Niranjan Lal Data and Others vs Ajay Data and Others

M.N. Bhandari, J.�By this application under section 11 of the Arbitration and Conciliation Act, 1996 (for short ''the Act of 1996''), prayer is made to appoint Mr. PK Bhatia as the sole Arbitrator to resolve the dispute between the parties.

Learned counsel for applicants submits that in the partnership firm of M/s. Vijay Industries, partners retired from time to time with an arrangement for payment of amount lying in their capital account. After retirement, the amount lying in the capital account was not paid thus applicants served a notice for appointment of Arbitrator to settle the dispute. The non-applicants failed to act upon the said notice thus on expiry of period of 30 days, this application was submitted before this court.

Learned counsel referred various partnership deeds executed between the parties from time to time and, lastly, partnership deeds executed on 1.4.2007 and 1.1.2008. Therein, it was agreed that retiring partner would get the amount lying in the credit of capital account. In view of above, an independent Arbitrator may now be appointed by the court in terms of arbitration clause in the partnership deed.

Learned counsel for non-applicants seriously opposed the prayer made by the applicants. It is submitted that after partnership deed dated 1.4.2007 and 1.1.2008, last partnership deed was executed on 1.4.2008. The earlier partnership deed having been superseded by a new partnership deed, no claim can be raised in pursuance to the previous partnership deed thus application under section 11 of the Act of 1996 is not maintainable.

It is further stated that a litigation is pending before the civil court on a suit preferred by the non-applicants in respect of the same firm namely M/s. Vijay Industries. Therein, an injunction order was granted by the court below and, thereupon, the matter travelled upto Hon''ble Supreme Court, wherein, it was sent for mediation but failed thus matter is now to be decided effectively by the civil court. An order for maintaining status quo by the parties is operating therein.

It is stated that the applicants herein failed to make an application therein to invoke section 8 of the Act of 1996. If the arbitration clause is existing in the partnership deed to which the applicants are concerned, they should have made an application under section 8 of the Act of 1996 to invoke arbitration but, having failed to do so, application under section 11 of the Act cannot be maintained. For the aforesaid reason also, application deserves to be rejected.

It is also contended that Mr. Babu Lal Data - non-applicant No. 2 herein, was introduced as partner for the first time on 1.4.2008 vide partnership deed at annexure-7 thus no claim against him can be maintained by the applicants. For this reason also, application under section 11 of the Act deserves to be dismissed.

I have considered rival contentions of the parties and scanned the matter carefully.

It is not in dispute that partnership deeds were executed between the parties from time to time. Many partners retired in between with execution of new partnership deed. The relevant partnership between parties were executed on 1.4.2007, 1.1.2008 and 1.4.2008, thus aforesaid partnership deeds are taken into consideration by this court.

The partnership deed executed on 1.4.2007 (annexure-4) shows 4 partners, out of which Niranjan Lal Data, Daya Kishan Data and Vijay Kumar Data are the applicants to this application and were partners therein in the individual capacity. Mr. Babu Lal Data is also partner at No. 2 but as HUF. Mr. Niranjan Lal Data (HUF), Gangadeen Vijay Kumar (HUF) retired, thus till execution of the aforesaid deed, even Nirnjan Lal Data (HUF), so as Gangadeen Vijay Kumar Data (HUF) were also partners but retired on 1.4.2007. The retirement was with an arrangement as was given in the partnership deed having clause for arbitration. Relevant parts of the partnership deed dated 1.4.2007 are quoted hereunder for ready reference -

"WHEREAS the party of the second and fourth part had been carrying on the business in their partnership vide deed of partnership dated 1st day of April 2002 along with Sh. Niranjan Lal Data (HUF) and Sh. Ganga Deen Vijay Kumar (HUF) as karta of their respective HUF. AND WHEREAS the Sh. Niranjan Lal (HUF) and Sh. Ganga Deen Vijay Kumar (HUF) has expressed their desire to retire from the partnership w.e.f. 31/03/2007 (close of business hours) and joined the firm in their INDIVIDUAL capacity and has accordingly retired and joined the partnership w.e.f. 01-04-2007. AND WHEREAS the parties to this deed are desirous to reduce to write their partnership terms and conditions upon which they propose to work in future.

DURATION

That the partnership business shall be at will and any partner may ask his retirement from this firm after giving the firm or the other partner one month clear notice in writing. In the event of retirement of any partner no goodwill shall be paid to the retiring partner and amount lying credit in his capital account shall be paid to the retiring partner."

The perusal of paras quoted above show retirement of Mr. Niranjan Lal Data (HUF), Gangadeen Vijay Kumar (HUF) but joined the firm in individual capacity. It was with an arrangement that on retirement of partners, no goodwill shall be paid but the amount lying credit in his capital account would be paid. The subsequent partnership deed dated 1.1.2008 shows similar clause regarding right of the partners. The aforesaid clause of the agreement dated 1.1.2008 is also quoted hereunder for ready reference -

"3. DURATION:

That the partnership business shall be at will and any partner may ask his retirement from this firm after giving the firm or the other partner one month clear notice in writing. In the event of retirement of any partner no goodwill shall be paid to the retiring partner and amount lying credit in his capital account shall be paid to the retiring partner."

Subsequent partnership deed is dated 1.4.2008 where none of the applicants are the partners.

The first question for my consideration is as to whether a right remains with the partner to seek appointment of the Arbitrator in pursuance to the earlier partnership, where he was a member and, later on, retired or it would be forfeited with the execution of the new partnership deed.

The argument raised by learned counsel for the non-applicants cannot be accepted. In case of dispute in pursuance to the earlier partnership deed, a reference of dispute to the Arbitrator can be sought. The subsequent partnership deed executed between remaining partners, either with continuance or induction of new partners, cannot take away the arrangement agreed in favour of those, who were parties to the earlier partnership deed more so when new partnership deed does not speak about it.

In the background aforesaid, on a dispute by the applicants herein, appointment of Arbitrator can be prayed in pursuance to the partnership deed to which they are concerned. The partnership deed dated 1.4.2008 was executed after knowing earlier agreement thus first argument raised by learned counsel for non-applicants is accordingly decided adverse to them.

The other argument is that Mr. Niranjan Lal Data (HUF) and Gangadeen Vijay Kumar (HUF) are not party to the subsequent partnership deed executed on 1.4.2007 and 1.1.2008. Relevant clauses of the partnership deeds have been quoted above. Therein, it was agreed by the partners that Niranjan Lal Data (HUF) and Gangadeen Vijay Kumar (HUF) would retire and join the firm in their individual capacity and, accordingly, they joined the partnership firm in their individual capacity on 1.4.2007. The retired partners were made entitled to claim amount lying in the capital account in the partnership deed of 1.4.2007 and 1.1.2008 hence, if appointment of Arbitrator has been asked on a dispute to claim amount lying in capital account of Niranjan Lal Data (HUF) and Gangadeen Vijay Kumar (HUF), it cannot be said to be not maintainable.

The other argument is in reference to section 8 of the Act of 1996. The aforesaid provision is relevant which is reproduced hereasunder-

"8. Power to refer 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, 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 in reference to the suit filed by the non-applicants and not by the applicants. It is admitted that no counter claim has been made by the applicants herein. They are only contesting the claim made by the non-applicants in their suit, where, M/s. Vijay Industries is also a party. If the applicants would have submitted counter claim in the pending suit without a request to send the matter for arbitration by invoking section 8 of the Act of 1996, the position could have been different. If, for the sake of argument, an application under section 8 of the Act of 1996 for appointment of Arbitrator would have been made by the applicant with an order to refer the dispute to the Arbitrator, then also, dispute raised by them would not be resolved in those proceedings in absence of counter claim. In the background aforesaid, the application under section 11 of the Act of 1996 cannot be dismissed on the ground urged by the learned counsel for non-applicants. It is for that reason, pending suit cannot be a bar to seek appointment of Arbitrator for the claim raised by the applicants. The status quo order is to apply for the issue of dispute involved in the suit.

The last argument of learned counsel for non-applicants is that Mr. Babu Lal Data was not a partner in individual capacity in any of the partnership deeds to which non-applicants are making claim. However, while maintaining the application under section 11 of the Act of 1996, he has been impleaded as party non-applicant. Learned counsel for applicants referred it to be a typographical error.

The argument aforesaid needs consideration because appointment of the Arbitrator can be in respect of a dispute and against the partners. The application for it would be maintainable against non-applicants No. 1 and 3 and other partners but not against non-applicant No. 2-Babu Lal Data (HUF). Hence, objection aforesaid is allowed but with clarification that the reference of the dispute would be in pursuance to the partnership deeds dated 1.4.2007 and 1.1.2008. With the aforesaid clarification, objection raised by the non-applicants is allowed.

In view of the discussion made above, application under section 11 of the Act of 1996 is allowed. Mr. Justice SN Jha, Chief Justice (Retired) is appointed as Arbitrator to resolve the dispute between the parties at the fee provided under the Manual of the Rajasthan High Court.