Keshan Mimani vs Indu Kocher

Kalyan Jyoti Sengupta, J.—The instant appeal has been preferred against the judgment and order of learned Single Judge dated 2nd May, 2011, by which the learned Trial Judge has referred all the disputes in the above suit to Arbitration and with this order learned Trial Judge dismissed the suit. The appellants herein filed a suit against the defendant Nos. 1, 2, 3, 4 and making the respondent No. 5 as a party defendant therein claiming that a decree for declaration that the defendants do not have any right, title or interest in respect of the dissolved partnership firm M/s. Bharat Industries and Commercial Corporation including the assets mentioned in paragraph 10 of the plaint; permanent injunction restraining the defendant from claiming any right, title or interest in the property referred to in paragraph 10 above. Defendant Nos. 1, 2 and 3 thereafter filed an application u/s 8 of the Arbitration and Conciliation Act, 1996 for referring all the disputes involving in the said suit to Arbitration in terms of the arbitration agreement contained in the deed of partnership dated 23rd December, 1972.

In the said application the claim for referring the disputes to Arbitration is based on the following summarized fact:

The plaintiffs have asked for aforesaid relief in the said suit with regard to a partnership firm namely M/s. Bharat Industries and Commercial Corporation, disputes and differences in respect of the said firm have arisen. Several proceedings are pending before the Hon''ble Court in connection with such firm. One Mohanlal Maheswari and one Mohanlal Kocher both since deceased were the original two partners and they formed this aforesaid firm under deed of partnership dated 23rd December, 1972. The aforesaid deed of partnership contains an arbitration clause for resolution of all the disputes between the said two partners and/or their heirs and legal representatives in relation to the affairs of the said partnership firm. Mohanlal Maheswari died on or about 17th December, 1984. The plaintiffs are the heirs and legal representatives of said Mohanlal Maheswari since deceased. Similarly the defendants-applicants in the said suit are the heirs and legal representatives of the said Mohanlal Kocher. Relying on the said arbitration clause an application u/s 20 of the Arbitration Act, 1940 has been made and, by judgment and order dated 5th September, 2007 the said application has been allowed by referring dispute to Arbitration. An appeal has been preferred against the aforesaid judgment and order dated 5th September, 2007 and the same is pending before this Court.

The plaintiffs contested the said application contending amongst others that said application is neither maintainable in law nor on facts of the present case. The subject-matter of the suit and reliefs claimed therein are beyond the scope of the arbitration agreement contained in the deed of partnership dated 23rd December, 1972. Further, all the parties to the present suit were not parties to the purported arbitration agreement. The applicants-defendants have not made out any claim for being referred to Arbitration. In any event the claim of the petitioner, if any, in respect of the partnership firm namely M/s. Bharat Industries and Commercial Corporation, since dissolved is hopelessly barred by the laws of limitation. The petitioner does not have live claim to go to Arbitration. The arbitration agreement relied upon by the petitioners subsequently stood modified by the agreement dated February 2, 1985, entered into between surviving partners Mohanlal Kocher and the heirs of the deceased partners namely late Mohanlal Maheshwari. Therefore, the said arbitration agreement is no longer subsisting. In any event, the arbitration agreement, if any has become redundant and cannot be enforced. This Court is the competent forum to adjudicate all the issues in the present suit and grant reliefs prayed for. The Arbitral Tribunal would not be competent to adjudicate on the subject-matter of the present suit.

Learned Trial Judge found that the arbitration agreement is valid and workable so matter was referred to the Arbitration.

Mr. Hirak Mitra, learned Senior Counsel appearing for the appellants submits that the learned Trial Judge has recorded all disputes which necessarily mean and relate to the claim of the Maheshwaris'' against all the defendants including Mimani defendant/respondent No. 5 and vice versa. Mimani was not a party to the Arbitration and the said person is independent one having separate and distinct legal entity from Kochers as will be borne out from the claim of Mimani''s Suit in 1993 which is an independent action for enforcement of agreement of sale by Kochers to Om Prakash Chowdhury which has been acquired by Mimani on assignment. This suit was filed prior to the action taken by Kochers. While drawing our attention to the language of section 8 with reference to section 2(h) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the said ''Act''), parties therein mentioned mean parties to Arbitration agreement. Since admittedly Mimani was not a party to the 1972 agreement no claim nor any dispute of the Kochers'' or Maheshwaris'' with Mimani could or can be subject-matter of reference. The subject-matter of the dispute is clearly not covered by the arbitration agreement. The learned Trial Court did not have the jurisdiction to refer the matter, which also involves Mimani, to Arbitration by the order under appeal Mimani''s fate will be decided in his absence, which cannot be permitted. He has drawn the support of legal pronouncement in this context of the following decisions of the Supreme Court:

Indowind Energy Ltd. Vs. Wescare (I) Ltd. and Another, and also Rashtriya Ispat Nigam Limited and Another Vs. Verma Transport Company,

He thereafter contends that the impugned judgment and order will give rise to an incongruous situation and this will appear from the following fact. If the Maheshwaris win in the Arbitration, that is plea of limitation is upheld, Mimani''s right will be decided in his absence even though such decision will not be binding on Mimani. Maheshwari will then have to file a fresh suit. If Maheshwaris'' lose the claim of Mimani will remain.

His further assertion that it is clear the dispute partly falls within the arbitration agreement and partly outside and which involves parties some of whom are parties to the arbitration agreement while some are not. With the support of the Supreme Court pronouncement in case of Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya and Another, he pleads the order of reference u/s 8 cannot be and should not have been made as section 8 cannot be attracted. If two proceedings where Mimani''s suit and the arbitration are allowed to go independently and separately, there might be inconsistent findings. The decision of the Arbitrator may conflict with that of the Court. Such a situation is not permitted by the judicial pronouncement as has been held in an English case of Taunton vs. Collins Chromie & others reported in 1964 (1) WLR 633. It will appear that Maheshwaris'' cause of action against Mimani inextricably linked with Maheshwaris'' claim against Kochers, in other words Maheshwaris'' do not have any independent cause of action against Mimani. The learned Trial Court has decided the controversy affecting valuable rights of the Maheshwaris'' as also of Mimani''s. Thus in view of the decision in Shah Babulal Khimji Vs. Jayaben D. Kania and Another, he impugned order is a judgment within the meaning of Clause 15 of Letters Patent so it is an appealable order. The application of Kochers was not accompanied by original arbitration agreement or a duly certified copy thereof. Therefore, there was a clear non-compliance with section 8(2) of 1996 Act which is a mandatory provision and the learned Trial Court could not have entertained the application and the disputes could not have been referred to Arbitration. In fact, he urges placing reliance on decisions of the Supreme Court in case of Atul Singh and Others Vs. Sunil Kumar Singh and Others, and N. Radhakrishnan Vs. Maestro Engineers and Others, the learned Trial Court did not have jurisdiction to entertain the application.

He further contends in support of the plea of appealability of the impugned order that by the impugned order the suit has been disposed of. As far as the portion of the disposal of the suit is concerned the Court lacks jurisdiction as there is no power under the said Act to dispose of the suit. Therefore the said portion of the order at least is not under 1996 Act. Hence, it is an appealable order under Clause 15 of Letters Patent and on this point the Division Bench of this Court has made the legal position clear in case of Modi Korea Telecommunication Ltd. Vs. Appcon Consultants Pvt. Ltd., . Hence order in which lack of jurisdiction is involved is appealable and restriction u/s 37 of 1996 is not attracted. He further submits that order of disposal/dismissal of the suit is so intimately connected with order of reference that is the question of procedure and the question of jurisdiction are so mixed up that one cannot be dissected from the other, hence the impugned order is appealable as being a judgment within meaning of Clause 15 of the Letters Patent and he referred in this connection to a decision of this Court in case of Daulatram Agarwalla Vs. Champalal Jugraj, Besides the learned Trial Judge has decided the dispute with regard to the limitation allowing state claim for adjudication hence decision on the question of limitation makes the order appealable. He submits that while entertaining an application u/s 11 of the said Act the Court is required to decide the question of limitation before naming an Arbitrator, but there is no duty cast upon the Court u/s 8 of the said Act to decide so. According to him the effect of the order u/s 8 and that of section 11 of the said Act are almost same as existence of live claim is sine qua non in both the situation. It has been decided by the Supreme Court in case reported in Pandurang Dhoni Chougule Vs. Maruti Hari Jadhav, , S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, and in case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., and by this Court in case of Santosh Agarwal vs. Rajdeep Agarwal reported in (2001) 1 Cal LT 99 that before order of reference is made the Court must examine the existence of live claim.

Learned counsel for the respondent Nos. 1, 2, 3 submits that impugned order passed u/s 8 of the said Act is not an appealable one which has been held by the Supreme Court in case of Fuerst Day Lawson Ltd. and Others Vs. Jindal Exports Ltd. and Others etc. etc., is not appealable u/s 37 of the said Act. When appeal is not allowed u/s 37 no appeal under Clause 15 is entertainable. In this context the learned counsel has placed reliance on the decision of the High Court reported in Smt. Sudarshan Chopra and Others Vs. Vijay Kumar Chopra and Others, Canbank Financial Services Ltd. Vs. Haryana PetroChemicals Ltd. and Another, and Union of India and Another Vs. Monoranjan Mondal and Others, . Learned counsel contends that presence of third party in a suit does not take away the power of the Court to pass appropriate order u/s 8 of the said Act. It has become legally well settled that in absence of the third party the Court has ample power to pass appropriate orders and this has been held so by the Supreme Court in the case of Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya and Another, Apart from the above authority the learned counsel has referred to in this context, to the decision of Supreme Court in cases of Rashtriya Ispat Nigam Limited and Another Vs. Verma Transport Company, and (2008) 16 SCC 774 respectively. In view of the aforesaid legal position the present appeal is liable to be dismissed.

Learned counsel for the respondent Kishan Mimani contends that his client has already filed a suit. His client admittedly is not a party to arbitration agreement and as such filed a separate and comprehensive suit being No. 510 of 1993 for specific performance against Kochers. Thus claim of the Kochers is subjudice being subject matter of the earlier suit. The suit filed by Maheshwaris'' being C.S. 195 of 2010 is a later suit and in the said suit the appellant has been made a party and the Maheshwaris have challenged the right of Kochers to sell their right title and interest of the properties of the partnership firm to the appellants. The right of the appellant is independent of the rights of the Maheshwaris'' and the Kochers'' and the same have to be necessarily adjudicated in the pending suit of the appellant. His client cannot participate in Arbitration would be bound by the award that might be passed therein and yet all the disputes in the suit filed by Maheshwaris'' including the dispute involving the Mimani''s suit has been referred to Arbitration which is not permissible either on fact or in law.

u/s 7 of the Act, 1996 an arbitration agreement has to be necessarily in writing and has to be signed by the parties. Admittedly, again the concerned arbitration agreement has not been signed by Mimani. It is not open to any of the parties to allege that Mimani is claiming under Kochers as provided in section 35 of the aforesaid Act, 1996 because even Maheshwaris refused to accept right of the Kochers to sell 50% of the share of the partnership firm to the appellant. In the event the arbitration is allowed to proceed it may very well lead to conflict of decisions because the suit filed by the appellant has not been touched and has still been kept pending.

By the impugned judgment Mimani has been totally non-suited in case the award goes in favour of Maheshwaris.

The impugned order as far as Mimani is concerned is not an order u/s 8 of the Arbitration and Conciliation Act, 1996 as he is not party to Arbitration agreement, hence the learned Trial Judge did not Have jurisdiction to pass such an order. The order impugned therefore is not an order under the Arbitration and Conciliation Act, 1996.

After hearing the learned counsels for the parties and considering the materials placed before us we think the question of appealability of the impugned judgment and order passed u/s 8 of the 1996 Act has to be decided first as the same is not appealable u/s 37 of the'' said Act. Even in the Supreme Court judgment in case of Fuerst Day Lawson Ltd. and Others Vs. Jindal Exports Ltd. and Others etc. etc., it has been, amongst other, held so. As rightly contended by the learned counsel for the contesting respondents that order passed u/s 8 of the Arbitration and Conciliation Act is not appealable even under Clause 15 of the Letters Patent. We respectfully follow legal position laid down by the Supreme Court that Clause 15 of the Letters Patent has to be made applicable subject to similar provision of any other special enactments made by the competent legislature as provided in Clause 44 of the Letters Patent Act. The Arbitration and Conciliation Act is one of such legislation as contemplated in Clause 44 of Letters Patent Act.

We are of the view that the aforesaid proposition of law will be applicable only when the Court finds that order passed is in substance u/s 8 of the said 1996 Act. Task of this Court is thus to examine whether the aforesaid order can be said to be an order u/s 8 of the 1996 Act in substance although the said section was invoked.

We, therefore, set out the provision of section 8 of the said 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.

On careful reading of the said section it appears to us that in order to apply section 8 there must be an arbitration agreement and the matter involved in the suit, must be subject-matter covered by the arbitration agreement. The arbitration agreement has been defined in section 7 of Chapter II of the said Act which is quoted hereunder:

Arbitration agreement means an agreement by the parties to submit to arbitration or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not.

The arbitration agreement is binding upon those persons who are parties to the same. In other words the arbitration agreement cannot bind any person other than who are signatories to the same.

Admittedly, Kishan Mimani the respondent No. 5 who is also the appellant in one of the appeals is not a party to the arbitration agreement. Subject matter of the suit on reading of the plaint cannot be said to be arbitration agreement wholly, as claim and contention therein appear to affect interest of Mimani. The impugned order which has been passed on an action u/s 8 of 1996 Act obviously intends to bind Kishan Mimani who is one of the defendants in the suit filed by the appellants and further that the learned Trial Judge has dismissed the suit by the impugned judgment and order, consequently order of reference has been rendered infructuous. As appropriately pointed out by Mr. Hirak Mitra, Senior Advocate, therefore, the order passed referring the disputes canvassed in suit to Arbitration and further dismissing the same cannot be said to be an order u/s 8 of the aforesaid Act.

In other words, we are of the view that the order by which disputes of nonparty to the arbitration agreement is sought to be referred invoking section 8 of Act of 1996, is not an order under Arbitration Act. Hence appealability cannot be adjudged u/s 37 of Act 1996.

Next question arises obviously is whether it is "judgment" within the meaning of Clause 15 of the Letters Patent to maintain present appeal.

It has been contended by the learned counsel for the appellant that even the dispute involved in the suit cannot be referred to arbitration as the right of referring the dispute to arbitration has become time barred and the learned Trial Judge ignoring this point of limitation has passed order referring the dispute to arbitration. It is well settled that any decision on the question of limitation has now become a judgment within the meaning of Clause 15 of the Letters Patent (see Shah Babulal Khimji Vs. Jayaben D. Kania and Another,

That apart it appears question of jurisdiction of the learned Trial Judge has also been agitated as it is noticed that suit itself has been dismissed. According to the learned counsel for the appellant while referring the disputes to the arbitration the suit cannot be dismissed simply the Court has no jurisdiction while considering prayer for reference. We find this contention of learned counsel carries some force as the decision on question of jurisdiction is also a judgment within the meaning of Clause 15 of the Letters Patent and the aforesaid Supreme Court decision has laid down this legal position also. We therefore hold that the impugned judgment and order is appealable within the meaning of Clause 15 of the Letters Patent as we have already held that it is not an order nor it can be termed to be an order u/s 8 of the Act, 1996.

Now it is to be examined whether the learned Trial Judge is justified in passing order of reference to Arbitration in this case or not. On careful reading of the plaint it appears that the plaintiffs-appellants filed the suit challenging validity and legality of the agreement for sale of Mohanlal Kocher''s 50% share in the dissolved partnership firm and the defendant No. 5 is the assignee of the said agreement for sale. The allegations which constitute foundation of challenge mentioned in the plaint are that Mohanlal Kocher being the predecessor-in-interest of the respondent Nos. 1, 2, 3, 4a, 4b before his death on or about 26th December, 1990 agreed to assign his Vi share of the assets and liabilities in the dissolved firm by an agreement in favour of one Om Prakash who subsequently transferred all interest arising out of the agreement with the said Mohanlal Kocher, in favour of defendant No. 5 by deed of transfer in or about May 1991. It is contended that the said agreement is illegal and void as the said late Mohanlal Kocher had no right, title and interest in the properties of the said partnership firm after a period of 3 years of dissolution of the said partnership firm as such he could not transfer.

Therefore it is clear from the plaint that the dispute canvassed in the suit not only affects the interest of the defendants/respondents No. 1, 2, 3, 4a, 4b but also the defendant No. 5. In the event the decree is passed as prayed for obviously the agreement has to be declared invalid naturally this defendant''s right is bound to be affected.

It has been justly contended that in the event the impugned judgment and order is sustained obviously the arbitration proceeding will be held and the defendant No. 5 not being a party to the arbitration will not be entitled to participate in the same and in his absence if the award is passed declaring the said agreement being void illegal and unenforceable that would amount to gross injustice, simply because he would be remediless. If for any reason the award is passed before the suit filed by this defendant for specific performance is taken up for hearing obviously it would be rendered infructuous. Therefore, it is clear that the cause of action as against the defendants Nos. 1, 2, 3, 4a and 4b and the defendant No. 5 in the suit is so closely interlinked that the same cannot be dissected and with the exclusion of defendant No. 5 neither the suit can be maintained nor the arbitration proceedings can be proceeded with. In this connection the decision of the Supreme Court in case of Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya and Another, may be referred to. It is ruled in the said decision that where the suit is commenced in respect of the matter which falls partly within the arbitration agreement and partly outside and which involves parties some of whom are parties to the arbitration agreement while some are not so, section 8 is not attracted. As rightly submitted by the learned counsel for the appellant that Courts do not give countenance multiplicity of proceeding or bifurcation as, there might be possibility of inconsistent findings. The decision of the Arbitrator may conflict with the decision of the Court. In this connection English decision in case of Taunton vs. Collins Chromie and ors. reported in (1964) 1 WLR 633 may be useful.

It is true the language of section 8 unlike section 34 of the Arbitration and Conciliation Act is different and there is no scope for exercise of discretion and once the condition mentioned in section 8 are fulfilled the Court is bound to refer the dispute to arbitration. But recently Supreme Court has held it cannot be done in all cases as the dispute in the nature of fraud misrepresentation cannot be referred to the Arbitration for its decision and it must be done by regular Court. That apart we find as rightly contended by learned counsel for the appellant that the learned Trial Judge without having the original agreement or certified copy of the arbitration agreement passed the impugned judgment and order and referred the dispute. In case of Atul Singh and Others Vs. Sunil Kumar Singh and Others, and subsequently in case of N. Radhakrishnan Vs. Maestro Engineers and Others, has held that without the original arbitration agreement or certified copy thereof the application cannot be entertained.

Therefore this goes to the very root of the question of jurisdiction. We are of the view having regard to the language of section 8 which is mandatory in nature, without the requirements mentioned therein, being fulfilled the Court cannot assume the jurisdiction.

Under those circumstances we are unable to accept the judgment and order of the learned Trial Judge.

It appears that Mimani has also filed a suit for specific performance. The Court is to consider the balance of convenience also while passing order of reference, while doing so in this case we hold that it is not a case where domestic forum would be appropriate as one of the parties to this suit would be deprived of having access to justice, but in the Court in this suit all parties are free to approach whatever way they like the Court for justice. In view of discussion as above we are unable to sustain the judgment and order of the learned Trial Judge passed u/s 8 of the Act. Accordingly we allow this appeal and set aside the judgment and order of the learned Trial Judge. We think that this suit as well as the suit filed by Mimani for specific performance of the agreement for sale ought to be heard analogously.

Thus the appeal is allowed. Stay of operation of this judgment and order is prayed for. We grant stay for a period of four weeks after the Christmas Vacation.

Joymalya Bagchi, J.

I agree.