*HON'BLE SRI JUSTICE G. BHAVANI PRASAD +C.R.P. Nos.4772 and 4773 of 2009 % 29/11/2011 # Vijay Kumar Agarwal ..... PETITIONER Vs. $ Raj Kumar Rooplal Agarwal and others ..... RESPONDENTS ! COUNSEL FOR THE PETITIONER: Sri S. Ravi ^ COUNSEL FOR RESPONDENTS 1 & 2: Sri Vedula Venkata Ramana ^ COUNSEL FOR RESPONDENTS 3 TO 7: -- < Gist : Head Note: ? CITATIONS: 1. (2009) 10 SCC 103 2. 2003(2) Arb. LR 479 (Bombay) 3. (2000) 4 SCC 539 4. AIR 1982 SC 1382 5. AIR 2003 Gujarat 269 COMMON ORDER: Both the civil revision petitions arise out of the orders passed on 07-08-2009 in interlocutory applications in O.S. No.25 of 2006 on the file of the Special Judge for Trial of Offences under the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act-cum-V Additional District and Sessions Judge, Medak at Sangareddy. As the revisions are between the same parties involving the same subject matter in the same proceedings, they are heard and decided together. 2. Respondents 1 and 2 filed the suit against the revision petitioner and respondents 3 to 7 claiming that originally the 1st respondent’s wife, the 2nd respondent and the revision petitioner constituted a partnership firm in the name and style of M/s. Ajay Enterprises under a partnership deed dated 19-01- 1984. The registered partnership at will was the subject of another partnership deed dated 05-03-1993. The 1st respondent’s wife retired from the partnership with effect from 31-03-1998 and the 1st respondent was taken as the incoming partner in her place under another partnership deed between respondents 1 and 2 and the revision petitioner coming into force from 01-04-1998. A total extent of Ac.16.10 guntas covered by 6 items in the suit schedule were purchased from different vendors by the original partnership for the benefit of the family of the partners. As agriculture was not the business of the firm, individual profits of the partners were contributed for the purchase with the lands becoming the assets of the firm for obtaining loans for the purpose of business of the firm. The lands purchased between 1996 and 1998 were being looked after by the revision petitioner who was looking after the firm also. The partners dividing the profits equally between themselves, got the suit schedule lands mortgaged as security to the Union Bank of India, which were released by the bank in its letter dated 18-01-2005. While so, the revision petitioner was alleged to have entered into an agreement of sale-cum-general power of attorney with respondents 3 and 4 and to have executed registered sale deeds in favour of respondents 3 to 7 in respect of different properties at a grossly low value. The sale proceeds were also not accounted for and respondents 1 and 2 never authorized the revision petitioner to sell the lands. The revision petitioner was never designated a Managing Partner and therefore, respondents 1 and 2 sought for a declaration that the suit lands are the business assets of the firm, in which the revision petitioner and respondents 1 and 2 are entitled to one-third share each and to be allotted and put in possession of such shares through a preliminary decree to be followed by a final decree for partition. Respondents 1 and 2 also prayed to put respondents 4 to 7 in possession of one-third share of the revision petitioner, if the sale deeds in their favour were found valid to that extent. 3. The revision petitioner filed a written statement denying the allegations in the plaint and contending that respondents 1 and 2, the revision petitioner and his wife are carrying on various businesses in Mumbai and Hyderabad, some of which are dormant and some active. The principal business is in trading of iron and steel goods and the revision petitioner had 50% interest in the profits and losses of the firm till 1998. The revision petitioner contended that respondents 1 and 2 had the major benefit out of the joint family businesses. The suit lands were sold to respondents 3 to 7 to the knowledge of respondents 1 and 2 more than a year earlier and when serious disputes arose between the families, the maternal uncle of the revision petitioner mediated resulting in an agreement dated 04-01-2005, under which respondents 1 and 2 have to release and forego all their rights, title and interest in the properties in and around Hyderabad, in pursuance of which respondents 1 and 2 wrote to Union Bank of India on 10-01- 2005 to release the suit properties from mortgage. The bank released them by a letter dated 04-05-2006. As per the agreement, the revision petitioner sold the lands and respondents 1 and 2 cannot complain against the same after relinquishing their rights under the agreement. The sale for valuable consideration cannot be avoided by respondents 1 and 2 who filed O.P. No.1496 of 2005 on the file of the III Additional Chief Judge, City Civil Court, Hyderabad for injunction against alienation after sale. No relief was granted to respondents 1 and 2 therein and payment of fixed Court fee when the property was not in the possession of respondents 1 and 2, was incorrect. Hence, the revision petitioner desired the suit to be dismissed. 4. He also filed an additional written statement dated 15-10-2008 after amendment of the plaint contending that he is filing the same without prejudice to the contention that the plaint ought to be returned to proper forum to arbitration as per clause 13 of the partnership agreement, for which purpose, the revision petitioner already filed an application under Order VII Rule 11 of the Code of Civil Procedure (for short “CPC”) to reject the plaint in view of the arbitration clause and parallel proceedings in arbitration being pending. At any rate, Order XXX Rule 1 CPC is not complied with and respondents 1 and 2 claimed the arbitration clause to be only regarding the business of the partnership while admitting the suit properties to be belonging to the partnership. The partnership firm was not impleaded in the suit and the suit is barred as per Section 8 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) and Section 9 CPC. Respondents 1 and 2 can only seek dissolution of the firm and rendition of accounts under the Partnership Act, but cannot seek partition of the properties, more so, as the sale by the revision petitioner is binding on the other partners. The revision petitioner also applied under Section 10 CPC for stay of the suit in view of the pendency of the arbitration proceedings and the properties were sold to discharge the partnership liabilities and the revision petitioner paid amounts to the bank and collected title deeds by redeeming the mortgage to the knowledge of respondents 1 and 2. The suit prayers are also hit by Sections 31 and 33 of the Specific Relief Act, as the documents of sale were not challenged and when the suit property was purchased prior to 1998, the revision petitioner is in any view entitled to 50% share. The revision petitioner, therefore, desired the suit without seeking relief of declaration of title to fail with exemplary costs. 5. While so, the revision petitioner filed I.A. No.163 of 2006 under Section 10 CPC for stay of all further proceedings in the suit till O.P. No.1496 of 2005 is decided. The petition was decided on 07-08-2009 noting the contention of the revision petitioner about respondents 1 and 2 not being granted any interim relief in O.P. No.1496 of 2005 filed under Section 9 of the Act and the contention of respondents 1 and 2 claiming the subject matter of the proceedings to be different with respondents 3 to 7 being not parties to O.P. No.1496 of 2005. The appointment of arbitrator was specifically brought to the notice of the Court on 31-01-2008. The trial Court opined that the relief of partition of the landed property claimed in the suit cannot be decided in O.P. No.1496 of 2005 and therefore, the matters in issue are not directly and substantially in issue in the earlier proceeding. Hence, holding that Section 10 CPC is not applicable, the petition was dismissed. 6. The revision petitioner also filed I.A. No.553 of 2006 under Order VII Rule 10 and Section 151 CPC to return the plaint contending that as O.P. No.1496 of 2005 was withdrawn and as respondents 1 and 2 filed an application No.29 of 2006 before the High Court under Section 11 of the Act for appointment of arbitrators, the plaint be returned to be submitted to the arbitration tribunal due to clause 13 of partnership deed dated 01-04-1998. The revision petitioner also contended that when the suit property belongs to the firm, it would be part of the arbitration proceedings before the arbitrators who adjudicate dissolution and rendition of accounts, during which the entire profits and losses are divided among the partners. Respondents 1 and 2 also filed application No.11 of 2007 and the High Court ordered on 22-03-2007 both the arbitration applications appointing a former Judge of the High Court as arbitrator to adjudicate the disputes between the brothers including dissolution, rendition of accounts, profits and losses. 7. Respondents 1 and 2 denied the arbitration clause in the partnership deed having anything to do with the subject matter of the suit. The business of the partnership firm alone can be resolved in arbitration and hence, the plaint cannot be returned. 8. The trial Court dismissed the petition by an order dated 07-08-2009 on the ground that a detailed order was passed in I.A. No.163 of 2006 dated 07-08- 2009. 9. The revision petitioner has also filed I.A. No.554 of 2006 under Section 8 of the Act to refer the subject matter of the suit to be resolved by arbitration in compliance of clause 13 of the partnership deed dated 01-04-1998. He claimed that as the suit properties belong to the partnership firm, the proper forum is the arbitration tribunal and in view of O.P. No.1496 of 2005 and arbitration application Nos.29 of 2006 and 11 of 2007, respondents 1 and 2 cannot contend that the suit properties will not be the subject of arbitration for dissolution and rendition of accounts as well as profits and losses of the firm. The High Court had appointed a former Judge of the Court as arbitrator in the arbitration applications on 22-03-2007 and hence, the petition. 10. Respondents 1 and 2 opposed the request contending that after O.P. No.1496 of 2005 was withdrawn on 30-10-2006, the suit cannot be stayed and clause 13 of the partnership deed has no bearing on the subject matter of the suit, as purchase and sale of the lands is not the business of the partnership firm. The arbitration clause is only with regard to disputes relating to the business in trading in iron and steel as exporters and commission agents. The arbitration applications before the High Court do not cover the subject matter of the suit and hence, respondents 1 and 2 desired the petitions to be negatived. 11. The trial Court dismissed this application also by an order dated 07-08-2009 holding that “as the dispute of partition of landed property of the firm does not disclose in partnership agreement to be referred to an arbitrator, the petition is not maintainable.” 12. Challenging the dismissal of I.A. Nos.553 and 554 of 2006, the revision petitioner filed C.R.P. Nos.4772 and 4773 of 2009 respectively contending that the dismissal without any reason was an error and I.A. No.163 of 2006 was limited to the proceedings in O.P. No.1496 of 2005, whereas I.A. No.553 of 2006 related to jurisdiction of the Court to entertain the suit. The suit properties were part of the schedule properties in O.P. No.1496 of 2005 and the arbitration proceedings by the arbitrator appointed by the High Court are initiated and pending. The suit properties are the properties of the firm and hence, are subject matter of the pending arbitration proceedings. The plaint ought to have been returned. The arbitration clause 13 in the partnership deed is a dispute resolution clause in relation to the firm and when respondents 1 and 2 themselves invoked the arbitration clause, including the suit properties in O.P. No.1496 of 2005 under Section 9 of the Act, the suit properties are also subject matter of the pending arbitration proceedings before the arbitrator appointed by the High Court. The Court ought to refer the matter, which is the subject matter of an arbitration agreement under Section 8 of the Act and I.A. No.554 of 2006 also ought to have been allowed. The orders of the Court in both the petitions without assigning any reasons and without hearing the revision petitioner and only on the basis of I.A. No.163 of 2006 are unsustainable and hence, the revision petitioner desired the impugned orders to be reversed. 13. The partnership deed dated 01-04-1998 between the revision petitioner and respondents 1 and 2 concerning the subject firm mentioned in clause 3 that the business of the firm shall be to trade in Iron & Steel, M.S. & G.I. Pipes etc., exporter, Commission agents and to do such other business or businesses as the parties herein may decide from time to time. The profits and losses arising out of the partnership business were agreed by clause 9 to be distributed equally between the three partners. Clause 13 of the partnership deed states that “In case any dispute arises between the parties with regard (to) the conduct of the business or in respect of interpretation, operation or enforcement of any of the terms of this present, the same shall be referred to the Arbitration of a (3) persons to be appointed by the mutual consent of the parties hereto and the decision of arbitrator or arbitrators so appointed shall be binding on all the parties hereto. Such arbitration proceedings shall be governed by the law relating to the arbitration for the time being in force.” 14. In the arbitration application Nos.29 of 2006 and 11 of 2007 under Section 11 of the Act, this Court passed orders on 22-03-2007 ultimately on the consent of both the parties, appointing an arbitrator for adjudication of the disputes between the parties with reference to all the three brothers or their representatives who were partners in different firms for adjudication of the disputes including the issue as to dissolution, rendition of accounts as well as profits and losses of the respective firms. The order made no specific reference to the suit schedule properties in this suit. The arbitration clause in the agreement between the brothers on 04-01-2005 was the subject of consideration therein. The 2nd respondent herein was not a party to the agreement dated 04-01-2005. 15. In O.P. No.1496 of 2005 filed by respondents 1 and 2 against the firm, the revision petitioner and the Union Bank, respondents 1 and 2 expressed their intention to invoke the arbitration clause in clause 13 of the partnership deed dated 01-04-1998 and the suit schedule properties were part of petition schedule properties, in respect of which an injunction against the revision petitioner against any sort of alienation was sought for. The schedule properties were stated to be belonging to the firm and respondents 1 and 2. 16. The claim statements of the revision petitioner and respondents 1 and 2 were stated to have been filed before the sole arbitrator appointed by the High Court. In the claim statement of respondents 1 and 2, it was specifically stated that as they cannot make any claim against third party purchasers in the arbitration proceedings, they filed O.S. No.25 of 2006 for partition impleading the third party purchasers and no claim is being made concerning the land in the arbitration proceedings and their right to claim damages is reserved. 17. On such material on record, the arguments of Sri S. Ravi, learned senior counsel for the revision petitioner and Sri Vedula Venkata Ramana, learned senior counsel for respondents 1 and 2 are heard and none entered appearance for respondents 3 to 7 though they were served with notices of the revisions. 18. The point for consideration in these revisions is whether the relief sought for by the revision petitioner under Order VII Rule 10 CPC and Section 8 of the Act ought to have been allowed ? 19. Point: Section 8 of the Act reads thus: “8. Power to refer parties to arbitration where there is an arbitration agreement.--(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement 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. (2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under Sub- section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.” 20. In Branch Manager, Magma Leasing and Finance Limited v. Potluri Madhavilata, the Supreme Court interpreted Section 8 of the Act to be in the form of legislative command to the Court and once the prerequisite conditions as aforesaid are satisfied, the Court must refer the parties to arbitration. It was pointed out that as a matter of fact, on fulfilment of the conditions of Section 8, no option is left to the Court and the Court has to refer the parties to arbitration. The Supreme Court on an analysis of Section 8, noted that the provision would show that for its applicability, the following conditions must be satisfied: a. that there exists an arbitration agreement; b. that action has been brought to the court by one party to the arbitration agreement against the other party; c. that the subject-matter of the suit is same as the subject-matter of the arbitration agreement; d. that the other party before he submits his first statement of the substance of the dispute, moves the Court for referring the parties to arbitration; and e. that along with the application the other party tenders the original arbitration agreement or duly certified copy thereof. Sri Vedula Venkata Ramana, learned senior counsel for respondents 1 and 2 contended that none of the prerequisite conditions were satisfied and consequently, the parties cannot be referred to arbitration. 21. Sri S. Ravi, learned senior counsel for the revision petitioner referred to Jasu M. Patel v. Shivadatta R. Joshi, wherein the written statement in the suit was not yet filed, but a reply was filed to an application in the interim proceedings in the suit where there was an arbitral clause between the parties. The meaning of the expression “first statement on the substance of dispute”’ as found in Section 8 was considered referring to P. Anand Gajapathi Raju v. P.V.G. Raju and it was stated to be clear that the Court while interpreting the provision is bound to consider the issue in view of the mandatory nature of the language of Section 8. There essentially must be an arbitration agreement/clause and the arbitration clause must cover the subject matter of the suit. The language of Section 8 was held to be mandatory with the judicial authority having no discretion, if an application is moved before filing the first statement of defence and if the matter of the suit is governed by the arbitral clause. The decision in Food Corporation of India v. Yadav Engineer & Contractor was referred to note that the Apex Court declared the law that appearing and contesting the interlocutory applications by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of arbitration agreement. The Court found no difficulty in holding that filing of written statement will fall within the expression “first statement on the substance of the dispute”. It was further stated that the expression “first statement on the substance of the dispute” need not necessarily mean filing of written statement, which would indicate the clear intention of the party not to refer the dispute to arbitration and to proceed with the proceedings before the judicial authority. Such statement or reply could be in interlocutory proceedings. The legal position was summed up by the Court as follows: 1. Unlike the Act of 1940, under the Act of 1996, a reply to an interim/interlocutory application can be construed as the first statement on the substance of the dispute. 2. The first statement of substance of the dispute will include a written statement in a suit or a reply to an application under other proceedings before a judicial authority. 3. ………….. 22. Sri S. Ravi, learned senior counsel also relied on Escorts Finance Ltd. v. Mansukh S. Dhokai, wherein a written statement was filed without prejudice to the rights and contentions of the petitioner with regard to the jurisdiction and arbitration and it was held that where there was an arbitration agreement and the dispute raised in the suit clearly fell within the ambit of arbitration agreement, raised by the petitioner at the earliest point of time, filing of written statement in the suit after reserving its rights to challenge the maintainability of the suit would not amount to surrender to the jurisdiction of the Court. 23. The material on record in the present case has to be appreciated in the light of the above principles. 24. The partnership deed dated 01-04-1998 between the revision petitioner and respondents 1 and 2 clearly confined the business of the firm by clause 3 of the deed of partnership to trade in Iron & Steel, M.S. & G.I. Pipes etc., exporter, Commission agents and to do such other business or businesses as the parties herein may decide from time to time. It is not the contention of the parties that they decided any time later to do any other business than that specified in clause 3, while none of the other clauses of the partnership deed appear to be dealing with the partnership firm acquiring or disposing of lands/immovable properties or managing or mortgaging them etc. There was also no claim by the parties that the terms and conditions contained in any clause or clauses of the partnership deed were amended or altered or deleted by mutual consent of the parties as specified in clause 12 thereof. 25. Clause 13 of the partnership deed is the arbitration clause and it refers to any dispute arising between the parties with regard to the conduct of the business or in respect of interpretation, operation or enforcement of any of the terms of that deed, which shall be referred to arbitration. The dispute about acquisition or sale of the lands involved in the suit was unambiguously not about any interpretation or operation or enforcement of any of the terms of the partnership deed and the dispute about the lands could not have been construed as relating to the profit or loss, if any, arising out of the partnership business to be distributed among the partners equally as per clause 9 of the partnership deed. The dispute about the sale of the suit schedule lands by the revision petitioner assuming the lands to be the property or assets of the partnership, also cannot be construed to be regarding the conduct of the business of the partnership. The plain and unambiguous language of the partnership deed dated 01-04-1998 in general and clause 13 thereof in particular does not, thus, suggest the subject matter of the suit or the reliefs prayed therein to be capable of being brought within the arbitration clause under clause 13. 26. The agreement arrived at between the three brothers on 04-01-2005 (2nd respondent not being a party thereto) was on the approach by the revision petitioner herein to pay Rs.3.50 crore to