Full Judgment Text
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CASE NO.:
Appeal (civil) 10 of 2008
PETITIONER:
Atul Singh & Ors.
RESPONDENT:
Sunil Kumar Singh & Ors.
DATE OF JUDGMENT: 04/01/2008
BENCH:
G.P. Mathur & Aftab Alam
JUDGMENT:
J U D G M E N T
Arising out of Special Leave Petition (Civil) No.24729 of 2005)
G. P. MATHUR, J.
1. Leave granted.
2. This appeal, by special leave, has been preferred against the
judgment and order dated 4.8.2005 of Patna High Court, by which the
Civil Revision Petition preferred by Sunil Kumar Singh (defendant
No.3 in the suit) was allowed and the order passed by the trial Court
on 17.3.2005 rejecting his prayer for referring the dispute for
arbitration under Section 8 of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as \021the 1996 Act\022) was set aside.
3. In order to understand the controversy raised, it is necessary to
mention the basic facts of the case. The appellants herein filed Title
Suit No.296 of 1998 in the Court of Sub-Judge-I, Patna, against Sunil
Kumar Singh (defendant no.3) and 5 others for a declaration that the
reconstituted partnership deed dated 17.2.1992 (effective from
1.4.1992) is illegal, void and without jurisdiction and was also without
any intention or desire of Shri Rajendra Prasad Singh (who died after
17.2.1992) to retire from the partnership. A declaration was also
sought that the plaintiffs being heirs of late Shri Rajendra Prasad
Singh will be deemed to be continuing as partners to the extent of his
share. It was further prayed that a decree for rendition of accounts of
the firm from 1.4.1992 upto date may be passed and the defendants
may be directed to pay to the plaintiffs their share of the profits of the
partnership as well as interest and principal amount of unsecured loan
advanced by the firm. A further relief for grant of an ad-interim
injunction restraining the respondents from mismanaging and
misappropriating the funds of the firm was also sought, besides
appointment of a Receiver during the pendency of the suit to manage
the firm.
4. The case of the plaintiffs, as set out in plaint, in brief, is as
under. A partnership firm in the name and style of M/s Veena
Theatres Pvt. Ltd. was formed by a deed of partnership on 25.12.1959
and the business of the firm was to book pictures with film
distributors at various places and to get them screened or exhibited in
the picture hall owned by M/s Veena Theatres Pvt. Ltd. The capital
in the firm was invested by the members of the family of Shri
Shatrughan Prasad Singh. Shri Rajendra Prasad Singh also
subsequently became a partner of the firm by making investments and
a deed of partnership was executed on 20.12.1972. The partnership
was reconstituted on 21.5.1976, in which the share of Shri Rajendra
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Prasad Singh was 21% and on the death of Brij Mohan Prasad Singh,
his widow Smt. Sona Devi was inducted as a partner and a fresh deed
was executed on 13.1.1989 in which Shri Rajendra Prasad Singh
continued to be a partner having 21% share. Shri Rajendra Prasad
Singh died on 5.9.1992 leaving behind plaintiff nos.2, 3, 5 and 7, who
are his grandsons, as his heirs. The wife and two sons of Shri
Rajendra Prasad Singh had predeceased him. The case of the plaintiffs
further is that the defendants fraudulently executed another
partnership deed on 17.2.1992, in which Shri Rajendra Prasad Singh
was not shown as one of the partners, though he had neither given any
consent nor had expressed his desire for retiring from the partnership.
The plaintiffs made a request to the defendants to give the accounts of
the partnership firm and give them their share of profits, but the
defendants refused to do so on the ground that they or their
predecessor-in-interest viz. Shri Rajendra Prasad Singh were not
partners in the partnership deed which was executed on 17.2.1992.
The suit was accordingly filed on 1.8.1998 for the reliefs mentioned
above.
5. The suit proceeded ex-parte against all the defendants except
Birendra Kumar Singh (defendant no.2), who appeared before the trial
Court and moved an application for giving time to file written
statement. He also moved an application for rejecting the plaint under
Order VII Rule 11 CPC on 18.9.1998, which was rejected on
16.1.2002. A review petition seeking review of the aforesaid order
was filed but the same was dismissed on 29.4.2004. He, thereafter,
moved an application on 3.8.2004 for referring the dispute for
arbitration, but subsequently his counsel conceded that the said
application was not maintainable.
6. Sunil Kumar Singh (defendant no.3), who is son of Birendra
Kumar Singh (defendant no.2) did not put in appearance despite
service of summons and the trial Court vide order dated 28.6.1999
directed to proceed ex-parte against him. After more than 5 years
defendant no.3 moved two applications on 14.10.2004 for setting
aside the order dated 28.6.1999 by which the Court had directed to
proceed ex-parte against him and also sought time to file written
statement. On the concession made by the plaintiffs, the order to
proceed ex-parte against defendant no.3 was set aside on 3.11.2004.
The defendant no.3 thereafter moved an application on 25.11.2004
under Section 34 of the Arbitration Act, 1940 praying that in view of
the arbitration clause in the agreement dated 13.1.1989, the
proceedings in the suit may be stayed and the matter may be referred
to arbitration. The plaintiffs filed an objection to the application on
1.12.2004. On 16.12.2004, defendant no.3 filed a supplementary
petition in support of his earlier petition dated 25.11.2004 reiterating
the prayer for referring the dispute to arbitration. Subsequently, on
28.2.2005, defendant no.3 moved a petition purporting to be
supplementary petition to the petitions dated 25.11.2004 and
16.12.2004, wherein it was averred that as the suit is of the year 1998,
to avoid any chances of confusion, his earlier petitions may be treated
to have been filed under Section 8 of the Arbitration and Conciliation
Act, 1996. This petition was opposed by the plaintiff appellants. The
trial Court dismissed the petition by the order dated 17.3.2005 mainly
on the ground that as Shri Rajendra Prasad Singh (predecessor-in-
interest of the plaintiffs) was not a party to the partnership deed which
was executed on 17.2.1992, and as the main relief sought in the suit
was that the said partnership deed dated 17.2.1992 was illegal and
void, which question could only be decided by the civil Court, the
dispute could not be referred to arbitration. The defendant no.3
challenged the aforesaid order by filing a Civil Revision Petition
which was allowed by the High Court by the impugned order dated
4.8.2005. The operative portion of the order passed by the High Court
only says that \023the Court below has committed error in passing the
impugned order. Accordingly, the impugned order is set aside and
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this civil revision is allowed.\024 No specific order making reference to
arbitration was passed.
7. Shri Ranjit Kumar, learned senior counsel for the appellants,
has submitted that the main relief claimed in the suit is that a
declaration be made that the reconstituted partnership deed dated
17.2.1992 was illegal, void and without jurisdiction as there was no
intention or desire on the part of Shri Rajendra Prasad Singh to retire
from the partnership and that the plaintiffs being heirs of Shri
Rajendra Prasad Singh, shall be deemed to be continuing as partners
to the extent of his share. The other relief regarding rendering of
accounts of all transactions from 1.4.1992 onwards was dependent
upon the first relief inasmuch as Shri Rajendra Prasad Singh or the
plaintiffs were admittedly not shown as partners of the firm in the
deed dated 17.2.1992 and unless the said document was declared as
void, they could not claim any rights on the basis of earlier deed dated
13.1.1989. Learned counsel has submitted that Shri Rajendra Prasad
Singh or the plaintiffs being not parties to the deed dated 17.2.1992,
Section 8 of the 1996 Act can have no application to the facts and
circumstances of the case and the High Court committed manifest
error of law in setting aside the order of the trial Court and allowing
the revision petition filed by defendant no.3. Learned counsel has
also submitted that having regard to the facts of the case, the relief of
declaration that the partnership deed is illegal or void or the relief of
cancellation thereof can only be granted by the Civil Court and not by
an arbitrator. In support of his submission Shri Ranjit Kumar has
placed reliance on the following observations made in Khardah
Company Ltd. v. Raymon & Company (India) Pvt. Ltd., AIR 1962 SC
1810 :
It cannot be disputed that the expression \023arising
out of\024 or \023concerning\024 or \023in connection with\024 or \023in
consequence of\024 or \023relating to this contract\024 occurring
in an arbitration clause in an agreement to purchase
goods are of sufficient amplitude to take in a dispute as to
the validity of the agreement. But the arbitration clause
cannot be enforced when the agreement of which it forms
an integral part is held to be illegal. On principle it must
be held that when an agreement is invalid every part of it
including the clause as to arbitration contained therein
must also be invalid. (1942) AC 356 and AIR 1959 SC
1362 and ILR (1948) 2 Cal 171 and AIR 1954 Mad
528(531), Rel. on; AIR 1952 SC 119, Ref. (Para 4).
Accordingly, a dispute that the contract of which
the arbitration clause forms an integral part is illegal and
void is not one which the arbitrators are competent to
decide under the arbitration clause although it is of
sufficient amplitude to take in a dispute as to the validity
of the agreement and in consequence a party to the
contract is entitled to maintain an application under S. 33
for a declaration that the contract is illegal and that in
consequence the proceedings taken thereunder before the
arbitrators and the award in which they resulted were all
void : AIR 1959 SC 1357, Rel. on. (para 13)
Learned counsel has also submitted that the suit was filed on
1.8.1998 and defendant no.2 having failed in his attempt to get the
matter referred to arbitration, his son Sunil Kumar Singh (defendant
no.3) who was set ex-parte on 28.6.1999 moved the application for
staying the suit under Section 34 of Arbitration Act, 1940 on
5.11.2004 and then moved the application giving rise to the order
under challenge on 28.2.2005 and such an application having been
moved after an inordinate delay, it was wholly improper on the part of
the High Court to have accepted his prayer. It has been further urged
that there was non-compliance of Sub-section (2) of Section 8 of the
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1996 Act as the application moved by defendant no.3 was not
accompanied by the original arbitration agreement or a duly certified
copy thereof and, therefore, the same ought to have been rejected.
Shri S.B. Sanyal, learned senior counsel for the respondent, has
submitted that the plaintiffs in fact are claiming rendition of accounts
and their share in the partnership business for which they are basing
their claim on the partnership deed dated 13.1.1989 to which Shri
Rajendra Prasad Singh was a party and the said deed contains an
arbitration clause. In such circumstances, the High Court rightly
referred the dispute for arbitration and the contention raised by
learned counsel for the plaintiffs has no substance.
8. In order to appreciate the contention raised by learned counsel
for the parties, it will be convenient to set out Sections 7 and 8 of the
1996 Act :
7. Arbitration agreement. - (1) In this Part, ’arbitration
agreement’ means an agreement by the parties to submit
to 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.
(2) An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other
means of telecommunication which provide a
record of the agreement; or
(c) an exchange of statements of claim and defence
in which the existence of the agreement is
alleged by one party and not denied by the
other.
(5) The reference in a contract to a document
containing an arbitration clause constitutes an arbitration
agreement if the contract is in writing and the reference is
such as to make that arbitration clause part of the
contract.
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 so
applies not later than when submitting his first statement
on the substance of the dispute, refer the parties to
arbitration.
(2) The application referred to in subsection (1)
shall not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy
thereof.
(3) Notwithstanding that an application has been
made under sub- section (1) and that the issue is pending
before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.
Sub-section (1) of Section 8 of the 1996 Act says that 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 applies not later
than when submitting his first statement on the substance of the
dispute, refer the parties to arbitration. Therefore, for application of
Section 8, it is absolutely essential that there should be an arbitration
agreement between the parties. It is an admitted fact that neither Shri
Rajendra Prasad Singh nor the plaintiffs are parties to the partnership
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deed dated 17.2.1992. There is no document as defined in Section 7
of 1996 Act which may contain the signature of either Shri Rajendra
Prasad Singh or the plaintiffs. Similarly, there is no document as
contemplated by clauses (b) or (c) of Sub-section (4) of Section 7 of
1996 Act from which it may be spelled out that either Rajendra Prasad
Singh or the plaintiffs were parties to clause relating to arbitration
contained in the partnership deed dated 17.2.1992. It is also an
admitted fact that Shri Rajendra Prasad Singh was alive when the said
partnership deed dated 17.2.1992 was executed. Therefore, on the
face of it Section 8 of 1996 Act would not apply to any dispute
concerning the said partnership deed dated 17.2.1992 and the matter
cannot be referred to arbitration.
9. The first relief claimed by the plaintiffs in the suit is a decree
for declaration that the reconstituted partnership deed dated 17.2.1992
was illegal and void and there was no intention or desire of Shri
Rajendra Prasad Singh to retire from the partnership and further that
the plaintiffs being heirs of Shri Rajendra Prasad Singh will be
deemed to be continuing as partners to the extent of his share. It is
true that the plaintiffs have also sought rendition of accounts and their
share of profits from the partnership as well as interest over the
unsecured loan and the principal amount of unsecured loan on
rendition of accounts. For getting this relief, the plaintiffs
undoubtedly rely upon the partnership deed dated 13.1.1989.
However, this deed of 1989 could be relied upon and form the basis of
the claim of the plaintiffs only if the partnership deed dated 17.2.1992
was declared as void. If the deed dated 17.2.1992 was not declared
as void and remained valid and operative, the plaintiffs could not fall
back upon the earlier partnership deed dated 13.1.1989 to claim
rendition of accounts and their share of profits. Therefore, in order to
get their share of profits from the partnership business, it was
absolutely essential for the plaintiff appellants to have the partnership
deed dated 17.2.1992 declared as illegal, void and inoperative. The
relief for such a declaration could only be granted by the civil Court
and not by an arbitrator as they or Shri Rajendra Prasad Singh through
whom the plaintiffs derive title, are not party to the said deed. The
trial Court had, therefore, rightly held that the matter could not be
referred to arbitration and the view to the contrary taken by the High
Court is clearly illegal.
10. Sub-section (2) of Section 8 of the 1996 Act says that the
application referred to in sub-section (1) shall not be entertained
unless it is accompanied by the original arbitration agreement or a
duly certified copy thereof. As already stated in the earlier part of
the judgment, defendant no.3 had moved an application on 25.11.2004
under Section 34 of the Arbitration Act, 1940 for staying the
proceedings of the title suit and for referring the matter to arbitration.
He filed a supplementary petition to the aforesaid application on
16.12.2004. Herein also reference was made to Section 34 of
Arbitration Act, 1940. Thereafter, he filed an application on 28.2.2005
praying that as the Arbitration Act, 1940 had been repealed and the
suit is of 1998, to avoid any confusion, his earlier petitions may be
treated to have been filed under Section 8 of the Arbitration Act,
1996. None of these petitions were accompanied by the original
arbitration agreement dated 17.2.1992 or a duly certified copy thereof.
In fact, there is no requirement of filing the original arbitration
agreement or a duly certified copy thereof under Section 34 of
Arbitration Act, 1940 and as such there was no occasion for defendant
no.3 to file the aforesaid document. The third petition filed on
28.2.2005 contained the following prayer :
\023It is, therefore, prayed that your honour may
graciously be pleased to treat the petitions dated
25.11.04, 16.12.04 and the present petition as supplement
and part of each other for deciding the prayer with regard
to stay of the proceedings of the aforesaid suit and/or to
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refer to arbitration in view of the arbitration agreement
covering the subject matter of this suit.\024
There is no whisper in the petition dated 28.2.2005 that the
original arbitration agreement or a duly certified copy thereof is being
filed along with the application. Therefore, there was a clear non-
compliance of sub-section (2) of Section 8 of 1996 Act which is a
mandatory provision and the dispute could not have been referred to
arbitration. Learned counsel for the respondent has submitted that a
copy of the partnership deed was on the record of the case. However,
in order to satisfy the requirement of sub-section (2) of Section 8 of
the Act, defendant no.3 should have filed the original arbitration
agreement or a duly certified copy thereof along with the petition filed
by him on 28.2.2005, which he did not do. Therefore, no order for
referring the dispute to arbitration could have been passed in the suit.
11. In view of the discussions made above, the appeal is allowed
with costs and the impugned order dated 4.8.2005 passed by the High
Court in Civil Revision No.1010 of 2005 is set aside.