Sulana Santimano vs Graciano Cottages and Others

A.P. Lavande, J.—Heard learned Counsel for the parties. Rule. By consent, heard forthwith.

By this writ petition, the petitioner challenges the order dated 27th January, 2009 passed by the Civil Judge, Senior Division, Margao in Special Civil Suit No. 89/2002/A dismissing the application filed u/s 8 of the Arbitration and Conciliation Act, 1996 (''The Act'' for short).

The petitioner is defendant No. 5 in the above suit filed by respondent No. 7/plaintiff. Respondent No. 1 is defendant No. 1. Respondent Nos. 2 to 4 are defendant Nos. 2 to 4. Respondent No. 5 is defendant No. 6 and respondent No. 6 is defendant No. 7.

Plaintiff filed the suit for recovery of an amount on the basis of agreement dated 31st January, 1994 alleged to have been entered into between the defendant Nos. 2 to 5 and the plaintiff, who were partners of defendant No. 1. Defendant Nos. 6 and 7 later on joined as partners of the firm. The defendant No. 5 filed an application u/s 8 of the Act on 10th February, 2003, which was opposed by filing reply by the plaintiff only. The other defendants specifically did not file any reply to the application. Defendant Nos. 2, 3 and 4 filed written statement much later and assailed the agreement dated 31st January, 1994, inter alia, on the ground that it was executed by practising fraud by defendant No. 5 and on the ground that they had neither signed the agreement nor they had authorised any power of attorney to execute the same on their behalf.

The learned Trial Judge by the impugned order dismissed the application primarily on the following grounds:

(i) There was no privity of contract between defendant Nos. 1, 6 and 7 and the plaintiff.

(ii) The arbitrator had expressed his inability to act as an arbitrator.

(iii) Defendant No. 5, who was one of the parties to the arbitration agreement, could not have sought reference of the dispute on behalf of the partnership firm.

(iv) Defendant No. 5 did not file an application on the returnable date of summons and, therefore, he could not have sought reference of the dispute.

Mr. Menezes, learned Counsel for the petitioner/ defendant No. 5 assailed the impugned order on the following grounds:

(i) The defendants, more particularly defendant Nos. 2 to 4 having not filed reply opposing the application filed u/s 8 of the Act, the application could not have been dismissed on the grounds mentioned in the impugned order.

(ii) The only ground on which the plaintiff had opposed the application was that the demand for referring the dispute was not raised within the time before the consultant and the same having been negatived by the Trial Court, the application ought to have been allowed.

(iii) Filing of the written statement by the defendants, more particularly defendant Nos. 2, 3 and 4 would not amount to opposing the application u/s 8 of the Act.

(iv) Defendant No. 5 had implied authority to sign the agreement on behalf of the firm containing arbitration clause in terms of Sections 19 and 22 of the Indian Partnership Act, 1932.

(v) Defendant Nos. 2, 3 and 4 had ratified the conduct of defendant No. 5 of entering into an agreement containing arbitration clause by not filing reply to the application.

(vi) The conduct of defendant Nos. 2, 3 and 4 clearly discloses that they acquiesced and did not seriously oppose the reference of the dispute to arbitration, and as such, the reference ought to have been made to the arbitrator.

In support of his submissions, learned Counsel relied upon the following authorities:

(i) Shankar Das Rup Lal Vs. Governor-General in Council (now Dominion of India), .

(ii) Ram Bahadur Thakur Vs. Thakur Das and Others, .

(iii) Krishan Kumar Vs. Knitting Industries and Others, .

(iv) M/s. Alacrappa Cotton Mills v. Indo Burman Trading Corporation, Madras and Ors. AIR 1976 Mad 79.

(iv) AIR 1949 46 (P & H.) .

Mr. Pangam, learned Counsel appearing for respondent Nos. 1, 5 and 6 left the matter to the Court.

Mr. Usgaonkar, learned Counsel appearing for respondent Nos. 2, 3 and 4 submitted that the agreement dated 31st January, 1994 itself discloses that the same was not signed by defendant Nos. 2, 3 and 4 and even the power of attorney, whose name was mentioned in the agreement, did not sign the agreement. As such, defendant Nos. 2, 3 and 4 were not the parties to the agreement and, therefore, they cannot be compelled to go for arbitration. Mr. Usgaonkar placing reliance upon Section 19 and 22 of the Indian Partnership Act, 1932 submitted that the petitioner/ defendant No. 5 had no authority on behalf of defendant Nos. 2, 3 and 4 to agree to submit the dispute relating to the business of the firm to the arbitration and, therefore, the impugned order cannot be faulted. Learned Counsel further submitted that defendant Nos. 2, 3 and 4 having already filed written statement, have submitted to the jurisdiction of the Court and as such at this stage, they cannot be compelled to go for arbitration. In support of his submissions, Mr. Usgaonkar placed reliance upon the following judgments:

(i) Bhagvan Manaji Marwadi Vs. Hiraji Premaji Marwadi, ,

(ii) Sohan Lal Vs. Firm Madho Ram Banwari Lal and Others, .

I have carefully considered the rival submissions and perused the record and the judgments relied upon.

In Bhagvan Manaji Marwadi Vs. Hiraji Premaji Marwadi, . the Division Bench of this Court after referring to several judgments held that there is no such thing as firm known to the law and a suit against a firm is essentially a suit against the partners constituting the firm. One partner cannot, without special authority, bind the firm by a submission to arbitration. The power to refer the dispute, even although they relate to dealings with the firm cannot be said to be an act done for carrying on its business in the ordinary way. The partner actually referring the dispute is however himself bound by the award and the other partners may become bound by ratification.

In the present case, perusal of the agreement dated 31st January, 1994 discloses that the constituted attorney Mr. Ignatius Santimano, who claimed to be power of attorney for defendant Nos. 2, 3 and 4, had not even signed the said agreement. In the written statement filed by defendant Nos. 2, 3 and 4 they have challenged the said agreement on several grounds. This being the position, it cannot be said that defendant Nos. 2, 3 and 4 had consented to the arbitration agreement. Therefore, the ratio laid down in the case of Bhagwan Marwadi (supra) is squarely applicable in the present case. I am unable to accept the submission of Mr. Menezes that defendant Nos. 2, 3 and 4 had acquiesced and/or had ratified the action of the petitioner/ defendant No. 5 in entering into an agreement or for referring the dispute arising from agreement dated 31st January, 1994 to the arbitration.

Merely because the said defendants had not filed a specific reply opposing the application, the same by itself would not be sufficient to hold that they had acquiesced and/ or ratified the action of defendant No. 5. The fact remains that the application u/s 8 of the Act was decided much after the said defendants filed written statement, inter alia, challenging the agreement dated 31st January, 1994. While deciding the application u/s 8 of the Act, the Trial Court was perfectly justified in considering the said agreement and the defence taken by defendant Nos. 2, 3 and 4 in their written statement. Even otherwise, the said defendant Nos. 2, 3 and 4 were entitled to point out to the Court that on the basis of the documents produced by the plaintiff and other defendants, the said defendants had not agreed to refer the dispute to arbitration. This being the position, I find that the order of the Trial Court referring the dispute to the arbitration cannot be faulted.

Authorities cited by Mr. Menezes are in relation to ratification and/ or acquiescence by the partners when other partner refers the dispute to arbitration. I have already held that there was neither acquiescence nor ratification by defendant Nos. 2, 3 and 4. In my considered opinion, the ratio of the Division Bench judgment of this Court is squarely applicable in the present case. In terms of Section 19 and 22 of the Indian Partnership Act, 1932, the petitioner/ defendant No. 5 was not entitled to enter into an agreement providing a clause for arbitration. Moreover, as stated above, the power of attorney, who claimed to have been authorised by defendant Nos. 2, 3 and 4 to sign the agreement, had not even signed the said agreement. This being the position, the impugned order rejecting the application for referring the dispute for arbitration, cannot be said to unsustainable.

For the reasons aforesaid, I do not find any merit and hence, the petition is dismissed. Rule is discharged.