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2023 DIGILAW 304 (UTT)

Manju v. Deepak Kaushik

2023-05-12

VIPIN SANGHI

body2023
JUDGMENT : VIPIN SANGHI, J. 1. I have heard learned counsels, and proceed to dispose of this Application under Section 11(6) of the Arbitration and Conciliation Act, 1996. 2. The case of the applicant is that she entered into a partnership with the respondent vide Partnership Deed dated 11.12.2015. Under the said Partnership Deed, both the parties had 50% shares. Clause 17 of the Agreement contained an Arbitration Agreement between the parties provides that any dispute or difference which may arise between the partner or their legal representatives with regard to the meaning or effect of the said deed or any part thereof or respecting the account, profits and losses of the business or any other matter relating to the firm shall be referred to the Arbitrator-one to be nominated by each partner and in case of a dispute or difference, the same was to be referred to the decision of the Umpire. 3. It appears that disputes arose between the parties, and the applicant invoked the Arbitration Agreement on 17.10.2018. Despite the said invocation, the parties did not appoint the Arbitrators, and consequently, the applicant preferred Arbitration Petition No. 33 of 2019 titled Manju vs. Deepak Kaushik. The same was disposed of by the then Chief Justice on 05.11.2020, while observing that under Clause 17 of the Partnership Deed dated 11.12.2015, each party had to appoint one Arbitrator, which had not been done. The applicant was given liberty to act in terms of the Partnership Deed. 4. The applicant then again invoked the Arbitration Agreement dated 25.11.2020, and nominated one Arbitrator, namely Mr. M.C. Upreti, retired Additional Secretary, Uttarakhand as one Arbitrator. Since the respondent did not proceed to appoint the second Arbitrator, the applicant has again preferred the present Application. 5. Upon issuance of notice, the respondent has filed a counter-affidavit. According to the respondent, the said Arbitration Agreement does not survive. The respondent states that the parties had entered into a Supplementary Partnership Deed on 20.02.2018 in pursuance of the MOU dated 19.02.2018. Under the new Partnership Deed, the applicant retired from the Partnership Deed and one Mr. Jawahar Singh was inducted as a new Partner with 50% shares. Clause 3 of the new Partnership Deed reads as follows: “3. The respondent states that the parties had entered into a Supplementary Partnership Deed on 20.02.2018 in pursuance of the MOU dated 19.02.2018. Under the new Partnership Deed, the applicant retired from the Partnership Deed and one Mr. Jawahar Singh was inducted as a new Partner with 50% shares. Clause 3 of the new Partnership Deed reads as follows: “3. It is declared that except as hereinafter provided the Retiring Partner hereby releases all his share, right, title and interest in the business, of the said partnership, its assets including goodwill, all licenses and permits held by the said Firm, Its receivables and outstanding contracts, that the same shall belong to the Continuing Partner and Admitting Partner in their respective proportion.” 6. On the aforesaid basis, the claim of the respondent was that the applicant had given-up all her rights and claims arising out of the original Partnership Deed dated 11.12.2015. 7. The submissions of the learned counsel were heard for some time by this Court on 17.02.2023 when the Court felt it necessary to examine the MOU referred to in the Supplementary Partnership Deed. The said MOU has been placed on record by the respondent, along with the Supplementary Affidavit dated 17.02.2023. 8. The submission of learned counsel for the applicant is that a perusal of Clause 4 of the MOU dated 19.02.2018 shows that the respondent had agreed to settle the Account of the applicant on the basis of the Account dated 31.03.2018. He submits that on this premise, the applicant had given-up her partnership with 50% shares and agreed to the induction of another partner, namely Sri Jawahar Singh with 50% shares in the business of the partnership. Clause 4 of the MOU reads as follows: “4. That accordingly all the liabilities except specially agreed as per clause 2, all other liabilities even interest on DLL loan till date 31.03.2018 with penal interest etc will be liabilities of partners of firm as per first party and retiring partner Mrs. Manju Wife of Sh. Hari Dass Resident 293E, DDA Flats, Pocket-II, Mayur Vihar, Phase-1, Delhi-110091 account will be settle by the Mr Deepak Kaushik Son of Sh Rakesh Kumar Resident 121/5, Ward No. 10, Palwal-District Palwal Haryana on the basis of account dated 31.03.18 and second party will not be liable for the same.” 9. On the other hand, the submission of Mr. Hari Dass Resident 293E, DDA Flats, Pocket-II, Mayur Vihar, Phase-1, Delhi-110091 account will be settle by the Mr Deepak Kaushik Son of Sh Rakesh Kumar Resident 121/5, Ward No. 10, Palwal-District Palwal Haryana on the basis of account dated 31.03.18 and second party will not be liable for the same.” 9. On the other hand, the submission of Mr. Yash Kotak, learned counsel for the respondent is that the MOU itself also contains an Arbitration Agreement in Clause 11, which provides that any difference / dispute between the parties arising out of the MOU may be resolved by the parties mutually, failing which the same shall be settled by arbitration. Learned counsel submits that the applicant has not invoked the Arbitration Clause contained in the MOU dated 19.02.2018, and the invocation is only related to the Arbitration Agreement contained in the original Partnership Deed dated 11.12.2015. He further submits that under Clause 4 of the MOU, the applicant was to share only losses, but was not entitled to receive any profit. 10. I have heard learned counsels, and considered their respective submissions. 11. In these proceedings, all that I am concerned with is the fact whether the parties have entered into an Agreement, which contains an Arbitration Agreement, and whether the applicant has invoked the Arbitration Agreement in pursuance whereof the Arbitral Tribunal has not been constituted. 12. The submission of the respondent with regard to the accord and satisfaction, in my view, is not determinable in these proceedings, as the same would require examination in detail of the transactions entered into between the parties, including the MOU dated 19.02.2020, and the effect of Clause 4 of the said MOU would need consideration. 13. His submission that the applicant has not invoked Arbitration Clause contained in MOU, in my view, is not an issue which I am called upon to decide in these proceedings. A reading of the said MOU and, particularly Clause 4 thereof, prima facie shows that the respondent had agreed to fulfil his obligations towards the applicant under the Partnership Deed dated 11.12.2015. 14. Recently in Smt. Neelam Jain vs. M/s Texla Towers Limited and Another in Arbitration Application No. 22 of 2017, decided on 03.05.2023, I observed as follows: “55. At this stage, I may refer to the judgment of the Supreme Court in Vidya Drolia (supra). 14. Recently in Smt. Neelam Jain vs. M/s Texla Towers Limited and Another in Arbitration Application No. 22 of 2017, decided on 03.05.2023, I observed as follows: “55. At this stage, I may refer to the judgment of the Supreme Court in Vidya Drolia (supra). A three Judge Bench of the Supreme Court decided a reference made to it, as doubts were raised on the view expressed in Himangni Enterprises vs. Kamaljeet Singhy Ahluwalia, (2017) 10 SCC 706 . The issues considered by the Supreme Court in Vidya Drolia (supra) were the following: “2. A deeper consideration of the order of reference [Vidya Drolia vs. Durga Trading Corporation, (2019) 20 SCC 406 ] reveals that the issues required to be answered relate to two aspects that are distinct and yet interconnected, namely: 2.1. (i) Meaning of non-arbitrability and when the subject-matter of the dispute is not capable of being resolved through arbitration. 2.2. (ii) The conundrum “who decides” whether the court at the reference stage or the Arbitral Tribunal in the arbitration proceedings would decide the question of non-arbitrability. 2.3. The second aspect also relates to the scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application under Section 8 or 11 of the Arbitration and Conciliation Act, 1996 (for short ‘the Arbitration Act’).” 56. After detailed discussion of earlier decisions rendered by the Supreme Court on the subject, in paragraph no. 154 of the judgment, the Supreme Court observed as follows: “154. Discussion under the heading “Who Decides Arbitrability?” can be crystallised as under: 154.1. Ratio of the decision in SBP & Co. vs. Patel Engg. Ltd. (2005) 8 SCC 618 on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23- 10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable. 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. 154.3. 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. 154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence- competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of “second look” on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non- arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.” (Emphasis supplied) 57. In his concurrent judgment, N.V. Ramana, J. (as His Lordship then was) held as follows: “236. Having established the threshold standard for the court to examine the extent of validity of the arbitration agreement, as a starting point, it is necessary to go back to Duro Felguera, S.A. vs. Gangavaram Port Ltd. (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764, which laid down : (SCC p. 759, Para 48) “48......From a reading of Section 11(6- A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect-the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple-it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.” At first blush, the Court seems to have read the existence of the arbitration agreement by limiting the examination to an examination of its factual existence. However, that is not so, as the existence of arbitration agreement does not mean anything unless such agreement is contractually valid. This view is confirmed by Duro Felguera, S.A. vs. Gangavaram Port Ltd. (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764, wherein the reference to the contractual aspect of arbitration agreement is ingrained under Section 7 analysis. A mere agreement is not legally binding, unless it satisfies the core contractual requirements, concerning consent, consideration, legal relationship, etc. 238. At the cost of repetition, we note that Section 8 of the Act mandates that a matter should not (sic) be referred to an arbitration by a court of law unless it finds that prima facie there is no valid arbitration agreement. The negative language used in the section is required to be taken into consideration, while analysing the section. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above. Therefore, the rule for the court is “when in doubt, do refer.” 240. Courts, while analysing a case under Section 8, may choose to identify the issues which require adjudication pertaining to the validity of the arbitration agreement. If the court cannot rule on the invalidity of the arbitration agreement on a prima facie basis, then the court should stop any further analysis and simply refer all the issues to arbitration to be settled. 242. We are cognizant of the fact that the statutory language of Sections 8 and 11 are different, however materially they do not vary and both sections provide for limited judicial interference at reference stage, as enunciated above. 244. Before we part, the conclusions reached, with respect to Question 1, are: 244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. 244.2. 244. Before we part, the conclusions reached, with respect to Question 1, are: 244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. 244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood. 244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding. 244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. “when in doubt, do refer.” 244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only: 244.5.1. Whether the arbitration agreement was in writing? 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.? 244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? 244.5.4. On rare occasions, whether the subject- matter of dispute is arbitrable? 58. In the light of the aforesaid legal position elucidated by the Supreme Court in Vidya Drolia (supra), I have no hesitation in rejecting the submission of Mr. Garg that the present application, under Section 11 of the Arbitration and Conciliation Act, should be rejected on any of the grounds taken by the respondents. As aforesaid, the existence of the agreement between the parties, is not in serious doubt. The applicant is the widow of (Late) Shri Satish Chand Jain, one of the parties to the said agreement, and rights, which vested in (Late) Shri Satish Chand Jain under the said agreement now inhere in the applicant. There is no challenge to the territorial jurisdiction of this Court to entertain the present application. From the submissions of Mr. Garg, it cannot be said that the subject matter, namely the disputes under the Agreement dated 14.10.1992 are demonstrably “non-arbitrable.” The submission of Mr. Garg with regard to non-arbitrability are argumentative; cannot be conclusively decided in these summary proceedings, and; arise from contested facts. From the submissions of Mr. Garg, it cannot be said that the subject matter, namely the disputes under the Agreement dated 14.10.1992 are demonstrably “non-arbitrable.” The submission of Mr. Garg with regard to non-arbitrability are argumentative; cannot be conclusively decided in these summary proceedings, and; arise from contested facts. The disputes under the said Agreement have been hanging fire for decades, and clearly the endeavour of the respondent is to avoid an adjudication on those disputes. Thus, the respondent, prima-facie, appears to be interested in delaying the resolution of the disputes.” 15. Learned counsel for the respondent has further submitted that no notice of invocation of Arbitration was served upon the newly inducted partner, namely Sri Jawahar Singh. I do not find any merit in this submission for the reason that the applicant has invoked the Arbitration Agreement contained in the original Partnership Deed dated 11.12.2015, and Mr. Garg has argued that the claims of the applicant is only related to the said Partnership Deed, as under the Supplementary Partnership, she had exited the partnership business. 16. Accordingly, I allow this Application. At this stage, learned counsels for the parties, on instructions from their respective clients, state that this Court may appoint a sole Arbitrator to adjudicate the disputes between the parties arising out of their Partnership Deed dated 11.12.2015, in substitution of a three-member tribunal as originally agreed by the parties. 17. Accordingly, I appoint Mr. P.K. Saxena, retired District Judge, Delhi (Mobile No. 9910384668) to act as the sole Arbitrator in the matter.