Source: https://www.lawweb.in/2017/08/whether-court-can-refer-disputes-of.html
Timestamp: 2019-04-23 14:25:32+00:00

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Law Web: Whether court can refer disputes of unregistered partnership firm to arbitration?
Whether court can refer disputes of unregistered partnership firm to arbitration?
The submission by the Petitioner is that partnership being an unregistered partnership, no reference can be made to the arbitration. In the present case there is no dispute between the parties that both Retirement deed and Partnership deed contain an arbitration clause.... When the partners and those who claim through partners agreed to get the dispute settled by arbitration, it is not open for the Appellants to contend that partnership being unregistered partnership, the dispute cannot be referred.
The Petitioners have not been able to show any statutory provision either in 1996 Act or in any other statute from which it can be said that dispute concerning unregistered partnership deed cannot be referred to arbitration. The Court thus, did not find any substance in the third submission of the Appellant.
Nayana S. Bhakta and Ors.
R.K. Agrawal and Ashok Bhushan, JJ.
2. This appeal has been filed against judgment dated 08.07.2014 of High Court of Karnataka in Civil Revision No. 219 of 2014. The Civil Revision was filed by the Appellants against the judgment and order dated 27th May, 2014 of vacation District Judge, Mangalore in Original Suit No. 5 of 2014 filed by the Appellants/plaintiffs. In the Suit, I.A. No. IV was filed by the Defendants/Respondents Under Section 8(1) of Arbitration and Conciliation Act, 1996, relying on arbitration agreement in retirement deed dated 25.07.2005 (hereinafter referred to as retirement deed) as well as in the partnership deed dated 05.04.2006 (hereinafter referred to as partnership deed). Learned District Judge has allowed the application filed by the Defendant Under Section 8(1) of 1996 Act. Parties to the suit were referred to the arbitration to settle the dispute as per arbitration agreement. The High Court wide impugned judgment has affirmed the order of Trial Court with observation that parties can press for an early trial. The Revision Petition was disposed of accordingly. Aggrieved against the judgment of High Court, the Appellants/plaintiffs have filed this appeal.
(i) Late Ramabhakta had started a business of manufacture and sales of 'Beedi' under the name 'M/s. Neo Subhash Beedi Works'. After his demise, his six sons, namely, late M. Narasimha Bhakta, late M. Subhaschandra Bhakta, late M. Prakashchandra Bhakta, late M. Ganesh Bhakta, late M. Gangadhar Bhakta and late M. Ashok Bhakta, constituted the partnership firm.
(iii) M. Prakashchandra Bhakta died on 20.03.1995 and as per his Will, his minor son Master M. Vinayaka Bhakta was admitted to the partnership as per partnership deed dated 21.03.1995. On 06.03.1997, Subhaschandra Bhakta died and his LRs., namely Defendant Nos. 1 to 4 became partners. Ashok Bhakta died on 18.09.2001. The first Plaintiff is son of late Ashok Bhakta.
(iv) On 25.07.2005, retirement deed was executed in which Defendant Nos. 1 to 4 were stated to have retired from partnership. The partnership deed dated 05.04.2006 was entered between late M. Gangadhar Bhakta, M. Vinayaka Bhakta, Defendant No. 5 and M. Vipin Bhakta(S/o. late M. Ganesh Bhakta) and Master M. Ananthesh Bhakta, 1st Plaintiff. M. Gangadhar Bhakta expired and his estate is represented by the Plaintiff Nos. 2 & 3.
4. The suit for partition was filed by M. Prakashchandra Bhakta and others against M. Subhaschandra Bhakta and others being O.S. No. 4 of 1985. The preliminary decree was passed on 31.07.1986. M. Subhaschandra Bhakta and others filed FDP No. 24 of 1992 for preparation of final decree in which the compromise petition dated 04.04.1994 was filed and compromise decree was passed on 05.04.1994. As per the compromise decree, Item No. 1 of 'A' Schedule property was allotted to M. Subhaschandra Bhakta and Item No. 2 was allotted to M. Prakashchandra Bhakta.
5. An agreement to sale dated 19.04.1993 was executed by M. Prakashchandra Bhakta in favour of partnership firm. Similar agreement to sell dated 19.04.1993 was also executed by M. Subhaschandra Bhakta in favour of firm.
6. A Suit No. 5 of 2014 was filed by three Plaintiffs (Appellants) against six Defendants who are Respondent Nos. 1 to 6 in this appeal praying for permanent prohibitory injunction restraining the Defendants or anyone claiming through them for transferring or alienating 'A' Schedule property. Further, the permanent prohibitory injunction was sought against the Defendant regarding possession and enjoyment of property by Plaintiff. The Defendant had filed I.A. No. IV Under Section 8(1) of Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act) on 09.05.2014, praying to pass an order referring the parties to the arbitration for adjudication of the disputes raised by the Plaintiff in the Suit. The application was not accompanied by retirement deed and partnership deed.
I.A. No. IV filed Under Section 8(1) of the Arbitration and Conciliation Act, 1996 by the Defendants is allowed.
The parties to the suit are referred to the Arbitration to settle their disputes and differences, in view of the Arbitration Agreement.
The suit of the Plaintiffs stands disposed off accordingly.
(i) The application I.A. No. IV of 2014 praying for referring the matter to arbitration was not accompanied by the original retirement deed dated 25.07.2005 and partnership deed dated 05.04.2006, hence the application was liable to be dismissed Under Section 8(2) and Learned District Judge committed error in allowing the application. According to Section 8(2) of the Act, it is mandatory to file the original arbitration agreement or a duly certified copy thereof along with the application seeking reference to the arbitration.
(ii) All the parties to the suit were not parties to the arbitration agreement as claimed in retirement deed and partnership deed. Hence, dispute could not have been referred to the arbitrator.
9. Learned Counsel appearing for Respondents have refuted the submissions and contends that Learned District Judge after considering all aspects of the matter have rightly made the reference to the arbitrator. It is submitted that there was clear arbitration agreement in the retirement deed as well as in the partnership deed as has been noted by District Judge and the suit could not have proceeded. All the Plaintiffs as well as Defendant Nos. 1 to 4 and Defendant No. 5 were parties to the arbitration agreement either personally or claiming through the person who was party to the agreement. The Defendant No. 6 has not inherited any right in the partnership firm and was unnecessarily impleaded by the Plaintiff. Mere presence of Defendant No. 6 as one of the Defendants does not preclude the implementation of arbitration agreement. With regard to non-filing of retirement deed and partnership deed along with application I.A. No. IV of 2014, two submissions have been raised. Firstly, it is contended that the Plaintiff themselves has filed both retirement deed and partnership deed along with the list of documents and having admitted both retirement deed and partnership deed, non-filing along with the application I.A. No. IV was inconsequential. Secondly, the Defendant themselves immediately after three days of filing their I.A. No. IV of 2014 had filed the original retirement deed and partnership deed on 12.05.2014 and at the time the matter was considered by District Judge, original deeds were on the record. Hence, the application I.A. No. IV was not liable to be rejected on this ground. There is no such provision which prohibits the adjudication of dispute by arbitration regarding an unregistered partnership firm.
(1) Whether non-filing of either original or certified copy of retirement deed and partnership deed along with application I.A. No. IV dated 09.05.2014 entailed dismissal of the application as per Section 8(2) of 1996 Act.
12. Two facts which emerged from record in this respect need to be noted. Firstly, the Plaintiffs in their plaint of O.S. No. 5 of 2014 have referred to and admitted the retirement deed dated 25.07.2005 and partnership deed dated 05.04.2006 in para 5 of the plaint. The Plaintiffs themselves have filed the photocopies of deed of retirement dated 25.07.2005 as the document No. 6 in the list and photocopies of partnership deed dated 05.04.2006 as document No. 7 as have been noted in para 23 of the District Judge judgment.
39. The materials on record clearly goes to show that I.A. No. IV was filed by the Defendants on 09.05.2014. It is true that the application was not accompanied by the Retirement Deed and the Partnership Deed either the originals or the certified copies. On 12.05.2014 the original Retirement Deed and the Partnership Deed were produced by the Defendants along with the list.
14. The Appellants submit that Sub-section (2) of Section (8) provides that "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." They submit that admittedly with the application I.A. No. IV filed on 09.05.2014, original or certified copy of the Retirement Deed and Partnership Deed was not filed.
19. There is no whisper in the petition dated 28.02.2005 that the original arbitration agreement or a duly certified copy thereof is being filed along with the application. Therefore, there was a clear non-compliance with Sub-section (2) of Section 8 of the 1996 Act which is a mandatory provision and the dispute could not have been referred to arbitration. Learned Counsel for the Respondent has submitted that a copy of partnership deed was on the record of the case. However, in order to satisfy the requirement of Sub-section (2) of Section 8 of the Act, Defendant 3 should have filed the original arbitration agreement or a duly certified copy thereof along with the petition filed by him on 28.02.2005, which he did not do. Therefore, no order for referring the dispute to arbitration could have been passed in the suit.
16. In this context, the reference is made to judgment of this Court in MANU/SC/7872/2007 : 2007 (7) SCC 737, Bharat Sewa Sansthan v. U.P. Electronics Corporation Ltd.
24. The Respondent Corporation placed on record of the trial court photocopies of the agreements along with an application Under Section 8(1) of the Arbitration Act. The High Court, in our view, has rightly held that the photocopies of the lease agreements could be taken on record Under Section 8 of the Arbitration Act for ascertaining the existence of arbitration clause. Thus, the dispute raised by the Appellant Sansthan against the Respondent Corporation in terms of the arbitration Clause contained in the lease agreement is arbitral.
1. To bear in mind or consider, esp. to give judicial consideration to (the Court then entertained motions for continuance).
The expression 'entertain' means to 'admit a thing for consideration' and when a suit or proceeding is not thrown out in limine but the Court receives it for consideration and disposal according to law it must be regarded as entertaining the suit or proceeding, no matter whatever the ultimate decision might be.
Provided further that no sale shall be set aside on the ground of irregularity or fraud unless upon the facts proved the Court is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud.
4. Before the High Court it was contended on behalf of the Appellant and that contention was repeated in this Court, that Clause (b) of the proviso did not govern the present proceedings as the application in question had been filed several months before that Clause was added to the proviso. It is the contention of the Appellant that the expression 'entertain' found in the proviso refers to the initiation of the proceedings and not to the sage when the Court takes up the application for consideration. This contention was rejected by the High Court relying on the decision of that Court in Kundan Lal v. Jagan Nath Sharma MANU/UP/0133/1962 : AIR 1962 All 547. The same view had been taken by the said High Court in Dhoom Chand Jain v. Chamanlal Gupta MANU/UP/0132/1962 : AIR 1962 All 543 and Haji Rahim Bux and Sons v. Firm Samiullah and Sons MANU/UP/0091/1963 : AIR 1963 All 320 and again in Mahavir Singh v. Gauri Shankar MANU/UP/0083/1964 : AIR 1964 All 289. These decisions have interpreted the expression 'entertain' as meaning 'adjudicate upon' or 'proceed to consider on merits'. This view of the High Court has been accepted as correct by this Court in Lakshmiratan Engineering Works Ltd. v. Asst. Comm., Sales tax, Kanpur MANU/SC/0309/1967 : AIR 1968 SC 488. We are bound by that decision and as such we are unable to accept the contention of the Appellant that Clause (b) of the proviso did not apply to the present proceedings.
8. Provided that where the building was in the occupation of a tenant since before its purchase by the landlord, such purchase being made after the commencement of the Act, no application shall be entertained on the grounds, mentioned in clause(a) unless a period of three years has elapsed since the date of such purchase and the landlord has given a notice in that behalf to the tenant not less than six months before such application, and such notice may be given even before the expiration of the aforesaid period of three years.
9. Even that apart there is an internal indication in the first proviso to Section 21(1) that the legislature has made a clear distinction between 'entertaining' of an application for possession Under Section 21(1)(a) of the Act and 'filing' of such application. So far as the filing of such application is concerned it is clearly indicated by the legislature that such application cannot be filed before expiry of six months from the date on which notice is given by the landlord to the tenant seeking eviction Under Section 21(1)(a) of the Act. The words, "the landlord has given a notice in that behalf to the tenant not less than six months before such application", would naturally mean that before filing of such application or moving of such application before the prescribed authority notice must have preceded by at least six months. Similar terminology is not employed by the legislature in the very same proviso so far as three years' period for entertaining such application on the grounds mentioned in Clause (a) of Section 21(1) a stage must be reached when the court applied its judicial mind and takes up the case for decision on merits concerning the grounds for possession mentioned in Clause (a) of Section 21(1) of the Act. Consequently on the very scheme of this Act it cannot be said that the word 'entertain' as employed by the legislature in the first proviso to Section 21(1) of the Act would at least mean taking cognizance of such an application by the prescribed authority by issuing summons for appearance to the tenant-defendant. It must be held that on the contrary the term 'entertain' would only show that by the time the application for possession on the grounds mentioned in Clause (a) of Section 21(1) is taken up by the prescribed authority for consideration on merits, atleast minimum three years' period should have elapsed since the date of purchase of the premises by the landlord.
10. Leaned Senior Counsel, Shri Rao, for the Appellant then invited our attention to two decisions of this Court in the case of Lakshmiratan Engineering Works Ltd. v. Asstt. Commr. (Judicial) I, Sales Tax and Hindustan Commercial bank Ltd. v. Punnu Sahu. In Lakshmiratan Engineering this Court was concerned with the meaning of the word 'entertain' mentioned in the proviso to Section 9 of the U.P. Sales Tax Act, 1948. Hidayatullah, J., speaking for the Court observed in the light of the statutory scheme of Section 9 of the said Act that the direction to the Court in the proviso to Section 9 was to the effect that the Court shall not proceed to admit to consideration an appeal which is not accompanied by satisfactory proof of the payment of the admitted tax. In the case of Hindustan Commercial Bank the term 'entertain' as found in the proviso to Order XXI Rule 90 Code of Civil Procedure(CPC) fell for consideration of the Court. Hegde, J., speaking for a Bench of two learned Judges of this Court in this connection observed that the term 'entertain' in the said provision means 'to adjudicate upon' or 'to proceed to consider on merits' and did not mean 'initiation of proceeding '. The aforesaid decisions, in our view, clearly show that when the question of entertaining an application for giving relief to a party arises and when such application is based on any grounds on which such application has to be considered, the provision regarding 'entertaining such application' on any of these grounds would necessarily mean the consideration of the application on the merits of the grounds on which it is base. In the present case, therefore, it must be held that when the legislature has provided that no application Under Section 21(1)(a) of the Act shall be entertained by the prescribed authority on grounds mentioned in Clause (a) of Section 21(1) of the Act before expiry of three years from date of purchase of property by the landlord it must necessarily mean consideration by the prescribed authority of the grounds mentioned in Clause (a) of Section 21(1) of the Act on merits.
21. In the present case as noted above, the original Retirement Deed and Partnership Deed were filed by the Defendants on 12th May and it is only after filing of original deeds that Court proceeded to decide the application I.A. No. IV.
23. In the present case it is relevant to note the Retirement Deed and Partnership Deed have also been relied by the Plaintiffs. Hence, the argument of Plaintiffs that Defendants' application I.A. No. IV was not accompanied by original deeds, hence, liable to be rejected, cannot be accepted. We are thus of the view that the Appellants submission that the application of Defendants Under Section 8 was liable to be rejected, cannot be accepted.
25. Learned Counsel for the Respondents have submitted that it was case of the Plaintiffs themselves that by virtue of Will executed by M. Prakashchandra Bhakta it was only Defendant No. 5 who became entitled to benefits of partnership and Defendant No. 6 was not given any share.
26. ALL DISPUTES arising between the partners or their legal representatives about the interpretation of this Deed or their rights and liabilities there under or in relation to any other matters whatsoever touching the partnership affairs shall be decided by an Arbitration as provided by the Arbitration & Conciliation Act, 1996.
29. The Petitioners have not been able to show any statutory provision either in 1996 Act or in any other statute from which it can be said that dispute concerning unregistered partnership deed cannot be referred to arbitration. We thus do not find any substance in the third submission of the Appellant.
30. In the result, we do not find any merit in this appeal which is accordingly dismissed.

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