CR No.587 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CR No.587 of 2008 Date of Decision: 27.8.2008 B.K.Kapoor & Anr. ..Petitioners Vs. Mrs.Tajinder Kapoor & Anr. ..Respondents Coram: Hon'ble Mr. Justice Vinod K.Sharma Present: Mr.Lokesh Sinhal,, Advocate, for the petitioners. Mr.A.K.Goel, Advocate, for the respondents. --- 1. Whether Reporters of Local Newspapers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in Digest? --- Vinod K.Sharma,J. (Oral) The petitioners have challenged the order dated 8.1.2008 passed by the learned Civil Judge (Sr.Division), Faridabad dismissing an application moved by the petitioners under section 8 of the Arbitration and Conciliation Act, 1996 (for short the Act). CR No.587 of 2008 2 The plaintiff respondent filed a suit for dissolution and rendition of accounts on the plea that the plaintiff and defendants No.2 and 3 started partnership business under the name and style of M/s B.Kay Engineering Works on the basis of a partnership deed dated 1.4.1992. The plaintiff respondent claimed that as per the terms of the agreement the plaintiff was entitled to 18% of the profit in the first Rs.75,000/-; 12% of the profit in respect of next Rs.75000/- of Book Profit and 8% in balance amount of Book Profit. For the reasons stated in the plaint it was claimed that it had become very difficult to continue with the partnership business of the firm as there were not good relations of the plaintiff with her husband, father-in- law and brother-in-law and therefore, claimed the dissolution of partnership and rendition of account. Notice of the suit was issued to the petitioners herein who moved an application under section 8 of the Act claiming therein that the dispute raised in the suit is covered under the Arbitration Agreement executed between the parties i.e. Clause 16 of the Partnership Deed dated 1.4.19902 which reads as under:- “ That in case of there being any dispute inter se the parties to this Deed none of the partners shall be competent to straight away rush to a court of law. The matter at the fist instance, shall be referred to a Board of Arbitrators constituted by one nominee of each party to this Deed. The unanimous decision of the arbitrators or the decision of majority of them shall be binding on the parties.” CR No.587 of 2008 3 The petitioners claimed that they had not submitted to the jurisdiction of the civil court as no written statement was filed and further pleaded that Arbitration agreement between the parties is already on the file of the suit as the same has been produced by the plaintiff herself along with the plaint and thus, claimed that matter be referred to arbitration in terms of Section 8 of the Act. It was claimed that the matter was required to be referred to the Board of Arbitrators in terms of Clause 16 of the Partnership deed referred to above. The application was opposed by the plaintiff respondent on the plea that the petitioners and defendants No.2 and 3 have already submitted their written statement on the substance of dispute on 7.10.2003 and also that they have not produced the original arbitration agreement or certified copy thereof when they first put in appearance before the court on 3.11.2003. It is the case of the petitioners that the case was adjourned to 3.11.2003 for filing written statement which was last opportunity. It is the case of the plaintiff respondent that instead of filing written statement they chose to file the present application to prolong the mater and to harass the plaintiff respondent. It was also the case of the plaintiff respondent that the stand of the petitioners is that the partnership stands dissolved on 31.5.2000 and therefore, Clause 16 of the partnership deed would have no application. Learned trial court dismissed the application by observing that the suit was filed by the plaintiff respondent on 5.4.2003. The learned trial court observed that prior to the filing of present application the plaintiff respondent had moved an application for appointment of Receiver and in reply filed thereto a stand was taken by the petitioners that partnership firm CR No.587 of 2008 4 stood dissolved with effect from 31.5.2000 after issuing notice to the plaintiff dated 11.5.2000. It was also the stand of the petitioners that present suit was filed on 5.4.2003 for dissolution of firm and rendition of accounts. Learned trial court, thus, observed that when there is dispute about the dissolution of firm by issuing notice to the plaintiff then the suit for rendition of accounts of the dissolved firm would be entertained by the civil court. It was also observed that when the stand of the defendants is that partnership already stood dissolved the question of placing reliance on the Arbitration Clause did not arise. The court also observed that the Arbitration Clause in the partnership deed did not include the question of dissolution of partnership firm as the stand of the petitioners themselves was that the firm already stood dissolved. The Court also came to the conclusion that the question whether the partnership firm was legally dissolved or not was to be decided in this case as the question regarding rendition of account of partnership firm does not bar the jurisdiction of the civil court. Mr. Lokesh Sinhal, learned counsel appearing on behalf of the petitioners by placing reliance on the judgment of Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. & Anr. Vs. Verma Transport Co. (2006) 7 Supreme Court Cases 275 contended that merely by filing reply to an application moved for appointment of Receiver it could not be said that the petitioners have waived their right to invoke the Arbitration Clause or acquiesced to the jurisdiction of the court before filing first statement of substance of the dispute. The contention of the learned counsel for the petitioners is that in order to invoke the restriction to reference under section 8(1) due to filing of first statement on the substance of the CR No.587 of 2008 5 dispute, it is necessary to disclose the entire substance in the main proceeding itself and not taking part in the supplementary proceeding. The contention of the learned counsel for the petitioners is that the disclosure of defence for the purpose of opposing an interim application would not mean that substance of the dispute has already been disclosed in the main proceedings. Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. & Anr. Vs. Verma Transport Co. (supra) has been pleased to lay down as under:- “ The expression “first statement on the substance of the dispute” contained in Section 8(1) of the 1996 Act must be contradistinguished with the expression “written statement”. It implies submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, the party cannot be said to have waived its right or acquiesced itself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his fist statement on the substance of the dispute or not, if not, his application under Section 8 of 1996 Act, may not be held wholly unmaintainable. In view of the changes brought about by the 1996 Act, what is necessary is disclosure of the entire substance in the CR No.587 of 2008 6 main proceeding itself and not taking part in the supplemental proceeding. By opposing the prayer of 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 proceedings, are not part of the main proceeding. They are dealt with separately in the Code of Civil Procedure itself. Section 94 CPC deals with supplemental proceedings. Incidental proceedings are those which arise out of the main proceeding. A distinction has been made between supplemental proceedings and incidental proceedings in Vareed Jacob, (2004) 6 SCC 378”. The contention of the learned counsel for the petitioners, therefore, is that the learned court below was in error in coming to the conclusion that the petitioners have submitted to the jurisdiction of the civil court. However, I find that the contention raised by the learned counsel for the petitioners does not arise in the present case as the learned trial court has not rejected the application moved by the petitioners for the reasons that they have submitted to the jurisdiction of the civil court. Mr. Lokesh Sinhal, learned counsel for the petitioners thereafter contended that the learned courts below was wrong in coming to the conclusion that the question of dissolution of partnership could not be gone into by the Arbitrator and was required to be adjudicated by the civil CR No.587 of 2008 7 court only. In support this contention learned counsel for the petitioners placed reliance on the judgment of Hon'ble Delhi High Court in the case of J.B.Dadachanji Vs. Ravinder Narain and another 2002 (4) RCR (Civil) 7. In the said case Hon'ble Delhi High Court by interpreting arbitration clause between the parties came to the conclusion that the arbitration clause between the parties was wide enough to include the question of dissolution of partnership also. Hon'ble Delhi High Court in the said judgment was pleased to lay down as under:- “25. In the present case the arbitration clause in the partnership deeds, extracted above, is couched in wide terms and includes all the matters in difference relating to the firm, its affairs and its partners and, therefore, the arbitrator will be competent to decide all the questions in relation thereto, including the question whether or not the partnerships shall be dissolved or not and make the award accordingly.” Learned counsel for the respondents thereafter placed reliance on the judgment of Hon'ble Supreme Court in the case of V.H.Patel & Company and others Vs. Hirubhai Himabhai Patel and others (2000) 4 SCC 368 to contend that the arbitrator has the power to dissolve the partnership also. Hon'ble Supreme Court in the said case was pleased to lay down as under:- “12. So far as the power of the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a clause in the articles of partnership or agreement or order CR No.587 of 2008 8 referring all the matters in difference between the partners to arbitration, the arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. Power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the court to it. If under the terms of the reference all disputes and difference arising between the parties have been referred to Arbitration, the arbitrator will, in general, be able to deal with all matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine such a question. Although the learned counsel for the petitioner relied upon a passage of Pollock & Mulla, quoted earlier, that passage is only confined to the inherent powers of the court as to whether dissolution of partnership is just and equitable, but we have demonstrated in the course of our order that it is permissible for the court to refer to Arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence between the partners which is the foundation therefor.” Finally, reliance has been placed on the judgment of Hon'ble Supreme Court in the case of Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors. 2002 (4) SCC 155, wherein Hon'ble Supreme Court was pleased to lay down that an application 9 of the Act is not affected by the bar under S.69 of the Partnership Act. However, this judgment would have no application to the facts of the present case as the CR No.587 of 2008 9 Hon'ble Supreme Court has merely decided the fact that an application moved under section 9 of the Partnership Act cannot be said to be a suit to attract the bar under section 9 of the Partnership Act. Mr.A.K.Goel, learned counsel appearing on behalf of the respondents, however, supported the findings recorded by the learned trial court by placing reliance on the judgment of Hon'ble Delhi High Court in the case of Om Prakash Vs. Mrs. Usha Rani 2002 (1) RCR (Civil) 437 wherein it has been held that an applications under Sections 8, 20 and 34 of the Arbitration Act, 1940 would be barred in view of the bar contained under section 69 of the Partnership Act. Hon'ble Delhi High Court has been pleased to lay down as under:- “14. Once it is taken that it was a suit that has to be filed under Section 20 of the Arbitration Act the necessary corollary and the fining would be that strict provisions of Section 69 of the Partnership Act would always come into play. When a partner has to enforce the right against the other arising out of the contract which had been reduced into writing necessarily there is no option for the court but to state that the partnership should have been registered before any such application under Section 20 of the Arbitration Act would be maintainable. Once such an application is not maintainable, the petitioner had no option except, but to file the suit for rendition of accounts and dissolution of partnership. In that view of the matter the expression “other proceedings to enforce a right” would include the application/suit that has to be filed. Application under CR No.587 of 2008 10 Section 20 of the Arbitration Act would not be maintainable. 15. It had also been pleaded in the application under Section 34 of the Arbitration Act that still there is no bar for the enforcement of the arbitration agreement without filing any application in court. In strict sense it may be true but it has already come in the plaint and the petition that parties were not agreeable for appointment of an arbitrator by mutual agreement. Keeping in view of these assertions and counter assertions, it becomes unnecessary to ponder further with this particular argument because even during the course of submissions the suggestion for a common arbitrator to be mutually agreed could not be agreed upon.” Learned counsel for the respondents also placed reliance on the judgment of this Court in the case of M/s Makkar Cotton Mills Vs. Harmander Singh 2001 (1) RCR (Civil) 47 to contend that suit for dissolution of partnership and rendition of accounts has to be adjudicated upon by the court itself and not by the Arbitrator. Reliance was also placed by the learned counsel for the respondents on the judgment of this court in the case of M/s Sharda Ginning Pressing & Oil Mills and others Vs. Smt.Bimla Devi (2007-2) P.L.R. 807, wherein this court was pleased to lay down as under:- “13. It is not in dispute that defendants No.6 and 7 are not parties to the agreement of partnership deed dated 1.4.1991 and therefore, the matter did not fall within the ambit of arbitration clause No.15 referred to above. The learned Trial CR No.587 of 2008 11 Court was right in coming to the conclusion that in view of judgment of Hon'ble Supreme Court in Sukanya Holding's case (supra) the matter cannot be referred to the arbitration. The suit should be in respect of a matter which the parties have agreed to refer and which comes within the ambit of arbitration agreement. When a suit is commenced as to a matter which lies outside the arbitration agreement and is also between the some of the parties who are not parties to the arbitration agreement, there is no question of moving application under Section 8 as the word “matter” referred to in Section 8 indicates the entire subject-matter of the suit should be subject matter of arbitration agreement. Not only this, it has been held by this court in the case of M/s Makkar Cotton Mills's case (supra) by replying upon the judgment of Hon'ble Supreme Court in Haryana Telecom Ltd. V. Sterlite Industries (India) Ltd., 1999 (3) RCR (Civil) 619 that the suit for dissolution of partnership and rendition of account has to be adjudicated by the civil court itself and not by the arbitrator. In view of this authoritative pronouncement the learned Trial Court was right in rejecting the application.” Reliance was also placed by the learned counsel for the respondents on the judgment of this Court in the case of Narinder Singh Randhawa and another Vs. Hardial Singh Dhillon and others (1985-2) P.L.R.422, wherein this court has been pleased to lay down as under:- “3. The Court below relied on certain observations in CR No.587 of 2008 12 Manohar Lal etc. Vs. Moti Lal by R.S.Narula, J. in coming to the conclusion that the moment a suit is filed for dissolution of partnership, a partnership at will stand dissolved merely by filing of the suit. Since the instant partnership was a partnership at will the trial Court followed the observation in the aforesaid judgment and held that by filing of the suit the partnership stood dissolved and therefore section 44 (g) of the Partnership Act could not be relied upon by the plaintiffs to seek dissolution of partnership through Court on just and equitable grounds. Firstly, the learned counsel for the plaintiff urged that the facts of the aforesaid decision were distinguishable and secondly, he argued that it was not a correct decision in view of the judgment o the Supreme Court in Banarsi Das V. Kanshi Ram and Khushi Ram Bihari Lal and Co. State of Punjab. In Banarsi Das's case (supra) it was ruled by the Supreme Court as follows:- “ Now it will be clear that this provision contemplates the mentioning of a date from which the firm would stand dissolved. Mentioning of such a date would be entirely foreign to a plaint in a suit for dissolution of partnership and therefore such a plaint cannot fail within the expression 'notice' used in the sub- section. It would follow therefore that the date of service of a summons accompanied by a copy of a plaint in the suit for dissolution of partnership cannot be regarded as CR No.587 of 2008 13 the date of dissolution of partnership and section 43 is of no assistance.” In a partnership at will, if one of the partners seeks its dissolution, what he wants is that the firm should be wound up that the should be given his individual share in the assets of the firm ..........................and that the firm should no longer exist. He can call for the dissolution of the firm by giving a notice as provided in sub-section (1) of section 43, i.e. without the intervention of the court, but if he does not choose to do that and wants to go to the court for effecting the dissolution of the firm, he will, no doubt, be bound by the procedure laid down in Order 20, Rule 15 of the Code of Civil Procedure. This rule makes the position clear. No doubt, this rule is of general application, that is, to partnerships other than those at will”. The aforesaid passages ere relied upon by a Division Bench of this Court in Khushi Ram Behari Lal and Co.'s case (supra) and it was ruled that dissolution of partnership would take place under Order 20 Rule 15 of the Code of Civil Procedure even if it is at will and from a date fixed in the preliminary decree, unless the partnership is dissolved under section 43 of the Partnership Act. Admittedly, in the present case partnership was not dissolved under section 43 of the Partnership Act and the plaintiffs straightway filed a suit for dissolution of CR No.587 of 2008 14 partnership. Therefore, it is clear that some observations contained in the judgment of R.S.Narula, J., go counter to the observations of the Supreme Court and in the Division Bench decision of this Court. I am bound by the judgment of the Supreme Court and the Division Bench and following the same, I hold that merely by filing a civil suit for dissolution of partnership at will, the partnership does not stand dissolved and it will stand dissolved from a date which may be fixed in the preliminary decree passed by the Court unless it is found in the suit on merits that the partnership had already stood dissolved as pleaded by Hardial Singh Dhillon defendant. Hence, for the present, it is to be treated on the face of the plaint that the plaintiffs re seeking dissolution of partnership and accordingly section 44(g) of the Partnership Act would be attracted. Since the dissolution is sought on the basis of justice and equity, this matter can only be gone into by a Civil Court and not by the arbitrators. The decision to the contrary is hereby reversed.” The contention of the learned counsel for the respondents, therefore, is that the plaintiff respondent is seeking dissolution of the partnership firm on just and equitable ground and not as per the powers under the Partnership deed and therefore, the court was fully justified in dismissing the application moved by the petitioners. On consideration of the matter, I find force in the contention raised by the learned counsel for the respondents. CR No.587 of 2008 15 It may be noticed that in the present case arbitration clause is restricted to dispute inter se the partners with respect to deed and is not wide enough to include the dissolution of the partnership deed and even otherwise, the ground of dissolution on equitable ground is not covered as it was in the case of J.B.Dadachanji Vs. Ravinder Narain and another (supra) on which strong reliance was placed. The word used in the said judgment was in dispute with regard to any matter relating to the firm, its affair and its partners. Thus, the dispute with regard to the firm was also included. In the present case the arbitration clause inter se parties did not cover the question of dissolution. Similarly, Hon'ble Supreme Court in the case of V.H.Patel & Company and others Vs. Hirubhai Himabhai Patel and others (supra) has also been pleased to lay down that the question of dissolution can be decided by the Arbitrator only if the arbitration clause so provided. Thus, the judgments relied upon by the petitioners has no application to the fats of the present case. In the present case, it may be noticed that the petitioners are seeking the dissolution on just and equitable ground as covered under section 44 and not as per the terms of the partnership deed and therefore, the matter could not be referred to the arbitration under section 8 of the Act as claimed. Consequently, I find no merit in the present petition, which is ordered to be dismissed. 27.8. 2008 (Vinod K.Sharma) rp Judge