Chandra Mohan vs Manju Devi

Ajay Nath Ray, J.—This is an application for stay of a suit and all proceedings thereunder made u/s 34 of the Arbitration Act.

The arbitration clause is Clause 5 in a deed of partnership which was executed between one Vishvendra Kumar and the Petitioner Chandra Mohan. Vishvendra Kumar is now dead and the three Respondents in this application are the wife, son and daughter of the said deceased partner. They are the three Plaintiffs in the suit for declaration of dissolution and accounts, which is sought to be stayed. The arbitration clause was in the following terms:

If any disputes arise between the parties hereto in any way relating to the partnership hereto whether during the continuance or after retirement such disputes shall be decided by arbitration according to the provisions of the Arbitration Act, 1940.

The first point urged in resistance to this application by Mr. Anindya Mitra is that the above clause covers only disputes arising between the parties to the said partnership agreement. He argued on this basis, that in case there are substantial disputes now existing between the Petitioner and the Respondents, which had not arisen during the lifetime of Vishvendra Kumar, or to put it in another way, if the disputes were not disputes between Vishvendra Kumar and Chandra Mohan, then the instant arbitration clause would have no application, and the suit accordingly cannot be stayed.

The principal point of disputes which has surfaced between the parties is the matter of surrender of two licence, the particulars of which are mentioned in para. 14 of the petition. The values of these licence aggregate approximately Rs. 1,20,00,000, and it is stated in para. 26 of the petition that the surrender premium of these import licence would be 20% of the said value, and the same can be earned even if no other more profitable channel is selected therefore, and only the same are surrendered to the State Bank of India. The licence are partnership property, but Chandra Mohan was managing the affairs, including licence disposal, at all material times just prior to litigation.

It appears that one Arun Tekriwal, with whom Chandra Mohan and the erstwhile firm appear to have had previous dealings, bought these licence for a premium which was less than 20% and which was approximately 18-1/2%.

Arun Tekriwal wishes to back out of the agreement and has filed a suit himself succeeding therein in obtaining an interim order restraining encashment of the cheques given by him for those licence.

It is on record that the concerned Bank has written a letter that the transfer documents in relation to the said licence bear a forged signature of a Bank official.

On December 1, 1992, Chandra Mohan has written to the joint Chief Controller of Imports & Exports stating that the two licence have been stolen from him. There is no satisfactory explanation coming from the side of Chandra Mohan either as to who stole the licence from Chandra Mohan or how the cheques of Arun Tekriwal were paid therefore in case the same were stolen or who might have forged the signature of the Bank official.

The origin of these disputes is in the month of November 1992.

Vishvendra Kumar died in June 1992, June 28, 1992, to be exact.

The surrender value of the two licence mentioned above would be a little less than Rs. 25 lakh even if the simple process of surrender to the State Bank is chosen.

It is, however, stated in the petition for stay that there were disputes even during the lifetime of Vishvendra Kumar and that the two partners had started a process of accounting for separation of their business interests altogether. It is stated that the mediation of a common friend was being utilized, but that the said process did not reach finality prior to the death of Vishvendra Kumar. The reason why it did not reach finality is not to-day very material to inquire into.

The disputes to-day existing are, therefore, divisible into two broad categories. The first category relates to the disputes and accounts that arose and materialized in regard to the entirety of the partnership business between the partners when they were both alive. The other dispute, which is the particular dispute, on the basis of which the suit was filed, is the one relating to the licence and it cannot be said that these disputes had also arisen prior to the death of Vishvendra Kumar. These disputes have arisen between the Respondents themselves and the Petitioner Chandra Mohan.

It is quite true that an arbitration agreement is not discharged by the death of either party to the agreement. Section 6 of the Arbitration Act makes the said position clear. If necessary, resort be had in this regard also to Section 37 of Contract Act. Mr. Kapoor also relied upon two cases respectively in the cases of Sm. Balika Devi and Another Vs. Kedar Nath Puri, and Sundarlal Haveliwala Vs. Smt. Bhagwati Devi and Others, which further establish the above position that in case a deceased party to the arbitration agreement could have had arbitration then the heirs and the legal representatives also can in a similar manner have arbitration, on the basis of the arbitration agreement which is not discharged by the death of the actual party thereto.

But the point that has been argued by Mr. Mitra is a different point. He has not said that the right to go to arbitration either on behalf of the legal representatives or against them does not survive. In case the disputes had arisen between Vishvendra Kumar and Chandra Mohan and only those disputes were being sought to be referred to arbitration, then the said reference could be made either by or against the heirs and legal representatives of Vishvendra Kumar notwithstanding his prior death.

But Mr. Mitra has said that these disputes had not arisen during the lifetime of Vishvendra Kumar at all. The surrender of the licence either to Arun Tekriwal or to the State Bank or to any third party, or the question of any forgery upon any of the transfer documents lodged with the Bank, or the value to be had for these surrendered licence, and how that is to be shared, are all questions to which Vishvendra Kumar did not have the opportunity to address his mind prior to his death. It is, therefore, argued that though these are disputes between the parties to the instant application, these are not disputes between the parties to the said arbitration agreement contained in the partnership deed.

Mr. Mitra has relied upon the judgment of S. B. Sinha J. in the case of Ganpatrai Gupta v. Mody Bros. Ltd. 85 C.L.J. 136 (143) and has referred to a line in the judgment which says that arbitration agreements should be strictly construed. This is good classical unaltered law. The reason simply is, the Courts construe clauses ousting the Court''s jurisdiction strictly.

In case the above arbitration agreement is to be construed strictly, then the word ''parties'' must be held to be limited to the parties described in the said partnership deed. The parties thereto were Vishvendra Kumar and Chandra Mohan and there was not even the usual expression therein that the heirs, successors or legal representatives of the parties would be held to be included within the expression ''parties'' unless the context otherwise indicated. This is a usual clause, but it is conspicuous by its absence in the partnership deed.

On the other hand, the parties expressly sought to bind their heirs and legal representatives in regard to tax matters in cl.14 of the said agreement. This was not done with regard to any of the other partnership matters.

Mr. Mitra, accordingly, in my opinion, made the submission correctly that the dispute in relation to the licence being a dispute not between the parties to the partnership agreement, as strictly construed, the arbitration clause would have no application to the present case.

Another way of looking at the above problem is whether disputes which are generated by the heirs and legal representatives of the deceased party to the arbitration agreement can at all be referred to arbitration on the basis of an agreement to which the heirs and legal representatives were not themselves parties or signatories but which was signed by and only by their predecessor-in-interest. The law as laid down in the two Allahabad cases mentioned above is that if a deceased party could have referred a dispute under the arbitration clause to reference, then the heirs and legal representatives of the deceased party can do the same notwithstanding the intervening death. In case the above principle is applied the question that would formulate itself in the present circumstances would be this: Could Vishvendra Kumar, were he hypothetically taken to be alive to-day, refer the dispute between the three Respondents and Chandra Mohan in relation to the licence to arbitration ? The answer to this hypothetical question (hypothetical, but nonetheless valuable from the point of view an understanding of the principles involved) would be that Vishvendra Kumar could not do so. Why ?

A dispute existing between the two parties is generated by the difference of attitude of theirs to the problem in issue. Vishvendra Kumar might have felt one way about the two licence in case he were to-day alive, but that would not necessarily be the same way that the three Respondents to-day feel. The three Respondents are no doubt the representatives of the estate of Vishvendra Kumar. But the disputes existing between them and Chandra Mohan cannot be called a dispute between Vishvendra Kumar and Chandra Mohan. In case parties wish to refer disputes generated by themselves to a reference they would have to do so on the basis of some arbitration agreement which can be made applicable to them on their own account. Thus, disputes which are wholly relatable in origin to an heir of the party to the arbitration agreement, cannot be referred to arbitration either by or against the said heir, merely upon the principle that the right to refer survives the death of the party agreeing, and that for such purpose the heirs and legal representatives are put in the shoes of that signatory to the original agreement himself.

I am not, however, impressed by the argument of Mr. Mitra that the disputes are not referable to arbitration because they are subsequent to the dissolution of the partnership itself. It is quite true that on the basis of Section 42(c) of the Partnership Act and upon the authority of the case Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Seth Govindram Sugar Mills, the partnership stood dissolved on June 28, 1992, immediately upon the death of Vishvendra Kumar. However, the clause regarding arbitration is wide enough to encompass any dispute relating to the partnership and the same would include disputes after the partnership came to a termination, say, through the retirement or, may be even the expulsion, of a partner.

It would not, in my opinion, be a sound way of interpreting the clause, to restrict the meaning thereof by an overemphasis upon the phrase "whether during the continuance or after retirement". No doubt the Arbitration Clause would apply during the continuance of the partnership and no doubt the Arbitration Clause would also apply after retirement of a partner. But there is nothing in the clause which goes to show that it would not apply in any other case. On the other hand, the words "any dispute'' are wide enough to express within their compass all varieties of disputes either during the subsistence of the partnership or even thereafter provided in some way or the other, the disputes can be made relatable to the partnership. However, the words "any dispute" are a help towards determining the quality or nature of disputes that are encompassed by the Arbitration Clause, but whether the disputes are to be between the parties to this application or the parties to the partnership agreement is a separate question which I have dealt with prior hereto.

It was next argued by Mr. Mitra that there is a case of fraud which arises upon the facts that have come to light before the Court. That there has been some fraud or the other on the part of some person or the other is indisputable. Somebody has fraudulently forged the signature of a Bank official, and it is not denied to be a forgery by even Chandra Mohan himself. It is not possible today to come to a conclusion that any particular party or person is guilty of the forgery or has caused the said forgery to be perpetrated, but there is an explanation to come from the side of Chandra Mohan because it is he who had allegedly lost the licence by reason of theft. The explanation is further needed, because the case of theft represented by Chandra Mohan to J.C.C.I, in his letter of December 1, 1992 is now practically dropped. It is dropped on the ground that it is no longer necessary to proceed with the said charge because the documents have now been traced. However an explanation is still due as to why the said documents were in the first place alleged to have been stolen. It would have to be shown by Chandra Mohan that there was originally some genuine ground to believe in the case of theft and that the letter was not merely written to preserve a status quo in relation to the surrender of the licence to the State Bank by the making of an incorrect allegation. However, these matters need not be pronounced upon with any finality today, nor can they be. But a prima facie case for fraud exists, but at whose door it will ultimately come to lie is a matter that must await further trial.

Mr. Kapur agreed that it is no doubt a true proposition of law that if a person is charged with fraud then that person can come to Court and resist an application for stay of suit on the principle that he has a right to have his honour vindicated and his good name cleared by means of an open trial in Court. The proposition was not disputed by Mr. Mitter.

Mr. Kapur further said that here the charge of fraud, if any, was against Chandra Mohan though he was at pains to indicate that the charge is in the nature of a mere insinuation without any solid materials. He said that it was open to him not to call for a trial in open Court as he was the party who was being sought to be charged with fraud, albeit wrongly.

Mr. Mitra''s answer to this argument was that the law has now developed so far as to permit the Court not to stay the proceedings even at the instance of a party charging fraud and the Court need not wait only for an objection from the party who is being charged with fraud. Mr. Mitter relied upon the case referred to the portions of the judgment 82 C.W.N. 437 (453) of Sabyasachi Mukharji J. which are being paras. 21 and 22 of the said judgment. He said on the basis of this authority that in appropriate cases the Court should refuse to grant stay even at the instance of the party charging the fraud. In my opinion this is such an appropriate case, because it is quite clear that fraud there was in some manner or the other, on the part of some person or the other, though it is not possible to fix any particular party with any fraud at this stage. I would, accordingly, on this ground also refuse stay of the suit or any proceedings thereunder.

Mr. Mitra next contended that stay should be refused because the Respondents have taken such steps in the proceedings as would evince an unqualified intention on their part to participate in these proceedings in open Court. Mr. Mitra particularly drew my attention to prayer (e) of the instant application and the order passed on January 5, 1993, by the Court of Appeal. Mr. Mitra said that relief was asked for from the Court by asking for directions upon the Receiver whereby the Receiver or Receivers were to ascertain whether books or� documents belonged to Kumar Mohan & Co. or to certain other agencies or parties. Mr. Mitra said that the prayer in the present petition in prayer (e) is for a direction upon the Receiver who is already appointed in this suit to take possession of the two licence from the office of the Joint Chief Controller of Imports and Exports and/or the State Bank of India along with the purported letters of authorization.

The present law in the matter of resistance of interlocutory applications by a party who wishes to abide by an arbitration agreement is set at rest by the decision of the Supreme Court in the case of Food Corporation of India v. Yadav Engineering Contractor AIR 1982 S.C. 1302 (1309). The passage appearing at p. 1309 was relied upon both by Mr. Kapur and by Mr. Mitra. It is clarified therein that a party can uphold the arbitration agreement and pray for stay even after taking defensive steps to resist applications of an interlocutory nature made as against him in the very suit which he seeks to stay.

Desai J. in His Lordship''s judgment at para. 11 on the left column of p. 1309 said to the effect that such a party can apply to Court for vacating, stay, discharge of the Receiver or even modifying the interim orders.

In the present case the Petitioner has no more than prayed for the interim order for appointment of Receiver to be modified, for ascertainment as to what was being taken possession of, because otherwise he or his wife or his father would, according to him, be likely to be prejudiced.

It is alleged that property of third parties have been taken possession .of by the learned Joint Receivers. It is alleged that one Vardhan & Vardhan are appropriate parties and that the Petitioner''s wife and father have 70 % and 30 % interest therein. It would be more appropriate perhaps for the father or the wife to come forward in his or her own name, but I cannot construe the prayer of the Petitioner for modification of the order appointing Receiver, in the interest either of his father or of his wife, to be such a step, as is a direct active step indicating his intention to participate in the present proceeding. Also, a Receiver being already appointed, a prayer worded in the manner prayer (e) of the present application should also be construed to be a modification of the said order rather than as taking of steps oneself for one''s own interest and using the Receiver for such direct purpose. Since Chandra Mohan had interest in the licence to the admitted extent of 50 % and since the licence were found to be in the custody of the J.C.C.I, the prayer for a direction upon the Receiver to take possession thereof, a Receiver being already appointed, is a prayer of the nature of taking proceedings on one''s own behalf as the initiator of the same. Under these circumstances, I am not of opinion that the Petitioner has taken any such steps in the proceedings as would disentitle him from maintaining this application for stay.

It was next argued that there might be third party interests like those of Vardhan & Vardhan or Arun Tekriwal in regard to which the Arbitrator might not have full jurisdiction. Stay was sought to be resisted on this basis. In my opinion, these interests are not of such an established or substantial nature as would call for a refusal of stay on the ground of such interests alone. I would have no hesitation in coming to the conclusion that the arbitration agreement should not be allowed to be resized from merely because of these tenuous third party interests. The parties could have a sufficiently effective determination of their rights and liabilities as amongst themselves without any substantial interference or intervention of these third party interests.

It was lastly argued by Mr. Mitra that the bad conduct of a party might justify a refusal of application for stay of suit. Mr. Mitra relied upon a case Lachminarain Jute Manufacturing Co. Ltd. Vs. Bangur Brothers Ltd., in this regard and placed portions from paras. 16-17 of the judgment. In my opinion, no such bad conduct if at all can be spelt out on the part of Chandra Mohan as would justify the refusal of an application for stay on the ground of such bad conduct alone.

A point arose as to whether, even if the suit is stayed, interlocutory proceedings should be stayed thereafter. The case of Vashdev Bheroomal Pamnai Vs. M. Bipinkumar and Co., was cited in this regard, but with the greatest of respect to the learned Judge deciding that case, I am of contrary opinion. No doubt Section 41 of the Arbitration Act gives power to the Court to grant interlocutory relief�s, but that is no reason why a suit, which is otherwise liable to be stayed u/s 34 of the Arbitration Act, is yet to be permitted to proceed in the matter of interlocutory applications. It might lead to several anomalies. There might be one application in the suit and there might be another application u/s 41 of the Arbitration Act in the pending reference which might commence after the suit itself has been stayed, but not the interlocutory proceedings therein. There could be an appeal from usual interlocutory orders passed in the interlocutory proceedings in the suit, but there could be no such appeal from Section 41 orders as the Arbitration Act prohibits the same. Normally, therefore, the stay of a suit should automatically entail the stay of all legal proceedings thereunder.

There remains, however, a small sphere of possibility whereby the Court might feel the necessity of preserving some interlocutory order, say of the nature of any interlocutory injunction or of the nature of an interlocutory appointment of a Receiver notwithstanding the stay of suit granted by reason of the presence of the arbitration clause.

Mr. Mitra relied in this regard upon the case of Fort William Co. v. Chunrip and Co. 67 C.W.N. 603 (606) and relied upon the passage commencing from the bottom of the left column of p. 606. No doubt that case was decided upon this peculiar circumstance that though the City Civil Court had at that time power to entertain a suit under certain circumstances, yet it did not have jurisdiction to entertain arbitration matters. Parties, therefore, faced some difficulty in case they had an arbitration agreement, and in breach of that a suit was commenced in the City Civil Court. In this case the matter was one such and original proceedings were initiated in this Court for the purpose of- staying the improperly filed suit in the City Civil Court which had been filed notwithstanding the presence of an arbitration clause. The observations regarding preservation of interlocutory orders notwithstanding stay of suit were made in that context. But upon the authorities which are referred to in the portion relied upon by Mr. Mitra and upon first principles, there seems to be nothing illogical in a Court permitting a Receiver to continue or an injunction to remain operative notwithstanding stay of the rest of the proceedings. After all, the Court would do the same in a Section 41 application also, in case the necessity so arose. The only difference that would arise, in case a Receiver or an injunction is maintained in a suit but the main proceeding itself is stayed for the presence of an arbitration clause, is that the further applications in regard to modification, variation or discharge of such Receiver or injunction order might have to be made in the suit, remaining alive for that purpose only and not perhaps by way of an application u/s 41. But I make no final pronouncement thereupon as there is no necessity for the same. I am of the opinion that the suit itself should not be stayed, on the construction of the arbitration clause, and on the basis of the factor of fraud which does call for trial in open Court in the interests of justice.

The application, therefore, is dismissed. No prayer other than the prayer for stay of the suit and proceedings thereunder has been considered by me and nothing observed by me above would prejudice the rights or contentions of the parties in the suit (which I have refused to stay), or in any of the pending proceedings or any proceedings that might hereafter be taken in the said suit. There will be no order as to costs in this application.

The interim orders, if any, will stand vacated.