Pritpal Singh Bhatia vs Yogeshwar Nath And Anr.
2001 Latest Caselaw 1514 Del

JUDGMENT

A.K. Sikri, J.

1. This petition is under Section 8(a) of the Arbitration Act, 1940 (for short 'the Act'). The petitioner wants appointed of an arbitrator in the matter of rendition of accounts by the respondents, partners of M/s Consistent Clothing.

2. M/s Consistent Clothing was a partnership firm (hereinafter referred to as the 'firm') of which petitioner and the two respondents were partners. The petitioner was inducted as partner on 6th January, 1993 and the partnership firm was reconstituted vide partnership deed of even date. This firm was trading in all kinds of textile manufacture and dealers in ready-made garments and importers and exporters. The share of the petitioner in profits and lossers was 50 per cent and that of the respondents it was 25 per cent, each in the profits and losses of the firm. It is not necessary to state in detail the disputes which arose between the parties. Suffice is to state that the petitioner has levelled allegations against the respondents acting in a fraudulent manner because of which disputes arose between the parties. The allegations are in respect to collecting a sum of Rs. 2.60 lacs on the excuse that it was to be deposited on account of the custom duty with custom authorities which was not deposited with custom authorities. Likewise, the respondents No. 1 collected another sum of Rs. 8,809.15 paisa on account of sales tax which was not deposited with sales tax authorities. Money was, on the contrary, paid, to M/s General Commerce Limited, a company held by the family of the respondents. As the respondent No. 1 failed to return the money, according the petitioner, dispute arose between the parties.

3. The partnership agreement contains an arbitration clause and in view thereof, the petitioner appointed Sh. P.S. Sharda as his arbitrator and called upon the respondents to nominate their arbitrator. The respondents nominated Sh. Ravi Sahni as their arbitrator but he neglected and refused to participate in the arbitration proceedings. It is alleged in the petition that in these circumstances, Sh. P.S. Sharda, arbitrator appointed by the petitioner proceed with the matter as per law. The respondents raised objections about the functioning of this arbitrator and filed petition under Section 33 of the Act being S.No. 250/94 in the court of Addl. District & Session Judge, Delhi. In that case order dated 15th May, 1995 was passed declaring that disputes referred to by the respondent No. 1 vide notice dated 3rd July, 1994 were not covered by the arbitration agreement. It was further observed in that order that 'needless to mention that respondent No. 1 (who is the petitioner herein) or for that reason the firm constituted by the petitioners and the respondent No. 1 would be at liberty to seek their remedy as may be available to them in respect of the alleged dispute before appropriate forum'. The respondents 1 and 2 also filed another S.No. 267/94 before the Addl. District & Sessions Judge, Delhi which was a petition under Section 11 of the Act for removal of Sh. P.S. Sharda. In this petition order dated 15th May, 1995 was passed stating that in view of order passed in S.No. 250/94 this petition had become infructuous.

4. Thereafter, the respondent No. 1 gave notice of termination of partnership and the petitioner while acknowledging the termination notice, advised the respondent No. 1 to render the accounts before the dissolution of the partnership. Thereafter, the respondents sent the notice dated 24th May, 1994 appointing Sh. Pradeep Dewan, Advocate as their arbitrator and called upon the petitioner to nominate his arbitrator failing which the arbitrator appointed by the respondents would act as the sole arbitrator. The petitioner gave reply dated 9th June, 1995 stating that this notice dated 24th May, 1995 was an eyewash and the earlier arbitrator Sh. Sharda continued to be his arbitrator and who was also appointed as arbitrator for present reference. However, the respondents sent reply dated 12th June, 1995 stating that Mr. Pradeep Dewan had become the sole arbitrator as the petitioner had waived his right to appoint his arbitrator. In these circumstances, the present petition was filed requesting the court to appoint an arbitrator.

5. The main contention of the respondents opposing the aforesaid petition is that the respondents had served notice dated 24th May, 1995 under Section 9 of the Act nominating Sh. Pradeep Dewan as their arbitrator and calling upon the petitioner to appoint his arbitrator. As the petitioner failed to appoint his arbitrator within the statutory period. Sh. Dewan has become the sole arbitrator by operation of law as informed vide notice dated 12th June, 1995.

6. The first question, therefore, to be considered is about the tenability of aforesaid stand taken by the respondents.

7. The contention of the respondents was that Sh. Sharda was nominated as the arbitrator earlier challenging the proceedings initiated by Sh. Sharda. The respondents had filed Suits No. 250/95 and 267/94 and by judgment dated 15th May, 1995 the Addl. District & Sessions Judge, Delhi was pleased to quash the earlier reference dated 3rd July, 1994. Therefore, he no more remained an arbitrator. Thereafter, the cause of action arose only when the respondents dissolved the partnership firm and served notice dated 24th May, 1995 on the petitioner under Section 9 of the Act. It was, in these circumstances, incumbent upon the petitioner to appoint another arbitrator and failure to appoint another arbitrator resulted in Sh. Pradeep Dewan, Advocate as sole arbitrator.

8. In making the aforesaid submission, learned counsel for the respondents has ignored reply of the petitioner to notice dated 24th May, 1995. In this reply the petitioner has, inter alia, stated as under:

"That Shri P.S. Sharda was and is my arbitrator in the matter, therefore, appointed hereby without prejudice to my right to contest the validity of the proceedings under the notice issued by you."

9. By this reply, therefore, not only the petitioner stated that Sh. Sharda was his arbitrator and continued to be the arbitrator, he also stated that he was 'appointed hereby' as his arbitrator. Therefore, there was nominated of Sh. P.S. Sharda as the petitioner's arbitrator. Thus the petitioner had exercised his right by appointing Sh. P.S. Sharda as his arbitrator.

10. The only other question is as to whether this right was exercised within fifteen days as stipulated under Section 9 of the Act. In this respect, it may be mentioned that the notice dated 24th May, 1995 was received by the petitioner on 26th May, 1995. Communication dated 9th June, 1995 of the petitioner would, therefore, be within fifteen days from 26th May, 1995. It may be mentioned that communication dated 9th June, 1995 of the petitioner was not delivered at all to the respondents on 9th June, 1995 itself. Even otherwise, proviso to Section 9 permits the court to set aside any appointment as sole arbitrator made under Clause (b) thereof and on sufficient cause being shown, allow further time to defaulting party to appoint an arbitrator. It is an eminently fit case to allow further time up to 9th June, 1995, even if it is presumed that there was some delay by the petitioner in nominating his arbitrator which the petitioner appointed by communication dated 9th June, 1995.

11. It may be mentioned that on 14th February, 1997 following issues were framed:

1. Whether Sh. Pradeep Dewan, Advocate nominated by the petitioner can act as a sole arbitrator?

2. If issue No. 1 is decided in negative whether the arbitrator can be appointed\ by this court?

3. If an arbitrator is appointed by the court, what are the disputes and differences in between the parties that can be referred to the arbitrator?

4. Relief.

12. Issue No. 1 has already been discussed above as per which Sh. Pradeen Dewan cannot act as a sole arbitrator.

13. As far as issue No. 2 is concerned, since it is held that, while discussing the issue No. 1, that nomination of Sh. P.S. Sharda by the petitioner was valid, effect of that would be that both Sh. P.S. Sharda and Sh. Pradeep Dewan would act as co-arbitrators who can appoint an Umpire as per the provisions of the Act. It wold, therefore, be not necessary for the court to appoint an arbitrator. This course is in consonance with the arbitration agreement between the parties.

Issue No. 3:

14. The court is not appointing an arbitrator and therefore, strictly the issue as framed may not require an answer. However, it may be mentioned that during the course of proceedings both the parties were directed to file the list of disputes, which according to them, are outstanding. The parties have filed these lists as per which following issues/disputes are suggested:

15. Proposed issues/disputes on behalf of the petitioner:

1. Whether Mr. Yogeshwar Nath in his capacity as karta of M/s Yogeshwar Nath, HUF and Smt. Anjala Nath, partners of the firm M/s Consistent Clothings, misled the said firm into making a payment of Rs. 2,60,000/- towards customs duty liability and Rs. 8,809.15 paisa on account of sales-tax liability to Shri Yogeshwar Nath and Smt. Anjala Nath in their capacity as Managing Director and Director respectively of M/s General Commerce Ltd.?

2. In case it is correct that the said amount was correctly recommended to be so paid, whether the firm is entitled to the proof of such payments?

3. In case it is found that the firm M/s Consistent Clothings was in fact misled into making the said payment whether the firm is entitled to recover the said amount from the account of the said partners Yogeshwar Nath, Karta Yogeshwar Nath HUF and Smt. Anjala Nath.?

4. Whether Shri Yogeshwar Nath, HUF and Smt. Anjala Nath have caused loss and damage to the firm M/s Consistent Clothings by not including the name of other partner Shri Pritpal Singh Bhatia in the RCMC Certificate, thereby causing irreparable loss of quota entitlement of AEPC?

5. In case it is found that the firm has in fact suffered loss as referred to in question No. 4 how much is such loss and damage and how the same is to be recovered from the said two partners?

6. Whether Shri Yogeshwar Nath HUF and Smt. Anjali Nath and liable to retire?

7. Whether Shri Yogeshwar Nath and Smt. Anjala Nath are liable to render all accounts and records of M/s Consistent Clothings to Shri Pritpal Singh Bhatia?

8. Whether Shri Pritpal Singh Bhatia is entitled to recover liquidated damages from Yogeshwar Nath and Smt. Anjala Nath on account of their failure to render accounts and all documents of M/s Consistent Clothings. If yes, then how much?

9. What is the nature and status of letters No. NIL dated 6.1.93 and No. NTL dated 31.3.93 issued by General Commerce Ltd. to the firm M/s Consistent Clothings?

10. Whether Shri Yogeshwar Nath and Smt. Anjala Nath in their capacity as Managing Director and Director of General Commerce have been preventing Shri Pritpal Singh Batia, partner of M/s Consistent Clothings from exercising his right to entering into the office premises 100A/1, Baird Road, New Delhi.

11. In case the answer to question No. 10 is in the affirmative, how much loss and damage is to be recovered from the account of Shri Yogeshwar Nath and Smt. Anjala Nath by the firm and what suitable measures are required to be laid down so that such obstructions are not created in future and the tenancy rights are enjoyed without any let or hindrances.?

16. Proposed issues/disputes suggested by the respondents:

1. Dissolution of Partnership firm M/s Consistent Clothing.

2. Rendition of account to the respondents by Shri Pritpal Singh (Exclusive of transaction of Imported trims from General Commerce Ltd. in respect of which FAO 181 of 1995 is pending against the order of Mr. R.C. Jain, ADJ, Delhi.

3. Regarding the amount due to the respondents on account of expenses incurred by them in applying for quota and also on account of loss suffered by them due to the conduct of Sh. Pritpal Singh.

4. Regarding the amount due to the respondents on account of expenses incurred by them in completing the legal and statutory provisions formulated by Govt. of India.

17. Therefore, it would be appropriate for the arbitrators to decide the aforesaid issues/disputes.

18. This petition stands disposed of.