Smt. Kalpana
Kothari Vs. Smt. Sudha Yadav & Ors [2001] Insc 581 (31 October 2001)
S. Rajendra
Babu & Doraiswamy Raju Raju, J.
Appeal (civil) 7407-7409 of 2001
Special
leave granted.
Having
regard to the nature of the orders under challenge and the stage of the
proceedings, we consider it inappropriate to refer to or delve in great detail
with the allegations and claims on either side, in this judgment. But, it
becomes necessary to deal with the background of the disputes between parties
on a birds eye view.
One Shri
Laxmi Narain Yadav (since dead) was running a hotel business in tourist
bungalow on Mirza Ismail
Road at Jaipur, which
belonged to him exclusively and absolutely. It was said to have been
constructed on agricultural land without obtaining proper sanction and the
proceedings were also said to have been initiated against him, in accordance
with law. On 13.2.80, Laxmi Narain Yadav died leaving behind him a son Shri
Vijay Krishna Yadav (a law graduate) and his wife Smt. Ashok Kumari and in a
family settlement arrived at thereafter, the entire land and building
admeasuring 5354 sq. yds. (4478 sq.meters) of the Tourist Hotel as such fell to
the share of the son Shri Vijay Krishna Yadav. Thereafter, he made a notional
division of the property into three shares measuring 1184 sq. meters, 1587 sq.
meters and 1707 sq. meters in favour of himself, his wife Smt. Sudha Yadav and
son Prashant Yadav. On 31.1.87, a partnership by name M/s Sumeru Enterprises
was entered into between Shri Yadav, his wife, M/s Padmini Enterprises Private
Ltd. and one Smt. Kalpana Kothari, besides admitting the minor Prashant Yadav
to the benefits of partnership, with share in profits at 11%, 12%, 32.5%, 32.5%
and 12% with shares in losses at 14%, 15%, 35.5%, 35.5% and nil respectively
among them.
The
property of the Tourist Hotel was brought into as the stock of the Firm and
valuing the same at 61% the respective shares was credited into the Capital
Account of the Firm as Rs.17,00,000/-, Rs.22,00,000/- and Rs.22,00,000/-
respectively in the names of Shri Yadav, his wife Smt. Sudha Yadav and their
minor son Prashant Yadav. The rest of the capital was said to be required to be
arranged by the other partners M/s Padmini Enterprises Pvt. Ltd. and Smt. Kalpana
Kothari. For purposes of the partnership business, the land was got converted
from agricultural use to commercial use on payment of the required conversion
charges by the Firm and a registered lease-deed was entered into between the
State represented by the Governor of Rajasthan and the Firm M/s Sumeru
Enterprises on 3.3.89. The building plans were said to have been got approved
from the Jaipur Development Authority in July 1991 and thereafter on 5.10.91,
all the partners of M/s Sumeru Enterprises seem to have entered into an
agreement with M/s Parasnath Builders Pvt. Ltd., as per the terms of which,
among other things, the builders were appointed as Agent and Manager, not only
to execute the constructions but also to enter into negotiations for sale of
the apartments (shops, offices, etc.) on such terms and conditions and at such
rate or prices as prevalent in the market with the intending purchasers. All
the partners also were said to have executed a Power of Attorney dated 2.11.91
duly registered in favour of M/s Parasnath Builders Pvt. Ltd.
While
matters stood thus, Shri Vijay Krishna Yadav also expired on 23.12.91 leaving
behind a Will dated 16.12.91 as to the mode of succession and an order of
Letters of Administration dated 13.9.93 was said to have been obtained from the
District Judge, Jaipur City, on the basis of the Will dated 16.12.91. A sum of
Rs.2.50 lakhs each was to be and has been given to each one of the daughters, Preeti
Yadav and Mamta Yadav, and the shares in the Partnership in question of late Shri
Yadav had been divided equally between his wife and son resulting in
modification and due alteration and adjustment of shares in the property of the
Firm so far as Smt. Sudha Yadav and Prashant Yadav came to be made with Smt. Yadav
holding 17.5% and Master Prashant Yadav holding 17.5% with share in loss of Smt.
Yadav at 29% both of hers and of her late husband, put together. After
obtaining Letters of Administration, Smt. Sudha Yadav was said to have written
two Letters dated 7.10.93 and 31.1.94 approving and confirming the accounts of
the Firm. It was also claimed for the appellants that withdrawals by crossed cheque
payments came to be made from the Firm on account of late Shri Yadav at Rs.10,14,203/-
(including the payment of Rs.5 lakhs as per direction in the Will and Letters
of Administration), of Smt. Yadav at Rs.20,03,432/- and of Master Prashant Yadav
at Rs.10,03,432 (in all Rs.40,21,067/- from the funds of the Firm). After all
these, a sum of Rs.6,82,650.52 (Rs.3,41,325.26 each) was said to be lying to
the credit of Smt. Yadav and Master Prashant Yadav in the accounts of the Firm.
The further claim of the appellants seems to be that on effecting sales of some
of the apartments, the profits earned were also distributed among the partners
by proper credit entries of Rs.5,96,829.30 each in favour of Smt. Yadav and Prashant
Yadav and Rs.11,08,397.28 each in favour of Smt. Kalpana Kothari and M/s Padmini
Enterprises Pvt. Ltd. It is also claimed that till October 1995, a total number
of 173 offices and shops came to be disposed of and of which possession in
respect of 154 were also said to have been delivered to the buyers and several crores
of rupees were ploughed into for executing the construction works.
Misunderstanding
seems to have surfaced among parties resulting in the issue of a notice dated
1.2.95 by Smt. Yadav making serious allegations of malpractices and
irregularities against others in the Firm followed by a suit for dissolution of
the Partnership Firm through Court under Section 44 (g) of the Partnership Act,
and for rendition of accounts, filed on 17.10.1995. In the meantime, through
one Shri Yadvendra Singh (the real brother of Smt. Yadav) the minor Prashant Yadav
also seems to have filed a suit on 30.3.1995, which came to be withdrawn
subsequently and followed by a fresh suit in September 1995, staking a claim
for the entire property left behind by late Shri Laxmi Narian Yadav, as his
own. It is stated that in this suit Smt. Yadav has been made a party defendant
as she had made Prashant Yadav as party defendant also in her suit.
Smt. Yadav,
in her suit, has filed an application for the appointment of a Receiver as also
an application for injunction. M/s Parasnath Builders Pvt. Ltd. as well as Smt.
Kalpana Kothari filed applications under Section 34 of the Arbitration Act,
1940, in the Trial Court, relying upon the arbitration clauses contained in the
Partnership Deed dated 31.1.87 and the agreement dated 5.10.1991 entered into
by the Firm with the Builders. The applications filed for appointment of
Receiver and also the one for injunction also were opposed by these defendants
in the suit. On a consideration of the materials on record and also the
respective contentions of parties, by an order dated 6.2.96, the applications
for injunction as also for the appointment of Receiver were rejected by the
Trial Court. Similarly, the suit was also stayed by allowing the applications
filed under Section 34 of the Arbitration Act, 1940. Aggrieved, Smt. Sudha Yadav
has filed before the High Court S.B. Civil Misc. Appeal No.251 of 1996 against
the order dismissing the application for appointment of a Receiver made under
Order 40 Rule 1, CPC, S.B. Civil Misc. Appeal Nos.550 of 1996 and 635 of 1996
(defect) against the orders passed on the respective applications filed under
Section 34 of the Arbitration Act, 1940. On 27.8.99, the defendants, who filed
applications before the Trial Court under Section 34 of the Arbitration Act,
1940, moved applications in writing before the High Court stating that they do
not press their applications under Section 34 of the Arbitration Act, 1940, in
view of the repeal of the 1940 Act and for their dismissal as not pressed and
consequently, the same was allowed on 7.10.99. The minor Prashant Yadav was
also said to have attained majority on 21.9.97. But, subsequently in about two
months time the very same defendants (respondents 1 & 2 before High Court)
filed an application on 26.10.99 under Section 8 (1) of the Arbitration and
Conciliation Act, 1996, with a prayer that the proceedings before the Trial Court
be stayed without prejudice to the rights under Section 8(3) of 1996 Act, till
the commencement/continuation of the arbitration proceedings and making of the
Arbitrators award. A learned Single Judge of the Rajasthan High Court at Jaipur
by the order dated 18.1.2000, under challenge in these appeals, set aside the
orders of the Trial Court dated 6.2.96, and held as follows:
a) The
balance of convenience is in favour of appointment of a Receiver for preserving
as well as managing the property to save it from any anticipated loss till the
decision of the suit;
b)
that having got the application earlier filed before the trial court under
Section 34 of the Arbitration Act, 1940 which was in force at the time of
filing of the suit dismissed as withdrawn, it is not permissible to invoke the
powers under Section 8 of the Arbitration and Conciliation Act, 1996 to obtain
the relief of stay of further proceedings;
c) that
by their conduct as above they are estopped from filing a fresh application.
Heard Sarva
Shri R.F. Nariman and Bhaskar P. Gupta, Senior Advocates, for the appellants
and Dr. P.C. Jain, Advocate, for the respondent-plaintiff. The learned counsel
appearing on either side vehemently tried to project the claims of the
respective parties both on grounds pertaining to legal issues and relevant
facts. On a careful consideration for the same and the reasons assigned by the
learned Judge in the High Court, we find it difficult to affix our approval to
the order under challenge.
The
first respondent herein has filed the civil suit for dissolution of the
partnership and for accounts and also filed applications for the appointment of
Receiver and for injunction. The defendants have initially filed applications
in the suit before the Trial Court invoking the provisions contained in Section
34 of the Arbitration Act, 1940 and not only the applications filed by the
first respondent before the Trial Court were rejected but the applications
under Section 34 of the Arbitration Act by the appellants came to be allowed and
further proceedings in the suit filed by the first respondent came to be
stayed. No doubt, at the appellate stage, after filing a written application
for dismissal of the applications filed by the appellants under Section 34 of
the Arbitration Act, 1940, as not pressed in view of the repeal of the 1940 Act
and coming into force of the 1996 Act and getting orders thereon, the
appellants herein have once again moved the High Court under Section 8 of the
Act, with a request for stay of proceedings before the High Court as well as
the Trial Court, but the application came to be rejected by the learned Judge
in the High Court that no such application could be filed, once the application
earlier filed under 1940 Act was got dismissed as not pressed and also on the
ground of estoppel, based on the very fact. We are of the view that the High
Court did not properly appreciate the relevant and respective scope, object and
purpose as also the considerations necessary for dealing with and disposing of
the respective applications envisaged under Section 34 of the 1940 Act and
Section 8 of the 1996 Act. Section 34 of the 1940 Act provided for filing an
application to stay legal proceedings instituted by any party to an arbitration
agreement against any other party to such agreement, in derogation of the
arbitration clause and attempts for settlement of disputes otherwise than in
accordance with the arbitration clause by substantiating the existence of an
arbitration clause and the judicial authority concerned may stay such
proceedings on being satisfied that there is no sufficient reason as to why the
matter should not be referred to for decision in accordance with the
arbitration agreement, and that the applicant seeking for stay was at the time
when the proceedings were commenced and still remained ready and willing to do
all things necessary to the proper conduct of the arbitration. This provision
under the 1940 Act had nothing to do with actual reference to the arbitration
of the disputes and that was left to be taken care of under Sections 8 and 20
of the 1940 Act. In striking contrast to the said scheme underlying the
provisions of the 1940 Act, in the new 1996 Act, there is no provision
corresponding to Section 34 of the old Act and Section 8 of the 1996 Act
mandates that the Judicial Authority before which an action has been brought in
respect of a matter, which is the subject-matter of an arbitration agreement,
shall refer the parties to arbitration if a party to such an agreement applies
not later than when submitting his first statement. The provisions of the 1996
Act do not envisage the specific obtaining of any stay as under the 1940 Act,
for the reason that not only the direction to make reference is mandatory but
not withstanding the pendency of the proceedings before the Judicial Authority
or the making of an application under Section 8 (1) of the 1996 Act, the
arbitration proceedings are enabled, under Section 8 (3) of the 1996 Act to be
commenced or continued and an arbitral award also made unhampered by such pendency.
We have to test the order under appeal on this basis.
On the
ground of estoppel and the conduct of the appellants in getting their earlier
application made under Section 34 of the 1940 Act dismissed as not pressed that
the applications under Section 8 of the 1996 Act were not countenanced by the
High Court. The fact that the earlier application under the 1940 Act was got
dismissed as not pressed in the teeth of the repeal of the said Act cannot, in
our view, constitute any legal impediment for having recourse to and avail of
the avenues thrown open to parties under the 1996 Act. Similarly, having regard
to the distinct purposes, scope and object of the respective provisions of law
in these two Acts, the plea of estoppel can have no application to deprive the
appellants of the legitimate right to invoke an all comprehensive provision of
mandatory character like Section 8 of the 1996 Act to have the matter relating
to the disputes referred to arbitration, in terms of the arbitration agreement.
So far
as the need for or desirability of appointing the Receiver and granting of
injunction, as prayed for, is concerned, the High Court does not seem to have
taken into account the overall necessity to balance the interests of both
parties. Since only the land has been said to have been brought into the
partnership assets by the Plaintiffs husband with no other contribution of any
further funds, that the land was got legally converted into one fit for
commercial purposes of the Firm and the constructions were stated to have been
put up only with the funds of the other partners or the builders, as the case
may be, and the serious difficulties and loss to which the Firm and partners
may be put into by freezing the day-to-day business activities of the Firm and
the adverse impact on the credibility and reputation of the Firm, as a whole,
do not seem to have engaged the attention of the High Court in passing the
orders under challenge.
The
feasibility or otherwise of appointing Party Receiver and allowing them to
carry on the day-to-day activities of the business subject to strict and
effective control and accountability to the Court of the realizing of the
business does not seem to have been considered at all before going out for the
appointment of a third party Receiver and prohibiting any sales, completely. As
long as the Arbitration clause exists, having recourse to Civil Court for
adjudication of disputes envisaged to be resolved through arbitral process or
getting any orders of the nature from Civil Court for appointment of Receiver
or prohibitory orders without evincing any intention to have recourse to
arbitration in terms of the agreement, may not arise.
For
all the reasons stated supra, we set aside the orders of the High Court as also
that of the Trial Court and remit the proceedings to the Trial Court which
shall consider the matter afresh in the light of the claims and rights of the
respective parties under the Arbitration and Conciliation Act, 1996 and pass
such orders as it deem fit in accordance with law. Both parties are at liberty
to move all or any applications for the purpose before the Trial Court. Though,
we set aside the order of the High Court to facilitate the Trial Court to deal
with the matter afresh, the status quo as brought about by the orders of the
High Court shall continue till the Trial Court chooses to make its own orders
or directions in this regard, uninfluenced by the earlier orders of its own or
that of the High Court.
The
appeals are allowed on the above terms with no order as to costs.
J.
(S. Rajendra
Babu) J.
(Doraiswamy
Raju) October 31, 2001.
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