Bombay High Court
Priya Rishi Bhuta And Anr vs Vardhaman Engineers And Builders ... on 6 June, 2022
Bench: G. S. Kulkarni
Digitally
signed by
PRAJAKTA
PRAJAKTA SAGAR
SAGAR VARTAK
VARTAK Date:
2022.06.06
17:25:59
+0530
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Prajakta/Vidya
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 149 OF 2021
WITH
COMMERCIAL ARBITRATION PETITION NO. 410 OF 2021
Priya Rishi Bhuta & Anr. ...Applicants/Petitioners
V/s.
Vardhaman Engineers and Builders & Ors. ... Respondents
WITH
COMMERCIAL ARBITRATION PETITION NO. 412 OF 2021
WITH
ARBITRATION APPLICATION NO. 245 OF 2021
WITH
ARBITRATION APPLICATION NO. 246 OF 2021
Priya Rishi Bhuta & Anr. ... Petitioners
V/s.
Vardhaman Land Development Corporation & Ors.... Respondents
WITH
COMMERCIAL ARBITRATION PETITION NO. 605 OF 2021
Priya Rishi Bhuta & Anr. ... Petitioners
V/s.
Pioneer Housing & Ors. ... Respondents
WITH
COMMERCIAL ARBITRATION PETITION (L) NO. 15937 OF 2021
WITH
ARBITRATION APPLICATION NO. 310 OF 2021
Priya Rishi Bhuta & Anr. ... Petitioners
V/s.
Pioneer Construction and Consultants & Ors. ... Respondents
Mr. Sanjay Jain a/w. Mr. Nishant Sasidharan, Mr. Ashvin Bhalekar, Mr.
Ashwin Bhadang, Ms. Shruti Lakhani and Ms. Khushbu Shah i/b. Dipti
Shah for Applicants/Petitioners.
Mr. Mayur Khandeparkar with Mr. Rajesh A. Revankar i/b. A.G.
Revankar & Co. for respondent nos. 1, 5 to 10.
Mr. Ankit Lohia with Mr. Chetan Yadav and Mr. Samarth Patel i/b. R. V. &
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Co. for Respondent Nos.2 & 3.
CORAM : G.S. KULKARNI, J.
RESERVED ON : 12 APRIL 2022.
PRONOUNCED ON : 6 JUNE 2022
JUDGMENT:
1. These are four applications filed under Section 11 of the
Arbitration and Conciliation Act, 1996 (for short, "the Act") whereby the
applicants, who claim to be the daughters of deceased Amritlal Jain,
who was a Partner in the partnership firm - respondent no.1 in each of
these applications, are before the Court praying that the disputes and
differences between the applicants and the respondents as arising under
these partnership deeds be referred to arbitration.
2. The applicants are invoking the arbitration agreement as
contained in each of the partnership deed. The facts in relation to all
these applications are common, except that respondent no.1-partnership
firm in each of these applications is different. Also the arbitration clause
as contained in each of the partnership deed(s) is similar. The
arbitration agreement as contained in clause 19 reads thus:-
"19. During the continuance of the partnership or at any time
afterwards, if any difference arises among the parties hereto or the
executors or administrators or their heirs such difference shall be
forthwith referred to an arbitrator or arbitrators as appointed by
partners. The decision of arbitrator or arbitrators will be final and
binding on all the parties hereto and shall be deemed to an arbitration
in accordance with and subject to the provisions of the Indian
Arbitration Act, 1940 (X of 1940) and Statutory modification or re-
enactment thereof for the time being in force."
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3. For convenience, the facts pertaining to Arbitration Application
No. 149 of 2021 are being referred. Respondent no.1 is the partnership
firm of which the applicants claim to have interest as per clause 17 of
the Partnership Deed dated 12 March, 2012. Respondent nos.2 and 3
are existing partners. Respondent no.4 has been inducted as a partner
after the death of applicants' father Mr. Amritlal Jain. Respondent no.5
is the original partner, who is a signatory to the deed of partnership.
Respondent nos. 6 to 10 were inducted as partners within the
percentage of respondent no.5's share in the partnership firm and as
permitted under the partnership deed. In other words, respondent
nos.4, 6, 7 and 10 are not the partners in the original partnership deed,
and have been inducted subsequently by the original partners within the
share of such original partners and without disturbing such fixed share.
4. The case of the applicants is that respondent no.1 was originally
constituted on 14 November, 1985 in which 20% of the share in the
profits and losses of respondent no.1 firm stood in the name of Utsav
Amritlal Jain. Respondent no.1 firm was reconstituted from time to time.
It is contended by the applicants that Amritlal Jain introduced his
parents as well as himself (in the capacity of Karta of a Hindu Undivided
Family) as partners in the respondent no.1 firm.
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5. By a Deed of Partnership dated 12 March, 2012 (for short, "2012
Partnership Deed"), namely, the partnership in question, respondent
no.1 was reconstituted. Some of the salient clauses of the partnership
deed recognized the following agreement between the partners:
"(i) The 2012 DOP is binding on the parties thereto as well as on
their heirs, executors, administrators and assigns.
(ii) The partners of Respondent No.1 had agreed to constitute two
groups, namely, the Vardhan and the Jain group
(iii) The Vardhan Group consisted of Respondent No.5, 8 and 9 as
well as Kushal Vardhan.
(iv) The Jain Group consisted of Amritlal, Utsav, Respondent No.2
and Respondent No.3 holding in aggregate 35%.
(v) Respondents No.4, 6, 7 and 10 were not parties to the 2012
DOP
(vi) Clause 17 thereof gave the right to the heir of a deceased
partner to be inducted as a new partner in place of the latter.
(vii) Clause 19 is the arbitration clause which could be invoked by
a party or his heir."
(emphasis supplied)
6. On 28 October, 2018, the applicant's father Amritlal Jain expired.
Immediately two days thereafter i.e. on 30 October, 2018, Utsav Jain,
mother of the applicant also expired. Consequently, on 17 January,
2019, 'Deed of Retirement-cum-Partnership' came to be executed
whereby respondent no.5 (Hirachand Vardhan) diluted his share in the
partnership in favour of his sons i.e. respondent nos.6 and 7 who came
to be inducted as partners. The shares standing in the name of Amritlal
Jain (father) and Utsav Jain (mother) were distributed between
respondent no.2 (Deepak Amritlal Jain) and respondent no.3 (Ajay
Amritlal Jain). The other provisions of the Deed of Partnership dated 17
January, 2019 are similar to the Partnership Deed dated 12 March, 2012
including clauses 17 to 19 thereof.
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7. Thereafter on 23 May, 2019 another document namely 'Deed of
Retirement-cum-Partnership' came to be executed, whereby respondent
no.2 (Deepak Jain), applicant's brother diluted his share in respondent
no.1 firm in favour of his wife i.e. respondent no.4 (Rakhee Deepak
Jain) who was inducted as a partner. Also as respondent no.9's mother
had passed away, his wife i.e. respondent no.10 was inducted as a
partner in her place. Except for such changes, the provisions of such
deed of partnership dated 23 May, 2019 are similar to those of 2012
Deed of Partnership, including clause 17 thereof.
8. In or about March 2020, the applicants filed a Civil Suit being
Suit No.117 of 2021 in this Court interalia against respondent no.2
(Deepak Jain) and respondent no.3 (Ajay Jain) for administration and
partition of the estate of deceased Amritlal Jain and Utsav Jain (their
parents). In such suit, the applicants have specifically pleaded that they
reserve their right to adopt appropriate proceedings against Pioneer
Housing (a partnership firm relevant to Arbitration Application No.246
of 2021) at later point of time. The applicants have also stated that they
were not aware about the exact nature, extent and status of their
parents'/family estate.
9. The applicants in espousing their rights in the partnership firms,
being the legal heirs of their late parents, de hors the said civil suit filed
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by them, invoked the arbitration agreement as contained in Clause 19 of
the 2012 Deed of Partnership, by their notice dated 02 June, 2021
addressed to the respondents whereby the applicants called upon the
respondents to refer the disputes and differences as arisen between the
parties under the said partnership deed for adjudication by appointing
an arbitral tribunal. As the respondents did not agree for appointment
of an arbitral tribunal, the present proceedings are filed.
10. The case of the applicants is primarily based on clause 17 of the
Deed of Partnership which reads thus:-
"17. Upon death, retirement, lunacy, insolvency or incapacity of
any partner, the firm shall not be dissolved but in place of the said
partner, a legal heir or his/her nominee from the same family shall be
inducted into partnership as a new partner and the share of
profit/loss of the said partner in the partnership firm will be
allocated to the said new partner(s). Such new partner(s) shall
belong to the same group to which the said partner belonged. In
case there is no person to represent or/ are not willing to represent
such partner then the accounts of the partnership shall be made upto
the date of death, retirement, lunacy, insolvency or incapacity, as the
case may be and the amount which may be arrived and found due
and payable to such partner by valuation of his/her share in the
profits, assets and including goodwill of the firm upto the date of any
happening event will be paid within a period of six months from such
date. Alternatively, the said partner's share in partnership shall be
allotted/allocated to any remaining partner/s of that Group to which
the said partner belonged alongwith his capital in the firm."
(emphasis supplied)
11. Relying on the above clause, it is contended by the applicants that
the clause 17 is clear to inter alia provide that upon death, retirement,
lunacy, insolvency or incapacity of any partner, the firm shall not be
dissolved but in place of the said partner, a legal heir or his/her nominee
from the same family shall be inducted into partnership as a new
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partner and the share of profit/loss of the said partner in the partnership
firm would be allocated to the said new partner(s). It is contended that
also it is provided that alternatively, the said partner's share in
partnership shall be allotted/allocated to any remaining partner/s of
that Group to which the said partner belonged alongwith his capital in
the firm. The applicants contend that such clause is required to be read
with the opening paragraph of the partnership deed, which reads thus:-
"THIS DEED of Partnership made on this 12 th day of March, 2012
BETWEEN (1) SHRI HEERACHAND SANWALCHAND VARDHAN,
hereinafter referred to as party of FIRST PART, (2) SMT. UTSAV
AMRITLAL JAIN, hereinafter referred to as party of SECOND PART,
(3) SHRI MOTICHANDRA SANWALCHAND VARDHAN, hereinafter
referred to as party of THIRD PART, (4) SHRI AMRITLAL
JAWAHARLAL JAIN, representing KARTA of A.J. JAIN & SONS,
H.U.F., hereinafter referred to as party of FOURTH PART, (5) SHRI
SANDESH LAXMICHANDRA VARDHAN, hereinafter referred to as
party of FIFTH PART, (6) SHRI AMRITLAL JAWAHARLAL JAIN,
representing KARTA of J.R. JAIN H.U.F., hereinafter referred to as
party of SIXTH PART, (7) SMT KUSHAL LAXMICHANDRA VARDHAN,
hereinafter referred to as party of SEVENTH PART, (8) SHRI DEEPAK
AMRITLAL JAIN, hereinafter referred to as party of EIGHTH PART
AND (9) SHRI AJAY AMRITLAL JAIN, hereinafter referred to as party
of NINTH PART all of Mumbai and Indian Inhabitants (which
expression shall unless it be repugnant to the context or meaning
thereof mean and include his/her legal heirs, administrators, and
assigns)."
(emphasis supplied)
According to the applicants, such content of the deed of partnership
clearly describes the partners to include his/her legal heirs,
administrators and assigns. The applicants contend that these wordings
of the deed of partnership, would become relevant to create a deeming
fiction that after the death of their father Amritlal Jain, who was the
erstwhile partner, the applicants are deemed to be the partners of the
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said partnership firm and in law had become entitled to invoke the
arbitration agreement. The other contentions as urged on behalf of the
applicants in supporting the prayers for appointment of an arbitral
tribunal are hereafter set out.
12. The applicants contend that the 2012 Deed of Partnership is
binding on the parties thereto as well as on their heirs, executors,
administrators and assigns as clear from paragraph 1 of the deed. The
partners of each of respondent no.1 firms have agreed to constitute two
groups as set out in the partnership deed namely 'Vardhan Group' and
'Jain Group'. Vardhan Group consisted of respondent nos.5, 8 and 9 as
well as Mr. Kaushal Vardhan. Jain Group consisted of Amritlal Jain,
Utsav Jain, respondent no.2 and respondent no.3. The share of the
partners in the partnership firm was also defined to include the
authority of the partner to distribute such percentage, by bringing in
new partners, within such individual share of the partner. Illustratively,
in so far as the firm Vardhan is concerned, respondent nos.4, 6, 7 and 10
are not the original partners to the Deed of Partnership and were
inducted by the respective original partners within their respective
shares as permitted under the partnership deed.
13. Consequent to the applicants' father Amritlal Jain having expired
on 28 October, 2018 and immediately in two days, their mother also
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having expired on 30 October, 2018, the applicants in such
circumstances are espousing clause 17 of the 2012 Partnership Deed
which as noted above inter alia provides that upon death etc., the firm
shall not be dissolved, but in place of the said partner, a legal heir or
his/her nominee from the same family shall be inducted into partnership
as a new partner and the share of profit/loss of the said partner in the
partnership firm will be allocated to the said new partner(s).
14. The applicants have contended that soon after their parents
expired on 17 January, 2019, a Deed of Retirement-cum-Partnership was
signed whereby respondent no.5 (their brother) diluted his share in
respondent no.1 in favour of his sons respondent nos.6 and 7, who were
inducted as partners. The shares standing in the name of deceased
Amritlal Jain and Utsav Jain (parents of the applicants) were distributed
between respondent no.2 (Deepak Amritlal Jain) and respondent no.3
(Ajay Amritlal Jain), the brothers of the applicants. Except for these
changes, the other provisions of the Deed of Retirement-cum-Partnership
are similar to those of 2012 Partnership Deed, including clauses 17 to 19
thereof.
15. Thereafter on 23 May, 2019 another Deed of Retirement-cum-
Partnership was executed between the partners whereby respondent
no.2 (Deepak Amritlal Jain), brother of the applicants inducted his wife
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(Rakhee Deepak Jain) - respondent no.4 as a partner. Further, as
respondent no. 9's mother had passed away, his wife i.e. respondent
no.10 was inducted as a partner in her place. The other provisions of
this deed of partnership are similar to those of 2012 Deed of
Partnership, including clause 17 thereof.
16. Apart from their interest in the partnership firms, there was other
estate which was left by the deceased parents of the applicants, the
applicants hence had filed in this Court the said suit (Suit No.117 of
2021) inter alia for administration and partition of the estate of their
parents Amritlal Jain and Utsav Jain (for short, the partition suit). In
the plaint of such suit, the applicants have specifically pleaded that they
reserved their right to adopt appropriate proceedings against one of the
firms in which their late parents were partners namely Pioneer Housing
impleaded as defendant no.3 in the said suit. The applicants also
averred in the plaint that they were not aware about the exact nature,
extent and status of their parents' estate.
17. It is in these circumstances, Clause 19 of 2012 Deed of
Partnership being the arbitration agreement was invoked by the
applicants by their notice dated 02 June, 2021 calling upon the
respondents to refer the disputes and differences as arising between the
parties to arbitration. As such notice was not responded, the present
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application came to be filed on or about 14 July, 2021.
18. The applicants have contended that the parents of the applicants
i.e. Amritlal and Utsav were indisputedly the partners of respondent
no.1 - firm, subject matter of these Section 11 applications. Mr. Jain
contends that the parents having expired, the applicants being their
daughters were entitled to be admitted as partners in place of their
deceased parents as per clause 17 of the 2012 Partnership Deed.
Respondent nos.2 and 3, who are the brothers of the applicants and who
were already partners of respondent no.1, had no authority to usurp
their parents' share. The applicants contend that the 2012 Deed of
Partnership was enforceable against the parties thereto as well as against
their heirs and assigns and hence, when clause 17 has been espoused by
the applicants. It is also contended that considering the specific clauses
of the 2012 Partnership Deed, the subsequently added partners, by
virtue of the Deed(s) of Retirement-cum-Partnership dated 17 January,
2019 and 23 May, 2019, also become necessary parties. This for the
reason that the 2012 Deed of Partnership is enforceable against such
added partners apart from being enforceable against the parties as well
as their heirs and assigns.
19. The applicant would contend that even otherwise Section 40 of
the Arbitration and Conciliation Act, read with Sections 46 to 48 of the
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Indian Partnership Act, 1932, the arbitration agreement as contained in
the 2012 Deed of Partnership was enforceable against the respondents.
It is submitted that the partition suit was filed purely for the purpose of
administration and partition of the estate of the deceased parents of the
applicants, whereas the present application is filed for appointment of
an arbitral tribunal for adjudication of the disputes between the
applicants and the respondents under the 2012 Deed of Partnership. It
is thus submitted that the cause of action for both such proceedings is
different as the cause of action to file the present application is
completely different from the cause of action which accrues the
applicants to file the partition suit. Also the suit was filed reserving the
applicants' right to invoke appropriate remedy qua the interest the
applicants would have in the partnership firms.
20. Reply affidavits are filed by the brothers of the applicants i.e.
respondent nos.2 and 3 as also a reply affidavit has been filed by
respondent nos.1, 5, 6, 8 to 10.
21. The principal opposition on the part of the brothers of the
applicant, namely, of respondent nos.2 and 3, is to the effect that once
the applicants have filed a partition suit in this Court, asserting their
alleged share and partition of the estate of their deceased parents
Amritlal and Utsav, the present application would not be maintainable.
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It is contended that in such suit, the applicants have claimed their shares
in the entities/firms/companies wherein the deceased parents had share.
It is contended that the applicants have also challenged the entitlement
of respondent nos.2 and 3 in respect of the shares standing in the name
of respondent nos.2 and 3. It is thus the case of these respondents that
once the foundation of the Section 11 application as also that of the suit
is common, then certainly a remedy under Section 11 to seek
appointment of an arbitral tribunal even for adjudication of the disputes
qua the partnership firms was not available to the applicants. It is next
contended that invocation of the arbitration as seen from the notice
dated 02 June, 2021 is under the 2012 Partnership Deed whereas new
partnership deeds are executed in respect of these firms namely the
partnership deeds dated 17 January, 2019 and 23 May, 2019, hence also
for such reason, these applications would not be maintainable as the
invocation itself is defective. In short, the contention of the respondent
nos.2 and 3 is that the applicants not being parties to the 2012
Partnership Deed as also to the subsequent partnership deeds dated 17
January, 2019 and 23 May, 2019, they are not entitled to invoke the
arbitration agreement as contained in the said partnership deeds. It is
contended that the invocation of the arbitration by the applicants itself
is beyond the scope of the arbitration agreement.
22. The next contention as urged on behalf of respondent nos.2 and
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3 is that invocation of the arbitration by the applicants is for
adjudicating civil disputes between the applicants and respondent nos.2
and 3 and per se it is not a dispute relating to respondent no.1 firm(s).
This, according to them, is clear from the invocation notice inasmuch as
the applicants have invoked the arbitration inter alia to challenge the
new partnership deeds (dated 17 January, 2019 and 23 May, 2019) for
not admitting the applicants as partners in respect of 35% share in the
profits and losses held by their late parents as also in Amritlal Jain &
Sons HUF which according to them is clear from paragraph 4.4 of the
memo of application. There are some other contentions as urged by
respondent nos.2 and 3 which may not be relevant for the purpose of
the present Section 11 applications.
23. In so far as reply affidavit as filed on behalf of respondent nos.1,
5, 6, 8 to 10 are concerned, the contentions are not too different from
what has been urged on behalf of respondent nos.2 and 3. It is their
contention that the present applications pertain to a family dispute
between the applicants and respondent nos.2 and 3 for which, a civil
suit is already filed and is pending and hence, the application is not
maintainable. It is next contended that the subject matter of the dispute
is not arbitrable for any reliefs to be granted in favour of the applicants,
in the arbitration proceedings inasmuch as the entire claim of the
applicants is based on an intestate succession. The arbitral tribunal in
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such case would be required to enter upon and decide issues on
succession in respect of the estate of the deceased, which cannot be the
subject matter of the arbitral proceedings when tested on the anvil of its
arbitrability. It is contended that the applicants have thus failed to
establish the existence of the arbitration agreement between the
applicants and these respondents.
24. There is a rejoinder affidavit filed on behalf of the applicants in
reply to the affidavits filed by the respondents disputing and denying the
case of the respondents in the reply affidavit, to be untenable. The
applicants say that the applicants are entitled to file Section 11
applications, invoking the arbitration as per clause 19 of the 2012
Partnership Deed, the applicants being the legal heirs of Amritlal and
Utsav, their parents, being the persons recognized under Clause 17 of
the deed of partnership, which got triggered on the death of their
parents. Also Utsav and AJJ & Son HUF were partners in respondent
no.1 under the 2012 Partnership Deed, the applicants being legal heirs
and representatives of Utsav and the HUF were entitled to be admitted
as partners of respondent no.1-firms, as per Clause 17 of the 2012
Partnership Deed. It is contended that clause 17 of the 2012 Partnership
Deed entitled the applicants to be admitted as partners of respondent
no.1 and respondent no.1 had executed the Deed of Partnership dated
17 January, 2019 and 23 May, 2019 in breach of clause 17 of the 2012
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Partnership Deed. Also these subsequent amendment deeds of
partnership were executed without any notice to the applicants, much
less with the consent of the applicants and hence the same were
unenforceable and not binding on the applicants. It is contended that
respondent no.1 under the 2012 Partnership Deed had fiduciary duty
towards the estate of Utsav and the HUF and were bound and obligated
to admit the applicants as partners to represent their share in
respondent no.1. It is thus contended that the subject matter of the
dispute is fully arbitrable.
SUBMISSIONS
25. Referring to their respective pleadings, learned counsel for the
parties have made extensive submissions.
26. Mr. Jain, learned counsel for the applicants/petitioners in all
these applications would submit that the common thread running into
the deed of partnerships is that it recognizes the applicants right and
locus as legal heirs of the deceased partners to invoke the arbitration
agreement as contained in clause 19, by virtue of the clear content of
clause 17 of the 2012 Partnership Deeds. It is his submission that the
applicants, being legal heirs of their parents who were the partners, on
the demise of their parents were entitled to be inducted as partners of
the said firm by virtue of clause 17 of the deed of partnership.
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According to Mr. Jain, clause 17 of the deed of partnership in no
uncertain terms provides that upon death of any partner, the firm shall
not be dissolved and in place of the partner who has expired, a legal heir
or his/her nominee from the same family shall be inducted into
partnership as a new partner, and in such event, the share of profit/loss
of the said partner in the partnership firm will be allocated to the said
new partner(s), as also that such new partner(s) shall belong to the
same group to which the said partner belonged. It is hence submitted
that unless such requirement as postulated and recognized by first part
of clause 17, the other part of the clause 17 could not be invoked, when
it provides that alternatively, the deceased partner's share in partnership
shall be allotted/allocated to any remaining partner/s of that Group to
which the said partner belonged alongwith his capital in the firm.
According to Mr. Jain, such eventuality becomes a secondary
consideration once the applicants as legal heirs of the deceased partner
namely parents of the applicants were available to be admitted as
partners in place of the deceased partner and that more particularly
when the brothers were already the partners. It is Mr. Jain's submission
that as the partition suit pertains to the administration of the estate of
the deceased parents which in no manner whatsoever is concerned in
regard to the dispute integral to the partnership firms in question, the
applicants cannot be precluded from espousing in their interest in the
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partnership being conferred on them as the legal heirs of the deceased
partner. It is submitted that there is no question of applicants seeking
any reliefs in the administration suit integral to the partnership firm and
its businesses, thus the reliefs in the present application are completely
independent from the ones in relation to the administration of the estate
of the deceased parents. In support of his contention, Mr. Jain has
placed reliance on the cases of Indapur Dairy and Milk Products Limited
Vs. Global Energy Private Limited 1, Ravi Prakash Goel Vs. Chandra
Prakash Goel and Another2.
27. On the other hand, Mr. Lohia and Mr. Khandeparkar in opposing
the reliefs have reiterated their contentions on the present application
not being maintainable as pleaded in the reply affidavits. It is their
submission that the applicants are not concerned qua any of the deeds of
partnerships, much less are parties to the said arbitration agreement and
for such reason, the arbitration application is not maintainable. It is
their submission that the present application is not maintainable also for
the reason that already a civil suit has been filed before this Court by the
applicants seeking partition of the estate of their deceased parents and
hence on that count also, the present application is not maintainable. It
is their contention that even assuming that the applicants even remotely
have some rights under the 2012 Partnership Deed, however, the
1. 2019 SCC OnLine Bom 1678
2. (2008) 13 SCC 667
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applicants have abandoned such rights when the applicants have filed
the partition suit in question. Hence, there is no question of the
applicants being entitled to file the present proceedings and praying for
appointment of an arbitral tribunal. In support of their contentions, Mr.
Khandeparkar and Mr. Lohia have placed reliance on the decisions of V.
G. Santhosam and others V. Shanthi Gnanasekaran and others 3, Mohd.
Rafique Mohd. Hussain Tinwala v. M/s. S.S. Enterprises and others 4,
Mallikarjun Gurlingappa Valikhindi v. Shrikant Panachand Shah (decd)
through legal heirs5, Saha & Gupta Enterprise v. Indian Oil Corporation
Ltd. & Ors.6 and Onyx Musicabsolute.com Pvt.Ltd. & ors. v. Yash Raj
Films Pvt. Ltd. & ors.7
Discussions and Conclusion
28. Having heard learned counsel for the parties and having perused
the record of these Section 11 Applications, in my opinion, the central
issue which is required to be decided is whether the applicants have any
arbitral interest to invoke the arbitration agreement as contained in the
Deed of Partnership dated 12 March, 2012. A party seeking reference of
the disputes to arbitration would be required to satisfy that such party is
a party to an arbitration agreement and seek reference of the disputes to
arbitration. In other words, a person who is absolutely alien and not a
3. 2020 SCC Online Mad 560
4 2018 SCC OnLine Bom 3702
5 Arbitration Petition No.93 of 2017
6 2007 SCC OnLine Cal 339
7 2008(6) Bom.C.R. 418
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party to the arbitration agreement cannot invoke the arbitration
agreement. At the behest of such person, neither any invocation of such
arbitration agreement nor a Section 11 application would be
maintainable. The legislative intent to this effect can also be discerned
from the amended provisions of Section 11 by insertion of sub-section
(6A) as incorporated by 2016 amendment with effect from 23 October,
2015, namely that the Court considering any application under sub-
section (4) or sub-section (5) or sub-section (6) of Section 11, shall
notwithstanding any judgment, decree or order of any Court, confine to
the examination of the existence of an arbitration agreement.
Interpreting the provisions of sub-section (6-A), it is a settled principle
of law that the primary consideration for the Court would be to consider
the existence of an arbitration agreement and not to any other disputed
aspects as held by the Supreme Court in case of Duro Felguera, S.A. vs.
M/s. Gangavaram Port Ltd.8
29. Adverting to such requirements of law, the present proceedings
would be required to be considered. It appears to be not in dispute that
the deceased parents of the applicant, namely, Amritlal and Utsav were
partners in the said partnership firms. They were independent partners
apart from respondent nos. 2 and 3, their sons, being the partners. The
applicants are daughters of the deceased partners and are sisters of
8 (2017) 9 SCC 729
21 arbap 149-21 grp.doc
respondent nos. 2 and 3. From the pleadings on record, it clearly
appears that the applicants are espousing Clause 17 of the Deed of
Partnership dated 12 March, 2012. There are two relevant clauses in
the said Deed of Partnership which, in my opinion, are vital for the
determination of the issue in the present proceedings, firstly, the
opening paragraph of the Partnership Deed and Clause 17, which depict
the basic intention of the original partners and secondly, the arbitration
agreement as contained in Clause 19 of the Partnership Deed which are
already noted above.
30. A cumulative reading of these three clauses would plainly
indicate that each of the partners which at the relevant time included
the deceased parents of the applicants and respondent nos. 2 and 3 were
described to mean and include his/her legal heirs, administrators and
assigns. There can not be an inch of doubt that in the context of any
dispute under the Deed of Partnership dated 12 March, 2012, the
applicants, being the legal heirs, by such clear fiction are deemed to be
the partners of the partnership firm on the original partners having
expired.
31. Further, the Partnership Deed expressly recognizes the right of a
legal heir to be made a partner on the death of a partner, such intention
of the partner is explicit in Clause 17 of the partnership deed which
22 arbap 149-21 grp.doc
provides that a legal heir or his/her nominee from the same family shall
be inducted into partnership as a new partner, and that the share of
profit/loss of the said partner in the partnership firm would be allocated
to the said new partner provided that such new partner shall belong to
the same group to which the said partner belongs. It is also provided
that in case there is no person to represent or there is no willingness on
the part of any person to represent such partner, in such event, the
accounts of the partnership shall be made upto the date of death,
retirement, lunacy etc. as the case may be and the amount which may be
arrived and found due and payable to such partner by valuation of
his/her share in the profits and assets including goodwill of the firm
upto the date of happening of the event will be paid within a period of
six months from such date. It is further provided that alternatively, the
said partners share in the partnership shall be allotted/allocated to any
remaining partner of that group to which the said partner belong
alongwith his capital in the firm.
32. The effect of the opening paragraph of the Deed of Partnership as
noted above as also Clause 17, in my opinion, would indicate that in two
situations the inclusion of the legal heirs has been recognized by the
partners, firstly, to recognize their rights de hors what has been provided
for in Clause 17, i.e. even assuming that the legal heirs are not
23 arbap 149-21 grp.doc
interested to demand any share in the partnership, in the event of death,
retirement, lunacy, insolvency, incapacity etc. of any partner and
secondly, a right being conferred on the legal heirs to step into the shoes
of a partner, who has expired or retired or who has suffered lunacy,
insolvency or incapacity, to be inducted into the partnership as a new
partner in an eventuality is recognized by Clause 17. It is from such
clear perspective and context, the arbitration agreement would be
required to be considered. The arbitration agreement as contained in
Clause 19 clearly provides that during the continuance of the
partnership (about which there is no dispute) any differences arise
amongst the parties hereto (the original partners) or the executors or
administrators or their heirs, such differences shall be forthwith referred
to an arbitrator or arbitrators as appointed by the partners. Thus, even
the arbitration agreement also independently recognizes the right of the
legal heirs of the partners to raise any disputes and differences in
relation to the business of the partnership firm or any rights which were
generated and/or accrued to the partners under the partnership firm
and to assert adjudication of said disputes by reference to arbitration.
33. In my opinion, the applicants are persons as recognized by the
deed of partnership, who are conferred an interest in the partnership
firm in the capacity as legal heirs. This is recognized in the three clauses
of the Deed of Partnership dated 12 March 2012, firstly, the inherent
24 arbap 149-21 grp.doc
recognition in the opening paragraph of the partnership deed namely
the expression 'person' shall include the legal heirs; secondly, Clause 17
recognizing the entitlement of the legal heirs on the death of the partner
to be included into the partnership as a new partner; and thirdly, the
arbitration agreement contained in Clause 19 also recognizes the 'heirs'.
On a cumulative reading of these clauses, they clearly recognize the
rights of the legal heirs also to raise any disputes and differences which
may arise under the partnership deed and to refer to such dispute to
arbitration. Hence in my opinion, the dispute which the applicants seek
to espouse being confined only to the affairs of the partnership firm,
necessarily, credence would be required to be given to such express
clauses of the partnership deed recognizing their rights as legal heirs of
the deceased partners. It is difficult to attribute any other meaning to
these clauses and if no meaning is attributed, these clauses of the
partnership deed would be rendered nugatory, which is not the intention
of the parties. Bearing in mind such purport of the clauses of the
partnership deed which to my mind is plain and unambiguous, the
contentions as urged on behalf of the respondent in opposing the
Applications are required to be examined.
34. The first contention as urged on behalf of the respondent is to the
effect that the applicants having filed the partition suit as also one of the
25 arbap 149-21 grp.doc
partnership firm, namely, Pioneer being made a party to the suit would
bring about a consequence that once the applicants have chosen to
prosecute the suit in relation to the estate of the deceased parents, who
were the partners in the partnership firm, necessarily the subject matter
of the reference to arbitration is required to be considered to be the
subject matter of the suit and on such ground, Section 11 Application
would not be maintainable. In other words, once a suit is filed which is
for administration of estate of the deceased parents, which includes their
interest in the partnership firm, there cannot be a parallel demand from
the applicants to assert any independent rights under the partnership
deed. A remedy of suit once chosen by the applicants would prohibit the
applicant from seeking any reference to arbitration.
35. The next contention as urged on behalf of the respondents is that
the applicants are not parties to the arbitration agreement and therefore
they have no right to invoke the arbitration agreement. It is also their
submission that the disputes which are sought to be raised by the
applicants are not arbitral inasmuch as it is a relief against the estate of
the deceased partners and such a relief cannot be granted in arbitral
proceedings. In my opinion, none of these contentions as urged on
behalf of the respondents are tenable.
36. There is an absolute fallacy in regard to the contention as urged
26 arbap 149-21 grp.doc
on behalf of the respondent, that the applicants having filed a suit which
is for partition and/or for administration of estate of the deceased
parents, the present application would not be maintainable. The reason
being that a prayer for administration of estate or partition of the estate
of the deceased parents of the applicants, is a matter completely inter
se between the applicants and respondent nos. 1 and 2-brothers. The
suit cannot be said to be confined to what has been espoused by the
applicants by reference to arbitration which is purely qua the
partnership firms. It is also clear that the suit of the applicants is not
specifically confined to any right, the applicants are espousing as to
what they are asserting, as permissible to them under the partnership
deed in the capacity as legal heirs of their deceased parents qua the
issues falling under the partnership. The partition suit is a suit for a
variety of reliefs which are completely at variance and/or different from
any relief which are being claimed by the applicants specifically under
the partnerships in question. The reliefs being claimed by the applicants
in arbitration are in relation to the applicants' having a right as
recognized by Clause 17 to be inducted into partnership. Such is not
the relief as prayed for in the suit. If the deed of partnership itself
recognizes a right of the legal heirs for the purposes of the partnerships
in question and when the partnership itself is a combination of persons
who are not merely family members of the applicants and who are from
27 arbap 149-21 grp.doc
different groups, then necessarily the applicants would have an
entitlement and a locus to assert such a right which is purely a creation
between the parties being the partners of the partnership, and arising
out of and confined only to the partnership deeds. The applicants suit in
question, (as clear from the prayers as made in the suit,) in no manner
can be equated to any such relief being espoused under the partnership
deed. Merely because the deceased parents of the applicants were
partners in the partnership firms, this would not change the complexion
of the rights of the applicants as recognized by Clause 17 and Clause 19
to assert something under the partnership deed. Thus, the contentions
as urged on behalf of the respondent are directly opposed to the plain
and unambiguous intention of the partners as contained in such Clauses
of the partnership deed as discussed above. Thus, the contention as
urged on behalf of the respondent that as the applicants having filed a
suit for partition of the estate of their deceased parent would, disentitle
the applicants to make any reference of disputes under the deed of
partnership to arbitration is totally untenable and would be required to
be rejected for the above reasons.
37. The next contention as urged on behalf of the respondents that
the applicants are not parties to the arbitration agreement also would be
required to be rejected considering the plain language of Clauses 17 and
19 and opening paragraph of the partnership deed as discussed in detail
28 arbap 149-21 grp.doc
in the foregoing paragraphs which recognizes the rights of the legal
heirs to be partners qua the partnership deed and the share of the
deceased partners.
38. In so far as the contention of the respondent that the dispute is
not arbitral is also not well-founded, as the applicants are purely
espousing their rights as recognized in the Deed(s) of Partnership. The
applicants right as legal heirs, in my opinion, is firmly ingrained in
clauses 17 and 19 of the Deed(s) of Partnership, and once such rights
gets triggered on the death of the partners and are recognized on the
happening of such event, all the subsequent events, actions and
consequences which have taken place at the hands of the existing
partners necessarily form subject matter of being questioned by the
applicants in espousing these express rights as provided under the
opening part of Deed of Partnership read with Clauses 17 and 19. Thus,
Mr. Jain's contention that his clients are asserting and espousing such
rights under the Deed of Partnership, would necessarily include a right
of the applicants to question all subsequent and further actions taken by
the partners post the death of their parents, including the actions of a
further Deed(s) of Partnership dated 17 January, 2019 and 23 May,
2019, being made, in my opinion, is an argument worthy of acceptance.
Once the rights of the applicants as legal heirs under the Deed of
29 arbap 149-21 grp.doc
Partnership dated 12 March, 2012 are recognized, all actions of the
partners, the genesis of which lies under the Deed of Partnership can be
questioned by the applicants and any dispute in that regard certainly can
be sought to be referred to arbitration.
39. It needs to be re-observed that the cause of action for the
applicants to pursue the suit filed by the applicants for administration of
estate of deceased parents stands completely independent from the
cause of action which has accrued to the applicants to assert any of the
rights falling under the Deed of Partnership dated 12 March, 2012. By
no stretch of imagination, a cause of action accrued to the applicants as
legal heirs being members of the family of the deceased parents and to
assert rights for the administration of estate of their deceased parents
can be said to be a right purely emanating under the Deed of Partnership
and more particularly to seek induction as a member of the partnership.
Merely because the deceased parents whose estate is now sought to be
administered and partitioned in the suit in question were partners in the
partnership in question, would not mean that the rights which are
accrued to the legal heirs under the Deed of Partnership and in a
manner as recognized by the Deed of Partnership would stand
extinguished as the applicants have filed a suit for administration of the
estate of their deceased parents. If such an interpretation as sought to be
urged on behalf of the respondents is accepted, it would amount to
30 arbap 149-21 grp.doc
destroying the rights created in the legal heirs by the Deed of
Partnership as also it would amount to doing a violence to the rights a
legal heir would be entitled in law to seek partition and/or
administration of the estate of deceased members of his/her family.
Thus, the rights accrued to the applicants as legal heirs of their deceased
parents in their estate stand completely independent from the rights of
these legal heirs, which the partnership deed would recognize. The
rights of the legal heir as recognized by the partnership deed are
confined only and only to the business and the affairs of the partnership
and not otherwise. These being independent rights of the partners and
their legal heirs, there ought not to be any confusion for the respondents
on such rights of the applicants as the applicants rights under the
partnership deeds are totally compartmentalized and distinct from their
rights qua the estate of their parents in the capacity of as legal heirs.
40. In dealing with the respondent's contention that the applicants
have waived their rights to pursue arbitration and to prosecute the
present proceeding, Mr. Jain has correctly submitted that there cannot
be any inference of a waiver of such nature, for the reason that the
cause of action for the arbitration is distinct and independent from the
cause of action which has arisen to the applicants to file the suit for
administration of estate of the deceased parents. Mr. Jain would also be
correct in his contention that even assuming that the suit was filed in the
31 arbap 149-21 grp.doc
context of the very same cause of action, nonetheless as Section 8 of the
Act would postulate and as a general principle in law, it is always open
to the plaintiffs to withdraw the suit by making such application in the
suit, not later than the date the defendants submitting their first
statement on the substance of the dispute. Applying such principle, Mr.
Jain's contention is that in the event if the applicants find that the issue
in regard to a Partnership Deed to some extent and/or inadvertently
stood included in the suit, the same can be given up and/or withdrawn
and deleted by the applicants from such suit, which is a permissible
course of action for the applicants, considering the clear provisions of
Section 8 of the Arbitration and Conciliation Act. This more particularly,
when the defendants are yet to submit their first statement on the
substnace of the dispute. In support of his submission, Mr. Jain's
reliance on the decision of this Court in Indapur Dairy and Milk Products
Ltd. (supra), is quite apposite. In such decision, this Court has observed
that there cannot be a straight jacket contention that once a suit was
filed, the plaintiff would waive his rights to invoke arbitration or to seek
adjudication of the disputes in arbitral proceedings. The relevant
observations of the Court reads thus:
"8. A straight jacket contention is urged on behalf of the respondent
that once a suit was filed by the petitioner, the petitioner waived its
rights to invoke arbitration or to seek adjudication of the disputes in
arbitral proceedings. Such a blanket contention cannot be accepted.
9. A perusal of the amended provision shows that the canvass of
sub-section (1) of Section 8 has been widened as now the words "if a
party to the arbitration agreement or any person claiming through or
32 arbap 149-21 grp.doc
under him" have now been incorporated along with the further addition
of the words "notwithstanding any judgment, decree or order of the
Supreme Court or any Court, the judicial authority shall refer the parties
to arbitration unless it finds that prima facie there is no valid arbitration
agreement exists". It is thus clear that the judicial authority before
which an action is brought in a matter which is the subject of an
arbitration agreement, would have jurisdiction, to mandatorily (as clear
from the words "shall")refer the parties to arbitration unless it finds that
prima facie there no valid arbitration agreement exists. Thus what is
required to be noted is that sub-section (1) of Section 8 confers such
right "on a party to the arbitration agreement". The provision would
contemplate such application to be made by a defendant, being a party
to the arbitration agreement, praying for reference of the disputes in the
suit to arbitration before filing his first statement on the substance of
the disputes. It cannot be accepted to be an interpretation of Section 8
that on one hand it would confer a right on the defendant to pray that
the disputes in the suit be referred to arbitration, there being an
arbitration between the parties, and on the other hand it would not
permit the plaintiff to withdraw the suit before the defendant files his
first statement on the substance of the dispute. Section 8(1) certainly
does not create such an anomaly.
10. Before the defendant submitting the first statement on the
substance of the dispute, certainly it is permissible for the Civil Court to
consider an application of the plaintiff to permit withdrawal of the suit,
when there is an arbitration agreement, and refers the parties for
arbitration.
11. It cannot be conceived that sub-section (1) of Section 8 when it
confers a right on the defendant to object to the suit and seek reference
of disputes to arbitration as to why before a stage as contemplated by
sub-section (1) is reached, it would not confer a right on the plaintiff,
and in any case before the defendant appears, to contend before the
civil court, that there is an arbitration agreement between the plaintiff
and defendant and being a party to the arbitration agreement, the
plaintiff be permitted to withdraw the suit, and espouse arbitration.
12. Further considering the provisions of Section 8(1) in my opinion,
the objection as raised on behalf of the respondent on the petitioner
having waived its right to arbitration, cannot be accepted, even referring
to Section 4 of the Act. The provisions of Section 8 are required to be
read harmoniously with Section 4. If the argument on behalf respondent
is accepted, it would render Section 8 otiose. This apart Sub-section (3)
of Section 8 clearly provides that notwithstanding that an application
has been made under sub-section (1) and even if the issue is pending
before the judicial authority, the party would have right to commence
arbitration and/or the arbitration could be continued and an arbitral
award can be passed. Sub-section (3) is in fact a clear indication of the
legislative intent of a party autonomy so as to give a complete effect to
the arbitration agreement as arrived between the parties and when an
arbitration agreement exists then the party should not be precluded
from commencing the arbitration proceeding. Commencing of the
33 arbap 149-21 grp.doc
arbitration proceeding would be by issuing of notice as Section 21 of the
Act would contemplate.
16. In "Ministry of Sound International Ltd. VS. Indus Renaissance
Partners"9, a learned Single Judge of the Delhi High Court has held that
"mere filing of civil suit would not amount to party abandoning or
waiving its rights under arbitration clause."
17. It is thus clear that although a suit was filed by the petitioner
before the Civil Court and the respondent-defendant is yet to appear in
the said suit, the petitioner had a right to withdraw the said suit. Even
if the defendant/respondent was to appear and file an application under
section 8(1) objecting to the suit, the civil court would have nonetheless
referred the parties to arbitration, considering the shape of the suit."
41. In the context of the above proposition reliance placed by Mr.
Lohia on the order dated 12 June, 2019 passed by this Court on
Arbitration Petition No. 93 of 2017 in the case of Mallikarjun
Gurlingappa Valikhindi (supra) is not well-founded. Relying on such
decision, Mr. Lohia has contended that once a civil suit was filed, it was
not permissible for the applicant to invoke arbitration and seek
appointment of an arbitral tribunal. The facts of the said case were
totally different. This was a case where the petitioner (Mallikarjun) had
instituted a suit. He did not prosecute the said suit and/or having
abandoned the suit, had invoked arbitration after a long lapse. It is in
such circumstances, the Court held that the petitioner (Mallikarjun) was
not entitled to prosecute arbitration, having abandoned the suit. Also
such petition praying for appointment of arbitral tribunal was filed after
seven years from the dismissal of the suit for want of prosecution. It is
in such context the petition for appointment of arbitral tribunal was
9 156(2009) Delhi Law Times 406
34 arbap 149-21 grp.doc
dismissed. The following are the relevant observations as made by the
Court:
"7. The petitioner by filing of the suit in the year 2001, had
categorically waived his rights to espouse arbitration. Further, it is
also required to be held that this petition is time barred, as it is not
filed within the prescribed limit as stipulated period under Article 137
of the Limitation Act. The petition is filed after about 7 years from the
dismissal of the suit and if the suit itself is required to be taken as an
invocation notice, it is stated that after 16 years from the date of the
suit. The petition is thus, barred by limitation."
42. On the same proposition, reliance is placed by Mr. Khandeparkar
on a decision of the learned Single Judge of this Court in Mohd. Rafique
Mohd. Hussain Tinwala (supra). The issue before the Court in such case
had arisen from an order passed by the City Civil Court whereby the
original defendant in a suit filed before the City Civil Court had assailed
an order passed in favour of the plaintiffs/respondents to file arbitration
proceedings after withdrawal of the suit. The defendant contended that
such course of action, to be adopted by the plaintiffs, was not
permissible for the reason that the defendant had earlier raised an
objection to the maintainability of the suit on the ground that there was
an arbitration agreement between the parties. Considering such
objections, the learned trial Judge had framed a preliminary issue under
section 9-A of the Code of Civil Procedure. The preliminary issue was
answered by the trial Court holding that the Civil Court had jurisdiction
to entertain the suit. Such order deciding the preliminary issue was
accepted by the plaintiffs. It was also accepted by the defendant. Once
35 arbap 149-21 grp.doc
such an order was accepted by both the parties to the suit, it certainly
created legal consequences, namely, it was not permissible for the
plaintiffs and/or they were estopped to take a position contrary to the
orders of the Civil Court which held that the Civil Court had jurisdiction
and that too considering the objection of the defendant that there was
an arbitration agreement between the parties. On the other hand, the
defendant having accepted such order also changed his position and
acquiesced in the adjudication of the suit. In such circumstances, the
defendant did not file an application under section 8 of the Act, as
already, the issue was decided as a preliminary issue by the trial court,
the adjudication of which was akin to the adjudication on an objection
which could be raised under section 8 of the Act. It is in such context,
learned Single Judge held that it was not permissible for the
respondents/plaintiffs to reverse their position and by nullifying the
orders passed by the Civil Court on the preliminary issue, make an
application to withdraw the suit that the parties be referred to
arbitration. It is in these circumstances, the Court set aside the order
passed by the City Civil Court whereby the suit was permitted to be
withdrawn to take recourse to arbitration. Certainly the facts are totally
incomparable to the facts in hand. As noted above, the cause of action
for arbitration is totally independent and different from what is being
pursued by applicants in the suit. Thus, reliance on the decision in
36 arbap 149-21 grp.doc
Mohd. Rafique Mohd. Hussain Tinwala (supra) is totally misplaced.
43. The decision of the learned Single Judge of this Court in Onyx
Musicabsolute.com Pvt. Ltd. (supra) would also not assist the
respondent. In such case, the Court was considering an issue on an
injunction application filed by the plaintiff in a suit filed before the City
Civil Court. In addition to the suit, the plaintiffs had also filed an
Arbitration Petition under section 9 of the Act praying for interim
measures pending the arbitral proceedings. In such context, the Court
considered an issue as to whether the suit and the arbitration petition
can simultaneously be pursued. An argument was advanced on behalf
of the plaintiffs that the points in issue in the suit and points in issue in
the arbitration proceedings were not the same. The Court observed that
there was a common issue in both, the proceedings (the suit and the
Arbitration petition), namely, whether the agreement dated 23 April,
2005 (in question) was in force and was binding on the parties. It is in
such context the Court made an observation that it is only one forum
which can decide such dispute and when no application was filed under
section 8 questioning the jurisdiction of the Court to entertain the suit,
the public forum of the Civil Court will hear the dispute to the exclusion
of a private forum of an arbitral tribunal. It was observed that, the
plaintiff after having filed two Arbitration Petitions under Section 9 of
the Act, had chosen to file the suit, and that the decision of the
37 arbap 149-21 grp.doc
arbitration proceedings and the suit concerned the very same issue. It is
in these circumstances, the Court observed that the plaintiffs themselves
had chosen to waive the jurisdiction of an arbitral tribunal by choosing
the public forum and thus held that the plaintiffs were not entitled to
any reliefs in the arbitration petitions. These facts with which the Court
was concerned were certainly different from the facts which have fallen
for consideration in the present case.
44. The decision of the learned Single Judge of the Calcutta High
Court in Saha & Gupta Enterprise (supra) would also not assist the
respondent. This was a case in which the petitioner had approached the
Court praying for appointment of an arbitral tribunal after he had
instituted a suit before the Civil Court. In the said suit, the defendants
(respondents therein) had applied for rejection of the plaint on the
ground that the Civil Court did not have the jurisdiction to receive such
suit relying on the forum selection clause No.20 found in the agreement.
Such application was dismissed by the Civil Court. After such
application was dismissed, the defendant/respondent applied inter alia
under section 8 of the Act for the disposal or dismissal of the Civil Suit
on the ground that there was an arbitration agreement between the
parties and hence adjudication of the disputes under the agreement
could only be by way of an arbitration. The Section 8 Application was
resisted by the petitioner/plaintiff. Learned trial Judge dismissed the
38 arbap 149-21 grp.doc
said application on a peculiar reasoning that Clause 19 of the agreement
did not specifically mention that the disputes be referred to an arbitrator
in case of termination of the contract. In these circumstances, the
plaintiff having succeeded in defeating the respondent/defendant's
application under section 8 of the Act, thereafter, approached the High
Court praying for appointment of an arbitrator on the ground that his
request for appointment of an arbitrator by the Director (Marketing) of
respondent/defendant was not accepted. It is on such facts the Court
rejected the petitioner/plaintiff's application for appointment of an
arbitral tribunal and in so dismissing, the following observations were
made:
"7. The matters relating to the institution of the Malda suit, the
respondents' attempts to resist the suit and to assert the arbitration
agreement, found no mention in the petition. The petitioner is as
simple as they come; the arbitration agreement has been referred
to, the appointing authority has been blamed for not acting with
reasonable despatch and the claim in the footnote of the appointing
authority having lost his jurisdiction to name an arbitrator. The
fundamental principles, however, have to be remembered. For one,
arbitration is consensual. Both parties have to agree for the
jurisdiction of the Court to be ousted. Again, merely because there
is an arbitration agreement, the jurisdiction of the Court is not to
be ousted. Upon a party acting in breach of the arbitration
agreement it is for the other to assert it if one acts in breach and
the other that does not assert the arbitration agreement, the parties
waive the arbitration agreement and the ouster of the Civil Court is
washed away.
8. In this case, the petitioner has filed the suit in Malda Court in
breach of the arbitration agreement. The first respondent, as
defendant in that suit, resisted the suit by filing an application in
the nature of demurrer. The first application was in furtherance of
Clause 20 of the agreement. The second application, for enforcing
the arbitration agreement, was also filed at a stage before the
respondents herein submitted their first statement on the substance
of the dispute in the suit. Section 8 does not recognize any
disqualification on the part of a party setting up an arbitration
39 arbap 149-21 grp.doc
agreement other than having already submitted its first statement
on the substance of the dispute. The application made by the
respondents herein before the Malda Court for disposal of the suit
on the ground that there was an arbitration agreement appears to
have been perfectly in order. It is on record that the petitioner
resisted it. Upon the petitioner having resisted such application,
the petitioner could no longer enforce the arbitration agreement. It
would be completely opposed to public policy and, indeed, a gross
abuse of the process if the petitioner were permitted to assert that
it had a right to maintain the suit and thereafter change tack upon
the suit having been stayed to assert that it could fall on the
arbitration agreement. Even this could have been countenanced if
the petitioner had offered unconditionally, and at the first instance,
to withdraw the suit filed in Malda Court. Thus the petitioner has
not."
Thus the facts in the above decision would in no manner support
the respondents to contend any waiver of rights by the applicants to take
recourse to arbitration under the Deed of Partnership in question.
45. Mr. Khandeparkar's reliance on the decision of the learned Single
Judge of Madras High Court in V.G. Santhosam (supra) is also not well
founded. In such case before the Madras High Court, the arbitral
tribunal had impleaded a third party to an arbitration in the
adjudication process. Assailing such order passed by the arbitral
tribunal, it was contended that a third party to an arbitration agreement
cannot be admitted to an arbitral adjudication. The Court, in such
circumstances, held that as the third party was not nominated as a
partner, the only recourse which was available to the third party was to
file a Civil Suit. The Court in paragraph 80 observed thus:
"80. This Court is of the considered opinion that even such a right
is traceable in favour of the first respondent, then the only possible
course would be to approach the Competent Court of Law and
40 arbap 149-21 grp.doc
establish her legal right, if any, available based on the documents or
the evidences. Civil rights are to be established independently before
the Competent Civil Court by the parties. However, such civil rights
cannot be adjudicated or enforced by the arbitrator in the contracted
arbitration proceedings under the provisions of the Act. If an
arbitrator is allowed to adjudicate the civil rights of the parties or the
rights regarding inheritance of properties, then it would result in
submerger of the very Arbitration Agreement."
46. In view of the above discussion, in my opinion, it is wholly
untenable for Mr. Lohia and Mr. Khandeparkar to contend that the
present Section 11 applications at the behest of the applicants would not
be maintainable.
47. This apart even considering the clear provisions of Section 40 of
the Arbitration and Conciliation Act, an arbitration agreement would not
be discharged by death of a party thereto. Section 40 reads thus:
"40. Arbitration agreement not to be discharged by death of
party thereto.--
(1) An arbitration agreement shall not be discharged by the
death of any party thereto either as respects the deceased or as
respects any other party, but shall in such event be enforceable by
or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the
death of any party by whom he was appointed.
(3) Nothing in this section shall affect the operation of any law
by virtue of which any right of action is extinguished by the death
of a person."
As plainly seen Section 40 recognizes the salutary principle that
the rights of a party to an arbitration agreement would not stand
discharged and/or extinguished by the death of any party to the
arbitration agreement. Thus, the legal heirs of a party to the arbitration
agreement would step into the shoes of such party, in the event of his
41 arbap 149-21 grp.doc
death which would enable the legal heirs to prosecute as to what the
arbitration agreement would provide. Hence, even otherwise, the
applicants, being legal heirs of the deceased partner, are required to be
recognized to have a locus to invoke the arbitration agreement. Section
40 fell for consideration of the Supreme Court in the case of Ravi
Prakash Goel (supra). The Supreme Court has held that the arbitration
agreement would not be discharged by death of any party thereto, and
would be enforceable by or against the legal representative of the
deceased. The Supreme Court observed thus:
"18. It is clear from Section 40 of the Arbitration Act that an arbitration
agreement is not discharged by the death of any party thereto and on
such death it is enforceable by or against the legal representatives of
the deceased, nor is the authority of the arbitrator revoked by the death
of the party appointing him, subject to the operation of any law by
virtue of which the death of a person extinguishes the right of action of
that person.
19. Section 2(1)(g) defines "legal representative" which reads thus:
"2. (1) (g) 'legal representative' means a person who in
law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of
the deceased person , and, where a party acts in a
representative character, the person on whom the estate
develops on the death of the party so acting."
20. The definition of 'legal representative' became necessary because
such representatives are bound by and also entitled to enforce an
arbitration agreement. Section 40 clearly says that an arbitration
agreement is not discharged by the death of a party. The agreement
remains enforceable by or against the legal representatives of the
deceased. In our opinion, a person who has the right to represent the
estate of deceased person occupies the status of a legal person ( sic
representative). Section 35 of the 1996 Act which imparts the touch of
finality to an arbitral award says that the award shall have binding
effect on the "parties and persons claiming under them". Persons
claiming under the rights of a deceased person are the personal
42 arbap 149-21 grp.doc
representatives of the deceased party and they have the right to enforce
the award and are also bound by it. The arbitration agreement is
enforceable by or against the legal representative of a deceased party
provided the right to sue in respect of the cause of action survives."
48. The decision of the Supreme Court in the case of Ravi Prakash
Goel (supra) was followed in a decision of a learned Single Judge of the
Calcutta High Court in the case of Dr. Papiya Mukherjee vs. Aruna
Banerjea and Anr., A.P. No. 255 of 2021 dated 30 March, 2022. In the
said case, an application under section 11 of the Act was filed by one of
the partners (Dr. Papia Mukherjee) invoking arbitration against the legal
heirs of the deceased partner Dr. Dhrubajyoti. Such application filed
under Section 11 was opposed by the legal heirs on the ground that
there was no valid arbitration agreement between the parties, the Court
observed that under section 40 of the Act, an arbitration agreement
would not be discharged by death of the party thereto and will be
enforceable by or against the heirs of the deceased. While allowing the
application under section 11, the relevant observations as made by the
Court needs to be noted which read thus:-
"6. Dr. Dhrubajyoti Banerjea had died on 09th of April, 2015.
Respondents are legal heirs / successors of Dr. Dhrubajyoti Banerjea.
Section 40 of the Arbitration Act clearly provides that arbitration
agreement will not be discharged by death of party thereto and will be
enforceable by or against the legal representatives of the deceased.
Section 42 of the Partnership Act, 1932 provides for dissolution of
partnership firm by the death of a partner. In terms of Section 46 of
the Partnership Act, on the dissolution of the firm every partner or his
legal representative is entitled to, as against all the other partners or
their representatives, to have the property of the firm applied in
payment of the debts and liabilities of the firm and to have the surplus
distributed amongst the partners or their representatives according to
their rights. Section 47 of the Partnership Act provides for continuing
43 arbap 149-21 grp.doc
authority of partners for purposes of winding up and Section 48 of the
Partnership Act provides for mode of settlement of account after
dissolution. The Hon'ble Supreme Court in the matter of Ravi Prakash
Goel vs. Chandra Prakash Goel and Another reported in (2008) 13
SCC 667 considering Section 40 of the Arbitration Act has held that:
"18. It is clear from Section 40 of the Arbitration Act that an
arbitration agreement is not discharged by the death of any
party thereto and on such death it is enforceable by or
against the legal representatives of the deceased, nor is the
authority of the arbitrator revoked by the death of the party
appointing him, subject to the operation of any law by
virtue of which the death of a person extinguishes the right
of action of that person.
19. Section 2(1)(g) defines "legal representative" which
reads thus:
"2. (1)(g) 'legal representative' means a person who in
law represents the estate of a deceased person, and
includes any person who intermeddles with the estate
of the deceased, and, where a party acts in a
representative character, the person on whom the
estate devolves on the death of the party so acting;"
20. The definition of "legal representative" became
necessary because such representatives are bound by and
also entitled to enforce an arbitration agreement. Section
40 clearly says that an arbitration agreement is not
discharged by the death of a party. The agreement remains
enforceable by or against the legal representatives of the
deceased. In our opinion, a person who has the right to
represent the estate of the deceased person occupies the
status of a legal person (sic representative). Section 35 of
the 1996 Act which imparts the touch of finality to an
arbitral award says that the award shall have binding effect
on the "parties and persons claiming under them". Persons
claiming under the rights of a deceased person are the
personal representatives of the deceased party and they
have the right to enforce the award and are also bound by
it. The arbitration agreement is enforceable by or against
the legal representative of a deceased party provided the
right to sue in respect of the cause of action survives."
49. As a sequel to the above discussion, the present arbitration
applications are required to be allowed, as the right of the applicants to
take recourse to arbitration is clearly relatable and recognized under
Clause 19 read with Clause 17 of the Deed of Partnership.
44 arbap 149-21 grp.doc
50. Before parting it needs to be observed that I have not discussed
the facts in relation to the other Arbitration Applications for the reason
that the learned counsel for the parties have stated that the facts are
identical except that the partnership firms are different as also their
arguments were confined to the application as discussed.
51. The above Arbitration Applications are accordingly allowed in
terms of the following order:
ORDER
(i) Mr. Justice Naresh H. Patil, Former Chief Justice of Bombay
High Court is appointed as a sole arbitrator to adjudicate the
disputes between the parties.
(ii) The learned sole arbitrator, before entering the arbitration
reference, shall forward a statement of disclosure as per the
requirement of Section 11(8) read with Section 12(1) of the
Arbitration and Conciliation Act,1996, to the Prothonotary &
Senior Master of this Court by email id - [email protected], to be
placed on record of this application with a copy to be forwarded
to both the parties;
(iii) As now an arbitral tribunal has been appointed, it would be
appropriate that the Section 9 petitions filed by the applicants be
permitted to be treated as applications under Section 17 of the Act
to be adjudicated by the learned prospective sole arbitrator;
45 arbap 149-21 grp.doc
(iv) The arbitral tribunal shall adjudicate the Section 17
applications as expeditiously as possible.
(v) At the first instance, the parties shall appear before the
prospective arbitrator within 10 days from today on a date which
may be mutually fixed by the learned sole arbitrator;
(vi) The fees payable to the arbitral tribunal shall be as
prescribed under the Bombay High Court (Fees Payable to
Arbitrators) Rules,2018 and shall be borne by the parties in equal
proportion.
(vii) All contentions of the parties including on merits of the
matter are expressly kept open;
(viii) All the above proceedings are disposed of in the above
terms. No costs.
(ix) Office to forward a copy of this order to the learned
Arbitrator on the following address:
"Mr. Justice Naresh H. Patil,
Former Chief Justice of Bombay High Court,
"Rajgir Chambers, Office No.63,
7th Floor, Opposite Old Customs House,
Fort, Mumbai - 400 001.
Mobile No. 9422210444
E-mail ID - [email protected]"
[G.S. KULKARNI, J.]
