Shri Nand Kishore Tyagi vs Coirform India Pvt. Ltd. And Ors.
2004 Latest Caselaw 1044 Del

JUDGMENT

R.C. Jain, J.

1.This is a petition under Section 11(5) of the Arbitration and Conciliation Act 1996 (hereinafter referred to as the ''Act'') seeking the appointment of an Arbitrator for settlement of disputes between the parties in accordance with the terms and conditions of the Agreement dated 3.12.1997.

2.The petition has been made with the averments and allegations that vide partnership deed executed on 1.11.1997, between the petitioner and respondent No.2, they were carrying on the business of sale/purchase of all kinds of bed accessories such as mattress bed cover, pillows, quilt cover, foam clothes etc. under the name and style of M/s City Quiltex (India) at Uttam Nagar.The said partnership firm entered into a Distributorship Agreement dated 3.12.1997 with respondent No.1 under which the firm had to sell the goods of respondent No.1 on such prices as fixed by respondent No.1 and the firm was entitled to a commission mutually decided by the parties. It is alleged that during the subsistence of the said Distributorship Agreement, respondent No 2 started his own business and with his collusion, with respondent No.1 diverted the entire supply to the firm of respondent No.2. Respondent No.2 served the petitioner with a notice of dissolution of the firm. On account of non-supply of material by the respondent No.1 to the petitioner's firm huge loss has been caused to the petitioner for which both the respondents are liable. According to the petitioner the said Agreement contains an Arbitration Agreement for settlement of disputes between the parties contained in Clause 13 which reads as under:

'' In case of any dispute in respect of any of the clause of this agreement, the same will be referred to a Sole Arbitrator to be appointed by the Principal. The decision of the Arbitrator will be final and binding on both the parties.''

3.The petition has been opposed on behalf of the respondents and separate replies have been filed on their behalf. Respondent No.1 in his reply to the petition has raised preliminary objections about the petitioner having no cause of action against the answering respondent as the dispute referred to in the petition are between the two partners viz petitioner and respondent No.2. On merits it is not denied that respondent No.1 had entered into an Agreement dated 3.12.1997 for supplying the goods to the firm M/s City Quiltex (India) but it is stated that the said Agreement was for a period of six months and was never renewed after 13.3.2002. it is also not denied that the said Agreement contained an Arbitration Agreement for settlement of disputes/differences between the parties. It has been additionally pleaded that without prejudice to the rights and contentions of the respondent, respondent in exercise of the power vested in it in terms of the Agreement agreed to appoint Mr. Ashwani Kumar Dhatwaia, Advocate, as the Arbitrator to settle the disputes/differences between the parties as also to settle the counter-claims of the answering respondent.

4.Respondent No.2 has raised preliminary objections about the maintainability of the present petition in view of pendency of another petition bearing No.AA No.214/2002 as also on the ground that the Agreement between respondent No.1 was valid for a period of six months i.e. up to 2.6.1998 and also on the ground that in terms of the Agreement dated 3.12.1997, the petitioner has not written any letter to respondent No.1-M/s Coirform India Pvt. Ltd. for the appointment of a Arbitrator for settlement of the lleged disputes. It is not disputed that partnership firm by the name of M/s City Quiltex (India) was constituted between the petitioner and respondent No.2. and was operated from B-26, School Road, Uttam Nagar but it is contended that on 1.12.1998, the entire business of the said firm had been shifted to WZ-187, G-Block, Jail Road, Hari Nagar, Delhi and had its godown at WZ-289, G-Block, Jail Road, Hari Nagar, New Delhi. It is stated that the petitioner also operated his business from the said address under the name of M/s Delhi Handlooms and M/s Tyagi Sons. It is further pleaded that the firm M/s City Quiltex (India) was dissolved on 19.5.2002 and since 1.12.1998 to 19.5.2002 the petitioner alone was looking after all the business of the said fir and was maintaining all the books of account. It is alleged that during the said period the petitioner misappropriated the huge amount to the tune of Rs.40 lacs approximately of the partnership firm for his personal use to build his house etc. It is denied that plaintiff is entitled for the appointment of an Arbitrator.

5. I have heard Mr.Pawan Behlf learned counsel for the petitioner and Mr.Kuljeet Rawal, learned counsel representing respondent No.1 and have given my thoughtful consideration to their respective submissions.

6.During the course of hearing held on 28.9.2004, Mr. Pawan Behl, had made a prayer on behalf of the petitioner to delete the name of respondent No.2 from the array of parties and respondent No.2 was ordered to be deleted from the array of parties as it was pleaded that the petitioner had no dispute with respondent No.2 and no relief was claimed against him. This prayer was allowed subject to any objection of respondent No.1. It may also be noted that on 18.9.2003 Mr. Rawal learned counsel representin respondent No.1 stated before the Court that under the Contract between the petitioner and respondent No.2, the Arbitrator has to be appointed by respondent No.1 and that respondent No.1 undertakes to appoint the Arbitrator within four weeks.

7.The nature and scope of the proceedings under Section 11 of the Act and the powers of the Court in dealing with an application under Section 11 of the Act have been morefully considered by the Court in the case of Konkan Railways Corporation Limited and Anr. v. Rani Construction Pvt.Ltd, . In that case the Hon'ble Supreme Court had the occasion to morefully consider the ambit and scope of the power of the Chief Justice or his nominee while deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996. In the said case the Apex Court clearly laid down that there is nothing in Section 11 of the Arbitration and Conciliation Act, 1996 that requires a party other than the party making the request to be even noticed and it does not contemplate a response from the other party. The Apex Court further held that appointment of arbitrator by the Chief Justice or his designate is not a judicial function resulting in an adjudicatory order. Further, that Section 11 does not contemplate a decision on any controversy between the parties. It further held that the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of 30 days is over does not lead to the conclusion that the decision to nominate is adjudicatory. While disposing of an application under Section 11 containing an averment that the said period has passed, the Chief Justice or his designate has to make the appointment of an arbitrator. This is additionally for the reasons that Section 16 of the Act empowers the Arbitral Tribunal to rule on its jurisdiction and the expression ''that the Arbitral Tribunal may rule on any objections with respect to the existence or validity of the arbitration agreement'' shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction. It is, therefore, open for any party to challenge before the Arbitral Tribunal that it had been wrongly constituted.

8.In the case in hand the existence of an Arbitration Agreement as contained in Clause 13 of the Agreement dated 3.12.1997, is not disputed by the respondent No.1. However Mr. Rawal has opposed the petition on the ground firstly that the dispute referred to in the petition arise out of or in relation to the partnership Agreement between the petitioner and respondent No.2 rather than out of the Agreement dated 3.12.1997, or in relation thereto and consequently the petitioner has no locus standi to file he present petition in his individual capacity because there is no privily of contact between him and respondent No.1 as the Agreement dated 3.12.1997. was executed between the partnership firm M/s City Quiltex (India) and respondent No.1

9.On the other hand Mr. Behl, has refuted both the contentions and submitted that the petitioner has the requisite locus standi to file the present petition and to get the disputes/claims resolved which accrued in favor of the partnership firm. It is also submitted by him that having regard to the stand taken by respondent No.1 in its reply to the notice of the petitioner and subsequently in the Court on 18.9.2003, the respondent No.1 can not been allowed to take any such objections.

10.In view of the rival contentions raised on behalf of the parties, the first core which has arisen is in regard to the competence/locus-standi of the petitioner to file the present petition. It is not disputed by the parties that an unregistered partnership firm was executed between the petitioner and respondent No.2 through a partnership deed dated 1.11.1997 which partnership stood dissolved on 19.5.2002. It is also not disputed that the said partnership firm had entered into a Distributorship Agreement with respondent No.2 on 3.12.1997. The case of the petitioner is that respondent No.1 had illegally and unjustifiably stopped supplying the goods to the said firm and diverted the supply to a firm of respondent No.2 during the subsistence of the Distributorship Agreement as a result of which huge loss has been occasioned to the partnership firm M/s City Quiltex (India) . On the face of this position it is to be seen as to whether the partner of a dissolved firm has a right to realise the property of a dissolved firm from a third contracting party. Mr. Pawan Behl, in support of his contention that the petitioner has the requisite right and locus standi to maintain the present application has relied upon a decision of Patna High Court decision in the case of Basantlal Jalan v. Chiranjilal Sarawgi and Ors. . In that case the Court had interpreted the expression ''realise'' the property of a dissolved firm and held as under:

'' A reading of clause (a) of sub-section (3) of Section 69, shows that apart from suing for dissolution of a firm or for accounts of a dissolved firm, an exception has been made also in case of any right or power to realise the property of a dissolved firm. The power to realise this property of a dissolved firm cannot be said to be an exception only to clause (2) of Section 69 and as such, it also cannot be said that it would apply only if the suit has been filed against a third party. The expression ''any right or power to realise the property of a dissolved firm'' under Section 69(3)(a) includes the right to recover from the third party as well from one of the partners. Consequently, where a partner bring a suit against the other partner after dissolution of the firm for Realizing the property of the firm the suit cannot be held to be barred under Section 69(1) of the Act.''

11.Mr. Rawal, learned counsel for respondent No.1 has not disputed the above legal position but vehemently argued that this being a petition under Section 11(5) of Arbitration and Conciliation Act, the connotation ''Party'' should be understood and given effect to as per the definition of ''Party'' appearing in Section 2(h) of the Act which states that ''party'' means a party to an Arbitration Agreement.'' The Arbitration Agreement is defined under Section 7 of the Act. If we go by the literal meaning/ definition of term''Party'' appearing in the Act, the petitioner cannot be said to be a ''Party'' to the Arbitration Agreement contained in the Distributorship Agreement dated 3.12.1997 because the Agreement is between the partnership firm M/s City Quiltex (India) and M/s Coirform India Pvt. Ltd-respondent No.1. However, we cannot loose sight of the fact that the petitioner was a partner of the said firm and it was he who has signed the Distributorship Agreement between the parties on behalf of the firm as would be evident from the opening paragraph of the said Agreement which may be extracted below for the facility of reference:

'' This Agreement made on this 3rd Day of December, 1997 between Coirfoam (India) Privte Limited, 4E/7 Jhandewalan Extension, New Delhi-110055 a company incorporated under the Indian Companies Act, 1956 and having its registered office at 33A Jawaharlal Nehru Road, Calcutta-7000071 through its Director Mr. Sukhdeep Singh Khurana of the first part (hereinafter knows as Principal which expression shall include its successor and assigns) and M/s City Quiltex (India), WZ-289 A, Hari Nagar, G Block, Jail Road, New Delhi through its Mr. Nand Kishor Tyagi of the second part (hereinafter known as Distributor which expression shall include its successor and assigns)''

12.In the opinion of the Court having regard to this provision in the Agreement and the provisions of sub-section 3 of Section 69 of the Indian Partnership Act, 1932, the petitioner has to be deemed ''party'' within the meaning of Clause 2(h) of the Act because partnership firm stood dissolved at the time of filing of the petition and the right of the petitioner as a partner of a dissolved firm to realise the property of the dissolved firm are protected by the said provision of law. I, therefore, s(sic)e no merit in the contention of Mr. Rawal that the petitioner has no locus standi to file the present petition. Sofaras the question as to whether the petitioner has suffered any loss/damages and is entitled to claim from respondent No.1 for the allege non-supply of its products to the firm during the subsistence of the Distributorship Agreement or by diverting its supplies to the firm of respondent No.2 and whether respondent No.1 had any counter-claims against the petitioner or the firm of petitioner and respondent No.2. is a question which can only be gone into by the arbitral tribunal and not by this Court.

13.Thus, having regard to the entirety of the facts and circumstances obtaining on record and also having regard to the consistent stand of respondent No.1 and that it had volunteered to appoint an Arbitrator, this Court is of the opinion that the present petition deserves to be allowed and an Arbitrator may be appointed to settle the disputes/differences between the parties.

14.In the result the application is allowed and Mr. N. P. Kaushik, Joint Registrar of this Court is appointed as a Sole Arbitrator to settle the disputes between the parties. He shall be entitled to a fee of Rs.30,000/-. The Sole Arbitrator appointed shall make every endeavor to complete the arbitral proceedings and render his award within six months from the date of receipt of the reference.

15. The parties are directed to appear before the named Sole Arbitrator, Mr. N. P.Kaushi on 11th October, 2004, at 4:30 p.m.

The petition stands disposed of accordingly.