Kumar Gadhok Vs. Ravinder Nath Khanna & Ors  Insc 156 (19 February 2007)
Tarun Chatterjee & R V Raveendran
(Arising out of SLP (C) No.3692 of 2006) RAVEENDRAN, J.
This appeal by special leave is filed against the order dated 27.10.2005
passed by the Delhi High Court under section 11 of the Arbitration and
Conciliation Act, 1996 ('Act' for short) in Arbitration Application No.200 of
2005 and the order dated 9.12.2005 rejecting the application for review.
The appellant and respondents 3 and 4,
carrying on business in partnership under the name and style of 'Matchless
Industries of India' (5th respondent herein), entered into a partnership with
Respondents 1 and 2, as per deed of partnership dated 1.3.1995 to carry on the
business under the name and style of M/s. Controls and Matchless Industries.
Appellant, Respondent No. 3 and Respondent No. 4 as partners of 'Matchless
Industries of India' were together shown as the first party to the partnership
and Respondents 1 and 2 together were shown as the second party to the
partnership. Clause (14) thereof provided for settlement of disputes among the
partners by arbitration and the same is reproduced hereinbelow :
"Any dispute or difference which may arise between the partners or their
representatives with regard to the construction, meaning and effect to this
deed or any part thereof or respecting the accounts, profit or losses of the
business or the rights and liabilities of the partners under this deed or the
dissolution or winding up of the business of the partnership or any other
matter relating to the firm shall be referred to arbitration of sole arbitrator
in accordance with the provisions of the Indian Arbitration Act."
The said firm was dissolved as per deed dated 24.12.2001. It is stated
that certain disputes arose between the parties in connection with certain
claims by Respondents 1 and 2 on dissolution of the said firm of M/s Controls
and Matchless Industries. Respondents 1 and 2 sent a communicated dated
22.8.2003 to the appellant and respondents 3 to 5 seeking 'accounts'. The
fourth respondent sent a letter dated 17.12.2003 on the letterhead of
'Matchless Industries of India' stating that he would ensure that a sum of
Rs.53,81,585/- is paid to respondents 1 and 2. Thereafter, respondents 1 and 2
sent a notice dated 27.6.2005 to appellant and respondents 3 to 5, claiming
that the amounts mentioned therein were due to them and sought concurrence for
the appointment of Mr. Abhinav Vasisht, Advocate, as sole arbitrator, to decide
the dispute. The appellant sent a reply dated 21.7.2005 contending that there
cannot be any arbitration as the Dissolution Deed did not contain any
Respondents 1 and 2, therefore, filed
Arbitration Application No.200/2005 in the Delhi High Court under Section 11 of
the Act for appointing the person suggested by them or any other person as the
sole arbitrator for adjudicating the disputes between them and the respondents
therein. The Appellant and Respondents 3 to 5 herein were arrayed as respondents
1 to 4 in the said Arbitration Application.
The said application was resisted on
the ground that the firm of Matchless Industries of India (4th Respondent in the
arbitration application) was not a party to the agreement for arbitration and
therefore the application was not maintainable.
The existence of arbitration clause in so far as Respondents 1 to 3 before
the High Court and receipt of notices were not disputed. The said objection was
raised only during arguments and no formal objections were filed. The High
Court by order dated 27.10.2005 allowed the said application and appointed
Justice C L Choudhary (Retd.) and sole Arbitrator, with an observation that the
question whether the disputes were arbitrable or not could be raised before the
arbitrator and can be decided under Section 16 of the Act.
Thereafter the appellant herein filed
a review petition dated 7.12.2005 contending that having regard to the decision
of this Court in S B P & Co. v. M/s. Patel Engineering Ltd.
[2005 (9) SCALE 1], the High Court should decide the question whether any
dispute involving 'Matchless industries of India' could be referred to
arbitration. The High Court rejected the review application on 9.12.2005.
The only contention urged by the Appellant in this appeal is that the
High Court ought to have decided the contention relating to non-arbitrability
of disputes with reference to 'Matchless Industries of India', instead of
leaving it to the Arbitrator for decision under section 16. It is submitted
that section 16 will not apply where the Arbitrator is appointed by the court
under section 11.
It is no necessary to examine the scope of section 16 of the Act. We find
that the observation by the High Court that Arbitrator can decide whether the
disputes arbitrable or not under section 16 of the Act was really redundant, as
it had in fact considered the objection and decided the question as follows :
"It may be noticed that the agreement dated 1st March, 1995 entered into between the parties in various clauses of the agreement makes reference to the
The name of M/s Matchless Industries of India has also been referred to in
the recital of the agreement. Respondent No. 4 in fact, was a partnership
concern constituting of the three persons who are signatories to this
Clauses no. 10 to 13 do make a reference to his partnership.
In these circumstances, at this stage and at least prima facie, the
objection raised on behalf of the respondents cannot hold the ground.
The arbitration clause is not disputed between respondents no. 1 to 3 who
are partners of respondent no. 4 and the transaction related to the affairs of
the said partnership concern."
The use of the words 'prima facie' in the order dated 27.10.2005 and the
observation that Arbitrator can decide about arbitrability of the dispute in
the order dated 9.12.2005 while rejecting the review application, have led to
The appellant and respondents 3 and 4
as partners of 'Matchless Industries of India' entered into a partnership with
respondents 1 and 2 to carry on the business under the name and style of
'Control & Matchless Industries' as per the Deed dated 1.3.1995 and the said
Deed admittedly contains a provision for settlement of disputes by a sole
arbitrator. The only grievance of the appellant before the High Court and this
Court is that 'Matchless Industries of India' - 4th respondent before the High
Court and fifth Respondent before this Court - not being a party to the said
partnership deed dated 1.3.1995 containing the arbitration agreement, there
could not be a reference to arbitration with reference to 'Matchless Industries
The Partnership Deed dated 1.3.1995 is entered between 'Mangat Rai
Gadhok, Suman Kumar Gadhok and Vipin Kumar Gadhok, carrying on business in
partnership under the name and style of Matchless Industries of India' as the
first party and 'R. N. Khanna and Ashok Khanna' together as the second party.
It is seen that even in the Dissolution Deed dated 24.12.2001, the first party
is described as 'Mangat Rai Gadhok, Suman Kumar Gadhok, Vipin Kumar Gadhok,
carrying on business in partnership under the name and style of Matchless
Industries of India'. The firm of Matchless Industries of India was impleaded
as fourth respondent in the arbitration application, as the first party under
the deed dated 1.3.1995, was the three partners of Matchless Industries of
India carrying on business under the name and style of Matchless Industries of
India. Therefore when a disputes arose between the partners of 'M/s Controls
and Matchless Industries', that is between 'R. N.
Khanna and Ashok Khanna' who were the second party under the deed of
partnership, with 'Mangat Rai Gadhok, Suman Kumar Gadhok, Vipin Kumar Gadhok
carrying on business in partnership under the name and style of Matchless
Industries of India', who were the first party under the said deed dated
1.3.1995, there is nothing wrong in arraying Mangat Rai Gadhok, Suman Kumar
Gadhok, Vipin Kumar Gadhok and Matchless Industries of India as Respondents 1
to 4 in the arbitration application. The High Court has rightly allowed the
application for appointment of sole Arbitrator, to decide the disputes between
Applicants 1 and 2, and Respondents 1 to 4, before it.
There is, therefore, no question of Arbitrator examining whether the
disputes are arbitrable or not with reference to Matchless Industries of India.
With the said clarification, the appeal is dismissed.