Sham Lal Bhalla vs T.S. Bhalla
1987 Latest Caselaw 526 Del

JUDGMENT

S.N. Sapra, J.

(1) The present application has been filed by defendant under Section 34 of Arbitration Act, 1940 for stay of suit filed by plaintiff for rendition of accounts.

(2) Vide deed of partnership dated January 1, 1971, plaintiff and defendant entered into partnership for purposes of continuing the old business of automobile engineers under the name and style of M/s Bhalla Motors. The principal place of the firm was agreed to be at 49/12, Block, E, Okhla Industrial Area, phase Ii New Delhi. The profits and losses of the partnership business are borne by the parties equally. It is alleged in the plaint that during the course of business, the firm acquired aforesaid plot No. 49/12, Block E, Okhla Industrial Area, New Delhi measuring 700 sq. yds. The plaintiff was carrying on business at Bombay while defendant was carrying on the business at Delhi. The partnership was at Will and the accounting year of the firm was from April I to March 31, the next year. On the aforesaid plot, construction raised and the premises were let out to Times of India group of publication Since February 1,1984 the business of the firm at Delhi, has been very lucrative and roaring and according to plaintiff, defendant was earning huge amount per day besides rental income of Rs.l5,000/to Rs. 18,000/. In the plaint, it is further alleged that defendant had willfully and persistently committed breach of agreement relating to the management of affairs of the firm, had not rendered any accounts despite there being explicit term in the agreement and defendant had conducted the business in the manner which was injurious to plaintiff. As it was not practicable for plaintiff to carry on business in partnership with defendant and partnership was at Will, plaintiff, through his advocate vide notice dated April 14, 1987 dissolved the firm on the grounds as mentioned in the notice. As such firm stands dissolved with effect from April 14, 1987. As the firm had been dissolved defendant is liable to render accounts. It is further alleged that defendant has played fraud on plaintiff by concealing the relevant and necessary information which otherwise he was liable to furnish to plaintiff under the deed of partnership and also committed breach of trust reposed in the defendant.

(3) Defendant has moved this application thereby a alleging that partnership deed contains clause 12 which is an arbitration clause which reads as under: "12. That in case of any dispute the same shall be referred to a Board of 2 arbitrators to be appointed by each partner, and its decision shall be final and binding on all the partners in terms of the Indian Arbitration Act." According to defendant, plaintiff was looking after the partnership business at Bombay and did not render any account of business carried by him. The income tax authorities have also mentioned that proper accounts of business at Bombay have not been rendered nor mentioned in the returns. It is alleged that in the plaint, another dispute has been raised with regard to letting out of the basement in the premises No. E-49/12, Okhla Industrial Area, phase Ii, New Delhi. This property, according to defendant, is mortgaged with Delhi Financial Corporation, who had advanced a loan of Rs. 3 lakhs in 1977-78. The partnership firm entered into an agreement with Delhi Financial Corporation at the time of getting the loan and agreed that firm would not be dissolved or the constitution of the firm would not be changed till the whole amount of loan was paid to the aforesaid Corporation. Thus, defendant alleges that notice of dissolution of partnership sent by plaintiff is of no effect because parties are bound by the agreement with the aforesaid Corporation and partnership business still continues. Defendant further wants that disputes between the parties arising out of plaintiff's notice dated April 14, 1987 as also regarding the accounts of the partnership for the entire period since 1971 up-to-date be gone into and settled. All the disputes, according to defendant, are fully covered by the aforesaid arbitration clause.

(4) Mr. M.S. Vohra, learned counsel for defendant contends that arbitration clause No. 12 as contained in the deed of partnership, is wide enough to cover the disputes now being raised by plaintiff. He submits that the partnership could not be dissolved by plaintiff by serving a notice as by an agreement between the partnership firm and the aforesaid Corporation, the partnership firm specifically undertook not to dissolve the firm unless the entire loan amount is repaid by the firm. As loan amount has not been repaid so plaintiff under law cannot dissolve the firm. According to him, the dispute whether partnership firm can be dissolved or not can be settled only through arbitration. Mr. Vohra also urges that in in plaint plaintiff has alleged fraud and misrepresentation but these are very vague allegations as no particulars of fraud or misrepresentation have been given. Thus, no notice should be taken of these allegations. The next point contended by Mr. Vohra is that in the plaint plaintiff has raised disputes regarding the letting out of the aforesaid premises. This dispute is also covered by arbitration clause. Reliance has been placed by Mr. Vohra upon judgments in cases Eric F.D.Mehta v. Minoo F.D. Mehta, ; N.V. Chowdary v. Hindustan Steel Works Construction Ltd., Visakhapatnam, and Renusager Power Co. Ltd.v. General Electric Company and other, .

(5) Mr. B.K. Sood, learned counsel for plaintiff, in the first place contends that there is no dispute in existence which can be referred to arbitration. The partnership is admittedly at Will and under law plaintiff has a right to dissolve the same by means of serving a notice of dissolution upon defendant which has already been done. Even otherwise, filing of the suit under law, also amounts to notice of dissolution. In the suit plaintiff has claimed only rendition of accounts of dissolved firm. Whether the firm has been dissolved or not is not a dispute covered by the aforesaid arbitration clause. The next point urged by Mr. Sood is that prior to filing of suit no dispute existed. In any case, defendant nad not raised the disputes which are now being sought to be raised by defendant in the present application. In other words defendant was never ready and willing to take steps for referring the disputes to the arbitrators before filing of the present suit. He further contends that the present arbitration clause is very vague and limited and it does not cover the disputes which may arise between the parties after dissolution of the firm. His next contention is that as in the plaint, plaintiff has alleged fraud and misrepresentation, so these questions cannot be referred to arbitrators. Moreover, the problem is complex and intricate and it involves huge assets and this is a sufficient reason that the suit should not be stayed and matter should not be referred to arbitrators. He has relied upon the judgments in cases Ramani Mohan Barman v. Sm. Gouri Rani Barman and others, ; B.C. Vasa v. Bhagwan Das Agarwal, 1972 R.L.R. (Note) 10, Smt. Angori Devi v. Sardari Lal etc. 1985 Delhi High Court Digest, 118: National Research Development Corp. of India v. Bhupal Mining Works etc. 1973 D.L.T. 37; Ganesh Chandra Dey and another v. Kamal Kumar Agarwalla, ; Muthabarapu Venkateswara Rao v. Dr. N. Subbarrao, ; Hindustan Copper Ltd. Jhunjhunu v. Assam Bearing Agencies Delhi. ; and Arvind Exports Private Ltd, v. Kamani Engineering Corporation Ltd. .

(6) In (supra) it has been held as under: "Four propositions emerge very clearly from the authorities discussed above: 1. Whether a given dispute inclusive of the arbitrator's jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ. 2. Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope) of the arbitration agreement. 3. Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction (and it will be for the Court to decide those questions but there is nothing to prevent the parties from investing him with power to decide those questions as for instance, by a collateral or separate agreement which will be effective and operative. 4. If, however, the arbitration clause, so widely worded as to include within the scope questions of its existence, validity and effect (scope) is contained in the underlying commercial contract then decided cases have made a distinction between questions as to the existence and/or validity of the agreement on the one hand audits effect (scope) on the other and have held that in the case of former those questions cannot be decided by the arbitrator, as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non-existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement, i.e. to decide the issue of arbitral ability, of the claims preferred before him. 183 At this stage, however, we are concerned with only the first three propositions mentioned above about which no serious dispute was raised by counsel for Renusagar. We are conscious that counsel for Renusagar. has strongly disputed the correctness of proposition No, 4 above, but we propose to deal with their caveat against it together with the authorities relied upon by them in support thereof later. At this stage it will suffice to observe that since the parties to the underlying Commercial Contract here have used the expressions "arising out of" or "related to this contract" in the arbitration clause contained in the Contract, there can be no doubt that the parties clearly intend to refer the issue pertaining to the effect (scope) of the arbitration agreement to the court of Arbitration of I.C.C. in other words, the issue about arbitral ability of the three claims under reference has been referred."

(7) In (supra) the High Court was dealing with the scope of Section 34 of Arbitration Act with regard to the facts and circumstances of that case. It has been held that it is settled that ordinarily if cause of action is covered by arbitration clause in the agreement, then the suit should be stayed. But this is not hard and fast rule as there could be departure from this if so warranted by circumstances but the burden is on plaintiff to show that suit should not be stayed for various reasons like the arbitrator being biased, the circumstances are deliberately created by the opposite party in discharge of obligations and so on.

(8) In (supra) the appellant and respondent entered into partnership agreement with regard to three businesses. The duration of partnership was at will. Arbitration clause in the partnership agreements read as under : "All disputes and questions whatsoever which shall either during the partnership or afterwards arise between the partners or between one of them and the personal representatives of the other or between their respective personal representatives touching these presents or the interpretation of this deed or the construction of the application thereof or any clause or thing herein contained or any account valuation or division of assets, debts or liabilities to be made hereunder or as to any act, deed or commission of either partner or as to any act which ought to be done by the partners in dispute or as to any other matter in any way relating to the partnership business or the affairs and transactions thereof or the rights, duties or liabilities of either partner under these presents shall be referred to two arbitrators one to be appointed by each party to the difference in accordance with and subject to the provisions of the Indian Arbitration Act, or any statutory modification thereof for the time being in force."

(9) While interpreting the arbitration clause their Lordship of the Supreme Court held that a dispute whether the partnership was dissolved by mutual agreement was clearly a dispute between the parties touching the partnership agreement. Thus, held that ''all disputes and questions, whatsoever, which may arise during partnership or afterwards between the partners touching the partnership agreement including the division of assets, debts or liabilities" clearly cover a dispute whether the parties agreed that partnership be dissolved.

(10) In the arbitration clause reads as under : "All disputes arising between the partners in any matter relating to the partnership business or regarding that interpretation of these presents shall be referred to the arbitration of two Arbitrators-one to be appointed by each of the parties here to of the first and third part and the decision of the said arbitrators or in case of difference between them the decision of the Umpire to be appointed by them shall be final and binding upon the partners". It has been held that there is an element of judicial discretion in staying a su,it under Section 34 of Arbitration Act. The Court may stay legal proceedings provided it is satisfied that there is no sufficient reason why matter should not be referred to arbitration and that parties seeking arbitration was ready and willing to take recourse to arbitration proceedings at the time when suit was filed in Court of law by other party. It was held that arbitration clause was not wide enough to decide the question of the issues relating to dissolution of partnership or whether notice of dissolution under Section 32(l)(c) had been served or not. It has been further held that arbitrators have not been empowered to decide the valuation of petitioner's share.

(11) In 1972 R.LR. (Note) 10 (supra) the partnership contained an arbitration clause but disputes between the parties were amicably settled and deed of dissolution of partnership was executed. The appellant agreed to pay certain sum by four Installments. He paid half the amount. Respondent sued for the balance. In that suit an application was moved under Section 34 of Arbitration Act for stay of suit. Application was dismissed. It was held that arbitration clause related only to partnership matter which came to an end on the execution of dissolution deed.

(12) In Delhi Law Times 1973 (37) (supra) it has been held that before a defendant can be granted stay of suit under Section 34 of Arbitration Act, he must prove that disputes had arisen between the parties before the institution of the suit. Raising of various disputes in the application for stay does not entitle the defendant to get stay of suit.

(13) In (supra) the Court was interpreting the arbitration clause 14 which reads as under : "That in case of any dispute and difference arising amongst the parties either in the interpretation of this business or in any matter touching the rights and liabilities of the partners either continuing all the terms or after it has ceased functioning in any other matter relating to in the partnership such dispute shall be referred to the arbitration of as many arbitrators as there may be parties in difference and the award of the said arbitrators or Umpire selected by the arbitrators shall be binding on all the parties equally. It has been held that parties no doubt intended to have their disputes settled in respect of partnership business by arbitrators but the respondent had served a notice for dissolution of partnership which had been duly received by petitioner. Thus. interpreting the arbitration clause it has been observed that if arbitration is allowed to continue and award is made the parties against 185 whom the award is made might challenge the award on the ground that arbitrator had no jurisdiction to decide the validity of the notice of dissolution of partnership. Under the facts and circumstances of that case, it was held that disputes and differences between the parties would be conveniently decided in the suit.

(14) In (supra) the claim of plaintiff in suit was for payment of price of goods. Before filing of suit legal notice was served upon defendant to pay the amount on account of price of goods together with interest. No reply was given to the notice by defendant. It was thus held that non-payment of price of goods, under the circumstances of case is not a dispute arising out of a contract.

(15) No doubt, that the arbitration clause in the present case, is not wide enough to cover all the disputes between the partners. Defendant has admitted that he has been served with the notice dated April 14,1987. The partnership deed clearly provides that partnership is at Will. Under law a partner is entitled to dissolve a partnership which is at Will by serving a notice of dissolution on the other partner. In this case, there are only two partners who are brothers. Now defendant has disputed the right of plaintiff to dissolve the partnership firm on the ground that under the agreement between the partnership firm and the Delhi Financial Corporation, partnership firm agreed not to dissolve the partnership firm unless the dues of the Corporation are cleared. Admittedly the partnership is at Will and partner has a right to dissolve the same. The question arises whether by an agreement between the partnership firm and Delhi Financial Corporation, the terms and conditions as contained in the Deed of partnership can be modified or not. In my view It is doubtful whether the aforesaid arbitration clause is wide enough to cover such type of dispute. In any case, the matter is complex and intricate and this is a sufficient ground not to refer the matter to the arbitrators. The arbitration clause in the cases and (supra) were quite different from the arbitration clause as contained in Deed of partnership in the present case. Moreover, the facts and circumstances in the present case are altogether different. The agreement between the partnership firm and Delhi Financial Corporation has not been placed on record but the fact with regard to taking of loan by the firm and the agreement between firm and the Corporation has not been denied by plaintiff.

(16) Plaintiff did serve notice dated April 14, 1987 for dissolution of partnership upon defendant. The disputes which are now being raised by defendant were not raised by defendant before filing for suit nor any reply was sent by defendant to plaintiff. Now defendant cannot be allowed to raise the present dispute. In this suit plaintiff has claimed the relief of rendition of accounts of dissolved firm. The dispute which has now been raised by defendant is that firm should not be dissolved. Thus, this relief depends upon whether plaintiff could dissolve the partnership firm or not.

(17) In the present case, plaintiff has alleged fraud and misrepresentation but the same have been alleged very vaguely. plaintiff has not given particulars of fraud and misrepresentation. As such I am of the view that no notice of these allegations should be taken in deciding the present application.

(18) In view the facts and circumstances mentioned adove, the present application stands dismissed. LA. 3390/87 stands disposed off.