In The Matter Of Smt Kiran Agarwal vs In The Matter Of Shri Ashok Kr. ...
2013 Latest Caselaw 4853 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
RESERVED
 

 
Case:-ARBITRATION AND CONCILI. APPL.U/S11(4) No.- 54 of 2003
 

 
Applicant :- In The Matter Of Smt Kiran Agrawal
 
Opposite Party :- In The Matter Of Shri Ashok Kr. Agrawal & Others
 
Counsel for Applicant :- S.D. Singh,M.K.Gupta,Pankaj Agrawal,V.K.Gupta
 
Counsel for Opposite Party :- Y.P.Singh,A.K.Singh,Ashish Kumar Singh,R.P. Agrawal,Rohit Agrawal
 

 
Hon'ble Shiva Kirti Singh, Chief Justice
 

 
	Parties have been heard for the purpose of final disposal of the case.
 
2.	This case/application was filed on 07.07.2003 under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') with the following prayer :-
 
	"...this Court may be pleased to appoint an Arbitrator for adjudication of the disputes between the applicant and opposite parties 1 to 7 with regard to the construction of partnership deed dated 15.05.1992, alleged deed dated 13.09.2002, business, properties, stock, money and accounts of M/s General Electricals and its Associate firms and businesses, in the hands of opposite parties 1 to 7 in their personal capacity, their businesses, agents, nominees, representatives or assignees."
 

 
3.By an order of the then Chief Justice passed on 09.12.2005, a retired Judge of this Court was appointed as Arbitrator in respect of the disputes between the parties. That order was challenged by opposite parties 4 and 5 before the Hon'ble Supreme Court of India, vide Civil Appeal No.5366 of 2007, which was allowed on November, 23, 2007 mainly on the ground that as per judgment of seven Judges' Bench of the Apex Court in SBP and Company Vs. Patel Engineering Ltd. and another, 2005 (8) SCC 618, the power exercised by the Chief Justice or the designated Judge under Section 11 of the Act is not an administrative, but a judicial power. Since the earlier order was not containing any reason and notices were also not served on the respondents except respondent no.4, the Apex Court set aside the order dated 09.12.2005 and remitted the matter to this Court to pass a fresh order in the light of principle laid down in SBP & Company (supra).

4.The order-sheet discloses that since 25.01.2008 the application was adjourned at the instance of one party or the other and ultimately dismissed for non-prosecution on 06.02.2009. That order was recalled on 06.01.2012. Finally the parties were heard on 05.07.2013 and 12.07.2013.

5.As per pleadings in the application, the parties are related to each other. The applicant is wife of opposite party no.3, who is grandson of Mahadev Prasad. Opposite party no.4-Rameshwar Das Agrawal is Mahadev Prasad's sister's son. Two sons of Rameshwar Das Agrawal are opposite parties 1 and 5. The other opposite parties including ladies are from the branch of Rameshwar Das Agrawal. The partnership looking after the business under went changes from time to time and in 1992 vide registered partnership deed dated 15.05.1992 the partnership firm M/s General Electricals carrying on business of electrical, electronics goods and other items was reconstituted with opposite party no.3-Shiv Kumar Agrawal-HUF, Ashok Kumar Agrawal-opposite party no.1, Smt. Kiran Agrawal-applicant and Smt. Uma Agrawal-opposite party no.2 as its four partners. Clause 21 of this deed contains arbitration clause that in the event of any dispute arising between the parties touching the construction of that deed and/or relating to and/or in connection with the said firm the same shall be referred to arbitration by two Arbitrators and an umpire. A copy of the partnership deed dated 15.05.1992 is Annexure No.1 to this application.

6.It is applicant's case that in 1951 M/s Agrawal Electric Company was started by Mahadev Prasad as a proprietorship business which after the death of Mahadev Prasad in 1954 was reconstituted as a partnership firm and underwent further reconstitution in 1971 with Shiv Kumar Agrawal, Hari Prakash Agrawal, Chameli Devi and Rameshwar Das Agrawal as partners. It is also the applicant's case that in 1974, a second partnership firm M/s Agrawal Electric Agencies was constituted with Hari Prakash Agrawal, Shiv Kumar Agrawal and Shiv Shanker Agrawal as partners. In 1982 a third partnership firm M/s General Electricals was constituted allegedly with the help of funds and stocks of M/s Agrawal Electric Company and M/s Agrawal Electric Agencies with Hari Prakash Agrawal, Smt. Kiran Agrawal, Ashok Kumar Agrawal and Smt. Uma Agrawal as partners. In 1985 all the aforesaid three firms were reconstituted on account of death of Hari Prakash Agrawal. It is further pleaded by the applicant that only for reducing the income tax burden of M/s General Electricals, a proprietorship concern in the name and style of M/s General Sales and Service was started in the name of opposite party no.1 in whose name and in the name of opposite party no.5 a plot bearing no.3 in Jawahar Nagar Colony, Varanasi was also purchased from the funds of M/s General Electricals. A house was constructed over that plot in October, 2002. Thereafter the stock and funds of the partnership firm M/s General Electricals and M/s Agrawal Electric Company were allegedly, illegally transferred by opposite parties for the purposes and benefit of their own businesses including the businesses in the name and style of M/s Neelkanth Electronics, proprietor Sri Tushar Agrawal-opposite party no.8 and in the name of M/s Agrawal Electricals. After citing various instances of alleged illegal transfer of partnership stock to other business concerns by the opposite parties, it has been alleged that opposite parties 1 to 7 have created individual businesses from the property, funds, stock and goodwill of partnership firm M/s General Electricals and M/s Agrawal Electric Company, which is illegal and in violation of partnership deed dated 15.05.1992.

7.It is further case of the applicant that to resolve those disputes between the applicant and opposite parties 1 to 7, one Sri Gopal Goyal was appointed as Arbitrator by execution of a deed of reference in his favour by all the concerned parties, but allegedly Sri Goyal refused to enter into the reference. Thereafter the applicant demanded copy of balance-sheet as on 31.03.2002 by her letter dated 15.02.2003 from opposite parties 1 and 2 and this was replied by opposite party no.1 through letter dated 16.04.2003. According to that reply due to closeness of father-in-law of the applicant, late Hari Prasad Agrawal with Rameshwar Das Agrawal, three partnership businesses and one proprietorship concern of Ashok Kumar Agrawal-HUF were created, but when disputes and differences arose between the two families, by written agreement dated 03.09.2002 Sri Gopal Goyal of Varanasi was appointed as sole Arbitrator to decide all the disputes concerning four businesses. Two other persons Vijay Kumar Saraogi and Vinod Kumar Jindal were to assist the Arbitrator. However, the Arbitrator made efforts and without entering upon the reference, reconciled all the disputes between the parties to which all agreed. On account of resolution of all the disputes, fresh deeds of partnership for the reconstituted three partnership firms were executed on 13.09.2002 and were signed by all the concerned partners and witnessed by the sole Arbitrator Sri Gopal Goyal and one of the advisors Sri Vinod Kumar Jindal. After execution of fresh deeds of partnership, due intimation was given to the concerned Bankers and Sales Tax Authorities under signatures of all the partners of the respective firms including the firm M/s General Electricals, under dispute, from which the applicant and her husband opposite party no.3 retired and reconstituted firm consisted only of opposite party no.1 and opposite party no.2. The other two partnership firms M/s Agrawal Electric Company and M/s Agrawal Electric Agencies upon reconstitution came to the family of the applicant and her husband.

8.The stand of opposite party no.1 in his reply was that when the final balance-sheet of business of the firms as on 30.09.2002 was prepared, it showed that husband of the applicant had to pay substantial amount on account of taking up the business of M/s Agrawal Electric Company and hence, a false dispute was raised by the applicant in respect of the firm M/s General Electricals. It was pointed out that since business of two firms had been taken over by the applicant and her family, there was no question of further dispute and there was no requirement of referring any dispute to any Arbitrator.

9.It is the case of the applicant that the alleged deed dated 13.09.2002 contained in Annexure No.16 to this application is fabricated and forged by the opposite parties, but it is also pleaded that in the deed dated 13.09.2002 also there is a clause for reference of any dispute arising between the parties to arbitration.

10.According to the applicant, vide her letter dated 24.02.3003 contained in Annexure No.14 to this application, she dissolved the firm M/s General Electricals w.e.f. 20.02.2003. Opposite parties 1 and 2 in their reply reiterated that the firm had been reconstituted on 13.09.2002. The applicant issued a notice under Section 11 of the Act to opposite parties 1, 2 and 3 only, to appoint an Arbitrator for adjudication of disputes between the parties pertaining to the business, profit, stock, money and properties of M/s General Electricals. A copy of notice dated 15.03.2003 is Annexure No.17 to this application.

11.The case of the applicant is that there is dispute between the parties pertaining to the business, property, stock, money, accounting etc. of M/s General Electricals and its Associates M/s General Sales and Service and other firms and businesses being run and managed by the opposite parties and the applicant, whether in partnership, proprietorship or otherwise and such dispute is referable to arbitration as per clause 21 of the partnership deed dated 15.05.1992. In continuation of such pleadings in paragraph 32 of the application, alternative assertion has also been made in paragraph 33 that assuming without conceding that the alleged deed dated 13.09.2002 is valid and duly executed, then there is dispute between the parties to the alleged deed with regard to its construction and in connection with the business of firm M/s General Electricals and hence, under that alleged deed also, the dispute is referable to the arbitration and since the opposite parties failed to appoint an Arbitrator even after notice dated 15.03.2003 sent by Registered Post, this Court should appoint an Arbitrator for settlement of disputes with regard to the construction of the partnership deed dated 15.05.1992, alleged deed dated 13.09.2002, business, properties, stock, money and accounts of M/s General Electricals, other Associate and other firms and businesses being run and managed by the opposite parties and the applicant whether in partnership, proprietorship or otherwise including the business being run in the name and style of M/s Neelkanth Electronics, M/s Agrawal Electric Company and M/s Agrawal Electric Agencies.

12.Through counter affidavit filed on behalf of opposite parties 1, 2 and 4 to 8 as well as supplementary counter affidavit, the opposite parties except opposite party no.3 have refuted all the allegations regarding diversification of funds and stocks of the firm M/s General Electricals. The stand in the counter affidavit is same as has been taken in the reply of opposite parties 1 and 2 dated 16.4.2003 already noted earlier. Some discrepancy has been pointed out in respect of genuineology given by the applicant. It has also been pleaded in paragraph 34 of the counter affidavit that the deed dated 13.09.2002 contained some defect and as such a fresh retirement deed was executed on 05.07.2003 sworn on 08.07.2003, which is effective from 13.09.2002. According to contesting opposite parties that deed was duly signed by the applicant and her husband Shiv Kumar Agrawal in presence of two witnesses and Sri S.N. Mukerjee, a notary at Varanasi. The deed dated 5/8.7.2003 is said to contain not only the signature, but also thumb impression of the concerned parties. The contents of the notice for arbitration has also been denied. Several documents including communications allegedly made under the signatures of the applicant and her husband to the Branch Manager, State Bank of India, Varanasi and to the Sales Tax Authorities at Varanasi have also been made annexures in support of the plea that the partnership deed dated 13.09.2002 was executed and acted upon by the applicant and her husband.

13.Learned counsel for the applicant has submitted that in view of pleadings made in the application and upon failure of the opposite parties to appoint an Arbitrator even after notice dated 15.03.2003 contained in Annexure No.17 to this application, this Court has ample jurisdiction to refer the disputes to an Arbitrator in exercise of powers under Section 11 of the Act and hence, an Arbitrator be appointed to resolve the disputes between the parties indicated in the said notice.

14.On the other hand, learned counsel for the contesting opposite parties has raised a preliminary objection that since persons, who are not parties to the partnership deed dated 15.05.1992, have been arrayed as opposite parties and the dispute pleaded and raised is not related to the partnership deed dated 15.5.1992 (Annexure No.1) or to alleged forged deed dated 13.09.2002 (Annexure No.16), the dispute does not fall within the arbitration clause and cannot be referred to arbitration under Section 11 of the Act, particularly in view of definition of the term 'party' in Section 2 (h) and meaning of arbitration agreement provided under Section 7 of the Act. It was further vehemently argued that the partnership deed dated 13.09.2002 has never been challenged by the applicant before a Court of law for being declared as forged and fabricated and, therefore, this Court should hold that there is no live dispute and whatever dispute existed has already been settled with the signing of the deed of partnership on 13.09.2002 by the two continuing partners, opposite parties 1 and 2 and by the two retiring partners, the applicant and her husband-opposite party no.3. It was vehemently pointed out that opposite party no.3 has kept mum and has not challenged the reconstitution of partnership vide deed dated 13.09.2002. It is further pointed out that there is no denial that concerned Bankers and the Sales Tax Department were duly informed about the change in the partnership, which is operational and effective since September, 2002. It has also been argued on behalf of opposite parties 1 and 2 that since the partnership firm is not registered, the present application is barred by provisions of Section 69 of the Partnership Act.

15.In course of argument, learned counsel for the contesting opposite parties referred to several documents and affidavits in an attempt to persuade this Court to examine the genuineness of partnership deed dated 13.09.2002 and for recording a finding that the claim of the applicant that the said deed was forged and fabricated has no merits. This was with a view to support the second submission that there is no dispute existing between the parties on account of settlement of all disputes leading to reconstitution of three partnership firms including that of the firm under consideration, M/s General Electricals. By referring to pleadings, it was pointed out that the applicant has not denied regarding reconstitution of two other partnership firms and has merely claimed ignorance on the ground that she was not a party to those partnership deeds, but admittedly her husband, opposite party no.3 who is not contesting her present application, is a partner in those firms M/s Agrawal Electric Company and M/s Agrawal Electric Agencies.

16. This Court is of the considered view that the dispute regarding genuineness of the partnership deed dated 13.09.2002 is no doubt a relevant fact to be kept in mind, but it would not be just and proper to accept that deed to be genuine or to decide such disputes only on the basis of pleadings and copies of documents annexed as annexures more so when applicant has prayed for referring that dispute also for arbitration. But the stand of the applicant that the arbitration clause in that deed can also be relied upon for referring the disputes raised by the applicant to arbitration cannot be accepted for two reasons. Firstly, she cannot be permitted to deny that deed in the same breath for claiming that the disputes have not been settled with execution of that partnership deed because it is forged and secondly, because a perusal of the notice dated 15.03.2003 given by her for arbitration contained in Anenxure No.17, discloses that she has claimed for settlement of disputes through arbitration clause contained only in the partnership deed dated 15.05.1992 of the firm M/s General Electricals and has taken a categorical stand that she has not signed or executed the deed dated 13.09.2002, although at the same time in her prayer in the present application, she has sought appointment of an Arbitrator for all the disputes between her and opposite parties 1 to 7 with regard to construction of partnership deed dated 15.05.1992 as well as alleged deed dated 13.09.2002. Such dual and diverse stand definitely creates a hurdle in the way of this Court in referring the disputes to arbitration even with regard to construction of alleged deed dated 13.09.2002 when according to applicant, such deed is forged, fabricated and, therefore, void ab initio. A person of ordinary prudence was required upon coming to know of the alleged deed dated 13.09.2002 to take steps before all the concerned authorities including the Bankers and the Sales Tax Authorities for not recognizing such deed and also for getting such deed declared forged and fabricated. It is not understandable why such steps have not been taken by the applicant so far even after lapse of more than a decade. The genuineness of that deed legally, cannot be an issue for arbitration under arbitration clause of that very deed. It would be like permitting a party to claim benefits under any agreement whose genuineness is under challenge at his instance. Unless this issue is settled as per law, any arbitration under the earlier deed would be a meaningless exercise. But it is not possible to hold, in the facts of case, that due to alleged deed of 13.09.2002, all the disputes stood settled.

17. The first issue raised on behalf of contesting opposite parties is quite significant. Clearly the notice for arbitration was only to opposite parties 1, 2 and 3 who alone along with applicant were partners of the firm M/s General Electricals as per partnership deed dated 15.05.1992. By that notice, the applicant asked opposite parties 1 and 2 to render accounts of the firm with an allegation that they had usurped the entire business and had refused to render the accounts and due share in profit and loss of the firm, but in the present application, she has sought for arbitration into disputes of much larger dimensions relating to other partnership firms as well as a residential plot and house and proprietary business of opposite party no.1 in the name and style of M/s General Sales and Service. For that purpose, the applicant has impleaded opposite parties 4 to 8 although they are not parties to the partnership deed dated 15.05.1992 or the alleged forged deed dated 13.09.2002.

18. In the notice of arbitration, the applicant has also asserted that she denies her signature upon or execution of the alleged deed dated 13.09.2002 and that the same was forged and fabricated by opposite parties 1 and 2. This issue like larger disputes does not lie within the ambit of clause 21 of the partnership deed dated 15.05.1992. Further, the larger disputes, which the applicant has sought for reference through this application relating to opposite parties other than the partners of the concerned firms, cannot be referred to arbitration also in view of relevant provisions in the Act. For the purposes of the Act, Section 2 (h) defines a 'party' as a party to an arbitration agreement. Opposite parties 4 to 8 cannot be party to arbitration as sought by the applicant because admittedly, they are not party to the arbitration agreement. Section 7 of the Act defines arbitration agreement by providing that for the purposes of Part-I of the Act, which covers Chapter I to X, i.e. Sections 2 to 43, '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 not. Section 7 of the Act further provides that an arbitration agreement shall be in writing and for that purpose, it must be contained in a document signed by the parties or if it is contained in some specified communications such as an exchange of letters, telex, telegram etc. or an exchange of statements of claim and defence showing the existence of such agreement alleged by one party and not denied by the other.

19. In view of aforesaid provisions in Section 7 of the Act, there is no arbitration agreement between the applicant and opposite parties 4 to 8 as they have never agreed to submit to arbitration any dispute raised by the applicant. Hence, the first issue raised on behalf of contesting opposite parties is found to have substance. The dispute raised by the applicant is not confined to the parties to the partnership deed dated 15.05.1992 and is much beyond the scope of arbitration clause in that deed. Same conclusions arise even if the disputes raised by the applicant are examined in the context of alleged forged deed dated 13.09.2002. Since the disputes do not fall within the ambit of arbitration clause in any of the aforesaid two deeds, they cannot be referred to arbitration under Section 11 of the Act. On this score alone, the application deserves to be rejected. However, since the parties have also argued in respect of third issue that this proceeding is barred by provisions of Section 69 of the Partnership Act, the same is also taken up for discussion.

20. There is no dispute that the partnership firm M/s General Electricals is not a registered firm for the purposes of the Indian Partnership Act, 1932 (hereinafter referred to as 'the Act, 1932'). Relevant part of Section 69 of the Act, 1932 is as follows:-

"69. Effect of non-registration:- (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of sub-section (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909, (3 of 1909) or the Provincial Insolvency Act, 1920, (5 of 1920) to realise the property of an insolvent partner.

(4) ... ... ..."

21. Non-registration of a partnership firm creates some bar against a partner as well as against the firm. The partner of an unregistered firm cannot maintain a suit to enforce a right arising from a contract or conferred by the Act, 1932 in any Court against the firm or any of its partner. On behalf of an unregistered firm, no suit can be instituted in any Court to enforce a right arising from a contract against any third party. The bar in sub-section (1) and (2) has been made applicable also to claim of set off or other proceeding to enforce a right arising from a contract. While extending the bar also to claim of set off or other proceeding, the rigour has been relaxed by clause (a) of sub-section (3) of Section 69 of the Act, 1932. The bar shall not affect the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of dissolved firm.

22. Earlier there was conflict of opinion as to whether the term 'other proceeding' in sub-section (3) of the Act, 1932 would cover an arbitration proceeding or not, but now that issue has been settled by the Apex Court, as appears from the judgment in the case of Jagdish Chander Gupta Vs. Kajaria Traders (India) Ltd., AIR 1964 SC 1882. In that case also, the partnership was unregistered and the issue was of maintainability of an application in the High Court for appointment of Arbitrator under Section 8 (2) of the Arbitration Act, 1940. The term 'other proceeding' was given an unrestricted wider meaning and it was held that the application under Section 8 (2) of the Arbitration Act, 1940 can be regarded as a proceeding to enforce a right arising from a contract and, therefore, within the bar of Section 69 of the Act, 1932. The application for appointment of Arbitrator was, therefore, dismissed. The aforesaid view was followed by a Division Bench of this Court in the case of Iqbal Singh and others Vs. Ram Narain and others, AIR 1977 All. 352.

23. Without differing with the aforesaid view subsequent judgments of the Supreme Court in the cases of Smt. Premlata and another Vs. M/s. Ishar Dass Chaman Lal and others, (1995) 2 SCC 145 and Prabhu Shankar Jaiswal Vs. Sheo Narain Jaiswal and others, (1996) 11 SCC 225 have clarified that sub-section (3) of Section 69 of the Act, 1932, in its later part carves out certain exceptions to the bar contained in sub-sections (1) and (2) and the first part of sub-section (3). It was pointed out that the disputes in the case of Jagdish Chander Gupta (supra) between the partners did not relate to dissolution or accounts of the partnership firm hence, there was no requirement to consider the exceptions under sub-section (3) (a) of the Act, 1932. In the case of Smt. Premlata (supra), the partnership had stood dissolved on account of death of a partner whose widow along with one person wanted the other partners to render the accounts of the firm. The heirs of the deceased partner invoked the arbitration clause and gave a notice and thereafter invoked the jurisdiction of the Civil Court under Section 20 of the Arbitration Act, 1940. The trial Court rejected the plea of the respondents that the application is barred by Section 69 of the Act, 1932, but the High Court reversed that view. In appeal, the Supreme Court held that the right to sue for dissolution of the firm or accounts etc. occurring in sub-section (3) (a) of Section 69 of the Act, 1932 would include a right to enforce the arbitration clause for resolution of the disputes relating to dissolved firm or for rendition of accounts or any right or power to realise the property of the dissolved firm. In other words, arbitration clause was held to be operative and applicable for limited rights such as for resolution of the disputes relating to dissolved firm or for rendition of accounts etc. as provided in sub-section (3) (a) of Section 69 of the Act, 1932.

24. There is no ambiguity so far as legal effect of Section 69 (3) (a) of the Act, 1932 is concerned in view of aforesaid authoritative judgments of the Apex Court. If the applicant in her prayer before this Court had sought reference of disputes in respect of dissolved firm only for rendition of accounts or to realize the property of the dissolved firm against the three partners, who were party to the arbitration agreement, this Court would have had no difficulty in holding that the application under Section 11 of the Act for settlement of that kind of disputes through arbitration may not succeed for some other reasons but is not barred by Section 69 of the Act, 1932. However, as discussed earlier, the disputes raised by the applicant are not between the parties to the arbitration agreement alone and are much beyond the scope of arbitration clause of the partnership deed dated 15.05.199 or even the alleged deed dated 13.09.2002, hence this application would be hit by the bar under Section 69 of the Act, 1932. For all the afore-stated reasons, this application has to be dismissed. This Court orders, accordingly.

25. The arbitration application shall stand dismissed.

Dated:2/8/2013

RKK/-

(Shiva Kirti Singh, C.J.)