spb/- 1 7-10-nms1065-10.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 1065 OF 2010 IN SUIT NO. 1065 OF 2009 Smt. Prafulla Jaya Shetty & Anr. ... Plaintiffs. Vs. Manohar Jaya Shetty ... Defendant. ...... Ms. R.C. Nichani for the Plaintiff to oppose the Motion. Mr. Snehal Shah i/by Rakesh Agarwal for the Defendant in support of Motion. ...... CORAM : S. C. DHARMADHIKARI, J. DATE : 07TH OCTOBER, 2010. P.C. 1 This Notice of Motion is moved by the Defendant, seeking a direction from this court to refer the dispute to arbitration. Therefore, this is an Application under Section 8 of the Arbitration and Conciliation Act, 1996. In the application it is stated that the suit is filed for dissolution of partnership firm and accounts of partnership business of Messrs Hotel Golden Crown. It is stated that the Partnership Deed dated 31st March, 1998 contains an arbitration clause being clause no.20 in regard to dispute between the plaintiffs and defendant. “Clause 20 reads spb/- 2 7-10-nms1065-10.sxw thus : “It is further agreed by and between the parties hereto that in case any dispute, difference and questions touching these terms arises, the same shall be referred to the Arbitration as provided under the Indian Arbitration Act, 1940”. It is stated that the first Plaintiff is a mother of the Defendant and Plaintiff No.2 and that the Plaintiff No.2 is the younger brother of Defendant. . The Plaintiff No.1 alongwith one K.V. Acharya was carrying on business in partnership on the terms and conditions as recorded in the Deed of Partnership, as amended by the supplementary deed. From 31st January, 1998, the plaintiff no.2 and the defendant have been inducted as partners in the said partnership firm alongwith said K.V.Acharya. After reconstitution of the partnership business, a partnership deed dated 31st March, 1998 came to be executed, wherein the aforementioned arbitration clause is included. The only partners are the Plaintiffs and the Defendant. Mr. K.V. Acharya has since retired. 2 Mr. Shah, Advocate, appearing for the Defendant, in support of this Application submits that once the partnership deed containing the Arbitration clause is admitted based upon which the suit claim is spb/- 3 7-10-nms1065-10.sxw instituted and the plaintiffs and defendant having satisfied both the requirements of Section 8 of the Act, then, this court should refer the parties to arbitration. 3 On the other hand it is contended by Ms. Nichani, Advocate on behalf of the Plaintiffs that when the suit was filed and an application for interim injunction was made therein; the Defendant appeared and continuously sought time. Thereafter a request was made by the defendant for inspection of the documents relied upon by the plaintiffs in the plaint of which inspection came to be given. Subsequently, the matter appeared before the Prothonotary and Senior Master of this court for directions with regard to filing of the written statement. The defendant appeared and prayed for time. It is thus clear that the defendant has submitted to the jurisdiction of this court and his seeking adjournments from time to time to file written statement dis-entitles him to invoke section 8 of the Act. Ms. Nichani, in the alternative submits that when the partnership has been dissolved there remains no dispute within the meaning of the arbitration clause which should be referred to the arbitration. Secondly, there are allegations of fraud against the defendant and, therefore, the matter cannot go for arbitration. spb/- 4 7-10-nms1065-10.sxw 4 Section 8 of the Act makes it clear that whenever an action is brought in a matter which is the subject of an arbitration agreement, the Court shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. Further, the application referred to in sub-section 1 of section 8, shall not be entertained unless it is accompanied by the original agreement or a duly certified copy thereof. 5 In a judgment reported in AIR 2003 S.C. 2252 in the case of Sukanya Holdings Pvt. Ltd., vs. Jayesh H. Pandya & Anr., the Hon’ble Supreme Court has held that once there is arbitration agreement and all ingredients of Section 8 are complied with, then the court has to refer the parties to the arbitration. ( See paras 12 to 17 at page 2255 to 2256). In a later decision reported in AIR 2003 SC 2881 in the case of Hindustan Petroleum Corporation Ltd., vs. M/s Pinkcity Midway Petroleums, the Hon'ble Supreme Court in para 14 held thus : “14. This Court in the case of P. Anand Gajapathi Raju and others v.s. P.V.G. Raju (Dead) and others (2000 (4) SCC 539) has held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory spb/- 5 7-10-nms1065-10.sxw “for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration; it is mandatory for the Civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the Courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the Courts below. Be that as it may, at the cost of repetition. We may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the Courts below ought to have referred the dispute to arbitration.” 6 In a recent decision reported in AIR 2006 SC 2800 in the case of Rashtriya Ispat Nigam Ltd., vs. M/s. Verma Transport Company, this is what the Supreme Court has observed in paras 17, 23, 34 and 37, which are reproduced below : “17. Section 8 confers a power on the judicial authority. spb/- 6 7-10-nms1065-10.sxw He must refer the dispute which is the subject matter of an arbitration agreement if an action is pending before him, subject of the fulfillment of the conditions precedent. The said power, however, shall be exercised if a party so applies not later than when submitting his first statement on the substance of the dispute. 23. Section 8 of the 1996 Act contemplates some departure from Section 34 of the 1940 Act. Whereas Section 34 of the 1940 Act contemplated stay of the suit; Section 8 of the 1996 Act mandates a reference. Exercise of discretion by the judicial authority, which was the hallmark of Section 34 of the 1940 Act, has been taken away under the 1996 Act. The direction to make reference is not only mandatory, but the arbitration proceedings to be commenced or continued and conclusion thereof by an arbitral award remain unhampered by such pendency. [See O.P.Malhotra’s ‘The Law and Practice of Arbitration and Conciliation, 2nd Edition, pp 346-347]. 34. The expression ‘first statement on the substance of the dispute’ contained in Section 8(1) of the 1996 Act must be contra-distinguished with the expression ‘written statement’. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, is needed is a finding on the part of the judicial authority spb/- 7 7-10-nms1065-10.sxw that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under section 8 of the 1996 Act, may not be held wholly unmaintainable. We would deal with this question at some details, a little later. 37. By opposing the prayer for interim injunction, the restriction contained in sub-section (1) of Section 8 was not attracted. Disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that substance of the dispute has already been disclosed in the main proceeding. Supplemental and incidental proceeding are not part of the main proceeding. They are dealt with separately in the Code of Civil Procedure itself. Section 94 of the Code of Civil Procedure deals with supplemental proceedings. Incidental proceedings are those which arise out of the main proceedings. In view of the decision of this Court in Food Corporation of India (AIR 1982 SC 1302)(supra), the distinction between the main proceeding and supplemental proceeding must be borne in mind.” spb/- 8 7-10-nms1065-10.sxw 7 In the present case, the suit is filed by the plaintiffs for declaration that the partnership firm stands dissolved and the business be wound up and its assets be disposed of after taking accounts. The basis of the claim is that there was a partnership business consisting of the plaintiffs and the defendant. The dispute and differences arose during the business and touching the terms, therefore, the plaintiffs gave notice about dissolution of the partnership firm and demanded their share which they were deprived of. Therefore, the partnership business and its dissolution so also accounts of the firm is the subject matter of the dispute. It is this "matter" involved and such a dispute is clearly a subject of the arbitration agreement, as is apparent from a reading of clause 20. Further there is no dispute that both the plaintiffs and defendant are parties to the arbitration agreement. 8 In my view, the condition in sub-section 1 of section 8 is, therefore, satisfied. Secondly, there is no substance in the contention that the defendant has made this application after seeking adjournments and after inspecting the documents relied upon by the plaintiffs as the fact remains that the defendant has not submitted his first statement on the substance of the dispute. In such circumstances, all the ingredients of section 8 spb/- 9 7-10-nms1065-10.sxw stand satisfied. As far as sub-section 2 of section 8 is concerned, it is clear that the defendant has filed duly certified copy of the arbitration agreement along with this application. In such circumstances, when both the requirements are satisfied, there is a mandate in referring the parties to arbitration and for good reason. This is in furtherance of the object and purpose for which the Arbitration and Conciliation Act, 1996 has been enacted. In the circumstances, there is no alternative but to allow this notice of motion. 9 The Notice of Motion is made absolute in terms of prayer clause (a). Further, it is clarified that the defendant will have to take steps for appointment of the arbitrator. However, allegations of fraud made against the defendant have not gone into by this court and it will be open for the defendant to urge that the conduct of the defendant being such that the matter cannot go for arbitration. All such objections can be raised at an appropriate stage and hence keeping them open, this application is allowed. [S.C. DHARMADHIKARI, J.] .....