Ashwani Khurana vs Inder Kumar Chawla
2005 Latest Caselaw 474 Del

JUDGMENT

T.S. Thakur, J.

1. Original Suit No. 1641/2001 filed by Sh. Ashwani Khurana, the plaintiff sought a decree for declaration to the effect that the partnership firm M/s K and Company stood dissolved and in the alternative for dissolution of the same apart from a decree for per manent injunction restraining the defendant from encashing, appropriating or otherwise utilising the receivables and cash reserves of the firm lying in different bank accounts. When the suit came up for hearing before Manmohan Sarin, J on 23rd July, 200 , the court was of the view that there were elements of settlement in terms of Section 89 of the CPC and that the matter could perhaps be referred to a sole arbitrator for adjudication. The suit was, in that background, adjourned to 7th August, 2003 to nable the parties to seek instructions in the matter from their respective clients. On 7th August, 2003, the statement of the parties were recorded by the court and based on the consensus that emerged from the same, an order appointing Justice S.B. Wad Retd.) as the sole arbitrator was passed. For facility of reference, the said order may be extracted in extenso :

07.08.2003

Present : Mr. D.K. Rustogi for the plaintiff with Plaintiff in

Person Mr. Rajiv Nayyar, Sr. Advocate with Mr. Rakesh K. Khann for the defendants with defendants in person

S. No. 1641/2001

1. Pursuant to the order passed on 23.7.2003, parties are agreed that the disputes between them relating to partnership firm K and Co., including the claim of the plaintiff for rendition of accounts, goodwill, profits and any other claim arising from the conduct of the partnership business be referred to for adjudication to an arbitrator, to be appointed by the Court.

2. Statements of the plaintiff and defendants 1,2,3 and 4 have been separately recorded wherein they have agreed to the appointment of a sole arbitrator by the Court and of a Chartered Accountant to go into the accounts to assist the arbitrator.

3. Plaintiff has agreed that its claim before the Arbitrator would be for rendition of accounts, profits, goodwill and such other accounts to which he may be entitled on account of the conduct of business of the partnership firm M/s K and Co. The date of retirement of the petitioner from the partnership firm could also be a matter to be decided by the arbitrator. Plaintiff would not press the claim for continuing as a partner. Respondents/defendants shall be free to take their counter claims, if any.

4.Accordingly, with the consent of the parties, I appoint Mr. Justice S.B. Wad (Retd.) D-88, Panchsheel Enclave, New Delhi, as the sole arbitrator. The fee of the arbitrator is fixed at Rs.15,000/- per hearing to be shared equally by the plaintiff and defendants in two parts, subject to a ceiling of Rs.2.25 lacs.

5. It has been argued by counsel for the parties that scrutiny of financial records and accounts would be required for a correct financial picture to be given to the arbitraor and it would entail considerable work for the Chartered Accountant. I, accordingly, appoint Mr. Anupam Bansal, resident of A-1/272, Safdarjung Enclave, New Delhi (Phone 26183600, Cell No. 9810030520) as the Chartered Accountant who would go into all the a accounting aspects including the valuation of assets, determination of profit and loss, diversion of funds, if any, and give his report to the arbitrator. Counsel for the parties have suggested the fee of the Chartered Accountant to be fixed at Rs. One lac at the first instance, to be shared equally between the plaintiff and the defendants in two parts.

6. Mr. Nayyar submits that defendants are presently carrying out the business of lottery. Learned counsel for the plaintiff on instructions from the plaintiff states that pending adjudication of the disputes before the arbitrator, plaintiff shall not intrfere with the business of the defendant reconstituted firm. This is without prejudice to the claims and contentions of the plaintiff before the arbitrator.

Parties to appear before the arbitrator on 23.8.2003 at 11:00 A.M.

IA Nos. 8138, 8139 and 8140/2003

Dismissed as withdrawn, in view of the order passed today. Defendants are at the liberty to move the applications before the arbitrator.

A copy of the order be given dusty to counsel for the parties.

sd/-

Manmohan Sarin, J.

August 07, 2003 aka.

2. The arbitrator has, pursuant to the above order, entered upon the reference. While the proceedings are still in progress, the defendants have filed the present applications under Section 151 of the CPC. In IA 990/2005, the applicants have sought a direction to implead 16 companies detailed in para 6 as respondents in the arbitral proceedings. The applicants' case in the application in this regard is that the 16 companies mentioned in the application are wholly owned by the plaintiff to which money rom M/s K and Company, the partnership concern has been siphoned off. In IA No. 991/2005, the applicant has prayed for an interim stay of the proceedings before the arbitrator pending disposal of IA 992/2005 in which the applicants have prayed for enlarge vent of the arbitral tribunal from a sole arbitrator to three arbitrators headed by a retired Chief Justice of India. The averments made in IA 992/2005 inter alia suggest that the opposite party has raised certain doubts about the independence and impartiality of the arbitrator and requested him to recuse himself from the arbitration proceedings. This application was dismissed by the arbitrator in terms of an order dated 30th April, 2004 The applicant seeks to support the prayer for enlargement of the tribunal on the ground that since the stakes involved in the case are huge and running into hundreds of crores, a three member tribunal headed by a retired Chief Justice of India and two other Judges to be appointed by this court would be ideal to deal ith the matters rather than a sole arbitrator already appointed by the court.

3. Appearing for the applicants, Mr. Rohtagi argued that the order passed by this court on 7th August, 2003 could be modified and the arbitral tribunal enlarged even when the said order was made with the consent of the parties. He urged that the nature of the stakes involved in the case as also the doubts expressed by the opposite party about the independence of the sole arbitrator were good grounds for the applicant to seek such a modification. It is submitted that if the sole arbitrator is allowed to go ahead with the proceedings, any award made by him may be a futile exercise if the same were to be eventually challenged by the opposite party on the ground that the arbitrator had misconducted the proceedings or shown partisan behavior in the course of the same. The prayer for addition of 16 companies as parties to the proceedings was, according to the learned counsel, justified having regard to the fact that these companies were all owned by the plaintiff and were necessary parties to any proceeding in which allegations of defalcation of accounts may be investigated.

4. Mr. Sanjeev Puri appearing for the plaintiff non-applicant, on the other hand, contended that the applications were malafide and intended to somehow prevent the arbitrator from concluding the proceedings pending before him. He urged that the order passed by this court being a consent order, the same could not be modified except with the consent of all the parties concerned. He further urged that the allegations made against the arbitrator regarding his impartiality having been withdrawn by the plaintiff, no apprehension could be entertained by the defendant applicant after such withdrawal. The companies sought to be added as parties to the proceedings were not, according to learned counsel, either necessary or proper parties to the case and that the said companies were, in any event, not parties to the arbitration agreement which the court had evolved in the course of the proceedings in the suit. He also urged that the court was functus officio after the making of the reference.

5. The order passed by this court on 7th August, 2003 is referable to Section 89 of the CPC. Sub section 2 of Section 89 makes it manifest that once a dispute is referred for arbitration or conciliation under Section 89, the Arbitration and Conciliation Act, 1996 would apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act. The proceedings in the suit in which such a reference is made, therefore, stand terminated for good. Any relief whether the same is by way of removal of a nominated arbitrator or otherwise can be entertained only under the provisions of the Arbitration and Conciliation Act, 1996 and not by way of an application filed in the suit in which such a reference is made. And matter of fact, the Court seized of the suit becomes functus officio after the making of an order under Section 89 of the Act. The prayer for enlargement of the arbitral tribunal cannot consequently be made by way of an interim application in the suit which is no longer on the file of the court.

6. That apart, the order of reference passed by this court on 7th August, 2003 was a consent order. The order by itself did not suffer from any error as on the date the same was made, nor was it Mr. Rohtagi's case that there was any need for modification or clarification of the said order on account of any ambiguity or error whether inadvertent or otherwise. That being so, the prayer for modification which in effect tantamounts to reviewing that order would be wholly untenable, if not uncalled for. The fact that the case involves heavy stakes was known to the parties on the date they agreed to have the matter settled by arbitration of Justice Wad. The serious nature of the dispute or the magnitude of the claim was not something which was concealed from any party so as to render the tribunal chosen by them inadequate for the determination of the disputes. So also the argument that the plaintiff's allegations regarding partisan attitude of the arbitrator would make any determination by the arbitrator in effective is also without any merit. The plaintiff has withdrawn the allegations made against the arbitrator. There is, therefore, no question of any such allegations being repeated or made a basis for challenging the award made by him. Even before m, learned counsel for the plaintiff unequivocally stated that he had complete faith in the arbitrator's independence and that there was no need for either removing him or enlarging the composition of the tribunal. Such being the position, the mere possibility of a challenge by the party who may feel aggrieved of the award in accordance with law that permits such a challenge to be thrown does not, in my opinion, justify reconstitution of the arbitral tribunal.

7. Equally untenable is the prayer for addition of 16 companies as parties to the arbitration proceedings. These companies were not arrayed as parties to the suit nor were they parties to the consensus which emerged in the Court leading to the reference of the disputes to arbitration. There is, therefore, no question of adding the said companies as defendants to this suit or parties to the arbitration proceedings at this stage. The disputes in the suit having been referred to arbitration, the court does not retain or exercise any control over the same for purposes of addition of a party whether as a plaintiff or as a defendant. The addition of any party at this stage would in fact tantamount to reversing the course of events and superseding the reference already made. There is, in my opinion, no justification let alone a cogent one for following any such course, just because one of the parties has developed second thoughts about the entire exercise being conducted before the arbitrator.

8. In the totality of the above circumstances, therefore, I see no reason to interfere or issue any orders like the ones prayed for in the applications which are hereby dismissed with costs assessed at Rs.2,000/- in each application to be deposited in the Delhi High Court Advocates Welfare Fund within two months from today.