Bakul Chandra Das vs Smt. Rekha Rani Das and Others

T.S. Misra, C.J.—This appeal is directed against a discretionary order passed by Assistant District Judge, Karimganj, declining to stay a suit u/s 34 of the Arbitration Act.

M/s Radha Rani Bhandar, the Defendant No. 1 is a partnership firm, The Defendants 2 and 3 and late Gauri Shankar Das had entered into an agreement to carry on business under the name and style M/s Radha Rani Bhandar on the terms and conditions contained in the Deed of Partnership dated 21st June, 1977. The share in profits and losses of each partner was as follows:

Girijashankar Das - 37� % Gaurishankar Das - 37� % Bakul Chandra Das - 25%

Gaurishankar Das died on 9th March, 1981 leaving behind the Plaintiffs as his heirs and legal representatives. They filed title suit No. 7 of 1982 in the Court of Assistant District Judge at Karimganj for the dissolution of the said firm M/s Radha Rani Bhandar and for accounts, also claiming inter alia a decree for the recovery of the amount falling due to their share on accounting. Girija Shankar Das and Bakul Chandra Das the surviving partners have been impleaded as Defendants 2 and 3 respectively in the said suit; whereas the firm M/s Radha Rani Bhandar has been impleaded as Defendant No.1, Summonses were issued to the Defendants by the Court which were duly served. The Defendants filed an application u/s 34 of the Arbitration Act for the slay of the proceedings in the suit and for referring the matter in dispute to arbitration stating inter alia, that the Deed of Partnership clearly stipulated that any dispute between the parties shall be referred to arbitration and the award of the Arbitrator would be final and conclusive.

The Court below rejected the application holding that Clause 22 of the Partnership Deed which provided that the death or retirement of a partner shall not automatically dissolve the business which may be continued by the surviving or the remaining partners as they may decide, is one sided and (sic) the existing partners cannot continue with the partnership business in the absence of the heirs of a deceased partner. He held that as option had to be given to the heirs of the deceased partner, if the partnership is to continue and as in the Partnership Deed in question there was ro such clause, the partnership firm stood automatically dissolved. Hence what remains for the Plaintiff is to get adjustment of accounts. The Court observed that this relief may be made available to the Plaintiffs even without referring the matter to arbitration. Being aggrieved by that order Bakul Chandra Das, Defendant No. 3. has filed the instant appeal impleading other Defendants 1 and 2 as proforma Respondents. The appeal has been resisted by the Plaintiffs.

For the Appellant it was urged that in view of the arbitration agreement made between the partners of the firm, namely, the Defendants 2 and 3 and late Gaurisankar Das, as contained in Clause 18 of the aforesaid Deed of Partnership, the suit was liable to be stayed u/s 34 of the Arbitration Act and the Court below not only erred in misconstruing the terms of Clause 22 of the Partnership Deed as also the law relating thereto but also in declining to stay the suit on the ground that it was just and equitable that the ease be heard by the Court considering the helpless condition of the wife and children of the deceased partner.

It is by now settled law that when parties by contract voluntarily agree for settlement of their dispute by procedure of arbitration, the Court must ordinarily hold the parties to their bargain. If a party to a subsisting agreement to refer the dispute to arbitration files the suit in breach or violation thereof, the Court may at the instance of the Defendant, stay the proceedings, if the ingredients of Section 4 of the Arbitration Act are satisfied and the facts and circumstances of the case so warrant and thus compel the party in breach to abide by its contract. However, granting or refusing to grant stay is still a matter within the discretion of the Court. The discretion is of course to be exercised not arbitrarily or capriciously but on the totality of circumstances.

The learned Counsel for the Appellant submitted that the Court below fell in error in holding that the provisions of Clause 22 of the partnership Deed were one sided and that the existing, partners cannot continue with the business in the absence of the heirs of a deceased partner and, therefore, on the death of Gaurishankar Das the partnership firm stood automatically dissolved. The learned Counsel for the Appellant referred us to Clause 22 of the Deed of Partnership, which is in the following terms:

That the death or retirement of a partner shall not automatically dissolve the business which may be continued by the surviving or the remaining partners as they may decide.

The submission was that Clause 22 of the Partnership Deed is a term of the contract between the partners constituting partnership. Hence in view of the provisions of Section 42 of the Indian Partnership Act the partnership did not automatically stand dissolved.

Section 42 provides that subject to contract between the partners a firm is dissolved by the death of a partner, In the partnership in question there were three partners. It would be seen that there was a contract between the partners that the death of a partner shall not dissolve the firm. One of the questions in dispute is whether the partnership stood automatically dissolved or continued on the death of one of the partners. Now, what is to be seen is whether the arbitration agreement as contained in Clause 18 of the Deed of Partnership covers the dispute, It has been clearly stipulated in Clause 18 that if any dispute or dissension arises between the parties, either in the interpretation of the article of this Deed of Partnership or in any matter touching the rights and liabilities of the parties interested or in the winding up of the Partnership, such dispute or dissension shall be referred to arbitration. The question referred to hereinabove squarely falls within the ambit of Clause 18 inasmuch as it relates to the interpretation of an article of the Deed of Partnership. Further, a perusal of the plaint would disclose that the rights and liabilities of the parties interested are very much the subject matter of the suit. The Plaintiffs have prayed for a declaration that the firm stands dissolved and have also asked for accounting. The averments made in the plaint do, in our view, bring the case within the purview of Clause 18 of the Deed of Partnership.

10.The learned Counsel for the Plaintiffs-Respondents, however, submitted that the application of the Defendants u/s 34 of the Act was not maintainable in (sic) much as, it has not been averred and substantiated that the Defendants were at the time when the proceedings were commenced and still remained ready and willing to do all things necessary to the proper conduct of the arbitration. In reply the learned Counsel for the Appellant submitted that the fact that the Defendants had moved the application for stay implied that they were ready and willing to do all things, necessary to tbe proper conduct of the arbitration.

Indubitably, the readiness and willingness of the maker of an application u/s 34 of the Act is a sine qua non for the applicability of that Section and such readiness and willingness must exist on the date when the proceedings were commenced in Court and continue till the application is made. It is for the applicant to satisfy the Court that such readiness and willingness to do everything to the proper conduct of the arbitration existed throughout the period in question, The applicant must hence make an averment to that effect in his application and substantiate it by evidence. The factum of readiness and willingness cannot be left to be a matter of mere implication, conjecture or surmise. There is a catena of cases holding and supporting the view.

The leading case on the construction of Section 34 of the Arbitration Act is Anderson Wright Ltd. Vs. Moran and Company, wherein the Supreme Court has laid down:

Thus in order that a stay may be granted under this Section, it is necessary that the following conditions should be fulfilled:

(1) The proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement;

(2) the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred ;

(3) the applicant for stay must be a party to the legal proceeding and be must have taken no step in the proceeding after appearance. It is also necessary that be should satisfy the Court not only that be is but also was at the commencement of the proceeding ready and willing to do everything necessary for the proper conduct of the arbitration ; and

(4) the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement.

In the case of Middle East Trading Co. Vs. The New National Mills Ltd., the Defendants had taken out notice of motion for the stay of the suit u/s 34 of the Arbitration Act. They filed two affidavits in support of their applications. No averment was made in any of the affidavits that the Defendants were at the time when the proceedings were commenced ready and willing to do all things necessary to the proper conduct of the Arbitration but in one of the affidavits it was, however, stated that the Defendants "are" ready and willing to do all things necessary to the proper conduct of the arbitration. The learned Single Judge of the Bombay High Court held that that statement alone was not sufficient and the Defendants were further bound to state which they had not done that they were ready and willing to do all things necessary to the proper conduct of the arbitration even at the time when the suit was instituted. The application u/s 34 of the Arbitration Act was hence rejected.

The Madras High Court in the case of N.T. Velusami Thevar Vs. S. Raja Nainar and Others, had at one place observed that readiness of the Defendant should not be a matter of implication but there should be unambiguous and specific averment thereof in affidavit filed by the applicant for the stay of the suit. The learned Judge took support to his view from the decision of the Bombay High Court in Middle East Trading Co. Ltd. v. New National Mills Ltd. AIR I960 Bom. 292 ( supra ) and also from the following statement of the law in 2 Halsbury Simond''s (3rd) Edn. page 26 Para 29:

The applicant must satisfy the Court not only that he is, but also that he was at the commencement of the proceedings, ready and willing to do everything necessary for the proper conduct of the arbitration. He must also file an affidavit to this effect in support of his application for a stay, and unless the Court is satisfied on the point the application to stay must be dismissed. A party may be ready and willing within the meaning of this condition notwithstanding his intention to contend before the arbitrator that the time for the arbitration agreement has expired.

The question of readiness and willingness of the Defendant also came up for consideration before the Calcutta High Court in The Food Corporation of India Vs. Srish Chandra Guha, In that case it was observed ;

As regards the first point, in my opinion, readiness and willingness is a question of fact and the Court has to be satisfied about such conduct on the part of the applicant. Accordingly, the applicant for stay has to state all facts from which the Court would be in a position to come to the finding that the said applicant was at the time when the proceedings were commenced and upto the date of the hearing or the order to be made in the application, ready and willing to do all things necessary to the proper conduct of the arbitration. It follows that whether the applicant was, at the material time, ready and willing or not would be a question of fact.

The application was dismissed on the ground that there was no sufficient averment wherefrom the Court could be satisfied that the applicant was ready and willing on the date of the commencement of the legal proceedings.

A Division Bench of Patna High Court in the case of Sass Construction and Power Company (P) Ltd. v. Fertilizer Corporation of India Ltd. AIR 1959 Pat 14, also held:

The applicant is also required to make necessary averments that not only he is ready at present but be was also ready and willing, to participate in the arbitration at the commencement of the proceeding. These facts must be supported by an affidavit, If there is no such averment nor there is my affidavit, the application u/s 34 must fail.

A review of those precedents unmistakably indicates that the trend of the authorities points in the direction that the applicant seeking stay of the proceedings u/s 34 of the Arbitration Act must aver in his application that he was at the commencement of the proceedings, that is, on the date of the filing of the suit and still is on the date of the filing of the application ready and willing to the everything necessary to the proper conduct of the arbitration. The averment must be established by some evidence, may be by an affidavit.

In the instant case it has nowhere been alleged in the application u/s 34 of the Act that the Defendants were ready and willing to do all things necessary to the proper conduct of the arbitration proceedings on the date of the institution of the suit as also on the date of the application. There was no evidence also on record to establish that fact. The Defendants did not file any affidavit in support of their application nor did they lead any other evidence. One of the vital condition for staying the proceedings u/s 34 was therefore , lacking, The Defendants were, therefore, not entitled to Invoke the provisions of Section 34 of the Arbitration Act and seek relief there under for stay of the proceedings of the suit, The application filed by them u/s 34 of the Act was hence not sustainable. The impugned order passed by the Court below cannot, therefore, be interfered with.

In the result, the appeal is dismissed with costs. The interim order of stay passed by this Court is vacated.