Sanjay Kumar Bhagat (Huf) vs Sanjan Kumar Bhagat (Huf) And ...
2023 Latest Caselaw 998 Cal/2

                      In the High Court at Calcutta

                          Original Civil Jurisdiction

                                   Original Side

The Hon'ble Justice Sabyasachi Bhattacharyya

                             A.P. No. 2 of 2023

                     Sanjay Kumar Bhagat (HUF)
                              -Versus-
               Sanjan Kumar Bhagat (HUF) and another


     For the petitioner        :       Mr. Rudraman Bhattacharyya,
                                       Ms. Suchishmita Ghosh Chatterjee,
                                       Mr. Akash Munshi,
                                       Mr. Souvik Kundu


     For the respondent        :       Mr. Jishnu Saha,

Mr. Pranit Bag, Mr. K. Saraf,

Hearing concluded on : 13.04.2023

Judgment on : 20.04.2023

The Court:-

1. The respondent no. 2 is admittedly an unregistered partnership firm.

According to the respondents, the petitioner retired from the firm by

oral settlement in the year 2014. However, the petitioner denies such

retirement and contends that he, as Karta of his HUF, all along

continued to be a partner till he issued a notice under Section 43 of

the Partnership Act, 1932 to dissolve the firm on November 10, 2022.

2. The petitioner seeks reference to arbitration of the disputes which

have currently arisen between the parties with regard to the assets of

the partnership firm, since dissolved. Since the parties failed to agree

on an arbitrator, the present application under Article 11 of the

Arbitration and Conciliation Act, 1996 (for short, "the 1996 Act") has

been preferred.

3. The respondents object to such reference inter alia on the ground of

limitation. Learned counsel for the respondents contends that the

petitioner lost locus standi to raise dispute as a partner with his

retirement in the year 2014, for which limitation has expired in the

year 2017. The disputes have only been raised in the year 2022. The

respondents have also filed a suit, inter alia seeking a declaration with

regard to such retirement, bearing Title Suit No. 1533 of 2016, which

is now pending before the City Civil Court at Calcutta.

4. Learned counsel for the respondents cites the judgment of a co-

ordinate Bench of this Court in Partha Pratim Banerjee and Another V.

Satya Narayan Jaiswal and Others, reported at 2023 SCC OnLine Cal

603, where the learned Single Judge, by placing reliance on Vidya

Drolia's Case [ (2021) 2 SCC 1], observed that the courts can interfere

where it is evident that the claims are ex facie time-barred or, in other

words, "to cut the deadwood".

5. It is also argued by the respondents that after the petitioner retired as

a partner of the erstwhile partnership firm (respondent no. 2), the

same was incorporated into a company under the Companies Act,

2013. Therefore the present application is bad for misjoinder of the

dissolved partnership firm.

6. That apart, the assets in respect of which the disputes have been

raised belong to the company now, which is a separate juristic entity

and would be otherwise required to be impleaded if any such relief is

claimed; however, since the company was never a party to the

partnership or reconstitution deeds containing the arbitration clause,

no relief can be sought before the arbitrator against it. Hence, it is

argued that the disputes are not arbitrable at all and the application

under Section 11 ought to be dismissed.

7. Learned counsel for the petitioner places reliance on the same

decision of the Supreme Court, that is, Vidya Drolia and Others V.

Durga Trading Corporation, reported at (2021) 2 SCC 1, to highlight

that if the question of limitation is debatable, the court would force

the parties to abide by the arbitration agreement. Rarely as a

demurrer may the court interfere at the Section 8 or 11 stages when it

is manifestly and ex facie certain that arbitration agreement is non-

existent, invalid or the disputes are demonstrably non-arbitrable, in

which case it would "cut off the deadwood".

8. It is argued that in the present case the dispute involved is ex facie

non-arbitrable, since the remedy is time-barred.

9. Learned counsel for the petitioner next cites Uttarakhand Purv Sainik

Kalyan Nigam Limited V. Northern Coal Field Limited, reported at

(2020) 2 SCC 455, where the Supreme Court observed that in view of

the legislative mandate contained in Section 11 (6-A) of the 1996 Act,

the court is now required only to examine the existence of the

arbitration agreement. All other preliminary or threshold issues are

left to be decided by the arbitrator under Section 16, which enshrines

the kompetenz-kompetenz principle.

10. It is argued that the arbitration clause, which is Clause 18 of the

reconstitution of partnership deed, encompasses disputes or

differences in connection with the partnership between the partners or

any one or more of them. Moreover, the disputes, according to the

clause, may arise both during and after the partnership. Irrespective

of the formation of the company and dissolution of the partnership,

the partners can have their disputes resolved through arbitration.

11. The petitioner also disputes that the petitioner retired from the

partnership in 2014 and that the limitation period expired in the year

2017. Learned counsel for the petitioner places reliance on a

dissolution notice under Section 43 of the Partnership Act, 1932 dated

November 10, 2022 where the petitioner denies that he retired from

the firm by virtue of any previous oral agreement and reiterates that

the petitioner still continued to be a partner of the firm. Hence, it is

contended that the reliefs sought to be resolved by arbitration are not

time-barred.

12. Upon hearing the arguments of both sides, what is apparent is that

the parties do not directly dispute the arbitration clause itself being

contained in the deed of reconstitution of partnership, which was

captioned as a 'Deed of Retirement' but described itself as a 'Deed of

Partnership', dated April 1, 2006. The application under Section 11 of

the 1996 Act is opposed primarily on two counts - that the reliefs

sought are time-barred and that the partnership has since been

converted into a company, which is an independent juristic entity and

cannot be embroiled in arbitration since it was never a party to the

deed containing the arbitration clause, although the reliefs necessarily

affect the company's assets.

13. The two issues involved herein are thus:

(i) Whether the reliefs claimed in arbitration are ex facie time-

barred;

(ii) Whether the arbitration proceeding is maintainable against the

company, which was never a party to the arbitration agreement.

14. As regards limitation, the respondents argue that the partnership

itself stood dissolved in the year 2014 after the petitioner himself

retired from the partnership. Hence, the reliefs sought in respect of

the dissolved partnership firm are palpably time-barred.

15. In this respect, the respondents rely on a suit filed by the respondent

no. 1, another (the latter, since deceased) and the partnership firm in

the City Civil Court at Calcutta, bearing Title Suit No. 1533 of 2016.

In it, the plaintiffs prayed, inter alia, for a declaration that the plaintiff

nos. 1 and 2 are the exclusive partners of the plaintiff no. 3 firm

having equal share, a declaration that the defendants (including the

petitioner) did not have any authority to hold out as partners of the

firm or to interfere in any manner with the functioning of the firm or

to claim any manner of right, title or interest over any of the

properties or assets of the firm, and consequential reliefs such as

perpetual injunction.

16. In the said suit (which is still pending), the plaintiffs' prayer for

interim relief of injunction was, however, refused and the temporary

injunction application dismissed on April 24, 2017. Against the said

order of dismissal, an appeal bearing F.M.A.T. No. 758 of 2017 was

preferred, which was also dismissed on February 2, 2022.

17. Thus, it was prima facie held by the civil court, and affirmed in

appeal, that the petitioner was continuing to be a partner at least till

February 2, 2022. On the other hand, there is nothing on record,

except the bald allegation of an oral agreement, to indicate that the

petitioner has retired from the partnership before November 10, 2022,

when he himself gave a dissolution notice under Section 43 of the

Partnership Act, 1932.

18. Hence, the respondents' argument that the reliefs claimed by the

petitioner are time-barred is not borne out, at least prima facie, from

the records. To say the least, the said proposition is debatable and

arguable on facts and in law, hence, best left to the arbitrator to

decide, if appointed, within the domain of Section 16 of the 1996 Act.

The above conclusion, in fact, is strengthened by the following

observation made in paragraph no. 153 of Vidya Drolia (supra):

"... In cases of debatable and disputable facts, and good reasonable

arguable case, etc., the court would force the parties to abide by the

arbitration agreement as the Arbitral Tribunal has primary jurisdiction

and authority to decide the disputes including the question of

jurisdiction and non-arbitrability."

19. Thus, the first issue is decided in favour of the petitioner.

20. Regarding the second issue, we are to look for answers in the

arbitration clause itself:

"18. That in case of any dispute or differences in connection with the

partnership between partners or anyone or more of them and the legal

representative of other partners during or after the partnership the

same shall be referred to the Arbitration in accordance with the

provisions of the Arbitration and Conciliation Act 1996."

21. Three features which stand out are:

(a) The disputes or differences are to be in connection with the

partnership;

(b) Those have to be between "partners or any one or more of them"

and/or their legal representatives; and

(c) The disputes may arise during or after the partnership.

22. The first feature is quite obvious and does not have direct bearing on

the issue at hand. However, conspicuously, the disputes and

differences have to be between the partners or their legal

representatives, irrespective of whether they arise during the

subsistence of the partnership or after the dissolution of the same.

23. Taken in such perspective, the subsequent formation of a company

with the assets of the partnership firm is irrelevant for deciding the

arbitrability of the disputes.

24. It is settled law that the beneficiary of a wrong is bound by its

consequences. If it is ultimately held on adjudication that the

petitioner is entitled to a share in the assets, etc. of the partnership

firm, the mere incorporation of a company with such assets cannot

absolve the parties from their liabilities as partners.

25. Viewed from another angle, the formation of the company with the

assets of the partnership firm without consent of all partners or

beyond the scope of the partnership deed itself shall be vitiated if it is

ultimately found that the same was done before the partnership firm

was actually dissolved.

26. The partnership firm was admittedly an unregistered one. Therefore

the bar under Section 69 of the Partnership Act is prima facie

applicable. However, a window is still available to the individual

partners, post-dissolution of the firm, to claim accounts and their

shares in the assets of the firm. Hence, it is at least arguable as to

whether the reliefs sought can be granted in law.

27. However, the above discussions only go on to show that the disputes

which have arisen between the parties is squarely arbitrable.

28. Abiding by the principle laid down in Uttarakhand Purv Sainik (supra),

the scope of this court under Section 11 of the 1996 Act is only to

examine the existence of the arbitration clause, which has not been

disputed in terms in the present case.

29. Going by paragraph no. 233 of Vidya Drolia (supra), read with Section

11 (6A) of the 1996 Act, the respondents have failed to satisfy this

court prima facie that the arbitration clause is non-existent or invalid.

The other points agitated are required to be decided on extensive

examination of oral and documentary evidence, if adduced.

30. The arbitrability of the disputes, the existence and validity of the

arbitration clause and the fact that the disputes fall within the

purview of the arbitration clause have, thus, been established

sufficiently to refer the matter to arbitration.

31. Hence, AP 2 of 2023 is disposed of by appointing Mr. Sarvapriya

Mukherjee (Mobile No. - 9836072782), an Advocate of this Court and

a member of the Bar Library Club, as the sole arbitrator to resolve the

dispute between the parties, subject to obtaining his

declaration/consent under Section 12 of the Arbitration and

Conciliation Act, 1996.

32. It is, however, made clear that the merits of the disputes, including

the question of maintainability, have not been entered into by this

court while deciding the application under Section 11 of the 1996 Act

and it will be open to the parties to argue all points before the learned

Arbitrator.

( Sabyasachi Bhattacharyya, J. )