Singh & Ors. Vs. Sunil Kumar Singh & Ors.  Insc 2 (4 January 2008)
Mathur & Aftab Alam
out of Special Leave Petition (Civil) No.24729 of 2005) G. P. MATHUR, J.
This appeal, by special leave, has been preferred against the judgment and
order dated 4.8.2005 of Patna High Court, by which the Civil Revision Petition
preferred by Sunil Kumar Singh (defendant No.3 in the suit) was allowed and the
order passed by the trial Court on 17.3.2005 rejecting his prayer for referring
the dispute for arbitration under Section 8 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the 1996 Act) was set aside.
order to understand the controversy raised, it is necessary to mention the
basic facts of the case. The appellants herein filed Title Suit No.296 of 1998
in the Court of Sub-Judge-I, Patna, against Sunil Kumar Singh (defendant no.3)
and 5 others for a declaration that the reconstituted partnership deed dated
17.2.1992 (effective from 1.4.1992) is illegal, void and without jurisdiction
and was also without any intention or desire of Shri Rajendra Prasad Singh (who
died after 17.2.1992) to retire from the partnership. A declaration was also
sought that the plaintiffs being heirs of late Shri Rajendra Prasad Singh will
be deemed to be continuing as partners to the extent of his share. It was
further prayed that a decree for rendition of accounts of the firm from
1.4.1992 upto date may be passed and the defendants may be directed to pay to
the plaintiffs their share of the profits of the partnership as well as
interest and principal amount of unsecured loan advanced by the firm. A further
relief for grant of an ad-interim injunction restraining the respondents from
mismanaging and misappropriating the funds of the firm was also sought, besides
appointment of a Receiver during the pendency of the suit to manage the firm.
case of the plaintiffs, as set out in plaint, in brief, is as under. A
partnership firm in the name and style of M/s Veena Theatres Pvt. Ltd. was
formed by a deed of partnership on 25.12.1959 and the business of the firm was
to book pictures with film distributors at various places and to get them
screened or exhibited in the picture hall owned by M/s Veena Theatres Pvt. Ltd.
The capital in the firm was invested by the members of the family of Shri Shatrughan
Prasad Singh. Shri Rajendra Prasad Singh also subsequently became a partner of
the firm by making investments and a deed of partnership was executed on
20.12.1972. The partnership was reconstituted on 21.5.1976, in which the share
of Shri Rajendra Prasad Singh was 21% and on the death of Brij Mohan Prasad
Singh, his widow Smt. Sona Devi was inducted as a partner and a fresh deed was
executed on 13.1.1989 in which Shri Rajendra Prasad Singh continued to be a
partner having 21% share. Shri Rajendra Prasad Singh died on 5.9.1992 leaving
behind plaintiff nos.2, 3, 5 and 7, who are his grandsons, as his heirs. The
wife and two sons of Shri Rajendra Prasad Singh had predeceased him. The case
of the plaintiffs further is that the defendants fraudulently executed another
partnership deed on 17.2.1992, in which Shri Rajendra Prasad Singh was not
shown as one of the partners, though he had neither given any consent nor had
expressed his desire for retiring from the partnership.
plaintiffs made a request to the defendants to give the accounts of the
partnership firm and give them their share of profits, but the defendants
refused to do so on the ground that they or their predecessor-in-interest viz. Shri
Rajendra Prasad Singh were not partners in the partnership deed which was
executed on 17.2.1992.
suit was accordingly filed on 1.8.1998 for the reliefs mentioned above.
suit proceeded ex-parte against all the defendants except Birendra Kumar Singh
(defendant no.2), who appeared before the trial Court and moved an application
for giving time to file written statement. He also moved an application for
rejecting the plaint under Order VII Rule 11 CPC on 18.9.1998, which was rejected
on 16.1.2002. A review petition seeking review of the aforesaid order was filed
but the same was dismissed on 29.4.2004. He, thereafter, moved an application
on 3.8.2004 for referring the dispute for arbitration, but subsequently his
counsel conceded that the said application was not maintainable.
Sunil Kumar Singh (defendant no.3), who is son of Birendra Kumar Singh
(defendant no.2) did not put in appearance despite service of summons and the
trial Court vide order dated 28.6.1999 directed to proceed ex-parte against
him. After more than 5 years defendant no.3 moved two applications on
14.10.2004 for setting aside the order dated 28.6.1999 by which the Court had
directed to proceed ex-parte against him and also sought time to file written
statement. On the concession made by the plaintiffs, the order to proceed ex-parte
against defendant no.3 was set aside on 3.11.2004.
defendant no.3 thereafter moved an application on 25.11.2004 under Section 34
of the Arbitration Act, 1940 praying that in view of the arbitration clause in
the agreement dated 13.1.1989, the proceedings in the suit may be stayed and
the matter may be referred to arbitration. The plaintiffs filed an objection to
the application on 1.12.2004. On 16.12.2004, defendant no.3 filed a
supplementary petition in support of his earlier petition dated 25.11.2004
reiterating the prayer for referring the dispute to arbitration. Subsequently,
on 28.2.2005, defendant no.3 moved a petition purporting to be supplementary
petition to the petitions dated 25.11.2004 and 16.12.2004, wherein it was
averred that as the suit is of the year 1998, to avoid any chances of
confusion, his earlier petitions may be treated to have been filed under
Section 8 of the Arbitration and Conciliation Act, 1996. This petition was
opposed by the plaintiff appellants. The trial Court dismissed the petition by
the order dated 17.3.2005 mainly on the ground that as Shri Rajendra Prasad
Singh (predecessor-in- interest of the plaintiffs) was not a party to the
partnership deed which was executed on 17.2.1992, and as the main relief sought
in the suit was that the said partnership deed dated 17.2.1992 was illegal and
void, which question could only be decided by the civil Court, the dispute
could not be referred to arbitration. The defendant no.3 challenged the
aforesaid order by filing a Civil Revision Petition which was allowed by the
High Court by the impugned order dated 4.8.2005. The operative portion of the
order passed by the High Court only says that the Court below has
committed error in passing the impugned order. Accordingly, the impugned order
is set aside and this civil revision is allowed. No specific order making
reference to arbitration was passed.
Ranjit Kumar, learned senior counsel for the appellants, has submitted that the
main relief claimed in the suit is that a declaration be made that the
reconstituted partnership deed dated 17.2.1992 was illegal, void and without
jurisdiction as there was no intention or desire on the part of Shri Rajendra
Prasad Singh to retire from the partnership and that the plaintiffs being heirs
of Shri Rajendra Prasad Singh, shall be deemed to be continuing as partners to
the extent of his share. The other relief regarding rendering of accounts of
all transactions from 1.4.1992 onwards was dependent upon the first relief
inasmuch as Shri Rajendra Prasad Singh or the plaintiffs were admittedly not
shown as partners of the firm in the deed dated 17.2.1992 and unless the said
document was declared as void, they could not claim any rights on the basis of
earlier deed dated 13.1.1989. Learned counsel has submitted that Shri Rajendra
Prasad Singh or the plaintiffs being not parties to the deed dated 17.2.1992,
Section 8 of the 1996 Act can have no application to the facts and circumstances
of the case and the High Court committed manifest error of law in setting aside
the order of the trial Court and allowing the revision petition filed by
defendant no.3. Learned counsel has also submitted that having regard to the
facts of the case, the relief of declaration that the partnership deed is
illegal or void or the relief of cancellation thereof can only be granted by
the Civil Court and not by an arbitrator. In
support of his submission Shri Ranjit Kumar has placed reliance on the following
observations made in Khardah Company Ltd. v. Raymon & Company (India) Pvt. Ltd., AIR 1962 SC 1810 :
cannot be disputed that the expression arising out of or
concerning or in connection with or in consequence
of or relating to this contract occurring in an arbitration
clause in an agreement to purchase goods are of sufficient amplitude to take in
a dispute as to the validity of the agreement. But the arbitration clause
cannot be enforced when the agreement of which it forms an integral part is
held to be illegal. On principle it must be held that when an agreement is
invalid every part of it including the clause as to arbitration contained
therein must also be invalid. (1942) AC 356 and AIR 1959 SC 1362 and ILR (1948)
2 Cal 171 and AIR 1954 Mad 528(531), Rel.
on; AIR 1952 SC 119, Ref. (Para 4).
a dispute that the contract of which the arbitration clause forms an integral
part is illegal and void is not one which the arbitrators are competent to
decide under the arbitration clause although it is of sufficient amplitude to
take in a dispute as to the validity of the agreement and in consequence a
party to the contract is entitled to maintain an application under S. 33 for a
declaration that the contract is illegal and that in consequence the
proceedings taken thereunder before the arbitrators and the award in which they
resulted were all void : AIR 1959 SC 1357, Rel. on. (para 13) Learned counsel
has also submitted that the suit was filed on 1.8.1998 and defendant no.2
having failed in his attempt to get the matter referred to arbitration, his son
Sunil Kumar Singh (defendant no.3) who was set ex-parte on 28.6.1999 moved the
application for staying the suit under Section 34 of Arbitration Act, 1940 on
5.11.2004 and then moved the application giving rise to the order under
challenge on 28.2.2005 and such an application having been moved after an
inordinate delay, it was wholly improper on the part of the High Court to have
accepted his prayer. It has been further urged that there was non-compliance of
Sub-section (2) of Section 8 of the 1996 Act as the application moved by
defendant no.3 was not accompanied by the original arbitration agreement or a
duly certified copy thereof and, therefore, the same ought to have been
S.B. Sanyal, learned senior counsel for the respondent, has submitted that the
plaintiffs in fact are claiming rendition of accounts and their share in the
partnership business for which they are basing their claim on the partnership
deed dated 13.1.1989 to which Shri Rajendra Prasad Singh was a party and the
said deed contains an arbitration clause. In such circumstances, the High Court
rightly referred the dispute for arbitration and the contention raised by
learned counsel for the plaintiffs has no substance.
order to appreciate the contention raised by learned counsel for the parties,
it will be convenient to set out Sections 7 and 8 of the 1996 Act :
Arbitration agreement. –
this Part, 'arbitration agreement' means an agreement by the parties to submit
to arbitration all or certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship, whether contractual or
arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement.
arbitration agreement shall be in writing.
arbitration agreement is in writing if it is contained in-
document signed by the parties;
exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement; or
exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.
The reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the
reference is such as to make that arbitration clause part of the contract.
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.
The application referred to in subsection (1) shall not be entertained unless
it is accompanied by the original arbitration agreement or a duly certified
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.
(1) of Section 8 of the 1996 Act says that 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. Therefore,
for application of Section 8, it is absolutely essential that there should be
an arbitration agreement between the parties. It is an admitted fact that
neither Shri Rajendra Prasad Singh nor the plaintiffs are parties to the
partnership deed dated 17.2.1992. There is no document as defined in Section 7
of 1996 Act which may contain the signature of either Shri Rajendra Prasad
Singh or the plaintiffs. Similarly, there is no document as contemplated by
clauses (b) or (c) of Sub-section (4) of Section 7 of 1996 Act from which it
may be spelled out that either Rajendra Prasad Singh or the plaintiffs were
parties to clause relating to arbitration contained in the partnership deed
dated 17.2.1992. It is also an admitted fact that Shri Rajendra Prasad Singh
was alive when the said partnership deed dated 17.2.1992 was executed.
Therefore, on the face of it Section 8 of 1996 Act would not apply to any
dispute concerning the said partnership deed dated 17.2.1992 and the matter
cannot be referred to arbitration.
first relief claimed by the plaintiffs in the suit is a decree for declaration
that the reconstituted partnership deed dated 17.2.1992 was illegal and void
and there was no intention or desire of Shri Rajendra Prasad Singh to retire
from the partnership and further that the plaintiffs being heirs of Shri Rajendra
Prasad Singh will be deemed to be continuing as partners to the extent of his
share. It is true that the plaintiffs have also sought rendition of accounts
and their share of profits from the partnership as well as interest over the
unsecured loan and the principal amount of unsecured loan on rendition of
accounts. For getting this relief, the plaintiffs undoubtedly rely upon the
partnership deed dated 13.1.1989.
this deed of 1989 could be relied upon and form the basis of the claim of the
plaintiffs only if the partnership deed dated 17.2.1992 was declared as void.
If the deed dated 17.2.1992 was not declared as void and remained valid and
operative, the plaintiffs could not fall back upon the earlier partnership deed
dated 13.1.1989 to claim rendition of accounts and their share of profits.
Therefore, in order to get their share of profits from the partnership
business, it was absolutely essential for the plaintiff appellants to have the
partnership deed dated 17.2.1992 declared as illegal, void and inoperative. The
relief for such a declaration could only be granted by the civil Court and not
by an arbitrator as they or Shri Rajendra Prasad Singh through whom the
plaintiffs derive title, are not party to the said deed. The trial Court had,
therefore, rightly held that the matter could not be referred to arbitration
and the view to the contrary taken by the High Court is clearly illegal.
Sub-section (2) of Section 8 of the 1996 Act says 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. As already
stated in the earlier part of the judgment, defendant no.3 had moved an
application on 25.11.2004 under Section 34 of the Arbitration Act, 1940 for
staying the proceedings of the title suit and for referring the matter to
filed a supplementary petition to the aforesaid application on 16.12.2004.
Herein also reference was made to Section 34 of Arbitration Act, 1940.
Thereafter, he filed an application on 28.2.2005 praying that as the
Arbitration Act, 1940 had been repealed and the suit is of 1998, to avoid any
confusion, his earlier petitions may be treated to have been filed under
Section 8 of the Arbitration Act, 1996. None of these petitions were
accompanied by the original arbitration agreement dated 17.2.1992 or a duly
certified copy thereof.
fact, there is no requirement of filing the original arbitration agreement or a
duly certified copy thereof under Section 34 of Arbitration Act, 1940 and as
such there was no occasion for defendant no.3 to file the aforesaid document.
The third petition filed on 28.2.2005 contained the following prayer :
is, therefore, prayed that your honour may graciously be pleased to treat the
petitions dated 25.11.04, 16.12.04 and the present petition as supplement and
part of each other for deciding the prayer with regard to stay of the
proceedings of the aforesaid suit and/or to refer to arbitration in view of the
arbitration agreement covering the subject matter of this suit. There is
no whisper in the petition dated 28.2.2005 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 of sub-section (2) of Section 8 of
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 the 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 no.3 should have filed the original arbitration agreement or a duly
certified copy thereof along with the petition filed by him on 28.2.2005, which
he did not do. Therefore, no order for referring the dispute to arbitration
could have been passed in the suit.
view of the discussions made above, the appeal is allowed with costs and the
impugned order dated 4.8.2005 passed by the High Court in Civil Revision
No.1010 of 2005 is set aside.