Uppal Traders and Others vs Amar Nath Bakshi

V.P. Gupta, J.—This is a revision petition by the Defendants against the order, dated 15th November, 1978, passed by the District Judge, Solan, by which the appeal of Amar Nath Plaintiff-Respondent was accepted and the order of the Senior Sub-Judge, Solan, dated 13th July, 1977, staying the proceedings in the suit filed by the Plaintiff-Respondent u/s 34 of the Indian Arbitration Act (hereinafter shortly called the Act) was set aside.

The brief facts of the case are that the Plaintiff-Respondent filed a suit for dissolution of partnership and rendition of accounts against the Defendants-Petitioners on 10th May, 1977, in the Court of Senior Sub-Judge, Solan. The allegations in the plaint are that a partnership deed was executed on 1st November, 1976, between the Plaintiff and Defendants 2 to 8, by which a partnership business in the name and style of M/s. Uppal Traders, Saproon (Solan) was to be carried and the parties to the agreement had agreed to share the profits and losses in this business. It was further alleged that the Plaintiff had been working as a partner in this firm, but the Defendants without giving any information to the Plaintiff and without his consent got a notice published in the newspaper to the effect that the Plaintiff was no longer a partner of the firm. It is also alleged that the Defendants 2 to 8 have an intention to harm the interest of the Plaintiff, that the Plaintiff''s share was not being paid to him, and that the Defendants have started committing breaches of the partnership by misappropriating the money of the business and by not rendering the true accounts.

On these allegations the Plaintiff filed a suit claiming that a. decree for dissolution of partnership business and accounts be passed against the Defendants, that after taking of the accounts, a decree for the amount due be awarded in Plaintiff''s favour and that a receiver be appointed for management of the business and collection of money due to the partnership business pending the suit.

Notice of the suit was issued to the Defendants. The Defendants filed an application u/s 34 of the Act on 7th June, 1977, and by this application it was prayed that the proceedings in the suit should be stayed because in terms of Clause 11 of the arbitration agreement, the disputes or differences between the parties are to be decided by an arbitrator. It was further alleged that the relief claimed in the suit is covered by the said term of the agreement of partnership. Reply to this application was filed by the Plaintiff and it was alleged by him that the Defendants had themselves repudiated Clause 11 of the partnership deed by their unilateral action, inasmuch as they got published a notice in the newspaper to the effect that the Plaintiff is no longer a partner in the firm with effect from 1st May, 1977. It was further alleged that as the Defendants had refused to accept the Plaintiff as a partner, therefore, the arbitration Clause 11 of the partnership deed has become inoperative. The Plaintiff further alleged that all the requirements of Section 34 of the Act are not fulfilled and as such the provisions of Section 34 cannot be made applicable in the suit.

The learned Senior Sub-Judge vide his order, dated 13th July, 1977, accepted the application of the Defendants u/s 34 of the Act and ordered that the suit be stayed.

The Plaintiff feeling aggrieved from this order filed an appeal before the District Judge, Solan, and the learned District Judge vide his order, dated 15th November, 1978, accepted the appeal and dismissed the application of the Defendants u/s 34 of the Act and held that the suit could proceed in the Court.

The Defendants have now filed this revision petition and have challenged the order of the learned District Judge, dated 15th November, 1978.

I have heard Shri S.S. Ahuja learned Counsel for the Defendants-Petitioners and Shri B. Sita Ram learned Counsel for the Plaintiff-Respondent, and have also gone through the record of the case.

The learned Counsel for the Petitioners has contended that right to file a suit is available to the Plaintiff-Respondent but under the provisions of Section 34 of the Act the proceedings in the suit should be stayed in view of Clause 11 of the partnership deed. He further contended that a suit for dissolution of partnership and rendition of accounts was filed by the Plaintiff-Respondent after admitting the correctness of the terms and conditions of the partnership agreement and in such circumstances the Plaintiff is bound by Clause 11 of the partnership agreement and as such the proceedings in the suit ought to have been stayed. It was also contended that all the necessary requirements for invoking the provisions of Section 34 of the Act had been complied with by the Defendants-Petitioners. In view of these contentions it was argued that the order of the learned District Judge is clearly wrong and unsustainable.

The learned Counsel for the Plaintiff-Respondent, on the other hand, contended that all the parties to the agreement, except the Plaintiff, are of one family and. that the Defendants had, in fact, themselves got a notice published in the newspaper by which the partnership agreement had been repudiated and the status of the Plaintiff as a partner had been denied. In this situation it was contended by the learned Counsel for the Respondent that the Defendants had no right to claim the stay of the proceedings. It was also contended that the provisions of Section 34 are of a discretionary nature and the Court has to look into the various circumstances for applying the provisions of this section, and in the instant case the provisions of Section 34 of the Act should not be made applicable. The learned Counsel further contended that Clause 11 of the partnership agreement is vague and unenforceable, inasmuch as in the prevailing circumstances it is difficult for the parties to arrive at a mutual agreement with respect to the name of an arbitrator.

I have considered the respective contentions of the learned Counsel for the parties, and have also gone through the record of the case carefully.

For deciding the present controversy the relevant Clauses of the partnership agreement, dated 1st November, 1976, are being reproduced below:

That the partnership shall be deemed to have commenced with effect from 1st November, 1976 and shall be partnership "AT WILL".

That any dispute or differences which may arise among the partners with regard to the construction, meaning and effects of this deed, or any part thereof or resulting from the accounts or of any other matter relating to the firm, the same shall be referred to arbitration, to be appointed by the partners mutually, whose decision shall be final and binding.

It is significant to note that the partnership firm in the name and style of M/s. Uppal Traders, Saproon (Solan) is an unregistered firm.

The Plaintiff in his suit for dissolution of partnership and for rendition of accounts has alleged that the Defendants without informing the Plaintiff and without his consent got published a notice in several newspapers to the effect that the Plaintiff was no longer a partner of the firm and that this action of the Defendants was actuated by a mala fide and dishonest intention of depriving the due share to the Plaintiff from the firm. It is also alleged in the plaint that the Defendants have started committing breaches of partnership by misappropriating the money of the business and by not rendering its true accounts and blocking the access of account books to the Plaintiff.

The Defendants filed application u/s 34 of the Act and in this application the Defendants reproduced Clause 11 of the partnership agreement, dated 1st November, 1976, and further averred that in view of Clause 11, the suit of the Plaintiff should be stayed. It was further averred that essential requirements of Section 34 of the Act are fulfilled and that the Defendants were and are always ready and willing to do all things necessary for the proper conduct of the arbitration.

No averment regarding the dispute between the parties which was to be referred to arbitration was narrated by the Defendants in the said application.

In reply to this application u/s 34 of the Act, the Plaintiff contended that the Defendants had repudiated the agreement by getting notices published in the newspapers about Plaintiff''s expulsion from the partnership with effect from 1st May, 1977, and as such the Defendants have no right to claim a stay of the suit under Clause 11 of the partnership agreement, because the Defendants have refused to consider the Plaintiff as a partner in the business. It was further alleged that the Plaintiff has no faith in the Defendants, who are close relations and who are bent upon harming the interest of the Plaintiff. It was also alleged that the Defendants have not fulfilled the requirements of Section 34 of the Act.

In N.C. Padmanabhan and Ors. v. S. Srinivasan AIR 1967 Mad. 201 and Shroff Brothers Vs. Bisheswar Dayal Meatle, it has been held that in an application u/s 34, the applicant must satisfy the Court that he is ready and willing to do everything necessary for proper conduct of the arbitration proceedings and that this should cover the entire period before the commencement of the suit and thereafter. Such readiness should be unambiguous and a specific averment thereof should be made in the petition and affidavit filed in the application for stay of the suit u/s 34 of the Act. Mere repetition of the wording of section without any specific averment of any fact showing its readiness and willingness before and at the time of the commencement of the suit is not sufficient for attracting the provisions of Section 34 of the Act. A similar view was also taken in Dwarka Nath Kapur v. Rameshwar Nath and Ors. 1966 P.L.R. 91 and Manohar Lal and Anr. v. Moti Lal and Anr. 1974 P.L.R. 251. In Manohar Lal and another''s case (supra), it is held as follows:

"Held, where the dispute between the parties was not mentioned in the application u/s 34 of the Arbitration Act, the proceedings, in Court, could not be stayed as there was no point of difference on which any reference could be made to arbitration before the filing of the suit. Where the application does not at all reveal as to what were the points of difference between the parties or what was the "dispute relating to the partnership" which the Defendant-applicant had all the time been ready and willing to refer to arbitration, the proceedings could not be stayed.

Considering the averments made in the application of the Defendants u/s 34 of the Act, I find that the Defendants have altogether failed to mention as to what is the dispute between the parties which is to be referred to arbitration. Besides this the Defendants have nowhere stated the facts which were sufficient to show that the Defendants were ready and willing to do everything necessary for the proper conduct of the arbitration proceedings. In these circumstances, the Defendants'' application u/s 34 of the Act cannot be allowed and has to be dismissed on this short ground.

Besides this, the present suit filed by the Plaintiff is for dissolution of the partnership at will and the relief of dissolution of partnership can only be granted by a Court u/s 44 of the Partnership Act, provided the ground for the dissolution of the partnership is just and equitable. To find out as to whether the partnership should be dissolved and as to whether there are just and equitable grounds for dissolving the partnership, it is the primary duty of the Court to consider this aspect and such a matter cannot be left to the arbitrator. In Dwarka Nath Kapur''s case (supra), a similar situation arose and it was held:

"Held, that the question of staying a suit u/s 34 of the Arbitration Act essentially involves exercising of discretion and while exercising discretion the Court will certainly be effected by the consideration that it is primarily the Court which will u/s 44(g) of the Partnership Act, determine whether a partnership should be dissolved, particularly when a decree for dissolution is claimed on the ground that it is just and equitable to order dissolution.

Similarly in NC. Padmanabhan and others''c ase (supra), it was held that in a suit for dissolution of a firm an application for stay of the suit u/s 34 should not ordinarily be allowed because the dissolution of firm involving exercise of judicial discretion was matter fit for Court than for arbitrator. In Ganesh Chandra Dey and Another Vs. Kamal Kumar Agarwalla, it was again held:

In a suit for dissolution of a partnership on the ground that it is just and equitable u/s 44(f) and (g), Partnership Act, the dispute relating to dissolution should be decided by the Court and that the Court should exercise its discretion in not staying the suit in spite of the arbitration Clause.

In the present case where the Plaintiff has leveled serious allegations against the Defendants and has claimed dissolution of the firm, the discretion u/s 34 should not be exercised in favour of the Defendants for staying the suit. The Plaintiff has specifically alleged that the Defendants are of one family and they are keen to deprive him of his legitimate share in the partnership business. It is also alleged that the Defendants are committing breaches of partnership by misappropriating the money of the business.

Hence considering the various facts and the circumstances of the case, I am of the firm opinion that the application of the Defendants u/s 34 of the Act deserves to be disallowed and the proceedings in the suit cannot be stayed.

The result of the above discussion is that the order of the District Judge, dated 15th November, 1978, is upheld although on different grounds and the revision petition is dismissed.

The parties are directed to appear in the Court of Senior Sub-Judge, Solan, on October 22, 1980. The Senior Sub-Judge will try to decide the suit at the earliest.