Sunil Kumar vs Aakar And Anr.
2002 Latest Caselaw 848 Del

JUDGMENT

J.D. Kapoor, J.

1. The first and foremost question that calls for determination in these proceedings is whether the instant petition under Section 8 of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitrator on account of failure of the respondent to concur for such an appointment is barred by limitation or not.

2. The law laid down by the Hon'ble Supreme Court as to the limitation for initiation of arbitration proceedings may be referred to. In the State of Orissa and Anr. v. Sri Damodar Das , the Supreme Court while relying upon "Russell on Arbitration by Anthony Walton (19th edition)" held that the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued: "just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrators, the claim is not be put forward after the expiration of the specified number of years from the date when the claim accrued. Even if the arbitration clause contains a provision that no cause of action shall accrue in respect of any matter agreed to be referred until an award is made time still runs from the normal date when the cause of action would have accrued if there had been no arbitration clause.

3. The Supreme Court also interpreted the word "action" and "cause of arbitration" in relation to Section 37(1) of the Act like this:-

"For the purpose of Section 37(1) 'action' and 'cause of arbitration' should be construed as arbitration and cause of arbitration, the cause of arbitration when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration. An application under Section 20 is governed by Article 137 of the schedule to the Limitation Act, 1963 and must be made within 3 years from the date when the right to apply first accrues."

4. Similar view was taken in 1999(3) ALR 180 SC wherein it was held that the limitation for filing application under Section 8 of the Act would begin from the date when the right to file the application arises.

5. In order to test the case of the petitioner on the anvil of the aforesaid principle the relevant facts need to be put in brief:-

5.1 The parties entered into an agreement of partnership vide partnership deed dated 9th September, 1993 for carrying on the business under the name and style of M/s AAKAAR. Pursuant to the said partnership a current account in the name and style of M/s AAKAAR bearing account No. 1501 was opened and maintained in the Indian Bank at its Branch office at Padam Singh Road, Karol Bagh, New Delhi.

5.2 Some differences arose between the parties as according to the petitioner the respondent No. 2 did not adhere to his requests nor did he allow him to operate the current account nor did he pay any remuneration to him as per terms of the partnership deed. On account of this conduct of the respondent the petitioner was constrained to leave the partnership in the month of August, 1996. When he requested the respondent to give him its due share of profits and also to discontinue using the name and style of respondent No. 1 and not to operate bank account respondent No. 2 did not settle the accounts nor did he stop operating the bank account. Rather he continued using the name and goodwill of the Partnership for the business gains. So much so the respondent No. 2 also opened new and fresh accounts in the name and style of respondent No. 1 and diverted the professional incomes in the said accounts.

5.3 When the respondent failed to respond to the requests and reminders and settle the accounts the petitioner issue a notice dated 21.4.92 to the respondent calling upon him for dissolving the partnership and settle the accounts. However the respondent avoided to receive the said notice where after the petitioner got issued a legal notices dated 13.6.99 and 17.9.99 calling upon the respondent for dissolution of the partnership and also for settlement of the accounts. However the last notice whereby the clause of arbitration was invoked is dated 20.11.99 by suggesting the names of three persons for appointment of anyone of them as arbitrator. The failure of the respondent to respond to this notice has resulted in this petition.

5.4 According to Mr. M. Chopra, learned counsel for the petitioner the cause of action mainly arose when the respondent started harassing the petitioner and threatened him not to undertake the business and it subsequently arose on 21.4.99, 13.6.99 and 17.9.99 when notices including the legal notices were served upon the respondent and finally the cause of action arose on 20.11.99 when the petitioner invoked the arbitration clause of offered for settling the disputes by way of arbitration.

5.5 Mr. Chopra contends that even if it is assumed that the present petition has been filed beyond the period of three years from the date when the right to file the application arose still the fact remains that Clause 5 of the partnership deed provided that the accounts of the partnership firm shall be closed on 31st march of every year and in the instant case these were to be closed by 31st March, 1997 and the instant petition was filed on 17.1.2000 which is well within the limitation period of three years.

6. I am afraid the aforesaid clause of the partnership deed has no relevance so far as the provisions of Section 8 and for that purpose the date when the right to file the application accrued is concerned. The arbitration clause is an independent clause. All other terms of the agreement of the partnership are substantive clauses.

7. As per the averments of the petitioner it was constrained to leave the partnership in the month of August, 1996 and requested the respondent to dis-continue using the goodwill, name and style of respondent No. 1 and not to operate the bank accounts.

8. It is contended by the Mr. Chopra that mere intention of dissolving the firm does not amount to dissolution of the firm and even if the firm is dissolved its existence in law comes to an end when is actual existence comes to an end hen it is completely wound up. In support of this contention Mr. Chopra has placed reliance on Narendra Bahadur Singh v. Chief Inspector of Stamps, U.P. AIR 1972 All. The relevant observations are as under:-

"Till the debts and liabilities of the firm have been fully paid off no partner can claim any particular property as his own nor can he claim that he has any specific share or interest in any property of the firm. It is only when after payment of all the debts and liabilities of the firm there is a surplus left that a partner can have the surplus distributed according to his rights. The accounts of the firm as between the partners have to be settled, subject to agreement by them, in accordance with the rules stated in Section 48. The partners of a firm presumably are not co-owners of "the property of the firm" or its assets."

9. However in the instant case we are concerned with the proposition as to the date from which the right to file the application for appointment of the arbitrator accrued. The petitioner specifically informed the respondent that he had no concern with the conduct of the affairs of the partnership business and requested the respondent to settle all the past accounts and give him due share in all the properties and profits and also asked him to discontinue using the name of respondent No. 1. This itself amounts not only to intention for dissolving the firm but also bringing the legal status of the firm as a partnership firm to an end.

10. The right to invoke the arbitration clause accrues to a party the moment differences or disputes arise and are brought to each other's notice. If one of the parties gives an expressed intention to dissolve the partnership or to discontinue with the affairs of the partnership concern that is date from which the right to invoke the arbitration accrues to a party. No party can be allowed to sleep over or continue for years with the communication with the other partner of the firm raising the disputes and differences or asking him not to continue with the use of the name of the firm or with the affairs of the firm. In the instant case the petitioner has waited for three years to invoke the clause for arbitration whereas the right to invoke the arbitration clause accrued to him in 1996.

11. It is not the date when the notice for invoking the arbitration clause is sent which is relevant for the purpose of computing the limitation. It is the date when the de facto dissolution of the firm is effected and not de jure. If such a course is allowed any aggrieved party may wait for years together and one fine morning may give notice for invoking the arbitration clause and then seek remedy by taking the period of limitation from the date of issue of such a notice. It is immaterial that the accounts of the said firm continue as a partnership firm. For the purpose of appointment of the Arbitrator the relevant date is when one of the parties expresses his intention in writing to dissolve and dis-associated himself from the partnership. Even if one of the parties refuses to accept the unilateral dissolution of the firm and continues with the affairs as a partnership firm the limitation for the aggrieved party will start when its right to seek arbitration arose.

12. In view of the given facts and circumstances of the case and the law of limitation applicable in the instant proceedings as culled out above the right to file the application arose on the date when the petitioner intimated the respondent that he was no more interested in continuing as a partner with the firm and sought dissolution and not from the date of the notice given three years thereafter. The petition is on the face of it barred by time and is, therefore not maintainable and is hereby dismissed.