Rajesh Gandhi & another vs Smt. Usha Jain & others

By this application under Section 11 of Arbitration and Conciliation Act, 1996 applicants have made a prayer for appointment of independent

arbitrator for resolving the dispute between the parties.

Case of applicants is that the partnership firm was constituted between applicants and respondents no. 1 to 3 on 19/12/2011 and the application

dated 30/1/2012 was filed before the Assistant Registrar, Firms and Society for its registration. Further caser of applicants is that Assistant

Registrar Firms and Society vide communication dated 6/3/2012 had pointed out certain defects and asked for rectification but respondents no. 1

& 2 had not rectified the defects. Thereafter vide deed of retirement dated 17/11/2012 respondent no. 3 had retired from the firm and all these

original documents were retained by respondents no. 1 & 2. Further case of applicants is that respondents no. 1 & 2 had entered into the

agreement dated 11/6/2013 with respondent no. 4 for sale of the properties of partnership firm stating that sum of Rs. 1,13,00,000/- was payable

to each of present applicant for earlier dues but this agreement was also not registered and kept by respondent no. 3 in his possession. In

pursuance to this out of Rs. 2,26,00,000/- respondents no. 1 & 2 had paid the amount of Rs. 1,36,00,000/- and amount of Rs. 90,00,000/- is still

payable, therefore, the dispute is about non payment of remaining Rs. 90,00,000/- and 22-22 % share of applicants in partnership firm. Hence the

applicants had given the notice dated 23/5/2015 in this regard making a prayer to appoint the arbitrator for resolving the dispute and respondents

vide reply dated 29/6/2016 had refused the same.

The respondents no.1 & 2 have filed the reply denying that any such partnership deed dated 19/12/11 was executed between the parties and

taking the plea that the partnership firm/respondent no. 5 was constituted by respondents no. 1 & 2 on 11/3/11 and land was purchased in the

name of the firm vide different sale deeds. They have also denied the signature on the document Anex.P-2 dated 30/1/2012 and raised an

objection that no authentic and official document such as disclosure in income tax return of respondent no. 5, challans etc. have been filed to show

creation of partnership firm dated 19/12/11. Respondents no. 1 & 2 have also disputed the documents relating to retirement of respondent no. 3

and denied the same and also denied that partnership deed dated 19/12/11 or communication dated 6/3/12 sent by Registrar to in possession of

said respondents. They have taken the plea that on 17/6/13 the sale agreement was executed by respondents no. 1 & 2 as exclusive partners of

respondent no. 5 firm with Smt. Vimala Agrawal wife of Mohanlal and that the partnership firm has been reconstituted on 9/2/2016 when

respondents no. 1 & 2 had agreed to retire from firm and respondent no. 4 and Smt. Ruchi had agreed to reconstitute the partnership firm.

Reply has also been filed by respondents no. 4 & 5 opposing the application and disputing the partnership agreement dated 19/12/11 and

further raising the plea that respondent no. 4 is not a party to said alleged agreement and that sale agreement dated 11/6/13 is between

respondents no. 1 & 2 and Smt. Vimala Agrawal who is also not a party to present proceeding and further that on the one hand the applicants are

claiming themselves to be partner of the said respondent no. 5/firm and on the other hand they are raising the plea relating to agreement to

purchase the land from the firm having 2 partners, respondents no. 1 & 2.

In the rejoinder the applicants have reiterated their plea and in the reply to rejoinder, the respondents have tried to fortify their stand.

Learned counsel for applicants submits that since the partnership agreement dated 19/12/11 exists between the parties which contains the

arbitration clause and in terms of agreement to sale dated 11/6/13 the amount has not been paid, therefore, the arbitrator be appointed for

resolving the dispute between the parties.

As against this learned counsel for respondents has submitted that no such partnership agreement dated 19/12/11 was executed and that

applicants are seeking appointment of arbitrator to recover the amount in terms of sale agreement dated 11/6/13 but said sale agreement does not

contain any arbitration clause. He further submits that applicants are not the partners of respondent no. 5/firm and that the documents have been

fabricated by applicants and respondent no. 4 is not a party to the alleged agreement and having regard to the disputed issue involved in the matter

arbitrator may not be appointed.

I have heard the learned counsel for the parties and perused the record.

The pre-condition for invoking the jurisdiction under section 11 of the Act is existence of a valid arbitration agreement in terms of clause 7 of the

Arbitration & Conciliation Act, 1996 (for short the Act).

In the present case the applicants are claiming that vide partnership deed dated 19/12/11 they were inducted as partner of respondent no. 5

firm alongwith respondents no. 1 to 3. This partnership deed is not a registered partnership deed and the original of this deed has not been filed.

The respondents have also denied the possession of any such deed.

Further case of applicants is that this deed was filed before the Assistant Registrar Firms and Society but the respondents have also denied that

any such deed was filed at their instance or under their signature before the Registrar, Firms and Society. Serious allegations have been made that

applicants have fabricated these documents. The applicants have also not filed any document of respondent no. 5/firm to show that alleged

reconstitution of the partnership deed dated 19th December 2011 was produced before any of the authority such as Tax Authorities etc. A

specific objection has been raised by respondents that no such deed has been mentioned in the income tax return of respondent no. 5 for the

relevant year or the subsequent years. 12 Though applicants are relying upon the sale agreement dated 11/6/13 but in this sale agreement also only

respondents no. 1 & 2 are shown as partners of respondent no. 5 and though name of applicants are mentioned therein in respect of liability of Rs.

1,13,00,000/- each but they are not shown as partners of respondent no. 5.

In the aforesaid circumstances, serious dispute exists between the parties in respect of execution of alleged partnership agreement dated

19/12/11. The other documents which have been relied upon by counsel for applicants have also been questioned by respondents as fabricated

documents, therefore, the applicants are required to lead elaborate evidence in this regard and establish the claim which can more appropriately be

done before the civil court then the arbitrator.

Supreme court in the matter of N. Radhakrishnan Vs. Maestro Engineers and others reported in (2010) 1 SCC 72 has held that despite

existence of arbitration agreement and the dispute in question falling within purview thereof, if the dispute requires detailed investigations and

production of elaborate evidence then it must be tried by a court. In that case since there was a serious allegation as to fraud and malpractices

committed in account books and manipulation of finances of partnership firm, therefore, it was held that the case did not warrant matter to be tried

and decided by arbitrator and for furtherance of justice, it should be tried in a court of law which would be more competent and have the means to

decide such a complicated matter. Supreme court in this regard in the above case has held that:

23 The learned counsel appearing on behalf of the respondents on the other hand contended that the appellant had made serious allegations against

the respondent alleging that they had manipulated the accounts and defrauded the appellant by cheating the appellant of his dues, thereby warning

the respondents with serious criminal action against them for the alleged commission of criminal offences. In this connection, reliance was placed in

a decision of this Court in the case of Abdul Kadir Shamsuddin Bubere vs. Madhav Prabhakar Oak in which this court under para 17 held as

under:

There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter

should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the

reference

In our view and relying on the aforesaid observations of this Court in the aforesaid decision and going by the ratio of the above mentioned case, the

facts of the present case does not warrant the matter to be tried and decided by the Arbitrator, rather for the furtherance of justice, it should be

tried in a court of law which would be more competent and have the means to decide such a complicated matter involving various questions and

issues raised in the present dispute.

This view has been further enunciated and affirmed by this Court in the decision of Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd,

wherein this court under para 4 observed :

Sub-section (1) of section 8 provides that judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the

said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the Arbitrator is

only that dispute or matter which the Arbitrator is competent or empowered to decide.

The learned counsel for the respondent further elaborated his contention citing the decision of the High Court of Judicature at Madras in HG

Oomor Sait Vs.O. Aslam Sait, wherein it was held:

......Power of civil court to refuse to stay of suit in view of arbitration clause on existence of certain grounds available under 1940 Act continues to

be available under 1996 Act as well and the civil court is not prevented from proceeding with the suit despite an arbitration clause if dispute

involves serious questions of law or complicated questions of fact adjudication of which would depend upon detailed oral and documentary

evidence.

The Civil Court can refuse to refer matter to arbitration if complicated question of fact or law is involved or where allegation of fraud is made.

Allegations regarding clandestine operation of business under some other name, issue of bogus bills, manipulation of accounts, carrying on similar

business without consent of other partner are serious allegations of fraud, misrepresentations etc., and therefore application for reference to

Arbitrator is liable to be rejected.

We are in consonance with the above-referred decision made by the High Court in the matter concerned.

In the present dispute faced by us, the appellant had made serious allegations against the respondents alleging him to commit malpractices in

the account books and manipulate the finances of the partnership firm, which, in our opinion, cannot be properly dealt with by the Arbitrator. As

such, the High Court was justified in dismissing the petition of the appellant to refer the matter to an Arbitrator.

In the matter of BNR Enterprises (M/s) Thr. Akash Sachdev V. Smt. Laxmidevi, reported in 2017(II) MPWN 56 also in a case where there

was serious dispute about existence of original and authentic copy of agreement signed by all the parties was not filed the court has refused the

prayer for appointment of arbitrator giving liberty to take recourse to civil suit by holding as under:

Having regard to the aforesaid position in law and the serious disputed factual questions involved in the matter and the fact that original or

authentic copy of agreement signed by all the parties is not placed on record, I am of the opinion that the prayer made in the AC for appointment

of arbitrator cannot be granted.

The record further reflects that main dispute between the parties is in respect of non payment of Rs. 90 lakhs to applicants in pursuance to the

sale agreement dated 11/6/13 but this sale agreement does not contain any arbitration clause nor in this sale agreement the amount alleged is

payable to applicants disclosing them to be partners of respondents no. 5/firm. The applicants have tried to club their claim under the alleged

partnership agreement dated 19/12/11 and sale agreement dated 11/6/13 which does not contain the arbitration clause.

Supreme court in the matter of Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya reported in (2003) 5 SCC 531 has held that where subject

matter of suit is partly within the arbitration agreement and partly outside and which involves parties some of whom are parties to the arbitration

agreement and other are not so, the provision of Section 8 of Act will not be attracted and matter needs to be decided by civil court because there

was no provision in the Act for bifurcating the suit into two parts, one to be referred to arbitration for adjudication and the other leaving the

decision by the civil court.

That apart Smt. Vimala, the alleged purchaser in sale agreement is not a party in this arbitration case and respondent no. 4 is not a party to the

alleged partnership agreement dated 19/12/11.

In the aforesaid circumstances, when the execution of the agreement dated 19/12/11 itself is in dispute and at this stage there is no authentic

document on record to give a finding in respect of execution of said agreement, and serious allegations of fraud have been levelled by respondents,

I am of the opinion that the prayer made under Section 11 of the Act in this Arbitration Case cannot be granted and the proper remedy available to

applicant is to approach the Civil court and establish the claim by leading the evidence.

Hence the AC is dismissed, with liberty to applicant to take recourse to such other remedies as are available in law. C.c. as per rules.