H.G. Oomor Sait and another vs O. Aslam Sait

This revision is directed against the order of the learned subordinate Judge, Ootacamund, in T.A.No.295 of 2000 in O.S.No.243 of 1999. This

said application in I.A.No.295 of 2000 was filed by the revision petitioners/defendants 2 and 3 in the suit, u/s 8 of the Arbitration and Conciliation

Act, 1996 to direct the dispute raised by the plaintiff to arbitration and refer the parties to such arbitration.

The facts which are necessary for the disposal of this petition are as follows:

for convenience, the parties are described as plaintiff and defendants.

The plaintiffs and defendants 2 and 3 had constituted a partnership (un-registered). While the second defendant is the father, the plaintiff and the

third defendant are brothers being the sons of the second defendant. The partnership related to the business which they were running under the

name and Style ""M/s English Boot House"", dealing with foot wears and other allied product. While the father was entitled to a share of 40% of the

profit and loss, the other sons were entitled to 30% each.

Misunderstandings arose as between the plaintiff on one hand and defendants 2 and 3 on the other. The plaintiff filed a suit in O.S.No.184 of

1999 praying for a direction to defendants to furnish true and proper accounts of the firm M/s English Boot House. The plaintiff alleged that the

firm had two show room at Coonoor and two Reduction Sales Centres at Coimbatore. He was looking after the business at one of the show

rooms at Coonoor. The second defendant was looking after the other show room at Coonoor and the third defendant was looking after the

business at Coimbatore. The entire accounts of the business was looked after by defendants 2 and 3 and having regard to the relationship between

the parties, the plaintiff had reposed utmost trust. But later, the plaintiff came to know that defendants 2 and 3 had started a new business of their

own in the Head Office itself in the name and style ""Foot Fashion"" in a clandestine manner. He came across a printed cash bill dated 25.3.1999

bearing No.23325. There was no proper answer when they were questioned. The defendants failed to furnish proper information or statement of

accounts for verification. The Auditor with whom the accounts were said to be available also replied very evasively when contacted by the plaintiff.

The plaintiff suspected that there was misappropriation of funds from the account of M/s English Boot House. Therefore, according to him, the said

suit was filed reserving his right to seek dissolution of the firm and for recovery of the amounts due to him.

In the written statement filed by the second defendant while denying the plaint allegations he contented that the suit was hit by Section 69 of the

Partnership Act, being an un-registered firm. The firm was subsequently dissolved only on 7.12.1999 after the suit had been filed. The allegations

in the suit were vague and the period for which the accounts were sought for was not given in the plaint. The plaintiff was given to wayward life and

making unreasonable demands. The plaintiff had no other source of income and only to accommodate him, the firm was constituted in 1982 though

the business had been successfully conducted by him from 1948. It was the plaintiff who was trying to make unlawful gains and was of little

assistance. He was contributing only nuisance. The third defendant was running his own separate business ""Foot Fashion"" which was in fact

commenced only with the consent of all the partners. But the plaintiff taking advantage of the absence of a written consent, was laying false claim to

the said firm. The contention that the plaintiff was not aware of the business earlier, was highly dramatic and artificial considering the location of the

business. The accounts of English Book House was being properly and regularly maintained subject to prompt Income Tax and Sales-Tax

assessment. The defendants have not caused any breach of trust or misappropriation. The facts relating to the exchange of notices have been

suppressed by the plaintiff. The defendants further contended that clause 15 of the Partnership deed provided for settlement to arbitration in the

event of any dispute between the parties and hence the suit was an abuse of process of law.

The plaintiff thereafter filed the present suit, O.S.No.243 of 1999 by impleading the firm English Boot House his father, and brother as

defendants 1 to 3, the Proprietor of Foot Fashion as fourth defendant and one Ibrahim sait as Proprietor of ""Classic Shoes"", praying for the

following reliefs:-

(i) directing the dissolution of the firm Messrs. English Boot House having its Office Premises at 6,17,18,18L and 18M at Mount Road, Coonoor

West 7.12.1999 and also directing the defendants 1 to 3 to furnish true, proper and genuine accounts of the firm M/s. English Boot House;

(ii) Directing the fourth defendant to furnish the entire accounts of ""Foot fashion & Classic Shoes being fourth and fifth defendants respectively

treating the same as part of first defendant firm''s business by dissolving the same.

(iii) directing the ailotment of share of plaintiff namely 30% as set out in Partnership agreement with respect of immovable properties described

hereunder and also out of the income derived by ""English Boot House"" Foot fashion & Classic Shoes"" after meeting true liabilities if any:

(iv) by appointing Commissioner for division of immovable properties set out hereunder and allotment of 3/10th share to the plaintiff by metes and

bounds.

The plaintiff contented in addition to the allegations already raised in O.S.No.184 of 1999, certain factual detail which would according to him,

clearly establish the collusion between the defendants and misappropriation of the funds by them belonging to ""English Boot House"". It is not

necessary to go into the said details considering the scope of this revision petition. It is sufficient to state that the petitioner had made serious

allegations of misappropriation and diversion of funds out of the profits of English Boot House and that the starting of the business of Foot Fashion

and Classic Shoes were only out of such funds misappropriated by the defendants. The plaintiff therefore, claimed that he has got a right to claim

due share out of the income from those two firms also. Hence the suit.

Along with the suit, the plaintiff had also filed I.A.No.1644 of 1999 praying for appointment of Receiver to look after the business of all the

three establishments. In the affidavit filed in support of the said application, again the plaintiff had made serious allegations of collusion, diversion of

funds, swindling of money etc. To this a detailed counter was filed by the defendants denying all the allegations. In the mean time, the defendants

have also filed I.A.No.295 of 2000 under Seciion 8 of the Arbitration Act, 1996 for referring the disputes to the Arbitrator. On hearing both

parties, I.A.No.295 of 2000 was dismissed by the learned Subordinate Judge and hence the above revision petition by defendants 2 and 3.

Mr. Srinath Sridevan appearing for the defendant/petitions very elaborately argued and contended that both the suits filed by the plaintiff were

not maintainable and were not bona fide and that at any rate having regard to the mandatory terms of the Arbitration Act, 1996, the suits cannot be

proceeded with and the dispute requires to be referred to the Arbitrator. The learned Judge fell into an error in thinking that me defendants were

not entitled to ask for going before the Arbitrator since in the earlier suit in O.S.No.184 of 1999, the defendants had chosen to take part in the

proceedings by filing a written statement and not seeking for proceeding before the Arbitrator at the earliest point of time. The learned Judge''s

further observation that since the dispute included the presence of third parties namely, defendants 4 and 5 there can be no reference to the

Arbitrator, was again a fallacy according to the learned counsel. The first suit was not maintainable and hit by Section 69 of the Partnership Act

and hence there was no need for the petitioner to seek for a direction to refer the matter to the Arbitrator. Even so, they have raised the issue in

their written statement. The impleadment of oiher parties to the second suit cannot absolve the plainiiff the obligation to go before the Arbitrator. In

the present case, having filed an earlier suit with only defendants 2 and 3 as parties, the present suit has been filed designedly to avoid going before

the Arbitrator. Even otherwise, the fifth defendant ought to be treated as an assignee who would be bound by the terms of the agreement, vide, the

preamble of the agreement. The Court was entitled to consider the conduct of the plaintiff which was noting but abuse of process of Court.

Learned counsel also referred to the various features in the 1996 Act in comparison to the 1940 Act and contends that the Parliament had

envisaged strict implementation of the Arbitration clause. The discretion which was vested on the Courts had no other alternative and were bound

to refer the dispute to the Arbitrator. Mere allegaiions of mismanagement were not sufficient to take away the jurisdiction of the Arbitrator.

Learned counsel relied on the following judgments support of his various contentions.

In Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak, , the Supreme Court held that merely because some allegations have been

made that the accounts are not correct lhat will not be enough to induce the Court to ignore the arbitration clause. The same judgment is also relied

on for the proposition that the presence of a person not a party to the agreement or the absence of a persons interested in the disputed alone

cannot render the arbitration agreement ineffective.

Reliance is placed on the judgment of the Calcutta High Court in Mani Bhoosan Datta Ray v. Amulya Chandra Deb Ray, ILR 1937 Cal. 120,

for the proposition that if the accounts are claimed as between the partners then as of necessity and a condition precedent a claim for dissolution of

the contractual relationship a claim for dissolution of partnership should necessarily be made Reference to this case is made in the context of the

prayer in the first suit for accounts only without praying for dissolution.

Learned counsel also refers to the judgment of S.S.Subramani, J. in M/s Sugal and Damani Finlease Ltd. Vs. P. Subramania Reddy, in support

of his contention that the provision of the New Act of 1996 leaves to the Court no discretion in the matter if the controversy is covered by the

scope of the arbitration agreement. The provisions of Section 8 of the Act are mandatory and the Court is bound to refer the dispute to the

Arbitrator.

According to learned counsel the Supreme Court had even still further stringently construed the scope of the New Act in P. Anand Gajapathi

Raju and Others Vs. P.V.G. Raju (Died) and Others, , wherein the Supreme Court observed that the language of Section 8 was pre-emptory and

it was obligatory on the part of the Appellate Court to refer the parties to the arbitration and that the provision would apply even to cases where

there was no agreement before the action was brought to the Court, but the agreement was brought into existence while the action was pending.

In a subsequent judgment also in M/s. V.H. Patel and Company and Others Vs. Hirubhai Himabhai Patel and Others, , the Supreme Court

while considering the scope of Section 18 of the Arbitration Act, had held that the arbitration clause should be interpreted widely and when the

dispute is referred to the arbitrator it would also include the right to decide all the incidental issues including whether or not the partnership should

be dissolved or not and that it would not be proper to drive the parties to another litigation.

Reference is made for a judgment of Delhi High Court in Patanjal and Another Vs. Rawalpindi Theatres (P) Ltd., in support of his contention

that an assignee of one of the Parties to the agreement would be stepping into the shoes of that party and hence the assignee could be made on a

party to the arbitration proceedings.

Further reference is made to the judgment of the Andhra Pradesh High Court in Srivenkateswara Constructions and Others Vs. The Union of

India, , The Division Bench of the Andhra Pradesh High Court held that by the plaintiff unnecessarily joining third parties to the suit, the plaintiff

cannot be allowed to defeat the Arbitration Clause by such a device.

Reference is made to a judgment of a Division Bench of Calcutta High Court in West Bengal Comprehensive Area Development Corporation

and Another Vs. Sasanka Sekhar Banerjee, . Reliance is placed on the observation that a small portion of the relief claimed in the suit not being

within the scope of the arbitration clause alone cannot be a ground for refusal to stay the suit u/s 34 of the Arbitration Act, 1940. Reliance is also

placed on the observation that mere allegation of fraud unconnected with the real point at issue will not operate as a bar to stay the suit.

Learned counsel also refers to the judgment of the Supreme Court in Smt. Premlata and another Vs. M/s. Ishar Dass Chaman Lal and others, .

The Supreme Court held that the legal representative of a deceased partner is entitled to enforce the claim for rendition of accounts of the firm after

dissolution. Therefore, according to learned counsel for the petitioners, in the case of the legal representatives and assignees, succeeding to all the

rights of the original parties, they cannot be considered to be third parties to the agreement.

Reference is also made to a judgment of a Division Bench of Jammu and Kashmir High Court in Union of India v. Lakshmi Ice Factory, AIR

1964 J & K 10 in support of the contention that stay of the suit u/s 34 of the Act cannot be denied merely because a small portion of the claim in

the suit was outside the terms of the original contract.

Per contra, learned counsel for the respondent submits that the petitioners are not entitled to invoke Arbitration Clause on several grounds.

(1) The option to be exercised by the petitioner was not expressed at the earliest point of time, but was raised only very belatedly and in the earlier

suit, they have gone up 10 the stage of filing the written statement and did not seek for any reference.

(2) Third parties are involved in the second suit in which the present petition had been filed and the said third Parties cannot brought within the

scope of the arbitration proceedings.

(3) Serious allegations of fraud, mismanagement and collusion and diversion of funds have been made and hence it is the Civil Court which was

appropriate forum to go into the issue. The said allegations which require adducing of and appreciation of detailed evidence, cannot be gone into

under arbitration.

(4) A reading of the arbilration clause will show that the arbitration was contemplated only during the existence of the Partnership and not after

dissolution of the Partnership. The partnership having been dissolved the arbitration clause ceases to apply.

Learned counsel also relied on the following judgments. In Antony D''Cruz and Others Vs. B. Ramadas and Others, , reference is made to the

observation that strangers to the the arbitration agreement cannot be subjected to compulsory arbitration.

In Narinder Singh Randhawa and Another Vs. Hardial Singh Dhillon and Others, , it was held that whenever dissolution of partnership was

sought for u/s 44(g) of the Partnership Act, then it would be a matter for the Court to decide whether it was just and equitable to dissolve the

partnership or not and such matters cannot be left to be considered by the arbitrator pursuant to the arbitration clause.

In Ganesh Chandra Dey and Another Vs. Kamal Kumar Agarwalla, , It was held that in a suit for dissolution of partnership on the ground of

just and equitable grounds as provided u/s 44(f) and (g) of the Partnership Act, the dispute relating to the dissolution should be decided by the

Court even though the parties had stipulated a clause for arbitration.

In Sewa Ram Ahmednagar Vs. Raj Rani and Another, , a learned single Judge held that in a suit for dissolution of partnership and rendition of

accounts, one of the substantial reliefs was with reference to the properties in dispute purchased by the partner in the name of his wife and the

same having been purchased with the funds of the partnership, no reference could be made to the arbitrator calling upon him to adjudicate upon the

title of the property.

In Padmanabhan v. Srinivasan, 1965 (78) LW 681, this Court held that in a suit for dissolution of partnership where the plaintiff had made

several serious charges of fraud, misappropriation and misconduct against the defendant, it was held that the refusal to stay the suit u/s 34 of the

Arbitration Act was justified.

The judgment of this Court mentioned above was followed by the Calcutta High Court in Ganesh Chandra Dey and Another Vs. Kamal

Kumar Agarwalla, and in Union of India (UOI) Vs. Naresh Chand Goyal and Others, .

In Nitya Kumar Chatterjee Vs. Sukhendu Chandra, , a Division Bench of the Calcutta High Court held that in a suit for dissolution of

partnership on just and equitable grounds, it was proper for the Civil Court to go into the said issues. It was held that no stay can be granted when

there were serious allegations of fraud and prima facie case of fraud was established. It was desirable that the matter should be tried in a Court.

The only and the ultimate issue which requires to be considered in this case is as regards the necessity on the part of the plaintiff to go before

the Arbitrator. The endeavour on the part of learned counsel for the plaintiff is that the legal implications of the 1996 Act are that there is positively

no discretion left with the Civil Court to refuse reference to Arbitrator under any circumstance. Much reliance is placed on the language employed

in Section 8 of the Act.

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 sub-section (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.

It is true that the discretion of the Civil Court to proceed with the suit is narrowed down, but I am unable read to anything from the Act which

would place a total embargo on the Civil Court to continue the proceedings before it only on the mere existence of an arbitration clause. A

combined reading of all the provisions of the 1996 Act as well as section 8 discloses that the time-tested reasons which were behind the several

judgments of the various Courts as well as the English Courts holding that Civil Court can refuse to stay the suit and can proceed with the suit

under certain circumstances continue to hold good even now. The short-comings and deficiencies of the enquiry before an arbitrator are well

known. The nature of the enquiry before an arbitrator is summary and Rules of procedure and evidence are not binding. The Arbitrator need not

be even a law-knowing person. That is the reason why over a century, Courts have repeatedly held that in cases where substantial questions of law

arise for consideration or issues which require serious consideration of evidence relating to fraud and misrepresentation etc. are involved, such

cases are best left to the civil court and that the Arbitrator will not be competent to go into the said issues.

I do not think that the present Act had done anything to remove the said inadequances and deficiencies which are inherent in an arbitration

proceeding. The Rules of Procedure and evidence are not building on the proceedings before an Arbitrator vide Section 19(1) of the Act. 1 agree

that the solemn agreement between the parties to resolve the disputes by an alternative forum before the Arbitrator should be strictly complied

with. But when the dispute involves consideration of substantial questions of law and contested allegations of mala fides, fraud, misrepresentation

etc. which depend on adducing of and scrutiny of detailed oral and documentary evidence, then the parties as well as the Civil Court would be

justified in ignoring the arbitration clause. Section 27 of the 1996 Act provides for the Arbitrator to seek the assistance of the Court in taking

evidence is an example of the admitted deficiencies of a proceeding before the arbitrator. Even after obtaining such assistance from the Civil Court,

the Arbitrator would still be unable to appreciate the demeanor of the witnesses which is an essential feature of appreciation of oral evidence.

Assuming that the grounds of challenge of an arbitration award as provided under the New Act has been narrowed down compared to the old

Act, that would be all the more reason why the jurisdiction of the Civil Court to go into such contentions issues like substantial questions of law or

serious allegation of fraud etc., requiring detailed evidence, should be properly reserved for a Civil Court to go into and decide.

Yet another reason why I am not inclined to hold that the new 1996 Act had in any manner altered the situation or the legal position recognised

under the 1940 Act, is that the provisions of the Partnership Act, 1932, should also be borne in mind especially Section 44 of the Act which

empowers the Civil Court to order dissolution on the various grounds mentioned thereunder including any other grounds which render the

dissolution just and equitable namely, u/s 44(g). That provision had been interpreted very liberally by all courts commencing from the leading case

of Privy council in Rehmatunnissa Begum and others v. Price and others, AIR 1917 P.C. 116. The Privy Council held that the right of a partner for

a decree for dissolution is vested not on the contract, but on his inherent right to invoke the Courts protection on equitable grounds and that no

man can exclude himself from the protection of the Courts. It was further held that when dissolution was sought for under Seciion 44(g) then it

would be a matter for the court to decide and such matters cannot be left to be decided by the Arbitrator. The Supreme Court had occasion to

deal with the judgments of the Privy Council in M/s. V.H. Patel and Company and Others Vs. Hirubhai Himabhai Patel and Others, cited above.

On the facts of the case before them which arose under 1940 Act, the Supreme Court found that the Arbitration clause in that agreement included

a right in the Arbitration to consider the issue of dissolution on just and equitable grounds also and as such the Arbitrator was not precluded from

going into the said issue. The Supreme Court also made it clear that in such circumstances it is permissible for the court to refer to arbitration a

dispute in relation to the dissolution. In other words, though the Supreme Court held that the Arbitrator can also go into the issue of dissolution, the

discretion of the Court to refer or not to refer was also left in tact. It is true in the present case, strictly speaking section 44 will not be applicable,

the Partnership being terminable at will, I am only emphasising that the provisions of the arbitrations Act cannot be read in isolation, but only in

conjunction with the relevant provisions under the Partnership Act, Companies Act, etc. which are applicable to the parties concerned.

My endeavour is only to show that the Arbitration Act, 1996 does not in any manner deviate from the accepted principles behind the civil

court''s discretion to refer or not to refer a dispute to the arbitrator under certain given facts and circumstances and the provisions of the Arbitration

Act cannot also override the provisions of the Partnership Act, 1932. Nor can any one afford to ignore the inherent short-comings and deficiencies

of a proceeding before the Arbitrator compared to that of Civil Court. Therefore, wherever the dispute involves consideration of substantial

questions of law or complicated questions of fact which would depend upon detailed oral and documentary evidence, the Civil Court is not

prevented from proceeding with the suit and to refuse to refer the dispute to the Arbitrator. The fact that even the 1996 Act does not visualise any

absolute embargo on the discretion or the jurisdiction of the Civil Court to deal with the suit would be evident even on a reading of Section 8 itself

on which learned Counsel for the petitioner places strong reliance. The Section recognises the age old principle that a party seeking recourse to the

Arbitrator should have applied for at the first instance itself before submitting his first statement. Therefore, the mere usage of the word ""shall"" in

Section 8 cannot lead to the presumption that the Arbitration Act 1996 had in any manner deviated from the time-tested principles relating to the

powers of the Civil Court to refer or not to refer the dispute before the Arbitrator. The contention of the learned Counsel for the petitioner that the

1996 Act leaves no discretion to the Civil Court in the said context, is not sustainable.

As I had mentioned earlier, that 1996 Act had done nothing to rectify the detects and shortcomings inherent in the Arbitration proceedings.

Even under the 1940 Act, the Legislature did not specify exhaustive grounds on which the Court would refuse to grant stay u/s 34 of the Act. The

various grounds were enumerated only by judicial rulings over a century. They were evolved by judicial wisdom and practical experience of how

the arbitration proceedings were actually conducted. They have been accepted as part of the law of arbitration and had stood the test of time. In

Amarchand Lalitkumar Vs. Shree Ambica Jute Mills Ltd., the Supreme Court had enlisted the following five grounds for revoking the contract of

arbitration:

(i) Excess or refusal of jurisdiction by arbitrator,

(ii) Misconduct of arbitrator,

(iii) Disqualification of arbitrator,

(iv) Charges of fraud.

(v) Exceptional cases.

This process of enumeration of the said grounds is bound to continue in accordance with the changing times. The usage of the word ""Shall

cannot result in completely throwing over-board the rationale behind the enumeration of the said grounds. The manner in which Arbitration

proceedings have been and are being conducted in this country had been the subject matter of expression of distress by the Supreme Court, on

several occasions.

In Guru Nanak Foundation Vs. Rattan Singh and Sons, the Supreme Court observed as

Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more

effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 (Act for Short). However,

the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal

philosophers weep. Experience shows and law reporters bear ample testimony that the proceedings under the Act have become highly technical

accompanied by unending prolixity, at every stage providing a legal trap to me unwary. Informal forum chosen by the parties for expeditious

disposal of their disputes has by the decisions of the Courts been clothed with ""legalese"" of unforeseeable complexity. This case amply

demonstrates the same.

The above passage was quoted with approval in Trustees of The Port of Madras Vs. Engineering Constructions Corporation Limited, .

In Panchu Gopal Bose Vs. Board of Trustees for Port of Calcutta, , the Supreme Court quoted from Robertson''s history ""that honest men

dread arbitration more than they dread law suits.

A more seething but frank observations was made in Executive Engineer, Minor Irrigation Division, Orisa v. N.C. Budharaj (Dead) by Lrs,

2001 (1) CTC 375 as follows:-

The arbitration proceeding has been a racket in this country and in construing the law in relation to the powers of the arbitrator, the courts must

construe the provisions of the law rather strictly.

I am not to be understood as decrying the resolving of disputes by arbitration or of ignoring the statutory obligations of parties who have opted

for an alternative forum or of not taking into account the declaration of the law by the Supreme Court in the context of Arbitration Act. Resolving

disputes by an alternative forum, less expensive, less cumbersome and with quick results are undoubtedly welcome to any right thinking citizen and

is undoubtedly a noble object. I am only expressing a word of caution while reacting to the exireme contention raised before me that the Civil

Courts are completely stripped off (heir discretion to refer or not to refer the dispute to the Arbitrator under any circumstance and that the grounds

on which the Civil Court can refuse to refer as had been enumerated by the Courts in the course of past several years, should also be ignored. I am

of the opinion that accepting such a contention would lead to disastrous results, if one keeps alive to the situation as to how arbitration proceedings

are conducted in our country. A more cautious approach has to be adopted in public interest. It is settled proposition of law that even where Civil

Courts jurisdiction is expressly barred by Statute, the Supreme Court had evolved several exceptions and had stated that exclusion of jurisdiction

is not to be readily and unconstutionatly assumed. The right of a citizen to invoke courts protection is an inherent one and no man can exclude

himself from the protection of the Courts vide in AIR 1917 PC 116, Supra.

Considering the nature of the disputes in the present case, it is not necessary for me to proceed further in a comparative study of the

jurisdiction and powers of the Civil Court under the old Act and the new Act. The following four circumstances in the present case, would be

sufficient to hold that the ultimate conclusion of the Court below in refusing to refer the dispute to the Arbitrator is quile justified.

(A) A reading of the arbitration clause itself would signify that it is not operative when once the agreement had been terminated and the Partnership

had been dissolved. The arbitration clause is very clear in the said context.

In the event of any difference of opinion or dispute between the parties to this agreement during the continuance of the Partnership, such

differences or disputes shall be referred to and settled by Arbitration. In all such matters of procedure relating to Arbitration, the provisions of the

Indian Arbitration Act as amended from time to time shall apply.

The expression ""during the continuance of the Partnership"" leaves no room for any doubt or discussion that the jurisdiction of the Arbitrator cannot

be invoked after the termination of the Partnership. The arbitration clause has to be strictly construed since the need to go before the arbitrator is a

matter of mutual agreement. There cannot be any compulsion as against any party to go before the Arbitrator unless and otherwise both parties

had mutually agreed as regards the circumstances under which any dispute should be referred to or the scope of the issues or disputes which

should be referred to the arbitrator. It is open to the parties to agree to go before the Arbitrator either during the subsistence of the agreement or

even after dissolution of the Partnership. But when parties have specifically agreed to go before the Arbitrator, only during the subsistence of the

agreement, the clause is rendered inoperative as a result of dissolution. Therefore, even according to the defendants, the partnership having

become dissolved prior to the filing of the present suit, the arbitration clause cannot be held to be operative. Admittedly, the plaintiff had given

notice of dissolution on 9.11.1999 and the defendants have also consented to the dissolution on 21.11.1999. The present suit has been filed only

subsequently. The present petition by the defendants in I.A.No.295 of 2000 to refer the dispute the arbitrator had been filed still more

subsequently on 15.2.2000. Therefore, I fail to understand how the arbitration clause in the present case could be invoked after the dissolution of

the partnership.

(B) The next ground which would justify rejecting the position is the serious allegations of fraud, collusion, misappropriation, etc. Rulings have

already been quoted signifying that in matters where serious allegations of fraud are projected and the decision would depend upon consideration

of minute details of evidence, it is always desirable to let the civil court to go into the issue rather than to leave it to the Arbitrator before whom the

nature of the proceedings are summary and rules of evidence are not applicable. In the present case, the plaintiff has positively made such

allegations in no uncertain terms. In Paragraph No.VI, allegations of clandestine operation of running the business under the name and style of

Foot Fashion"" have been made. It is alleged that the plaintiff come to know of such action only on coming across the bill which has been issued by

the defendants in the very same place where the Partnership business was carried on. In Paragraph No.VII to IX, the plaintiff alleges that in spite

of demand he has not been allowed access to the accounts. In Paragraph No.X the plaintiff alleges collusion between the defendants and their

action of covering up the business of ""Foot Fashion"". In Paragraph No.XI, misappropriation of funds are alleged. In Paragraph No.XlI, diversion

of funds of the partnership has been alleged. In Paragraph No.XIIl a further allegation of misappropriation is made and reference is also made to

the Partnership agreement prohibiting commencement of similar business without consent of all the partners. In Paragraph No.XIV manipulation of

records and in Paragraph No.XV allegations of hurried attempts to divert the funds are also made, thus seeking appointment of a Receiver.

It is true that such allegations being made in a passing manner or in a routine manner need not be regarded at all and the court has to see whether

there is any prima facie case for such allegations. In the present case, the plaint contains certain basic details which would constitute a proper

allegation of collusion, diversification of funds which of course, are subject to satisfactory evidence and proof. In Paragraph No.12 details of facts

are given which according to the plaintiff would constitute issue of bogus bills and attempt to manipulate the accounts. Reference is also made to

the Tamil Nadu General Sales Tax numbers obtained on 15.4.1999. In Paragraph XIII, reference is made to the conduct of defendants 2 and 3,

paying money through their credit cards for their personal liability from and out of funds of the firm. It is also not disputed by the defendants that no

written permission was obtained from the plaintiff in terms of clause 13 of the Partnership agreement for starting a similar business. Therefore, I am

inclined to hold that there are prima facie materials to sustain serious allegations of fraud, misappropriation etc. and that such allegations are not

made in a passing or routine manner. Such allegations do require strict scrutiny of oral and documentary evidence which would be best left to the

Civil Court.

(C) It is further seen that defendants 4 and 5 in O.S.No.243 of 1999 are not parties to the Partnership agreement and hence the arbitration clause

cannot apply to the disputes raised in the suit. It is true that it is open to the Court to see whether the impleadment of the third parties was genuine

or only a ruse to bye-pass the arbitration clause or whether the third party is only a formal party or an assignee of one of the parties to the

agreement. In such cases, the presence of a third party is bound to be ignored. In the present case, the fifth defendant is neither a formal party nor

an assignee. He is a third party to the agreement against whom definite reliefs are claimed. He is not a person who had merely stepped into the

shoes of any one of the parties to the agreement. Therefore, I am inclined to hold that the arbitration clause cannot be invoked in the present case

as against defendants 4 and 5.

(D) Last but not the least, the relies claimed against defendants 4 and 5 cannot under any stretch of imagination be brought under the scope of the

arbitration clause. Accounts of ""Foot Fashion"" and ""Classic Shoes"" are called in question and allotment of plaintiffs share which is allegedly due to

him in those two establishments are also sought for. Neither the assets of ""Foot Fashion"" nor the asset of ""Classic Shoes"" can have any relevance

to the arbitration clause and would be totally outside the scope of clause 15 of the agreement. The Arbitrator cannot adjudicate upon the rights of

third parties over the assets of the said two establishments. The positive stand of the Revision Petitioners themselves is that plaintiff cannot claim to

treat the income from the said two concerns as income from English Boot House and mat they have no connection with each other, vide the

counter filed in I.A.No.1644 of 1999. A perusal of the counter would disclose that the various defences taken by the Revision Petitioners would

be totally outside the scope of reference to the Arbitrator. The Arbitrator will have absolutely no jurisdiction to go into those issues and the liability

of those two establishments to the plaintiff.

Therefore, in the result, I do not find any justifiable reason to interfere with the refusal of the learned Subordinate Judge to refer the dispute to

the Arbitrator. Civil Revision Petition is dismissed. No costs. Connected C.M.P. is also dismissed.