Judgment · High Court · 2012

entatively valued at Rs 14, 28, 673/- and for perpetual injunction, it is for Rs 100/- and having paid the Requisite Court fees, the plaintiffs pray for followi ng order; Judgment and Decree: I. Declaration that the defendant is duty bound to furnish the Stat ement of Accounts, all the Original Relevant Documents, papers of the Partnershi p Firm to the plaintiffs in its Head Office at Dibrugarh, Assam for its proper s crutiny and inspection and also for payment of the capital to the plaintiffs as described in the schedule herein below including all other Dues which are accrue d thereof out of the Business transaction of the partnership Firm on & from 1/4/ 2007. II. Preliminary Decree for determining share of the plaintiffs in me tes and bounds, and its payment to the plaintiffs. III. For effecting the payment in terms of the Preliminary Decree; a Commissioner may be appointed by the learned Court and also for payment of the C apital of the Plaintiffs under reference and other shares to the plaintiffs. IV) Final Decree may be passed embodying the Commissioner’s report o f its execution. V) For determining the 1/3rd share each of the plaintiffs and defen dant out of the Income and profits to which they are entitled for the same on an d from 1/4/2007 till date and for a Decree for Recovery of the same so determine d. VI) perpetual Injunction, restraining the defendant, his men, repres entatives from manipulating and fabricating any documents of the Partnership bus iness and/or withdrawing any amount from the Partnership Firm/Accounts and/or ca using harassment or harm to the plaintiffs under any circumstances and/or alinia ting, transferring, creating any encumbrance on any part of the property of the Firm in the name of any person or persons whatsoever under any circumstances. VII) Mandatory Injunction may be granted directing the defendant to p ay the Capital and other Dues of the Partnership Business to the plaintiffs. VIII) Cost and compensation of the suit. IX) d in Law and Equity (cid:29). Any other relief or reliefs which the plaintiffs are found to be entitle

#5. The defendant filed an application under section 8 of the Arbitration an d Conciliation Act, 1996 seeking reference to arbitration by taking recourse to clause 17 of the partnership agreement, stating that on the printout copy of the agreement dated 1st April, 2005, the parties put their respective signatures an d plaintiff no. 2 retained the main copy with him, and a photocopy each of the s aid agreement, duly certified by a gazetted officer, was given to defendant, and also in all likelihood to the plaintiff no. 2. The aforesaid certified copy of the Deed of Partnership provided to the petitioner was annexed with the applicat ion. A written-objection was filed against the said petition by the plaintiffs s eeking rejection of the petition. By the impugned order dated 29th June, 2011, t he learned trial Court, as noted in the earlier part of this order, allowed the petition for referring the dispute to arbitration.

#6. Mr Sahewalla, learned senior counsel for the petitioners, submits that s erious allegations of manipulation of accounts have been made against the defend ant and, therefore, the dispute can be settled only by a Court, and cannot be re solved by an arbitrator and, therefore, the order of the learned trial Court is patently illegal and without jurisdiction. Learned senior counsel submits that t he decision of the Supreme Court in N. Radhakrishnan vs. Maestro Engineers and o thers, (2010) 1 SCC 72, is squarely applicable to the case at hand and as such t he order dated 29th June, 2011 is liable to be set aside and quashed, and the le arned Civil Judge be directed to proceed with the suit.

#7. Mr N Choudhury, learned counsel for the respondent, on the other hand, s ubmits that the suit is basically for rendition of accounts, for passing of a pr eliminary decree relating to share and payment of the capital of the plaintiffs by appointment of a commissioner and for a final decree on the basis of the repo rt of the commissioner. It is submitted by him that the facts of the case is dis tinguishable from the facts of Radhakrishnan(supra), and the learned trial Court rightly rejected a similar contention advanced before it. It is submitted by Mr N Choudhury that as the matter was still to be decided by the trial Court, the defendant by way of abundant caution, had submitted written-statement .He submit s that in the facts and circumstances of this case, this Court will necessarily have to come to a conclusion that the Civil Court had no jurisdiction to enterta in the suit, after an application under section 8 of the Act was made for arbitr ation. In support of his contention, learned counsel places reliance on the foll owing judgments: i) ) 6 SCC 503; Hindustan Petroleum Corporation Ltd v. Pinkcity Midway Petroleums, (2003 ii) 7 SCC 737; Bharat Sewa Sansthan v. U.P. Electronics Corporation Ltd, (2007) iii) Branch Manager, Magma Leasing and Finance Limited and another v. Potluri Madhavilata and another, (2009) 10 SCC 103; and iv) Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and oth ers, (2011) 5 SCC 532.

#8. ct, 1996 is quoted below: For better appreciation, section 8 of the Arbitration and Conciliation A (cid:28)8. Power to refer parties to arbitration where there is an arbitrat ion 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 so app lies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. The application referred to in sub-section (1) shall not be ente rtained unless it is accompanied by the original arbitration agreement or a duly (2) certified copy thereof. (3) Notwithstanding that an application has been made under sub-sect ion (1) and that the issue is pending before the judicial authority, an arbitrat ion may be commenced or continued and an arbitral award made (cid:29).

#9. In Hindustan Petroleum Corporation(supra), the Apex Court, taking note o f clause 40 of the agreement, whereby any dispute or difference of whatsoever na ture between the parties, arising out of or in relation to the said agreement, w as to be referred to the sole arbitration of the chairman and the managing direc tor of the Corporation, concluded that Civil Court had no jurisdiction to entert ain a suit after an application under section 8 of the Act is made for arbitrati on and that the refusal to refer the dispute to arbitration would amount to fail ure of justice.

#10. In Branch Manager, Magma Leasing(supra), the Supreme Court laid down tha t for applicability of Section 8 of the Act, the following conditions have to be satisfied: (cid:28)(a) (b) that there exists an arbitration agreement; that action has been brought to the court by one party to the ar bitration agreement against the other party; (c) that the subject-matter of the suit is same as the subject-matte r of the arbitration agreement; (d) that the other party before he submits his first statement of th e substance of the dispute, moves the court for referring the parties to arbitra tion; and (e) that along with the application the other party tenders the orig inal arbitration agreement or duly certified copy thereof (cid:29). The Apex Court has also laid down that once the pre-requisite condition s are satisfied, the Court must refer the parties to arbitration, and no option is left with the Court.

#11. In Booz Allen and Hamilton Inc.(supra), the Supreme Court has laid down that where the issue of arbitrability arises in the context of an application un der section 8 of the Act in a pending suit, all aspects of arbitrability will ha ve to be decided by the Court seized of the suit, and cannot be left to the deci sion of the arbitrator. The Supreme Court has further laid down that even if the re is an arbitration agreement between the parties, and even if the dispute is c overed by the arbitration agreement, the Court, where the civil suit is pending, will refuse an application under section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only b y a public forum or the relief claimed can only be granted by a special Court or Tribunal. It was further held that generally and traditionally all disputes rel ating to rights in personam are considered to be amenable to arbitration; and al l disputes relating to rights in rem are required to be adjudicated by courts an d public tribunals, being unsuited for private arbitration. In para 35, 36 & 37, the Supreme Court has laid down as follows: (cid:28)35. The Arbitral Tribunals are private fora chosen voluntarily by the parties t o the dispute, to adjudicate their disputes in place of courts and tribunals whi ch are public fora constituted under the laws of the country. Every civil or com mercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitratio n unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of publi c policy. Certain other categories of cases, though not expressly reserved for a djudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/d ispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties migh t have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes re lating to rights and liabilities which give rise to or arise out of criminal off ences; (ii) matrimonial disputes relating to divorce, judicial separation, resti tution of conjugal rights, child custody; (iii) guardianship matters; (iv) insol vency and winding-up matters; (v) testamentary matters (grant of probate, letter s of administration and succession certificate); and (vi) eviction or tenancy ma tters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to gra nt eviction or decide the disputes.

#37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contra sted from a right in personam which is an interest protected solely against spec ific individuals. Actions in personam refer to actions determining the rights an d interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title of property and the right s of the parties, not merely among themselves but also against all persons at an y time claiming an interest in that property. Correspondingly, a judgment in per sonam refers to a judgment against a person as distinguished from a judgment aga inst a thing, right or status and a judgment in rem refers to a judgment that de termines the status or condition of property which operates directly on the prop erty itself (cid:29).

#12. In Radhakrishnan(supra), the facts were to the effect that the appellant before the Supreme Court had entered into a partnership firm with the responden ts to constitute a partnership firm for the purpose of carrying on the business of engineering works under the name and style of Maestro Engineers, and the firm started functioning from a premises which belonged to the father of the appella nt. It was the appellant who had taken an active part and was instrumental in se tting up the firm. Differences cropped up between the appellant and the responde nts and a notice was issued by the appellant asserting that he and the responden t no. 3 had initially invested a sum of Rs 2, 70,000/- each for the capital inve stment of the firm, but in the partnership deed, it was only mentioned as Rs 1 l akh against the name of the appellant. In the said notice, he asserted malpracti ces happening inside the firm, which were supported by the respondents. There we re also allegations of collusion amongst the respondents for driving out the cli ents of the appellant and forging the accounts of the firm. The appellant also o ffered his retirement from the firm and asked for his share of the salary and th e profits earned by the firm. In the reply given by the respondents, the claim o f the appellant that he had invested the sum of Rs 2,75,000/- towards the establ ishment of the firm was denied. In one of such notices given by the appellant, i t was alleged that the respondents had colluded with each other in order to siph on off the money of the partnership firm for their personal gain. He reiterated that he was ready to retire from the firm if the share of the profits and arrear s of salary due to him and the interest thereon was paid to him. The appe llant had called upon the respondents to settle the arrears within a period of f ifteen days and also to make arrangements for his retirement, failing which he h ad put them on notice to refer the matter to arbitration.

#13. The respondents filed a suit under Order 7 Rule 1 of CPC for a declarati on that the appellant was not a partner of the respondent no. 1 firm after 18th November, 2005 and to prevent him from causing any disturbance to the respondent no. 1 for its peaceful running by way of permanent injunction. An application u nder section 8 of the Act was filed for referring the dispute to arbitration, wh ich came to be dismissed. The revision application filed before the High Court w as also dismissed.

#14. The Apex Court distinguished Hindustan Petroleum Corporation(supra) on t he facts of the case and relying on the observations of the Apex Court, in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406, wherein it wa s laid down that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried by a court, that would be a sufficient cause for the court not to order an arbitrat ion agreement to be filed and not to make the reference, and held that the facts of the case did not warrant the matter to be tried and decided by the arbitrato r and that for furtherance of justice, it should be tried in a court of law whic h would be more competent and had the means to decide and adjudicate the matter involving various questions and issues raised in the dispute. The Supreme Court also confirmed, on the facts of the case, that the appellant had made serious al legations against the respondents alleging that they had committed malpractices in the account books and manipulated the finances of the partnership.

#15. In the instant case, the pleaded version in the plaint would go to show that the allegations of the kind as were made in Radhakrishnan(supra) are not th ere. Allegations are only in the realm of doubt generated in the mind of the pla intiffs. The plaintiffs, amongst others, have sought for a declaration that the defendant is duty bound to produce statement of accounts, all the original relev ant documents, papers of the partnership firm for proper scrutiny and inspection and also for payment of capital to the plaintiffs along with other dues. In the objections before the learned trial Court, no such plea was taken that in the f acts and circumstances of the case, the suit ought not to be referred to arbitra tion. The person against whom the allegations are leveled also does not plead th at the case should be tried by the Civil Court. On the contrary, it was he, who had filed the application under section 8 of the Act. In Bharat Sewa Sansthan(supra), the Apex Court had laid down that photoc 16. opy of the agreement can be taken on record under section 8 of the Act for ascer taining the existence of arbitration clause. In the application under section 8 of the Act, the respondent had annexed the photocopy of the certified copy of th e agreement stating that the main copy was with the plaintiff no 2.

#17. Section 8 is in the form of a legislative command to the Court and once the pre-requisite conditions are satisfied, the court must refer the parties to arbitration. However, in a case where serious allegations of fraud, malpractice, collusion among the members to the detriment of a partner are made, the Court m ay refuse to refer the issues to arbitration. This court is unable to accept the submission of Mr Sahewalla that this is a fit case where the issues should be t ried by the Civil Court. Having regard to the factual matrix as unfolded by the pleadings in the plaint, this Court is of the opinion that the learned trial Cou rt did not commit any material irregularity in passing the order dated 29th June , 2011 and as such, I do not find any merit in this application, and accordingly , the same is dismissed.

#18. No costs.