Sh. Deepak Khanna vs Pandit Bro. And Ors.
2008 Latest Caselaw 541 Del

JUDGMENT

S. Ravindra Bhat, J.

1. This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter called 'the Act') for referring the counter- claims raised by the petitioner to the named Arbitrator Ms. Justice Usha Mehra (Retd.), who was appointed by agreement of the other parties to these proceedings and has entered upon reference. The facts necessary for deciding this petition are briefly stated below:

2. In 1992, apparently a partnership deed was executed and it reconstituted an existing firm 'M/s. Pandit Bros.'. The terms of the partnership were again changed in 1998, when the firm was reconstituted; a fresh deed was drawn up on 13.11.1998. It was executed by nine parties. The said parties were:

     Name of the Partner       Amount of Fixed Capital
1. Ms. Archana Haksar                60,000
2. Shri Vinay Kumar Mushran          60,000
3. Ms. Nandita Haksar                60,000
4. Ms. Anamika Haksar                60,000
5. Smt. Rup Haksar                   40,000 
6. Smt. Linnet Margaret Mushran      40,000
7. Shri Rajesh Khanna                60,000 
8. Smt. Vijaya Lakshmi Rajamani      10,000
9. Smt. Santosh Khanna               10,000 
 

3. The deed (hereinafter referred to as 1998 deed) contained an arbitration clause, which reads as follows:
   

16. ARBITRATION
 

 In the event of any dispute or difference relating to the interpretation of this Deed or any other affair of the Partnership, if such dispute or difference arises:
   

(a) Among the Partners involving the Parties Nos. 1,2 and 5 to 9.
 

(b) Among the Partners involving the Parties Nos. 3 and 4. 
 

The said dispute or difference shall in the contingency specified in Sub clause (a) be referred to the sole arbitration of Smt.Archana Haksar or Sh. Vinay Kumar Mushran and in the contingency specified in Sub clause (b) be referred to the sole arbitration of any one of the following in the given order or priority depending on their availability:

1. Shri Gopal Singh Advocate R/o.A-I, Niti Bagh, New Delhi.

2. Shri B.K.Anand, Chartered Accountant: R/o1, Jaipur Estate, Nizamuddin East, New Delhi.

4. Apparently, disputes arose on 19.8.1999, when the firm was again reconstituted; this time four partners, i.e. Ms.Santosh Khanna, Mr.Rajesh Khanna, Ms.Nandita Haksar and Ms.Vijaya Lakshmi Rajamani were excluded from the firm. This led to filing of a suit by an excluded partner, i.e. Shri Rajesh Khanna before this Court. Upon change in the pecuniary jurisdiction of the Court, the suit was transferred to the subordinate Court and was re-numbered as CS(OS) No. 237/2003. The plaintiff, Shri Rajesh Khanna had sought a decree that he continued as a partner. Smt. Santosh Khanna was imp leaded as a defendant in the suit, along with other parties to the present proceedings. Apparently, Shri Rajesh Khanna also filed a money suit for recovery of amounts advanced to the firm. However, that proceeding is not material for the purpose of deciding the controversy in these proceedings.

5. Continuing the narrative, during the pendency of the suit, i.e. 237/2003, the parties agreed that their disputes should be referred to arbitration by Ms. Justice Usha Mehra. The consent terms were, therefore, drawn up and signed by the plaintiff in the suit, i.e. Shri Rajesh Khanna and M/s. Pandit Bros. represented as respondents No. 2 to 4 in the present proceedings.

6. The inter se disputes between the parties is pending adjudication before the Arbitrator. In the above background, the petitioner, the legal representative and son of late Smt. Santosh Khanna, (who had died in 2000), sought to press counter-claims which are outlined in paragraph 8 of the petition and are as follows:

8...

(i) Whether late Smt. Santosh Khanna ever resigned from the partnership w.e.f. 18.08.1999' If so, its effect'

(ii) Whether other partners had any rights to remove Smt.Santosh Khanna from the partnership without her consent' If so, its effects' If not, its effects'

(iii) Whether late Smt. Santosh Khanna is entitled to her share in profit and loss, capital and any damages suffered by her on account of loss of goodwill'

(iv) Whether late Smt. Santosh Khanna is entitled to any interest' If so, on what amount, at what rate and for which period

7. The Arbitrator, after considering these claims formed opinion that they were not maintainable as they were not referred to her. The petitioner has, therefore, preferred the present proceedings under Section 11(6) of the Act seeking reference to the said dispute.

8. It is averred by the petitioner and urged by Mr.Harish Malhotra, learned senior Counsel that the Court should consider the overall circumstances of the case. By virtue of a new partnership deed, Smt. Santosh Khanna was unilaterally excluded from partnership, i.e. at the reconstitution of the firm on 19.8.1999. Counsel relied upon a letter dated 21.10.1999 written by Smt.Santosh Khanna to say that she had been thrown out as a partner of M/s.Pandit Bros. and had raised grievances about her illegal exclusion from the firm and desired to seek recourse to legal proceedings.

9. It is contended that Smt.Santosh Khanna was a defendant in the suit filed by Shri Rajesh Khanna which was ultimately referred to the Arbitrator. The present petitioner in his capacity as a legal heir of Smt. Santosh Khanna indeed as the heir of a deceased partner in the firm is party in arbitration proceedings; therefore deny to counter claim would not be justified.

10. The respondents aver in their reply and it was also urged on their behalf by Mr.Arvind Nigam, Learned Counsel that during her life time, Smt.Santosh Khanna never pressed claims or even initiated any legal proceedings. It was submitted that when she was alive, she did not file a suit; she died before filing the written statement. Further the petitioner who was imp leaded as her legal representative in the civil suit did not prefer any counter claim when the suit was pending before the Court. Learned Counsel submitted that if the erstwhile partner had any issue about the legality of her exclusion or sought for accounts she was within her rights, to invoke the arbitration clause. After her demise, the petitioner could have issued a notice under Section 21 of the Act as admittedly there was an arbitration clause which binds the parties.

11. It was also contended on behalf of the respondents that the petitioner was not a signatory to the consent terms and is merely a party to the proceedings which are referred to arbitration. In the absence of any positive assertion by the petitioner, at any stage, prior to the arbitral proceedings, about his claims, his attempt now to seek a reference, is clearly barred, by time as also by conduct.

12. Learned Counsel urged that the Court while exercising its jurisdiction under Section 11(6) of the Act, the Court, only after being satisfied about existence of a valid arbitration clause, can appoint an Arbitrator. But in these proceedings the claims sought to be referred are not live, but stale. For that purpose, he relied upon the decision of the larger Bench of the Supreme Court in S.B.P.and Co. v. Patel Engineering Ltd. AIR 2005 S.C. 450.

13. From the above narrative, what can be discerned is that Rajesh Khanna, plaintiff in suit No. 223/2001, sought a decree that the second reconstitution of the firm dated 19.8.1999 is invalid. Undeniably, Smt. Santosh Khanna, the petitioner's mother was a party to the firm. She was, therefore, imp leaded as defendant in the suit. The suit filed by Rajesh Khanna was eventually referred to arbitration. The respondent's main objection is that during her life time, Ms.Santosh Khanna (and after her demise by the petitioner), no counter claim was filed within time. It was also submitted that since no notice under Section 21 of the Act was ever given by the petitioner; he did not assert his rights and claim any relief. The Court should, therefore, refrain from referring the disputes.

14. The above discussion would show that the essential issue which the Court has to decide is whether the claim made in 2006, can be referred to arbitration. At all material times, Rajesh Khanna asserted his right and sought for a declaration and consequent decree on accounts on the ground of his continuing as partner. The petitioner in his capacity as legal representative and son of Smt.Santosh Khanna, the other excluded partner, however, never asserted such a right. If, at any stage, a separate proceeding asserting a similar right, or an application to transpose Smt. Santosh Khanna as co- plaintiff had been made, there is no question of the Court entertaining any doubt as to feasibility of referring that dispute to arbitration. However, as things stand, no such step was ever taken during the pendency of the suit.

15. This is not a case where an arbitration clause did not exist. The feasibility of seeking recourse to arbitration was always open to Smt.Santosh Khanna or by the petitioner who could file Section 8 of the Act before the Court asserting that such dispute existed or also seeking reference of whatever were his grievances. Even that course was not taken; likewise no notice was ever issued under Section 21 of the Act. After the decision in M/s. S.B.P.and Co. (supra), the Court's jurisdiction to refer or declining the application for referring the dispute is not an idle formality. The Court has to satisfy itself about existence of an arbitration agreement and also whether the dispute sought to be referred are entertainable and are not stale. There is a certain degree of judicial scrutiny, to exclude claims which cannot be sustained, in law.

16. As the discussion by the Supreme Court discloses, that the Court consciously read in these elements as a pre-condition for orders under Section 11(6) to avoid referring claims that are untenable. This is evident from the conclusion at paragraph 46, in the judgment which reads as follows:

46...(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the Judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the Judge designate.

17. From the above discussion, it is evident that since late Smt. Santosh Khanna never asserted any counter-claim or grievance or preferred any legal proceedings claiming her share in the partnership or similar relief for declaration nor did the petitioner do so after her demise or even invoke the arbitration clause under Section 8 or by issuing notice under Section 21, within three years, it would not be open for the petitioner to make a legally entertainable claim. Therefore, the grievance sought to be pressed by way of counter claim cannot be entertained, as it is not live; it is state and time barred.

18. The petition is accordingly dismissed. No costs.