N.
Radhakrishnan Vs. M/S. Mastero Engieers & Ors. [2009] INSC 1670 (22 October
2009)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.7019 OF
2009 [Arising out of SLP)No.5994 of 2007] N. Radhakrishnan -------Appellant
Versus M/s. Maestro Engineers & Ors. -----Respondents
TARUN
CHATTERJEE,J.
1.
Leave granted.
2.
This appeal is directed against the final judgment and order
dated, 8th of January, 2007, of the High court of Judicature at Madras in CRP
No 1246 of 2006, whereby the High Court had dismissed the Civil Revision
Petition filed by the appellant against the order dated 7th of June, 2006
passed in I.A. No. 494 of 2006 (in O.S. No. 526 of 2006) by the 1st Addl.
District Munsif at Coimbatore, wherein the appellant had prayed for appointment
of an Arbitrator.
3.
The facts leading to the filing of this appeal which could be
derived from the case made out by the appellants are summarized in a nutshell
for the better understanding of the dispute at hand:
The
appellant had entered into a partnership with the respondents on 7th of April,
2003 to constitute a partnership firm for the purpose of carrying on the
business of Engineering Works under the name and style of "Maestro
Engineers". The abovementioned firm had initially commenced its
functioning from the premises situated at 41, KPR Lay Out 5th Street, Nanda
Nagar Singanallur, Coimbatore-5, (in short the "suit premises"),
which belonged to the father of the appellant. The appellant took active part
in setting up the firm and was instrumental for the construction of the same.
Differences
started creeping up between the appellant and the respondents and the appellant
sent a notice dated 3rd of November, 2005, to the respondents, being
dissatisfied with their conduct. The appellant had asserted in the notice that
the firm was set up by a partnership deed dated 7th of April, 2003 and that he
and the respondent no 3 had initially invested a sum of Rs.2,70,000/-, each for
the capital investment of the firm but in the partnership deed it was only
mentioned as Rs.1,00,000/- against the name of the appellant.
2 He had
further asserted malpractices happening inside the firm, which were supported
by the respondents. There were also allegations of collusion amongst the
respondents for driving out the clients of the appellant and forging the
accounts of the firm. The appellant also offered his retirement from the firm
and asked for his share of the salary and the profits incurred by the firm.
In
response to the notice sent by the appellant, the respondents sent a reply
dated 11th of November, 2003, wherein they admitted the factum of the
partnership entered into by them with the appellant but allegedly denied the
claim of the appellant that he had invested a sum of Rs.2,70,000/- towards the
establishment of the firm.
In
response to the reply sent by the respondents, the appellant sent a notice
dated 1st of December, 2005, wherein he again reiterated his stand that he had
invested a sum of Rs.2,70,000/- for the establishment of the firm and not an
amount of Rs.2,50,000/- as was alleged by the respondents in their reply.
The
appellant, thereafter, sent another notice dated 24th of February, 2006, to the
respondents stating that the respondents were responsible for the problems
created by the parties and it was their responsibility to resolve the disputes
amicably between them. It was 3 alleged that the respondents had colluded
themselves in order to siphon of the money of the partnership firm for their
personal gain. In the notice dated 3rd of November, 2005, the appellant had
reiterated that he was ready to retire from the firm if the share of profits
and arrears of salary due to him and the interest thereon was given to him. He
had further called upon the respondents to settle the arrears of amount within
15 days and to make arrangements for his retirement failing which he had put
them on notice to refer the matter to arbitration.
The
respondents subsequently filed a suit being O.S. No. 526 of 2006, under Order 7
Rule 1 of CPC before the Court of the District Munsif of Coimbatore for a
declaration that the appellant is not a partner of the Respondent No 1 (the
firm herein) after 18th of November, 2005, and to prevent him from causing any
disturbance to the respondent no 1 for its peaceful running by way of a
permanent injunction.
The
appellant thereafter filed an application under Section 8 of the Arbitration
Act 1996, (hereinafter referred to as the "Act") being I.A.No.494 of
2006 in the Court of the District Munsif at Coimbatore on 12th of March 2006,
which was rejected by his order dated 7th of 4 June, 2006. Feeling aggrieved by
the aforesaid order, the appellant filed a civil revision case being CRP(PD)
No. 1246 of 2006 along with a petition for stay being M.P. No. 1 of 2006 in the
High Court of Judicature at Madras. The High Court by its order dated 8th Of
January, 2007, affirmed the aforesaid order of the District Munsif at
Coimbatore and dismissed the civil revision petition and also the petition for
stay filed by the appellant. It is against this order of the High Court in
respect of which the instant special leave petition was filed by the appellant,
which on grant of leave was heard by us in the presence of the learned counsel
for the parties.
4.
We have heard the learned counsel appearing for the parties and
perused the materials on record. The learned counsel appearing for the
appellant at the first instance contended that the dispute was relatable to the
factum of retirement of the appellant from the partnership firm and its
reconstitution after the respondents had created a new partnership deed to that
effect without the appellant being a part of it, was unfair and not proper. It
was his contention that the appellant had only made a conditional offer to
retire from the firm provided his dues were settled and the respondents had 5
grossly made a willful error in considering his offer as a final one and,
therefore, committed a grave error by reconstituting the partnership firm after
taking the appellant to have retired from the same. The learned counsel
appearing for the respondents on the other hand contended that the offer of the
appellant to retire from the firm was an unequivocal one and the same was
accepted by the respondents after a meeting amongst themselves, thus under the
provisions of the Indian Contract Act, this was a binding contract amongst the
parties and the respondent could not deny the same. Moreover, the learned
counsel for the respondents argued that they had sent a notice to the effect to
the appellant stating that his offer to retire from the firm was accepted by
them and his dues would be settled accordingly within 15 days from the receipt
of the notice dated 3rd of March, 2005 sent by the appellant intimating about
his retirement. Therefore, the appellant had prior knowledge of the fact that
the respondents had accepted his notice offering to retire and they were acting
upon the same. The appellant on the other hand contended that the respondents
had only claimed to act which in reality they did not, and no cooperation was
provided to the appellant when he had 6 approached the Auditor of the
respondents to inspect his accounts. We are not in a position to determine the
veracity of the statements of either parties. The main issues which need to be
determined is whether the case falls within the jurisdiction of the Arbitrator,
and if it does, whether the procedural requirements under Section 8 (2) of the
Act had been complied with to the satisfaction of the court.
5.
The learned counsel for the respondents further argued that the
subject matter of the suit being OS No. 526 of 2006 was a different one and it
was not within the ambit of the arbitration clause of the partnership deed
dated 7th of April, 2003 and that the partnership deed had ceased to exist
after the firm was reconstituted due to the alleged retirement of the
appellant. Therefore, the trial court was justified in not referring the matter
to the Arbitrator. The appellant had on the other hand contended that the
subject matter of the suit was within the ambit of the arbitration clause since
according to him the dispute related to his retirement and the settlement of
his dues after he was deemed to have retired according to the respondents.
Further, it was his contention that 7 the partnership deed dated 6th of
December, 2005 was not a valid one as it was not framed in compliance with the
requirements under the Partnership Act. Therefore, the argument of the
respondents that the subject matter of the suit did not fall within the ambit
of the arbitration clause of the original partnership deed dated 7th of April,
2003, cannot be sustained. We are in agreement with the contention of the
appellant to this effect. It is clear from a perusal of the documents that there
was a clear dispute regarding the reconstitution of the partnership firm and
the subsequent deed framed to that effect. The dispute was relating to the
continuation of the appellant as a partner of the firm, and especially when the
respondents prayed for a declaration to the effect that the appellant had
ceased to be a partner of the firm after his retirement, there is no doubt in
our mind that the dispute squarely fell within the purview of the arbitration
clause of the partnership deed dated 7th of April, 2003. Therefore, the
Arbitrator was competent to decide the matter relating to the existence of the
original deed and its validity to that effect. Thus the contention that the
subject matter of the suit before the 1st Addl. District Munsif Court at Coimbatore
was beyond the purview of the arbitration 8 clause, cannot be accepted. Having
found that the subject matter of the suit was within the jurisdiction of the
Arbitrator, we now proceed to decide whether the Arbitrator was competent to
deal with the dispute raised by the parties. The learned counsel for the
appellant contended that the High Court was wrong in its interpretation of the
clause "difference of opinion" and held that it did not mean dispute
under the Act. This, in our view, cannot be sustained. Difference of opinion
leads to dispute, and it is very difficult to imagine that difference of
opinion and disputes are an altogether different thing in the circumstances
leading to this case.
6.
The appellant had cited a catena of judicial pronouncements to
contend that when there is an express provision to that effect, the civil
courts are bound to refer the matter to an Arbitrator in case of any disputes
arising between the parties. The appellant had raised various issues relating
to misappropriation of funds and malpractices on the part of the respondents
and the allegations to that effect have been made in the notice sent to the
respondents and subsequently in its written statement filed before the civil
court. The learned counsel for the respondents on the other hand argued that
when a case 9 involves substantial questions relating to facts where detailed
material evidence (both documentary and oral) needed to be produced by either
parties, and serious allegations pertaining to fraud and malpractices were
raised, then the matter must be tried in court and the Arbitrator could not be
competent to deal with such matters which involved an elaborate production of
evidence to establish the claims relating to fraud and criminal
misappropriation.
7.
In our opinion, the contention of the respondents relating to the
jurisdiction of the Arbitrator to decide a dispute pertaining to a matter of
this proportion should be upheld, in view of the facts and circumstances of the
case. The High Court in its impugned judgment has rightly held that since the
case relates to allegations of fraud and serious malpractices on the part of
the respondents, such a situation can only be settled in court through
furtherance of detailed evidence by either parties and such a situation cannot
be properly gone into by the Arbitrator.
8.
Reliance was placed by the learned counsel for the appellant on a
decision of this Court in the case of Hindustan Petroleum 1 Corpn. Ltd. vs.
Pinkcity Midway Petroleums [2003 (6) SCC 503], wherein this Court in Para 14
observed:
"If
in an agreement between the parties before the civil court, there is a clause
for arbitration, it is mandatory for the civil court to refer the dispute to an
arbitrator. In the instant case the existence of an arbitral clause in the
Agreement is accepted by both the parties as also by the courts below.
Therefore, in view of the mandatory language of section 8 of the Act, the
courts below ought to have referred the dispute to arbitration."
9.
The learned counsel for the appellant relying on the above-
mentioned observations of this Court in the aforesaid judgment submitted that
the High Court was wrong in ignoring the ratio of the case and should have
accordingly allowed the petition of the appellant for setting aside the order
of the trial court.
10.
The learned counsel appearing on behalf of the respondents on the
other hand contended that the appellant had made serious allegations against
the respondent alleging that they had manipulated the accounts and defrauded the
appellant by cheating the appellant of his dues, thereby warning the
respondents with serious criminal action against them for the alleged
commission of criminal offences.
In this
connection, reliance was placed in a decision of this Court in 1 the case of
Abdul Kadir Shamsuddin Bubere vs. Madhav Prabhakar Oak and Another,[ AIR 1962
SC 406] in which this court under para 17 held as under:
"There
is no doubt that where serious allegations of fraud are made against a party
and the party who is charged with fraud desires that the matter should be tried
in open court, that would be a sufficient cause for the court not to order an
arbitration agreement to be filed and not to make the reference......."
11.
In our view and relying on the aforesaid observations of this
Court in the aforesaid decision and going by the ratio of the above mentioned
case, the facts of the present case does not warrant the matter to be tried and
decided by the Arbitrator, rather for the furtherance of justice, it should be
tried in a court of law which would be more competent and have the means to
decide such a complicated matter involving various questions and issues raised
in the present dispute. This view has been further enunciated and affirmed by
this Court in the decision of Haryana Telecom Ltd. vs. Sterlite Industries
(India) Ltd.[ AIR 1999 SC 2354], wherein this court under para 4 observed :
"Sub-section
(1) of section 8 provides that where the judicial authority before whom an
action is brought in a matter, will refer the parties to 1 arbitration the said
matter in accordance with the arbitration agreement. This, however, postulates,
in our opinion, that what can be referred to the Arbitrator is only that
dispute or matter which the Arbitrator is competent or empowered to
decide."
12.
The learned counsel for the respondent further elaborated his
contention citing the decision of the High Court of Judicature at 269, wherein
it was held:
"......Power
of civil court to refuse to stay of suit in view of arbitration clause on
existence of certain grounds available under 1940 Act continues to be available
under 1996 Act as well and the civil court is not prevented from proceeding
with the suit despite an arbitration clause if dispute involves serious
questions of law or complicated questions of fact adjudication of which would
depend upon detailed oral and documentary evidence.
..Civil
Court can refuse to refer matter to arbitration if complicated question of fact
or law is involved or where allegation of fraud is made.
....Allegations
regarding clandestine operation of business under some other name, issue of
bogus bills, manipulation of accounts, carrying on similar business without
consent of other partner are serious allegations of fraud, misrepresentations
etc., and therefore application for reference to Arbitrator is liable to be
rejected."
13.
We are in consonance with the above-referred decision made by the
High Court in the concerned matter. In the present dispute faced by us, the
appellant had made serious allegations against the respondents alleging him to
commit malpractices in the account books and manipulate the finances of the
partnership firm, which, in our opinion, cannot be properly dealt with by the
Arbitrator. As such, the High Court was justified in dismissing the petition of
the appellant to refer the matter to an Arbitrator. In this connection, it is
relevant to refer the observation made by the High Court in its impugned judgment
:
"The
above decision squarely applies to the facts of the present case. In the
present case as well there is allegation of running rival firm, interference
with the smooth administration of the firm. As already stated since the suit
has been filed for declaration to declare that the revision petitioner is not a
partner with effect from 18.11.2005, and for consequential injunction
restraining the petitioner from disturbing the smooth functioning of the first
respondent firm, the issue relates to the causes which compelled the
respondents to expel the revision petitioner from the partnership firm and the
necessity to reconstitute the firm by entering into a fresh partnership deed.
Therefore such issues involve detailed evidence which could be done only by a
civil court......"
14.
Arguments were favoured by either parties relating to the ambit of
Section 8 (2) of the Act wherein the scope of the mandatory requirement to file
the original copy of the partnership deed dated 7th of April, 2003 was elaborately
discussed. It is to be noted that since we have already decided that there is
no requirement to appoint an Arbitrator in view of the matter that the issues
involved in the case involved detailed investigations into the same and
production of elaborate evidence to prove the allegations or refute the same,
there is no need to dwell into this matter. Even assuming that a dispute
subsists and an Arbitrator is appointed, still the appellant cannot absolve
himself from the mandatory requirement of filing an original copy of the deed.
The learned counsel for the appellant, however, argued that since the notarized
copy of the deed was already filed by the respondents before the 1st Addl.
District Munsif Court at Coimbatore, there was no need for the appellant to
produce the same. Learned counsel for the appellant cited various decisions to
substantiate his claim.
But from
a careful perusal of the order of the 1st Addl. District Munsif Court at
Coimbatore, in I.A. No. 494 of 2006 (in O.S. No. 526 of 2006) it would be
evident that the learned Munsif had noted 1 that the appellant had filed a
Xerox copy of the partnership deed dated 7th of April 2003 and had not filed
the original copy thereof.
Further,
Ex-P23 is the notarized copy of the Partnership deed dated 6th of December,
2005, which was the reconstituted deed formed after the alleged retirement of
the appellant from the firm.
The
learned counsel for the appellant pointed out to this deed and argued that
since the original copy of this deed was filed by the respondents, there was no
need for him to file the original copy thereof under section 8 (2) of the Act.
But it is to be noted herein that the claim of the appellant regarding the
dispute was under the arbitration clause mentioned under the original partnership
deed and not on the subsequent one. Since the original deed was not filed
within the requirement of Section 8(2) of the Act, it must be held that the
mandatory requirement under the Act had not been complied with. Accordingly,
even if we accept the factum of a dispute relating to the retirement of the
appellant under the original deed dated 7th of April, 2003, still the Court
would not be empowered to refer the matter to an Arbitrator due to the non
compliance of the provisions mentioned under Section 8(2) of the Act. For the
above-mentioned reasons and in view of our 1 discussions made hereinabove, we,
therefore, do not find any merit in this appeal and we direct the 1st Addl.
District Munsif at Coimbatore to dispose of the suit being O.S.No.526 of 2006
filed by the respondents for a declaration that the appellant was not a partner
of the Respondent No 1 (the firm herein) after 18th of November, 2005 and to
prevent him from causing any disturbance to the respondent no 1 for its
peaceful running by way of a permanent injunction within a period of six months
from the date of receipt of a copy of this judgment.
15.
It will be open to the parties to adduce evidence (both
documentary and oral) to prove their respective claims relating to the
contentions of fraud and the retirement of the appellant in consonance with the
original partnership agreement.
16.
The appeal is thus dismissed. There will be no order as to costs.
.................................J. [Tarun Chatterjee]
...................................J.
New Delhi;
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