Mangla Advisory P. Ltd. vs Cybizcall (International) & Anr.
2009 Latest Caselaw 3445 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI


                                                     Date of Reserve: August 07, 2009
                                                        Date of Order: August 31, 2009

+Arb. P.136/2006
%                                                                            31.08.2009
     Mangla Advisory P. Ltd.                                                 ...Petitioner
     Through: Mr. Kirti Uppal, Advocate

        Versus

        Cybizcall (International) & Anr.                                    ...Respondent
        Through: Mr. Sanjeev Narula, Advocate



        JUSTICE SHIV NARAYAN DHINGRA

1.      Whether reporters of local papers may be allowed to see the judgment? Yes.

2.      To be referred to the reporter or not?                                             Yes.

3.      Whether judgment should be reported in Digest?                                     Yes.


        JUDGMENT

1. The petitioner by this petition under Section 11(5) of the Arbitration &

Conciliation Act, 1996("the Act", for short) has prayed for appointment of an

arbitrator for adjudication of disputes between the parties. The petition has

been filed by Mangla Advisory P. Ltd.,(petitioner herein) a company claiming

to have a division in the name of Investments Bank India.Com. The

arbitration clause relied upon is contained in an agreement dated 20th June

2001. It is submitted that there was an initial agreement dated 6 th May, 2001

(referred to as the first agreement) which merged into second agreement

dated 20th June, 2001. After giving details of transactions between the parties,

it is submitted by the petitioner that the petitioner performed its part of

obligations under the second agreement whereas the respondent failed to

fulfill its obligations and because of respondent's defaults, a dispute arose.

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 1 Of 8 The respondent did not pay heed to various communications, meetings,

requests, and failed to comply with the terms of the agreement. The

petitioner invoked arbitration clause vide notice dated 15 th October 2002

served through an advocate of petitioner. By this notice the petitioner also

suggested names of two arbitrators and asked respondent to give consent for

any one of the two to act as the arbitrator. The respondent gave reply to this

notice on 17th February 2003 declining to accept any of the two as arbitrator

and hence this petition for appointment of an arbitrator.

2. The petitioner has set out the disputes which arose in the petition and

has asked the Court to appoint an arbitrator. In reply to the petition,

respondent has taken the stand that the petition was barred under Article 137

of the Limitation Act read with Section 11 of the Arbitration & Conciliation Act,

1996. It is submitted that the dispute itself had also become barred by time

and was a stale dispute. The petition was also not maintainable because

respondent had no arbitration agreement with Petitioner Company. The

petition was also not maintainable because of Section 69 of the Partnership

Act and was liable to be dismissed.

3. It is submitted by respondent that the agreement dated 6th May 2001

and 20th June 2001 were not entered into with the petitioner company. The

agreement dated 6th May, 2001 was entered into with

InvestmentbankIndia.com. This agreement was superseded by the agreement

dated 20th June 2001 which was again entered into between

InvestmentbankIndia.com, a partnership firm registered in India and

respondent. It is submitted by respondent that it was misrepresented to

respondent that InvestmentbankIndia.com was a registered partnership firm

whereas the InvestmentbankIndia.com was not a registered partnership firm

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 2 Of 8 at all. Thus, no suit or claim was maintainable by an unregistered partnership

firm against respondent neither the proceedings under Arbitration &

Conciliation Act, 1996 were maintainable by an unregistered partnership firm

and the award passed in favour of an unregistered partnership firm would be

null and void. It is also submitted that the contract/ agreement dated 21 st

June 2001 specifically provided that it was a non assignable contract and the

rights under the contract could not be assigned without prior written consent

of either of the parties. Thus, the plea of the petitioner that the partnership

firm was taken over by Petitioner Company was not entertain-able and the

contract being not assignable, the arbitration agreement and the contract

would not survive.

4. It is argued by respondent that the notice for appointment of an

arbitrator was served by the petitioner on 15th October 2002 and if the notice

was assumed to have been received by respondent on 17th October 2002, one

month's period for appointment of arbitrator, as provided under Section 11 of

the Act, expired on 16th November 2002. The period for filing a

petition/application under Section 11 of the Act is three years and this period

expired on 16th November 2005 whereas the present petition under Section

11 has been filed by petitioner on 14th February 2006. Thus, the petition was

barred by limitation. It is also submitted that for the same reasons, the

dispute between the parties itself had become stale and barred by time.

5. It is not disputed by petitioner that InvestmentbankIndia.com was not a

registered partnership firm. In fact, no document has been placed on record

by petitioner showing the identity of InvestmentbankIndia.com. In agreement

dated 6th May 2001, the identity of InvestmentbankIndia.com has not been

disclosed at all while in agreement dated 21st June 2001,

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 3 Of 8 InvestmentbankIndia.com has been described as a registered partnership

firm. In none of the two agreements, it has been mentioned that

InvestmentbankIndia was a division of Mangla Advisory Private Limited. The

petitioner has submitted that petitioner company, by a board resolution has

taken over all assets and liabilities of InvestmentbankIndia.com however, the

petitioner has not placed on record a single document showing as to what

was the identity of investmentbankindia.com prior to its taking over by the

petitioner company; how it came into existence. In agreement dated 6 th May

2001, it has been shown as an arranger while in agreement dated 20th June

2001 it has been shown as an advisor.

6. Even if it is presumed that investmentbankindia.com was a partnership

firm whose assets and liabilities had been taken over by the petitioner

company, the petitioner company could not have got better rights than what

investmentbankindia.com would have against respondent. Since

investmentbankindia.com was an unregistered partnership firm, no

proceedings could have been filed or initiated by investmentbankindia.com

against respondent and the petitioner, having taken over the assets and

liabilities of investmentbankindia.com, could not have got better rights.

7. This Court in Himachal Pradesh Cooperative Group Housing Society v

Umesh Goel 2007 X AD(Delhi) 409, had considered the import of Section 69

of Indian Partnership Act and observed as under:

"3. The requirement of registration of a partnership is not an empty formality. It serves an extremely far reaching function. In the event of a dispute the aggrieved party should be able to easily ascertain the names and details of persons who would eventually be liable of recoveries against the firm. Unlike a company a partnership firm is not a distinct legal entity and its

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 4 Of 8 partners remain personally liable for all its debts subject to their inter se contract. Given the relative ease with which a firm can be registered, failure on the part of the partners to take requisite action cannot but be viewed with suspicion; namely that they intend to unethically and illegally defraud their creditors. To fully appreciate all the aspect of the introduction of this statutory requirement we have reproduced in extension the relevant extracts from the Report of the Special Committee which recommended these legislative changes. Every interpretation of Section 69 of the Partnership act must give effect to these objectives, unless the plain language makes it impossible to do so. In Virender Dresses Vs. Varinder Garments, AIR 1982 Delhi 482 Sultan Singh, J of this Court had held that a suit for injunction on the grounds of passing off was maintainable notwithstanding non registration of the firm because the right sought to be enforced is not stern from a contract but was available in common law. There is now high authority for this proposition in terms of Raptakos Brett & Co. Ltd. Vs. Ganesh Property, 1998 VII AD (SC) 37.

7. It is well settled that a decree obtained by an unregistered partnership is a nullity, and all such proceedings are devoid of jurisdiction, and objections in this regard can be raised in even at the stage of Appeal or in Execution. (See K.K.A. Ponnuchami Goundar Vs. Muthusami Goundar, AIR (29) 1942 Madras 252, A.T. Ponnapa Chettiar Vs. Bodappa Chettiar, AIR 1945 Madres 146, Shriram Sardarnal Didwani Vs. Gourishankar Alia Rameshwar Jouharma, AIR 1961 Bombay 136, In the matter of Abani Kanta Pal, AIR 1986 Calcutta 143 and definitively in Badri Prasad Vs. Nagarmal, AIR 1959 SC 559).

8. In Panchu Gopal Bose Vs. Board of Trustees for Port fo Calcutta, (1993) 4 SCC 338 there was a delay of about ten years from the date of the accrual of the cause of action and the making of the Reference. The Supreme Court held that "the proceedings before the Arbitrator are like civil proceedings before the Court within the meaning of Section 14 of the Limitation Act." We are also in respectful agreement with similar views expressed by a Division Bench of this Court in Vanita Gambhir Vs. District Judge, Delhi 2005 (1) Arb. L.R. 166,

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 5 Of 8 where it has been enunciated that (a) arbitral proceedings are akin to civil proceedings are (b) that Section 69 bars adjudication of claims even through arbitration unless it is for the dissolution of the firm."

8. Thus, it is settled law that if a firm is desirous of having its own claim

adjudicated either by an independent suit or as a claim or counter claim

before an arbitrator, it must be a registered firm on the date when such an

action is brought or initiated before the Court or the arbitrator. I, therefore,

consider that the present petition filed under Section 11 of the Act by the

petitioner company claiming to have acquired the interest of

investmentbankindia.com, an unregistered partnership firm, is not

maintainable in view of Section 69 of the Partnership Act.

9. The respondent should also succeed on the issue of limitation. Section

11(4) of the Arbitration & Conciliation Act, 1996 provides that where a party

fails to appoint an arbitrator within 30 days from the receipt of request, the

appointment shall be made, upon on the request of such a party by the Chief

Justice or any person designated by him. Thus, the cause of action for filing a

petition/application under Section 11 of the Act for requesting the Chief

Justice to appoint an arbitrator arises after 30 days of receipt of notice by the

other party for appointing an arbitrator or for according consent to the name

given by the claimant. It is the petitioner's own case that notice dated 15 th

October 2002 was served upon respondent. A perusal of this notice would

show that the petitioner vide this notice claimed an amount of US $ 2,51,250

and Rs. 11,92,000 as on 15th October 2002, towards fees and other charges.

The petitioner also claimed damages to the tune of Rs.25 lac, and after

raising this claim, petitioner invoked the arbitration clause contained in the

agreement and suggested the names of Shri S.S. Grewal and Shri M.N. Rao,

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 6 Of 8 the two retired High Court Judges and asked respondent to agree on one of

the names and give consent within 20 days from receipt of notice failing

which legal proceedings shall be initiated. It is obvious that the cause of

action for filing the petition under Section 11 of the Act in this case arose

when the respondent failed to give consent to one of the names within 30

days of receipt of the notice. The contention of the petitioner is that the cause

of action for filing application under Section 11 of the Act arose on the date

the reply of respondent was received by the petitioner i.e. 17th November

2003. The limitation would not start running from the date of receipt of reply

by petitioner. A respondent may not at all respond to the notice of claimant

invoking arbitration clause, but that would not mean that limitation would

remain open and the petitioner would be at liberty to file an

application/petition under Section 11 of the Act after any number of years on

the ground that it did not receive a reply from respondent. The reply may be

given by respondent after 4/5 years, the limitation cannot be counted after

4/5 years of the issue of notice. The limitation to file an application/ petition

under Section 11 of the Act would start from the date the right accrued to the

petitioner to move the Court of Chief Justice for appointment of an arbitrator

under Section 11. In view of Section 11(4) of the Act, this right accrued to

petitioner after one month of receipt of notice by respondent. One month

given for appointment of an arbitrator expired on 18th November 2002. The

petition could have been filed within three years of the arising of the cause of

action in view of Article 137 of the Limitation Act which provides a limitation

of three years for all such applications. The present petition was filed after

three years and hence this petition itself is barred under Limitation Act.

10. The cause of action in respect of claim accrued to the petitioner on or

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 7 Of 8 before 15th October 2002 when the petitioner served a notice on the

respondent alleging a liability upon the respondent towards petitioner of the

amount stated in the notice. The petitioner did not respond to the notice

within the period specified by the petitioner in the notice. Even thereafter,

when respondent replied to the said notice, it did not admit the liability put

forth in the notice. The limitation for recovery of any amount is three years.

This limitation starts running from the date of cause of action. Presuming that

the cause of action arose on 15th October 2002, the action qua respondent for

recovery could have been brought within three years. The petition under

Section 11 of the Act was filed after lapse of three years and by that time the

claim itself has become barred by limitation.

11. It is argued by counsel for petitioner that the Court should not decide

the issue of limitation and it should be left open to the arbitrator. However, I

consider that in view of the judgment of the Supreme Court in S.B.P. v Patel

Engineering (2005) 8 SCC 618 and Shree Ram Mills Ltd. v Utility Premises (P)

Ltd. (2007) 4 SCC 599, this Court has an obligation to decide the issue about

the claim being live or not; whether there was an arbitration clause between

the parties or not; and whether the petition itself was maintainable or not. For

the purpose of taking a decision on a petition/ application under Section 11(5)

of the Act for appointment of an arbitrator, it is incumbent upon the Court to

decide all these issues.

12. In view of my foregoing discussion, the present petition under Section

11 of the Act filed by the petitioner is not maintainable. The petition is hereby

dismissed. No orders as to costs.

August 31, 2009                                          SHIV NARAYAN DHINGRA J.
rd

Arb.P. 136/2006 Mangla Advisory P. Lt. v.Cybizcall (International) & Anr. Page 8 Of 8