Bimla Jain vs Jain Plastic Works and Others

Shiv Narayan Dhingra, J.—This application u/s 11 of the Arbitration and Conciliation Act, 1996 has been filed by the petitioner/applicant for appointment of an Arbitrator. It is submitted by the applicant that the applicant had entered into a Partnership Deed with respondent No. 2 and a partnership firm in the name of respondent No. 1 was constituted on 1st April, 1993. The shares of the applicant and respondent No. 2 was 50% each in profit and loss of the firm. As per Clause 14 of the Partnership Deed, Respondent No. 2 was working partner with responsibility to look after the business of the firm and the applicant, a household lady was the sleeping partner. Applicant reposed trust and faith in Respondent No. 2 (who was younger brother of her husband). It is stated that with passage of time intention of respondent No. 2 became malafide and he starting diverting funds of the Partnership firm for his personal use and out of the earnings of the firm purchased immovable property in the name of his wife though his wife had no source of income. He also purchased property in his own name out of the funds of the firm surreptitiously, without knowledge of plaintiff. Applicant/Petitioner has listed three properties which were alleged and purchased by respondent No. 2 out of partnership funds either in his own name or in the name of his wife. It is stated that taking benefit of the applicant''s confidence in him, respondent No. 2 got signed certain blank papers from the applicant and got the same converted into Dissolution Deed dated 15th January, 2004 about which the applicant learnt about a year back. It is submitted that a bare reading of the Clauses 4,5 and 8 of the Dissolution Deed shows that while fabricating the Dissolution Deed, no application of mind was done. There was no settlement of accounts, neither the books of accounts were got signed from the applicant. It is submitted that Dissolution Deed was a forgery and the applicant continued to be a partner. Applicant requested respondent No. 2 to settle the accounts and vacate the premises but respondent No. 2 avoided the same. Applicant thereafter invoked arbitration Clause No. 13 of the Partnership Deed, which reads as under:

That in case of any dispute difference arising between the partners touching the terms and conditions of the partners business or any reference to account or any matter connected with the partnership businesses shall not be resorted to a court of Law but shall be referred to Arbitration as per Indian Arbitration Act, 1940 and the decision of the Arbitration shall be binding on all the partners of the Deed.

Applicant also made wife of respondent No. 2 as a party on the ground that properties were purchased in her name. Applicant submitted that a dispute existed between the parties and since respondent No. 2 declined to accede to the request of the applicant for appointment of Arbitrator as stated in notice dated 5th January, 2007, applicant was entitled for appointment of an Arbitrator.

Respondents in their reply have stated that the application was bad for mis-joinder of parties since respondent No. 3 was not a party to the arbitration agreement and could not be made a party to the application. It is further stated that notice was issued on 5th January 2007, but the same was received by respondent No. 2 on or about 25th January 2007. However, the applicant prepared present application/petition on 9th January 2007 and filed it on 11th January 207. The petition was Therefore pre-mature and liable to be dismissed. It is also stated that there was no arbitration agreement between the parties. The petition was hopelessly barred by the provisions of Limitation Act, since according to applicant she came to know of Dissolution Deed sometimes in January, 2006 but for one year she did not file the petition, Therefore petition was time barred. It is however, not denied that the partnership agreement dated 1st April, 1993 was entered into between the parties, but the stand is that this Partnership Deed itself came to an end on 15th January, 2004 after parties mutually decided to dissolve the same and all accounts of the parties were settled accordingly and intimation was given to the Sales Tax and Income Tax departments. About the properties, it is stated by respondent No. 2 that the properties were not purchased out of the funds of the firm and they were purchased from the personal funds of the respondent No. 2 and his wife.

Counsel for the applicant drew my attention to the alleged Dissolution Deed. A perusal of Dissolution Deed shows that it contains contradictory clauses and the signatures of the applicant are against cross marks on all pages which prima facia fortifies the contention of the applicant that during continuance of the Partnership Deed certain blank papers were got signed from her on cross marks with assurance that these were required for business of partnership firm. The signatures of other partner i.e. respondent No. 2 are not against cross marks. Different clauses of the Dissolution Deed also throw doubts on the genuineness of the Dissolution Deed. Clause 2 of the Dissolution deed provides that parties have not received any amount for and on behalf of the partnership over and above what is recorded in the books of the firm. It is recorded in Clause 5 of the Dissolution Deed that the credit balance of the party of the first part shall be paid by the party of the second part as soon as possible and 12% p.a. interest shall be paid on the credit balance of the first party from 16th January, 2004 until the date of repayment. It is also recorded in the Dissolution Deed that parties have affirmed and declared that the accounts of all the assets and liabilities of partnership have been fully gone into, understood and rendered by both the parties and appropriated between them and have been accounted for. All these clauses coupled with clause of payment of credit balance by applicant shows that this Dissolution Deed is apparently a fishy document. Similarly, Clause 8 of the Dissolution Deed provides that books of accounts of the partnership business have been placed, with mutual consent, in the custody of the party of the second part i.e. Applicant. The applicant was a sleeping partner and it was the respondent No. 2, who was working partner and was looking after the entire business and books of accounts of the Partnership Firm. The other strange clause is that the party of the first part has been shown to have taken over all assets and liabilities and bank balance of the firm as on 15th January, 2004 at its face value. It is well known that the face value of the immovable assets i.e. property is not the real market value and it has been considerably rising day by day. The partnership was entered into in the year 1993 and allegedly dissolved in 2004, after about 10 years the value of the immovable property of the partnership firm could not have been taken by at face value. There is no mention of the value of goodwill of the firm. While on one hand it is recorded that the credit balance of respondent No. 2 is to be paid by the applicant with 12% interest, on the other hand it is recorded that both the parties release each other from all proceeding, accounts, costs, demands and liabilities. It is thus clear that this Dissolution Deed apparently is a document which needs thorough investigation and consideration. The applicant has denied the execution of this Dissolution Deed. On the basis of such a disputed Dissolution Deed, it cannot be held that Arbitration Agreement came to an end and there was no Arbitration Agreement between the parties.

The other ground taken by respondent No. 2 is that application u/s 11(6) of the Arbitration and Conciliation Act is not maintainable since 30 days clear notice was not given to the respondent for appointment of arbitrator. During proceedings, the Court asked the Counsel for respondent No. 2, if he was ready for appointment of Arbitrator, the respondent''s replied that there was no dispute between the parties and there was no question of appointment of arbitrator.

Though the application/petition u/s 11(6) of the Arbitration and Conciliation Act, was filed by applicant in the Court on 11th January, 2007, but notice of the petition was sent to the respondents for 5th April, 2007. The respondent was supposed to appoint Arbitrator or agree with appointment of Arbitrator within 30 days of the service of the notice. The respondent had not taken step for appointment of Arbitrator within the period of 30 days or before putting appearance in the Court. Even in the Court, the respondent did not agree to the appointment of the arbitrator. Though the applicant should have waited for the respondent''s response at least for 30 days of service of notice, but application u/s 11(6) of the Arbitration an Conciliation Act cannot be thrown out on the ground that it was filed before expiry of 30 days of service of notice. If the respondent within period of 30 days, had taken steps for appointment of Arbitrator, this application would have become infructuous. Where the respondent not only fails to appoint the Arbitrator but denies the existence of Arbitration Agreement, the application u/s 11(6) of the Arbitration and Conciliation Act is very well maintainable. Moreover, period of 30 days is a time granted to the respondent under Clause 11(4) of the Arbitration and Conciliation Act, 1996 for taking steps for appointment of Arbitrator. There is no bar put on the court from entertaining the application. Even after entertaining the application, Court can protect the right of respondent to appoint Arbitrator within the prescribed period. It must be remembered that procedure is handmaid of justice and cannot be allowed to defeat the justice.

I consider that there is a valid dispute between the applicant and Respondent No. 2. The applicant has rightly invoked the arbitration agreement and sought appointment of the arbitrator. Since there is no procedure provided in the Arbitration Clause of the Partnership Deed for appointment of arbitrator by the parties, this Court in exercise jurisdiction of appointing arbitrator for adjudicating the dispute between the applicant and Respondent No. 2, appoint Shri D.S. Paweriya, retired ADJ (Ph.# 9810433390) as Arbitrator. His fee is fixed as Rs. 40,000/- to be shared by both the parties equally. Applicant shall file her claim before the Arbitrator within one month from today. Arbitrator shall endeavor to decide the dispute between the parties within four months from filing of the claim and response by the parties. The application is dismissed as against Respondent No. 3 since she was not a party to the Arbitration Agreement.

With above directions, the application stands disposed of.