which relates to resolution of disputes and not performance. Even if performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract.” 21. The Hon’ble Supreme Court in Manohar Reddy vs. Maharashtra Krishna Valley Development Corporation, (2009) 2 SCC 494 once again explained the concept of separability of the arbitration clause from the contract. At para 27 it was held as under:- “27. An arbitration clause, as is well known, is a part of the contract. It being a collateral term need not, in all situations, perish with coming to an end of the contract. It may survive. This concept of separability of the arbitration clause is now widely accepted. In line with this thinking, the UNCITRAL Model Law on International Commercial Arbitration incorporates the doctrine of separability in Article 16(1).
It being a collateral term need not, in all situations, perish with coming to an end of the contract. It may survive. This concept of separability of the arbitration clause is now widely accepted. In line with this thinking, the UNCITRAL Model Law on International Commercial Arbitration incorporates the doctrine of separability in Article 16(1). The Indian law --the Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts this approach in Section 16(1)(b), which reads as under: “16. Competence of Arbitral Tribunal to rule on its jurisdiction.--(1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” (emphasis supplied). 22. The purpose of the Arbitration and Conciliation Act, 1996 is to minimize the burden of the Courts so also to expedite the matters. Once the parties have intended to refer their disputes, if any to the Arbitrator in the agreement, then any dispute pertaining to the contents of the agreement or touched the subject matter of the agreement is necessarily to be referred to the Arbitrator even though agreement is mutually terminated by both the parties. Therefore, the arbitration clause in such a contract does not perish. Any dispute arising under the said contract is to be decided as stipulated in the arbitration clause. The arbitration agreement constitutes a “collateral term” in the contract which relates to the resolution of disputes and not to the performance of the contract. Upon termination of the main contract, the arbitration agreement does not ipso facto come to an end. However, if the nature of the controversy is such that the main contract would itself be treated as non-est in the sense that it never came into existence or was void, the arbitration clause cannot operate, for along with the original contract, the arbitration agreement is also void.
However, if the nature of the controversy is such that the main contract would itself be treated as non-est in the sense that it never came into existence or was void, the arbitration clause cannot operate, for along with the original contract, the arbitration agreement is also void. Where a contract containing an arbitration clause is substituted by another contract, the arbitration clause perishes with the original contract unless there is anything in the new contract to show that the parties intended the arbitration clause in the original contract to survive. Even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer. (see Ashok Thapar vs. Tarang Exports (P) Ltd, 2018 SCC Online Bom 1489; Sreenivasa vs. Kuttukaran Machine Tools Ltd, 2007 (4) Arb. L.R. 445 (Kar), Mulheim Pipe Coatings Gmbh vs. Welspun Fintrade Ltd., (2013 SCC Online Bom 1048) 23. I find myself in agreement with the recent judgment passed by Bombay High Court in this regard in the case of Ankit Vijaykumar Khandelwal v. Aarti Rajkumar Khandelwal, 2021 SCC Online Bom 642. In this case, there was one partnership at will, in between the applicant and the respondent, that was dissolved by the by issuing a notice against which a motion of notice under section 8 of the Arbitration Act was preferred which was denied by the City Civil Court for greater Bombay on three grounds; the Partnership was ‘at will, and that the right of a partner to dissolve partnership cannot be taken away (ii) the arbitration clause would apply only during subsistence of partnership.. (iii) the arbitration clause provides for reference of dispute to the Arbitrator only when (a) the dispute relates to interpretation on the terms of the Partnership Deed or (b) dispute relates to conduct of the business of partnership. Against this a CRP was preferred. The High Court after referring to several of judgments by the Apex Court, ruled at para 15 that; The Partnership Deed contains an Arbitration Clause, which not only covers disputes in respect of interpretation, operation or enforcement of the terms and conditions of the Partnership Deed and the disputes relating to conduct of partnership business but covers all other disputes whatsoever which are not otherwise provided in the Deed.
The Arbitration Clause is all encompassing and would include all the disputes, controversies and differences between the parties relating to the Partnership business or interpretation, operation and enforcement of the terms of the Partnership Deed. It is therefore evident that noncompliance of Clause 18 of the Partnership Deed as well as continuing the partnership business for personal gains after the dissolution would be a dispute covered by clause 18 of the Partnership Deed. 24. I have perused the decisions of the Gujarat High Court relied on by the learned counsel for the respondents. In Keshavlal Lallubhai Narandas vs. Patel Bhailal Narandas, AIR 1968 Guj 157 , the dispute before the Gujarat High Court was not appertained to arbitration, in-fact nowhere in this decision there is a reference to arbitration and the issue therein pertains to dissolution of the firm at will by the partners pending contracts of construction works undertaken by the firm. The proposition laid therein is not the issue in the case on hand and is not applicable. 25. Manibhai Shankerbhai Patel vs. Swashray Construction Company, (1982) 1 GLR 312 , is also a case of dissolution of partnership firm where no provision is made in the partnership deed fixing the duration of the partnership and by applying the language employed in Section 7 of the Partnership Act, it was held that in a partnership at will if a partner desires to dissolve the firm by giving notice as required by Section 43 of the Partnership Act, his right cannot be taken away by such an arbitration clause in the partnership deed. If it was the intention of the partners that the partnership should not be dissolved till a certain event happened, then such a specific provision would have been found in the document and the partnership would not have been a partnership at will. It was further held that in a partnership at will if a partner desires to dissolve the firm by giving notice as required by Section 43 of the Partnership Act, his right cannot be taken away by an arbitration clause in the partnership deed. 26. In the instant case, the arbitration clause is preciously worded and is not restricted or limited to the disputes arising prior to dissolution of partnership firm.
26. In the instant case, the arbitration clause is preciously worded and is not restricted or limited to the disputes arising prior to dissolution of partnership firm. The wording in the arbitration clause provides for any dispute arising among the partners in respect of any matter relating to the partnership firm, as such the scope of arbitration cannot be restricted, which in fact not intended by the parties. The partnership deed does not indicate that the parties intended to exclude post dissolution disputes from arbitral reference. As a necessary corollary there is no restriction, even statutory, to refer such disputes to the arbitration provided they are part and parcel and arise out of the business prior to the dissolution of partnership firm. There is no dispute regarding dissolution of partnership firm and the aspect of rendition of accounts and distribution of accounts needs to be referred to Arbitrator and therefore this judgment does not help the respondents. 27. Mohanlal Sajandas vs. Hareshkumar Narandas, (2001) 4 GLR 3168 , is a case wherein it was observed that questions arising after dissolution of the firm and not during the subsistence of the partnership business, the parties cannot invoke the arbitration clause on such questions which cannot be said to have arisen during or in the course of partnership business, but such is not the situation prevailing in the present case and what all the parties want is rendition of accounts and distribution of assets, if any. 28. In Hemendra Baulal Shah HUF thru Manager & Karta vs. Dilipkumar Babulal Shah, Civil Revision Application Appeal No.775 of 1998 after considering the ratio in Manibhai Shankerbhai Patel’s case (5 supra) it was observed that arbitration clause has application only during the subsistence of the partnership deed and it does not have the effect of taking way the right conferred on a partner by Section 43 of the Partnership Act to have the partnership dissolved by notice if the partnership is a partnership at will and the dissolution of the partnership firm cannot be subject matter of arbitration. 29.
29. The other decision in Kartikumar Fakrichand Mehta vs. Dilipkumar Jayantilal Sanghvi thru Karta Dilipkumar which considered the judgments in Manibhai Shakners Bal vs. Swasher Constructions (1982 1 GKR 312), Mohalal (2001) 4 GLR 3168 , Hemdnra HUF ( 2006 (3) GLR 2582 observed that in partnership at will the dispute of the firm on dissolution at will was not held to be arbitrable in the light of Section 43 of the Partnership Act. 30. There is no quarrel that in a partnership at will both the parties have the statutory right for dissolution of the firm by issuance of notice, but if there is a dispute regarding the manner of exercise of that right itself, then also there is no bar for referring that dispute to arbitration, if partnership deed contains arbitration clause to that effect, as such I respectfully disagree with the ratio laid down in Manibhai Shankerbhai Patel’s case (5 supra) followed in other decisions by the Gujarat High Court and relied upon by the learned Counsel for the respondent in (6 and 7 supra) to the extent that disputes relating to dissolution of partnership at will can not at all be referred to arbitration. In this case, the issue with regard to dissolution of the firm is not at all in dispute as the respondents does not dispute that the partnership firm stood dissolved by issuance of statutory notice by the applicant and the dispute among the partners is for rendition of accounts of the firm on the transactions during the subsistence of the partnership firm on its dissolution at will. 31. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 , it is held that all disputes civil or commercial, contractual or non contractual to be decided by a civil Court are also capable of being decided by Arbitration. In M/s Duro Felguera, S.A. vs. M/s Gangvaram Port Limited, (2017) 9 SCC 729 it is held that the scope of Section 11(6-A) is limited only to see whether arbitration agreement exists nothing more, nothing less. In Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya, 2003 (5) SCC 531 it is held that there is no provision in the Act to bifurcate and divide causes and parties.
In Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya, 2003 (5) SCC 531 it is held that there is no provision in the Act to bifurcate and divide causes and parties. In V.H. Patel & Company vs. Hirubhai Himabhai Patel, (2000) 4 SCC 368 it is observed that in deference to the arbitration clause covering all matters there was no principle of law or provision that bars an Arbitrator from deciding whether the dissolution of a partnership is just and equitable. 32. In Vidya Drolia vs. Durga Trading Corporation, (2021) 2 SCC 1 the Hon’ble Supreme Court crystallised a host of issues pertaining to the domestic arbitration framework in India. His Lordships Justice N.V. Ramana, vide separate judgment speaking for the Full Bench has once again reaffirmed the presumption in favour of arbitrability and the discretion to refer a matter to arbitration even in cases where the validity of the arbitration agreement cannot be determined on a prima facie basis and coined new term “when in doubt, do refer.” It was further ruled that the scope of the Court to examine the prima facie validity of an arbitration agreement includes only to examine whether the arbitration agreement was in writing; whether the arbitration agreement was contained in exchange of letters, telecommunication etc; whether the core contractual ingredients qua the arbitration agreement were fulfilled and on rare occasions, whether the subject-matter of dispute is arbitrable. 33. It is argued by the respondents counsel that the amended partnership deed substituted the original partnership deed, but as pointed out by the learned counsel for the applicant, there is nothing in the terms of the amended partnership deed to indicate either expressly or impliedly any novation or substitution of the original partnership deed dated 27-10-2011, except change of allocation of shares of the partners. The amended partnership deed is disputed by the 1st respondent on the ground that his signature was obtained by playing fraud and it was used it for the purpose of change of allocation of shares in the firm of the partners though he was given to understand that it would be used for filing IT returns. 34.
The amended partnership deed is disputed by the 1st respondent on the ground that his signature was obtained by playing fraud and it was used it for the purpose of change of allocation of shares in the firm of the partners though he was given to understand that it would be used for filing IT returns. 34. The question surrounding as to the validity or otherwise of the amended partnership deed dated 18-09-2014 i.e. whether it is compulsorily registrable document need not be examined as the original partnership deed dated 27-10-2011 being a registered one under the Partnership Act, the subsequent amended partnership deed being a consequential document its registration under Registration Act is not compulsory if it is taken only for the purpose of looking at the arbitration clause contained therein. In the light of the decision of the Hon’ble Supreme Court in M/s. SMS Tea Estates vs. M/s. Chandmari Tea Co. Pvt. Ltd, (2011) 14 SCC 66 even in the case of un-registered lease deed which is compulsorily registrable under the Registration Act, it was held that though the document may be invalid under the law but, the arbitration clause is to be de-linked for the purpose of arbitration in view of Section 16 (1) (a) of the Act and by collecting the deficit stamp duty and penalty, as per Section 35 & 36 of Stamp Act, the document can be treated as valid document. 35. In the instant case the partnership firm is registered under the Partnership Act and even otherwise the Hon’ble Supreme Court in Prem Lata vs. M/s. Ishar Dass Chaman, 1995 (2) SCC 145 , held that even in case of an un-registered firm the enforcement of any right to sue for dissolution of firm is not affected and the arbitration clause contained in the contract can be invoked. The Honourable Supreme Court discussed the exceptions carved out in the sub section (3) (a) of section 69 of the Partnership Act, 1932 and ruled that: 9. Indisputably the first appellant is the widow of Chaman Lal — one of the partners. Therefore, she steps into the shoes of the deceased partner who had a right in the dissolved partnership firm.
Indisputably the first appellant is the widow of Chaman Lal — one of the partners. Therefore, she steps into the shoes of the deceased partner who had a right in the dissolved partnership firm. Sub-section (3)(a) carves out three exceptions to sub-sections (1) and (2) of Section 69 and also to the main part of sub-section (3) of Section 69, namely, (1) the enforcement of any right to sue for the dissolution of firm; (2) for accounts of the dissolved firm; and (3) any right or power to realise the property of the dissolved firm. Having excluded from the embargo created by the main part of sub-section (3) or sub-sections (1) and (2) of Section 69, the right to sue would not again be construed to engulf the exceptions carved out by subsection (3) or sub-section (4) of Section 69 of the Act. Any construction otherwise would render the exceptions, legislature advisedly has carved out in sub-sections (3) and (4) of Section 69, otiose. The object 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. The exceptions carved out by sub-section (3) are to enforce those rights including the rights to dissolution of the partnership despite the fact that the partnership firm was an unregistered one. Having kept that object in view, we are of the considered opinion that the alternative resolution forum agreed by the parties, namely, reference to a private arbitration is a mode of enforcing the rights given under clause (a) of sub-section (3) of Section 69 of the Act and gets excluded from the main part of sub-section (3) and sub-sections (1) and (2) of Section 69. The enforcement of the right to sue for dissolution includes a right for reference to an arbitration in terms of the agreement of the partnership by and between the parties. Therefore, there is no embargo for filing a suit under Section 20 of the Act. 36. In Garware Wall Ropes Ltd v. Coastal Marine Construction & Engineering Ltd., (2019) SCC OnLine SC 515 the Supreme Court relying upon SMS Teas Estates Pvt. Ltd held that the non-registration of a registrable document would only affect the agreement to transfer and not the arbitration agreement. 37.
36. In Garware Wall Ropes Ltd v. Coastal Marine Construction & Engineering Ltd., (2019) SCC OnLine SC 515 the Supreme Court relying upon SMS Teas Estates Pvt. Ltd held that the non-registration of a registrable document would only affect the agreement to transfer and not the arbitration agreement. 37. Therefore, from the above it is understood that the amended deed, even if taken as a separate deed and the firm is not registered thereafter afresh, still the applicant can seek for arbitration as it has not substituted the original partnership deed. Hence, it is deduced that arbitration clause contained in a contract constitutes a separate agreement and it is an agreement inside an agreement. 38. There is no clause in the amended partnership deed 18-09-2014 dissolving the original partnership deed dated 27-10-2011, in such circumstances even if it is eschewed from consideration, still the arbitration clause in the original partnership deed subsists and survives. The issue (i) is answered accordingly. Points (ii) & (iii) :: 39. It is to be seen in this case, as rightly contended by learned counsel for the applicant that except allegations of fraud, there are no serious allegations of fraud and the criminal cases lodged against the applicant and her husband are post issuance of the dissolution notice by the applicant. The criminal complaints are filed in June 2020 (FIR No.349 of 2020, dated 28-06-2020; FIR No.375 of 2020, dated 28-06-2020 & FIR No.75 of 2020, dated 03-07-2020) and in view of the low intensity of the allegations in the complaints, it is stated that no action has been initiated in those cases. 40. In Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 the Supreme Court laid down two paradigms for determining the seriousness of the alleged fraud and held that mere allegation of fraud would not nullify the arbitration agreement between the parties except in cases of allegations make out a criminal case or such allegations which are so complicated which needs to be examined by civil Court, and the Supreme Court in Vidya Drolia affirmed the view taken in this case. 41. In Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 , the Supreme Court applied the principles from Ayyasamy’s case (14 supra) and laid down a two-pronged test. Firstly, whether the allegations of fraud permeated the entire contract, especially the arbitration agreement, thereby rendering it non-arbitrable.
41. In Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 , the Supreme Court applied the principles from Ayyasamy’s case (14 supra) and laid down a two-pronged test. Firstly, whether the allegations of fraud permeated the entire contract, especially the arbitration agreement, thereby rendering it non-arbitrable. Secondly, whether the allegations pertained to the internal affairs of the parties inter-se or had an implication on the public domain. As in this case, the issue in Rashid Raza’s case (15 supra) also relates to partnership dispute and the siphoning of funds, and there was no allegation which would have negated the partnership agreement or the arbitration clause, the matter referred to an arbitrator. Though both parties cross swords against each other and allege mismanagement of the affairs of the firm and siphoning of funds, those allegations neither negate the partnership agreement much less the arbitration clause and therefore mere lodging of criminal cases in the instant case cannot afford an opportunity to the respondents to refuse the matter to arbitration. 42. The 1st respondent, as per his claims, signed the amended partnership deed dated 18-09-2014, on a different understanding. The respondents 2 and 3 did not sign the same. 43. Assuming that the amended partnership deed is not validly executed in the eye of law, still the arbitration clause in partnership deed dated 27-10-2011 stands as it is not novated nor substituted with the amended deed. 44. Hence, unless the underlying conditions of serious fraud are present which necessarily require the adjudication of the dispute under common law remedy, the dispute, even in the light of the criminal cases, is arbitrable. So far as the firm not being a party, reference to Section 7 of the Act is needed. Under Section 7 of the Act “arbitration agreement” means an agreement by the parties to submit to the arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. Under Section 2 of the Act “party” means a party to an arbitration agreement. The applicant and the respondents are the only four partners of the firm and they entered into partnership deed and they are the only parties to the arbitration agreement.
Under Section 2 of the Act “party” means a party to an arbitration agreement. The applicant and the respondents are the only four partners of the firm and they entered into partnership deed and they are the only parties to the arbitration agreement. Therefore, the firm, which is dissolved, not being a party and cannot be called as party as such the arbitration application is not bad for non-joinder of firm as party. Likewise, it was pleaded by the respondents that the husband of the applicant was the key person and he is the alter-ego of the applicant. But, admittedly the husband of the applicant is the employee of the firm and he cannot be related to claims made in the arbitration. Moreover he is neither a partner nor a party to the arbitration agreement and till date he did not make any claim against the firm or the partners. Therefore, he is no way concerned with the affairs of the firm except in the capacity of an employee. The parties to this application are family members and there appears to be a fierce fight between the applicant (daughter-in-law) on one part and 1st respondent (father-in-law and respondent 2 and 3 (mother-in-law and sister-in-law) on the other part in relation to the affairs of the partnership firm and it is better that disputes are resolved as early as possible, since there is no statutory bar to refer the disputes, predominately pertaining to rendition of accounts and distribution of assets for resolution to Arbitrator in line with the arbitration clause, which is equally not denied by the parties and in the interest of justice, uphold the parties’ intent to arbitrate. 45. In the case on hand as well, a cogent perusal of the Arbitration clause would reveal that the clause is widely worded and not just limited to the disputes amongst the partners during the subsistence of the partnership firm. Courts should, if circumstances allow, lean in favour of giving effect to the arbitration clause to which the parties have agreed. The issues (ii) and (iii) are answered accordingly. 46. In the result, the arbitration application is allowed.
Courts should, if circumstances allow, lean in favour of giving effect to the arbitration clause to which the parties have agreed. The issues (ii) and (iii) are answered accordingly. 46. In the result, the arbitration application is allowed. Sri Justice Goda Raghuram, former Judge of High Court is nominated as the sole Arbitrator for resolution of the disputes (other than the dissolution as there is no dispute regarding the same) between the applicant and the respondents, arising out of the partnership deed dated 27-10-2011 and amended partnership deed dated 18-09-2014, in accordance with the provisions and mandate of the Act of 1996. Miscellaneous petitions, if any, pending shall stand closed. There shall be no order as to costs.