Case: Sukanya Holdings Pvt. Ltd Vs. Jayesh H. Pandya

2. Appellant and respondent Nos.1 and 2 entered into a partnership agreement on 30th April, 1992 for carrying on business in the name and style of M/s. Hetali Construction Company to develop the land belonging to Ms Jaykirti Mehta who brought the said land as her capital contribution. Land was valued at Rs. 65,51,000/-. A Plan for construction of building was submitted in April 1992 and on 20.1.1993, commencement certificate was issued. It is submitted that till issue of commencement certificate, appellants contribution in the said partnership was to the extent of Rs. 1,25,00,000/- as capital contribution. By award dated 11.3.1993, Ms. Jaykirti Mehta was directed to stand retired from the partnership firm. It was agreed that after retirement of Ms. Mehta, other partners were to continue with the partnership. It is submitted that the appellant provided a fund of Rs. 60,88,000/- to the said partnership firm for being paid to Ms. Jaykirti Mehta which was paid to her along with the amount of Rs. 5,24,000/- in terms of the Award dated 11.3.1999. Further a sum of Rs. 47,50,000/- was paid to one Mr. Kirti Desai to settle the suit filed by him. The partnership firm entered into an agreement with M/s. Laxman Commercial and Finance Ltd. and accordingly construction was started. It is contended that from 1996 to 1998, respondents took away some amount from the partnership without contribution to capital construction. On 7.4.1998, five flats were sold to the creditors of the partnership firm in order to repay the loans and excess amount was paid to the firm. In April 1999, M/s. Laxman Commercial and Finance Ltd. sold flats No. 401 to 701 to different purchasers. On 23.6.1999, the partnership firm executed a Deed of Conveyance subject to rights of other parties in favour of M/s. West End Gymkhana Ltd. in respect of disposed of flats. On 1.1.1999, respondent No.1 wrote to the Income Tax officer to complete the assessment of the partnership firm. Accordingly, assessment order was passed on 30.3.2000.3. Thereafter, respondent no.1 filed suit No. 1991 of 2000 in the High Court of Bombay for dissolution of partnership firm and accounts and inter alia challenging the conveyance deed executed by partnership firm in favour of M/s. West End Gymkhana Ltd. Respondent No.1 also took out a notice of motion No. 1576 of 2000 for various interim reliefs.4. On the same day, appellant, filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act). That application was kept for hearing along with the notice of motion.5. Subsequently, respondent no.1 filed fresh suit bearing No. 2812 of 2001 for dissolution of the suit firm, accounts and other reliefs including the relief for setting aside the transfer of suit flats in favour of various defendants. The respondent withdrew the suit filed on 9th May, 2000.6. The appellant filed an arbitration petition No. 500 of 2001 under Section 8 of the Act. That application was opposed by respondent no.1 by contending that the subject matter of the suit is not between the contracting parties and the reliefs are claimed not only against respondent nos. 1 and 2 who are contracting parties but are claimed against remaining 23 parties, who are purchasers /so-called tenants of the disputed flats.7. The High Court by its judgment and order dated 18.9.2001 rejected application under Section 8 of the Act. The Court arrived at the conclusion that in the suit apart from the relief of dissolution and accounts, plaintiff has prayed for other reliefs. All the defendants to the suit are not parties or partners in the partnership firm and the terms of the partnership deed including the arbitration clause are not binding to them. Only part of the subject matter could at the most be referred to the arbitration. Further, there is no power conferred on the Court to add parties who are not parties to the agreement in the arbitration proceedings. The Court also negatived the alternative prayer for referring part of the subject matter in respect of those parties who are parties to the partnership agreement which contains arbitral clause. The Court arrived at the conclusion that such procedure is not contemplated under the Act. The object and purpose of the Act is to avoid multiplicity of the proceedings and not to allow two forums simultaneously to proceed with the matter. That judgment and order is challenged in this appeal.

Court's reasoning:
In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.17. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two differentour view. Section 89 CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the Court has to apply its mind to the condition contemplated under Section 89 CPC and even if application under Section 8 of the Act is rejected, the Court is required to follow the procedure prescribed under the said Section.