Y. Basavaraj vs Y. Changalappa and Others

B. Veerappa, J.—When the matter was called on 08.04.2015, there is no representation on behalf of 1st respondent.

Learned Senior Counsel Sri. Adithya Sondhi was heard and he relied upon the judgment of Hon''ble Apex Court in the case of M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd., AIR 1999 SC 565 : (1999) 1 ARBLR 305 : (1999) 3 CompLJ 205 : (1999) 1 JT 49 : (1999) 123 PLR 685 : (1999) 1 SCALE 40 : (1999) 2 SCC 479 : (1999) 1 SCR 89 : (1999) 1 UJ 613 : (1999) AIRSCW 225 : (1999) 1 Supreme 126 , to the effect that there must be a valid arbitration agreement between the parties and the applicant should show the intent before commencement of arbitration. In the absence of same, Section 9 of the Arbitration and Conciliation Act, 1996 (for short ''the Act'') is not applicable and he also relied upon the judgment of Hon''ble Apex Court in the case of Firm Ashok Traders and Another etc. Vs. Gurumukh Das Saluja and Others etc., AIR 2004 SC 1433 : (2004) 1 ARBLR 141 : (2004) 2 CompLJ 419 : (2004) 2 CTC 208 : (2004) 2 JT 352 : (2004) 137 PLR 526 : (2004) 1 SCALE 297 : (2004) 3 SCC 155 : (2004) 50 SCL 224 : (2004) 1 SCR 404 : (2004) AIRSCW 366 : (2004) 1 Supreme 754 , wherein it is held that an application under Section 9 of the Act is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings. Admittedly, in the present case, even after a lapse of seven years, there was no manifest intention on the part of respondent No. 1 to take recourse to arbitration proceedings. Even though an opportunity was given to the respondent-1 by posting the matter from 08.04.2015 to today i.e. on 16.04.2015 and called the matter twice, none appears for the respondent-1. Therefore, this Court has no option except to proceed with the matter after hearing further the learned Counsel for the petitioner.

Heard the learned Counsel for the petitioner and respondent No. 3.

The parties are referred to as per their rankings before the Trial Court.

It is the case of the petitioner in Arbitration Case No. 1/2008 that himself and respondent Nos. 2 and 3 are the sons of Y. Mahabaleswarappa and the said Y. Mahabaleswarappa, the petitioner and respondent Nos. 2 and 3 constituted the partnership Firm i.e. Y. Mahabaleswarappa and Sons under the registered partnership deed dated 20.05.1955. The said firm was carrying on business in commission agency and it owned ginning factories at Tekkalakote and Yemmiganur mining business and iron and manganese ore business at Bellary. It was agreed under the said partnership deed that the assets of the joint family of Y. Mahabaleswarappa and his sons be ascertained and divided between the parties in equal proportion and such assets of the parties shall form capital of the 1st respondent firm. Y. Mahabaleswarappa and other parties to the partnership deed intended that the business of the firm shall not be considered as Hindu undivided family business and the assets of the firm shall not be considered as Hindu undivided family properties. All of them subjected to the provisions of the Indian Partnership Act and the said partnership deed also contained an Arbitration Clause. The object of Y Mahabaleswarappa in forming the first respondent firm was to safeguard the interest of younger members of the family and to distribute the benefits of the business of the 1st respondent firm equally to all. Later as desired by Y. Mahabaleswarappa, a partition deed was effected in the joint family by registered partition deed dated 23/25-05-1961 and as per the said partition deed, the petitioner, respondent Nos. 2 and 3 and Y. Mahabeleswarappa retained 1/4th share in the 1st respondent firm, in the residential house at Kambli Bazar, Brucepet Bellary and in the shop building situated at Car Street, Brucepet, Bellary. The intention of Y. Mahabaleswarappa in effecting the partition was to ensure equal distribution of all the prime properties amongst his sons and to avoid possibility of elder sons taking advantage of their control in the family business. It was further contended that Y. Mahabaleswarappa died intestate on 12.11.1971 and after his death, respondent Nos. 2 and 3 are continued to look after the affairs of 1st respondent firm being the elder members of the family and the petitioner was asked to manage other business concerns including the agricultural properties. After the death of Y. Mahabaleswarappa, respondent Nos. 2 and 3 with an ulterior motive, started representing to the petitioner and other family members that 1st respondent firm was in financial crisis and under huge financial liability including estate duty payable to the concerned authorities. They persuaded the petitioner and other members of the family to contribute their funds acquired from other sources and to sell the properties allotted to their shares under the partition deed for clearance of such liabilities. Believing their representation, the petitioner sold his wood based match plinths, splinters and veneers manufacturing business at Kalagatagi and contributed the sale proceeds to the first respondent firm. The family of Y. Mahabaleswarappa was highly reputed family. If the 1st respondent firm was to be dissolved on account of its creditworthiness, that was bringing down the reputation of the family, therefore the petitioner sacrificed all his funds for the sake of 1st respondent firm and for the sake of upholding the reputation of the family. Later respondent Nos. 2 and 3 persuaded the petitioner and the wife and the daughters of Y. Mahabaleswarappa to sign a document styled as family settlement deed dated 03.12.1978 representing that the same is required for settling the liabilities of 1st respondent firm. The said document was never intended to be acted upon and not acted upon till this day. Further, the document itself contemplates another future partition deed. Apart from that there was disruption of the joint family under the partition deed dated 23.05.1961. On 21.07.1975, the lands were treated as the lands in excess of the ceiling limit prescribed under the Karnataka Land Reforms Act, 1961 and an order was passed by the Tahsildar accordingly and they vested in the State Government. Thus, neither the petitioner got any benefit in those lands nor did he sell the said lands. On 26.05.1998 he cleared the loan and respondent-conveyance deed was executed by the State Bank of India. The 2nd respondent apprehending that the petitioner would get the benefit by selling the lands and presuming that he would be saddled with the liability of loan as he was a surety to the said loan, thought of an ingenious method and created the said settlement deed of the year 1978. The said family settlement deed itself states that a separate registered deed would be executed after the liabilities of the petitioner in the State Bank of India are discharged. As per the terms of the partnership deed of the year 1955, all the profits and the loss of the 1st respondent firm are to be equally shared by the partners. As there was spurt in the mining activities due to the demand in the international market, to deprive the petitioner of the income of the 1st respondent firm, the 2nd and 3rd respondent behind back of the petitioner approached the Registrar of Firms and got the entries changed on the basis of the settlement deed of the year 1978 and later have got up the firm reconstitution deed. Due to the relationship of the parties and the reputation of the family since many decades, the petitioner reposed un-qualifying faith in the integrity and honesty of his brothers in settling his legitimate claims. It is only when the 2nd respondent wrote to the petitioner saying that he is no more a partner in the 1st respondent firm, he approached the Registrar of Firms and secured the extracts of the register of firms and other relevant documents and to his shock learnt that respondent Nos. 2 and 3 clandestinely got his name removed from the register of firms representing that he has retired from the firm with effect from 31.03.1980 and got up reconstitution of the 1st respondent firm. All such transactions are fraudulent and illegal. 2nd and 3rd respondent are intentionally avoiding settlement of petitioner''s share in the 1st respondent firm. Y. Mahabaleswarappa had 1/4th share in the 1st respondent firm and being his class I heir, the petitioner is entitled to a share in that 1/4th share of Y. Mahabaleswarappa also. Therefore, the petitioner got issued legal notice to the 2nd respondent who is managing the affairs of 1st respondent firm for settlement of his claim for which he received an untenable reply. The respondents are trying to take undue advantage of so called family settlement deed and deprived the petitioner of his legitimate share in the 1st respondent firm and the assets of Y. Mahabaleswarappa. They are indulging in all kinds of waste and mis-management of the properties of 1st respondent firm. In view of the arbitration clause in the partition deed of the year 1955, giving right to the partners to refer the dispute to the Arbitrator and to protect the properties till the Arbitration proceedings are concluded, he has filed the present petition for interim measures.

The present petitioner who was 2nd respondent filed objection statement stating that;

"1. Admittedly the petitioner has retired from the partnership in the year 1980 and therefore, he can not avail Arbitration Clause found in the partnership deed of the year 1955.

After such retirement of the petitioner the firm is reconstituted and one Y. Satish and Y. Harish have come in as new partners of the 1st respondent firm and they are not impleaded in the petition, therefore, the petition is bad for non joinder of necessary parties.

Schedule I property of the interim application is not the property of the partnership firm, therefore the petition is not maintainable.

The reconstituted partnership deed does not contain Arbitration clause, therefore the petition is not maintainable.

The petitioner has pleaded fraud and that can not be investigated before this Court and that has to be adjudicated only in a civil suit.

The petition is filed only to pressurize and coerce the respondent, hence the petition is not maintainable.

The respondents have filed writ petition No. 3657/2008 and that is pending before the High Court, therefore the matter is subjudice.

One of the partner of 1st respondent firm has filed OS No. 142/2008 which involves same issue, hence the present petition is barred."

The present petitioner who is 2nd respondent filed I.A. No. 3 under Section 9 of the Act regarding maintainability of the proceedings of the case on merits. While considering the said I.A. No. 3, the Trial Court by its order dated 16.08.2008, issued notice to the respondents and also call for objections on that. Against the said order, the present petitioner filed W.P. No. 2657/2008 before this Court and this Court on 09.04.2008 directed to dispose off I.A. No. 3 regarding maintainability. Thereafter, after considering the entire material on record, the Prl. District Judge, Bellary by its order dated 17.07.2008 dismissed I.A. No. 3 filed by the 2nd respondent. Hence, this civil revision petition is filed.

On 08.04.2015, I have heard the learned Senior Counsel for the petitioner and as pointed out that in the absence of any arbitration clause in the settlement deed, executed between the parties on 03.10.1978, question of referring the dispute for arbitration under Section 9 of the Act does not arise. Learned Senior Counsel has also pointed out the Judgment of the Honb''le Supreme Court in the case of M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd., AIR 1999 SC 565 : (1999) 1 ARBLR 305 : (1999) 3 CompLJ 205 : (1999) 1 JT 49 : (1999) 123 PLR 685 : (1999) 1 SCALE 40 : (1999) 2 SCC 479 : (1999) 1 SCR 89 : (1999) 1 UJ 613 : (1999) AIRSCW 225 : (1999) 1 Supreme 126 to the effect that there must be a valid arbitration agreement between the parties and the applicant should show the intent before commencement of arbitration. In the absence of same, Section 9 of the Act is not applicable and he also relied upon the judgment of the Hon''ble Supreme Court in the case of Firm Ashok Traders and Another etc. Vs. Gurumukh Das Saluja and Others etc., AIR 2004 SC 1433 : (2004) 1 ARBLR 141 : (2004) 2 CompLJ 419 : (2004) 2 CTC 208 : (2004) 2 JT 352 : (2004) 137 PLR 526 : (2004) 1 SCALE 297 : (2004) 3 SCC 155 : (2004) 50 SCL 224 : (2004) 1 SCR 404 : (2004) AIRSCW 366 : (2004) 1 Supreme 754 , wherein it was held that the application under Section 9 of the Act is filed before the commencement of the arbitral proceedings.

Learned Senior counsel has contended that admittedly even after lapse of 7 years, there was no manifest intention on the part of the 1st respondent to take recourse to arbitration proceedings. Therefore, submits that the impugned order passed by the Trial Court cannot be sustained in law.

Though sufficient opportunity was given to the respondent to putforth his arguments on 08.04.2015, after hearing the arguments, the matter was posted today. Again today there is no representation on behalf of the respondent Nos. 1 and 2. Therefore, the Court treats that there is no argument on the part of respondent. In view of the same, respondent arguments is treated as NIL and considered the arguments of the learned counsel for the petitioner.

The case of the petitioner before the Arbitration Court is that, the petitioner has admitted that he retired from the Firm. The terms of family settlement was also reduced in writing duly signed by all the parties. The factum of retirement of 1st respondent was duly recorded in the records of Registrar of Firms maintained under Section 59 of the Partnership Act on 31.03.1980. Therefore, partnership deed dated 20.05.1955 is no more exists and cannot be invoked by the petitioner. The another contention taken before the Arbitration case by the petitioner is that the petition filed for non joinder of necessary parties who are entered into the 1st respondent firm as new parties.

The learned Counsel for the petitioner also raised objection that the lower Court without there being any Arbitration governing the relationship between the parties and proceeded with the matter under Section 9 of the Act etc.,

The counsel for the petitioner has filed a memo for production of documents i.e. Annexures-A to J. According to him, the petitioner has produced the same before the Arbitration Court. The memo was not opposed by the learned counsel for respondent No. 3 by filing any objections. Therefore, memo was allowed. The documents are placed on record.

I have given my thoughtful consideration to the arguments address by the learned Counsel for the petitioner and respondent No. 3 and perused the entire material on record.

It is not in dispute that the family settlement deed was executed in the year 1978 but there is no arbitration clause. Therefore, question of referring the matter to the arbitration does not arise. The Hon''ble Supreme Court in the case of M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd., AIR 1999 SC 565 : (1999) 1 ARBLR 305 : (1999) 3 CompLJ 205 : (1999) 1 JT 49 : (1999) 123 PLR 685 : (1999) 1 SCALE 40 : (1999) 2 SCC 479 : (1999) 1 SCR 89 : (1999) 1 UJ 613 : (1999) AIRSCW 225 : (1999) 1 Supreme 126 referred to supra held asunder:

"19. When a party applies under Section 9 of the 1996 Act, it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral Tribunal. Section 9 further contemplates arbitration proceedings taking place between the parties. Mr. Subramanium is, therefore, right in submitting that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings if, at the time when the application under Section 9 is filed, the proceedings have not commenced under Section 21 of the 1996 Act. In order to give full effect to the words "before or during arbitral proceedings" occurring in Section 9, it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. The issuance of a notice may, in a given case, be sufficient to establish the manifest intention to have the dispute referred to an Arbitral Tribunal. But a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made, the court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied, the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass a conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings. What is apparent, however, is that the Court is not debarred from dealing with an application under Section 9 merely because no notice has been issued under Section 21 of the 1996 Act."

The Hon''ble Supreme Court in the subsequent judgment in the case of Firm Ashok Traders and Another etc. Vs. Gurumukh Das Saluja and Others etc., AIR 2004 SC 1433 : (2004) 1 ARBLR 141 : (2004) 2 CompLJ 419 : (2004) 2 CTC 208 : (2004) 2 JT 352 : (2004) 137 PLR 526 : (2004) 1 SCALE 297 : (2004) 3 SCC 155 : (2004) 50 SCL 224 : (2004) 1 SCR 404 : (2004) AIRSCW 366 : (2004) 1 Supreme 754 , while considering Section 9 of the Arbitration Act has held as under:

"17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid down by this Court in Sundaram Finance Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In Sundaram Finance Ltd. itself the Court has said: (SCCp. 488, para 19)

It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings.

Section 9 permits application being filed in the court before the commencement of the arbitral proceedings but the provision does not given any indication of how much before. The word "before" means, inter alia, "ahead of; in presence or sight of; under the consideration or cognizance of. The two events sought to be interconnected by use of the term "before" must have proximity of relationship by reference to occurrence; the later event proximity following the preceding event as a foreseeable or "within-sight" certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the court that the arbitral proceedings are actually contemplated or manifestly intended (as Sundaram Finance Ltd. Puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9, read in the light of the Model Law and UNCITRAL Rules is to provide "interim measures of protection". The order passed by the court should fall within the meaning of the expression "an interim measure of protection" as distinguished from an all-time or permanent protection."

The family settlement deed dated 03.10.1978 at Annexure-C produced by the petitioner along with the documents which is also part of record before Arbitration proceedings clearly depicts that there is no arbitration clause in the settlement deed dated 03.10.1978. Hence, question of referring the dispute for Arbitration under Section 9 of the Act does not arise.

Sri. Aravind D. Kulkarni, learned Counsel for respondent No. 3 supports the contention of the petitioner and submits that the District Judge, Bellary without there being any arbitration clause has proceeded with the matter for consideration under Section 9 of the Act which is bad in law. Hence, the case is not maintainable in the existence of the Family settlement deed dated 03.10.1978. It is also not in dispute while the respondents did not retire from the Firm under the settlement deed dated 3.10.1978, which was a make believe transaction and was not intended to be acted upon, court below has lost sight that respondent has admitted existence of settlement deed of the year 1978. The onus to prove that the same was not intended to be acted upon is on the respondent. The intention of the settlement deed is not stated in the Arbitration clause. It is only after the respondent can get adjudication that the settlement deed is invalid or unenforceable etc. that he can invoke the arbitration clause contained in the partnership deed dated 20.05.1955.

The documents at Annexure-E/Register of Firms dated 29.12.1955 discloses at Sl. No. 4 that Y. Changalappa/the petitioner before the Arbitration has joined the firm on 20.05.1955 and retired on 31.03.1980 and therefore, in the light of the entry evidencing retirement of respondent-1 in the year 1980, the Arbitration proceedings without seeking cancellation of such entry is not maintainable.

It is also urged by the learned Counsel for the petitioner that the Arbitration case No. 1/2008 initiated by respondent-1 us only under Section 9 of the Act. Therefore, it clearly indicates that respondent No. 1 who is the petitioner in the arbitration case has no manifest intention to take recourse to the arbitral proceedings and therefore, the impugned order passed by the learned District Judge cannot be sustained in law. In view of the aforesaid reasons and in view of the law laid down by the Apex Court referred to supra, the impugned order passed by the Prl. Civil Judge, Bellary cannot be sustained in law and the same is liable to be set aside. Accordingly, it is set aside and the Civil Revision Petition is allowed.