Gujarat High Court
Jayesh Premji Solanki vs Kishor Premji Solanki on 17 April, 2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7516 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 7569 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE MRS. JUSTICE MAUNA M. BHATT sd//-
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Approved for Reporting Yes No
YES
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JAYESH PREMJI SOLANKI & ORS.
Versus
KISHOR PREMJI SOLANKI & ORS.
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Appearance:
MS KRUTI SHAH, ADVOCATE with
MR JAY N SHAH(10668) for the Petitioner(s) No. 1,2,3
MR S P MAJMUDAR, ADVOCATE with
MR. MRUGESH A BAROT(6709) for the Respondent(s) No. 1,2,3
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CORAM:HONOURABLE MRS. JUSTICE MAUNA M. BHATT
Date : 17/04/2025
ORAL JUDGMENT
1. Rule. Learned advocate Mr. S P Majmudar waives service
of notice of Rule on behalf of respondent Nos. 1 to 3.
2. Both these petitions are filed challenging the order
dated 26.02.2024 passed by the Learned Sole
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Arbitrator whereby the applications filed by the
Petitioners under Section 16 of the Arbitration and
Conciliation Act, 1996 (for short 'the A&C Act') have
been rejected. In the applications so filed, the
Petitioners had challenged the jurisdiction of the
Learned Sole Arbitrator in Arbitration Case No. 63 of
2022 and Arbitration Case No. 64 of 2022.
3. Since a common order dated 26.02.2024 is passed
in both the Arbitration cases, with the consent of
learned advocates appearing for the respective parties,
both the petitions are heard and decided by this
common judgment.
BRIEF FACTS:
4. The subject matter of the Arbitration Proceedings arises
out of two unregistered partnership deeds which are executed
'at will'. It is case of the Petitioners herein - Original
Respondents that considering the nature of dispute at the
initial stage, Petitioners had consented for appointment of the
Learned Sole Arbitrator. Accordingly, Respondents herein -
Original Claimants had filed Statement of Claim with the
following prayers:
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(i) Dissolution of Partnership Firm;
(ii) Entitlement of their share i.e. 50% of the stock
lying in the showroom i.e. 43762.796 grams of
stock of gold/silver as per the latest audited balance
sheet and 50% of approximately 5000/7000 grams of
gold/silver bars, jewelry, raw material, subject to
actual verification lying in the showroom as well as
workshop.
(iii) Award of 12% interest.
4.1 It is case of the Petitioners that pursuant to the
Statement of Claim filed by Respondents, Statement of Defense
and Counter-claim was filed by the Petitioners alleging
fraudulent dealing and/or secret withdrawals of cash/stock of
gold from workshop and showroom, resulting into purchase of
agricultural land and NA properties situated at different
locations of Kutch. Other allegations with regard to
manipulation of Books of Accounts of stock and sales of firm
were also made.
4.2 Considering the nature of allegations levelled by each
party in their pleadings, the Learned Sole Arbitrator with
consent of all the parties, appointed Mr. Yagnesh Goswami,
Chartered Accountant as Court Commissioner to make an
inventory of the gold bars, silvery bars and jewelry and raw
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material. However, on the day of inventory i.e. 25.01.2023,
the stock/ inventory in question was found missing, which
resulted into initiation of criminal proceedings by the
Petitioners and Respondents, respectively, before the police
authorities.
4.3 Pursuant to prosecution initiated by Respondents, Police
Authority registered FIR No. 11205043230148 of 2023 dated
20.02.2023 and arrested Petitioner No. 1 for the offences
punishable under Section 380, 454, 457 and 114 of the Indian
Penal Code. Subsequent thereto, chargesheet came to be filed
and Petitioner No. 1 was enlarged on bail.
4.4 It is case of the Petitioners that on account of theft of
gold bars / silver bars, jewelry and raw material etc. from the
shop in question, the dispute being adjudicated by the Learned
Sole Arbitrator has become non-arbitral because for the alleged
offence of theft, the competent Criminal Court is seized of the
matter. Further, on account of theft of stock and jewelry, the
issue of 50% share of stock cannot be decided and therefore,
applications were preferred under Section 16 of the A&C Act.
The said applications were decided and rejected by the Learned
Sole Arbitrator under order dated 26.02.2024, aggrieved by
which present petitions are filed.
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SUBMISSIONS OF THE PETITIONERS
5. Challenging the order dated 26.02.2024 passed by the
Learned Sole Arbitrator, Learned Advocate Ms. Kruti Shah
made the following submissions:
5.1 At the outset, Ms. Shah submitted that considering the
nature of dispute at the relevant point of time (time of
invocation of arbitration and filing of pleadings till the stage of
Statement of Defense and Counter-claim), the Petitioners had
consented for appointment of the Learned Sole Arbitrator, since
at that time, the issue was in relation to dissolution of
partnership firm and also in relation to entitlement of shares of
the Petitioners and Respondents in the firm. Therefore, consent
accorded by the Petitioners initially for invocation of
arbitration may not be taken into consideration for deciding
the Section 16 application.
5.2 The main fulcrum of her argument is that because of the
subsequent events that transpired during the arbitration
proceedings of appointment of Court Commissioner, alleged
theft of stock and criminal prosecution launched by respective
parties, the reliefs claimed in the Arbitration Proceedings do
not remain triable, and hence, the application under Section 16
of the A&C Act is maintainable.
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5.3 She submitted that in view of criminal prosecution
pending for the offences punishable under the provisions of the
Indian Penal Code, the same will be adjudicated by competent
Court of law and therefore, the issue of entitlement of
respective share of the Petitioners and Respondents will no
longer remain triable and therefore the rejection of the Section
16 application is erroneous.
5.4 She contended that in the pending Arbitration
Proceedings, the partnership dispute can only be resolved upon
determination of shares of the partners for which the claim
and counter claims have been raised and, in this case, now
that the said issue is pending before the Criminal Court, the
applications were rightly preferred under Section 16 of A&C
Act and its rejection thereof is erroneous.
5.5 Ms. Shah has submitted that the allegations of fraud and
theft made by both the parties against each other is an issue
which is non-arbitrable and can only be settled by Court of
competent jurisdiction and therefore also the rejection of
application under Section 16 of the A&C Act is erroneous.
5.6 In respect of the order dated 26.02.2024, she submitted
that the Learned Sole Arbitrator has erred in not appreciating
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that as per the amended claims and counter-claims, the
Learned Sole Arbitrator has not only to decide the question of
dissolution of partnership firm and the question of audited
accounts but also entitlement of shares of the partners therein,
which renders all the issues raised in the arbitration
proceedings and criminal court interconnected.
5.7 She has also pressed into service Report No. 246 of the
Law Commission of India, under which recommendation was
made to amend the A&C Act and make allegation of fraud as
arbitrable, which has not been given effect to. She submits
that this submission, though raised before the Learned Sole
Arbitrator, has not been considered in the order dated
26.02.2024.
5.8 In respect of delay, if any, she submitted that the plea of
lack of jurisdiction was taken at the earliest opportunity
inasmuch as the same was necessitated pursuant to the
subsequent development i.e. after 25.01.2023. Therefore, the
ground of delay in raising an objection for jurisdiction may not
be considered against the Petitioners.
5.9 She further contended that in view of serious allegations
of fraud made by both the parties, the subject matter falls
exclusively within the domain of public i.e. the Court and such
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dispute will be non-arbitrable and cannot be decided by the
Learned Sole Arbitrator.
5.10 Lastly, she submitted that the Learned Sole Arbitrator has
given an erroneous finding that the Learned Counsel for both
the sides requested the Learned Sole Arbitrator to render the
decision on Section 16 applications under A&C Act, without
awaiting the outcome of the quashing petition because no such
concession was given by Learned Advocate for the Petitioners.
5.11 In support of her submissions, Learned Advocate for the
Petitioners relied upon the following decisions:
Narmada Clean-Tech vs. Indian Council of
Arbitration reported in 2021 (1) GLR 821;
Booz-Allen & Hamilton Inc vs. SBI Home Finance
Ltd. and Ors. reported in (2011) 5 SCC 532;
A. Ayyasamy vs. A. Paramasivam and Ors. reported
in (2016) 10 SCC 386;
M/s N. N. Global Mercantile Private Limited vs. M/s
Indo Unique Flame Ltd reported in (2021) 4 SCC
SUBMISSIONS OF THE RESPONDENTS
6. Supporting the order dated 26.02.2024 passed by the
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Learned Sole Arbitrator and praying for rejection of the present
petitions, Learned Advocate Mr. Sharvil P. Majmudar made the
following submissions:
6.1 The scope of judicial review challenging the order passed
under Section 16 of the A&C Act is extremely narrow. As per
settled legal position, only in exceptionally rare circumstances
would this Court under Article 226 and 227 of the Constitution
of India, 1950 interfere with the order passed by the Learned
Arbitrator under Section 16 of the A&C Act. In the facts of the
present cases, the order passed by the Learned Sole Arbitrator
under Section 16 of the A&C Act being just and legal, no
interference is called for.
6.2 He submitted that the arguments raised before this Court
are the same-self arguments raised by the Petitioners before
the Learned Sole Arbitrator, all of which have been duly
considered in the order dated 26.02.2024 and therefore also,
the petitions may be rejected.
6.3 He submitted that the Petitioners have participated
substantially in Arbitration Case No. 63 of 2022 and
Arbitration Case No. 64 of 2022. Not only have Issues being
framed but the orders of substitution of Learned Sole Arbitrator
and extension of mandate of Learned Sole Arbitrator have also
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been passed after consent of both the parties. Thereafter,
number of hearings have taken place before the Learned Sole
Arbitrator and the Petitioners and Respondents have
participated in the Arbitration Proceedings and even the
examination of the Court Commissioner has been completed by
both the sides. Thus, the matter being at an advanced stage
and further cross-examination being scheduled, this Court may
not interfere with the order of the Learned Sole Arbitrator.
6.4 Raising an objection in respect of timing of filing the
application, Mr. Majmudar submitted that the Section 16
application was not filed either before or with filing of
Statement of Defence and hence, bar under Section 16(2) of
A&C Act would operate. He contended that though the
Petitioners have premised the Section 16 applications on basis
of subsequent developments, the Petitioners had in their
Statement of Defence and Counter-claim already made
allegations of siphoning of funds and misappropriation of
partnership assets. Therefore, at the initial stage itself, the
allegations of fraud were made and hence the reason given for
belated filing of the Section 16 applications is wrong.
6.5 Mr. Majmudar also submitted that once having
participated in the arbitration proceedings, the filing of Section
16 applications only after registration of FIR by the
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Respondents is nothing but an afterthought, counter-blast and
proceedings not filed bonafide.
6.6 Moreover, the jurisdiction of the Learned Sole Arbitrator
Tribunal is not ousted merely because of registration of FIR or
pendency of criminal proceedings. As per various decisions of
Hon'ble Supreme Court and other High Courts, the allegations
of fraud, as in the present case, can be tried by the Learned
Sole Arbitrator because, the allegations made do not touch the
public law domain but allegations of fraud are inter-se between
the parties and therefore can be tried.
6.7 In the facts of this case, the dispute is essentially arising
from the partnership agreement between the parties. From the
Statement of Claim as well as the prayers made by the
Petitioners in the Counter-claim, it is clear that there are
various disputes like dissolution of firm, rendering of accounts,
percentage share of the partners of the firm etc. which are
required to be adjudicated and this can only be adjudicated by
the Learned Sole Arbitrator.
6.8 In support of his submissions, Learned Advocate for the
Respondents relied upon the following decisions:
Avitel Post Studioz Limited and Ors vs. HSBC PI
Holding (Mauritius) Limited reported in (2021) 4
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SCC 713;
Ameet Lalchand Shah and Ors vs. Rishabh
Enterprises and Anr. reported in (2018) 15 SCC 678;
Rashid Raza vs. Sadaf Akhatar reported in (2019) 8
SCC 710;
Simran Sodhi vs. Sandeep Sodhi reported in 2022
DHC 004740;
Bhaven Construction vs. Executive Engineer, Sardar
Sarovar Narmada Nigam Limited and Anr. reported
in (2022) 1 SCC 75;
Shakti Pumps (India) Ltd. vs. Dakshin Gujarat Vij
Company Limited (DGVCL) reported in 2024 GUJHC
71300;
Babasaheb Ambedkar Open University vs. Abhinav
Knowledge Services Private Limited reported in 2024
3 GLH 645;
M/s Karan Paper Mills vs. M/s Shah Paper Pack
Industries reported in 2023 (1) GLH 1.
FINDINGS
7. Considered the submissions and the decisions relied upon
by the respective parties. To avoid prolixity, the facts of the
case are not being repeated herein however certain dates as
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reproduced by the Learned Sole Arbitrator in the order dated
29.02.2024 are taken into consideration.
7.1 Firstly, it is noticed that this Court by common order
dated 05.08.2022 passed in Arbitration Petition Nos. 119 and
144 of 2021 appointed the Learned Sole Arbitrator to
adjudicate the disputes between the parties in accordance with
Arbitration Center (Domestic and International) High Court of
Gujarat Rules, 2021. It is required to be noted that the
Petitioners had also filed an Affidavit in both the matters and
expressed their desire to get the disputes resolved through
arbitration.
7.2 Pursuant to such commencement of arbitration, the
Respondents herein - Original Claimants filed two Statement of
Claims both dated 15.10.2022 and the Petitioners herein -
Original Respondents also filed two separate Statements of
Defense, both dated 28.12.2022. Thereafter, one Counter-claim
dated 07.01.2023 was filed by Petitioners herein to which the
Respondents filed their reply dated 22.02.2023. Rejoinders to
the Statement of Claim was also filed by Respondents on
10.06.2023. Therefore, completion of pleadings and
participation of Petitioners in the Arbitration Proceedings is not
in dispute.
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7.3 While the arbitration proceedings were going on,
considering the nature of allegations levelled by each party in
their pleadings, the Learned Sole Arbitrator with consent of all
the parties, appointed Mr. Yagnesh Goswami, Chartered
Accountant as Court Commissioner to make an inventory of the
gold bars, silvery bars and jewelry and raw material.
However, on the day of inventory i.e. 25.01.2023, the stock/
inventory in question was found missing, which resulted into
initiation of criminal proceedings by the Petitioners and
Respondents, respectively, before the police authorities.
7.4 Pursuant to prosecution initiated by Respondents, Police
Authority registered FIR No. 11205043230148 of 2023 dated
20.02.2023 and arrested Petitioner No. 1 for the offences
punishable under Section 380, 454, 457 and 114 of the Indian
Penal Code. Subsequent thereto, chargesheet came to be filed
and Petitioner No. 1 was enlarged on bail.
7.5 On account of these intervening circumstances, Petitioners
filed two separate applications dated 07.08.2023 under Section
16(2) and 16(3) of the A&C Act challenging the jurisdiction of
the Learned Sole Arbitrator. The Respondents responded to
these applications by filing reply dated 12.09.2023 and the
Petitioners also filed their rejoinder on 29.09.2023.
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7.6 As noted above, challenge in these petitions is to the
common order dated 26.02.2024 wherein the applications
preferred by the Petitioners under Section 16 of A&C Act have
been rejected. Apropos to the same, the following issues arise
for this Court's consideration:
(i) Whether the facts of the present cases classify as
"exceptional rarity" so as to prompt this Court to
interfere in an order passed under Section 16 of
A&C Act?
(ii) If yes, whether the order dated 26.02.2024 passed
by the Learned Sole Arbitrator deserves to be
quashed and set aside, resulting in termination of
Arbitration Proceedings of Arbitration Case No. 63
of 2022 and Arbitration Case No. 64 of 2022?
7.7 In respect of Issue (i), strong reliance is placed by the
Learned Advocate for the Respondents that no interference
under Article 226 and Article 227 of Constitution of India is
called for as held in the case of Bhaven Construction (supra).
Attention is also invited to findings rendered in the case of
Shakti Pumps (India) Ltd. (supra), more particularly 7.2 to 7.4
to contend that the facts of the present cases do not classify as
"exceptional rarity" and hence, the petitions may be
dismissed. Though a valiant effort is made by the Learned
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Advocate for the Petitioners to contest this and submit that the
petitions are maintainable, if not entertainable, in the opinion
of this Court, the present cases cannot be classified as
exceptional cases, thereby prompting this Court to interfere
under writ jurisdiction.
7.8 It is held by the Hon'ble Supreme Court in Bhaven
Construction (supra) as follows:
"11. Having heard both parties and perusing the
material available on record, the question which needs
to be answered is whether the arbitral process could be
interfered under Article 226/227 of the Constitution,
and under what circumstance?
12. We need to note that the Arbitration Act is a
code in itself. This phrase is not merely perfunctory,
but has definite legal consequences. One such
consequence is spelled out under Section 5 of the
Arbitration Act, which reads as under:
"Notwithstanding anything contained in any other law
for the time being in force, in matters governed by this
Part, no judicial authority shall intervene except where
so provided in this Part." The non-obstante clause is
provided to uphold the intention of the legislature as
provided in the Preamble to adopt UNCITRAL Model
Law and Rules, to reduce excessive judicial interference
which is not contemplated under the Arbitration Act.
13. The Arbitration Act itself gives various procedures
and forums to challenge the appointment of an Arbitral
Tribunal. The framework clearly portrays an intention
to address most of the issues within the ambit of the
Act itself, without there being scope for any extra
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statutory mechanism to provide just and fair solutions.
14. Any party can enter into an arbitration agreement
for resolving any disputes capable of being arbitrable.
Parties, while entering into such agreements, need to
fulfill the basic ingredients provided under Section 7 of
the Arbitration Act. Arbitration being a creature of
contract, gives a flexible framework for the parties to
agree for their own procedure with minimalistic
stipulations under the Arbitration Act.
15. If parties fail to refer a matter to arbitration or to
appoint an Arbitral Tribunal in accordance with the
procedure agreed by them, then a party can take
recourse for court assistance under Section 8 or 11 of
the Arbitration Act.
18. ...
It is therefore, prudent for a Judge to not exercise
discretion to allow judicial interference beyond the
procedure established under the enactment. This power
needs to be exercised in exceptional rarity, wherein one
party is left remediless under the statute or a clear
"bad faith" shown by one of the parties. This high
standard set by this Court is in terms of the legislative
intention to make the arbitration fair and efficient."
7.9 Taking cue from the above-quoted paragraphs and also
taking into account the object and intent of the Arbitration &
Conciliation Act, the underlying principle has always been of
limited judicial interference. Additionally, in the present cases,
it can be seen that the arguments being advanced before this
Court are Pari Materia similar to the contentions raised before
the Learned Sole Arbitrator under the Section 16 applications,
which have been duly considered in the order dated
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26.02.2024. Therefore also, the supervisory jurisdiction of this
Court under Article 227 of the Constitution of India cannot be
exercised to re-argue the matter before a higher forum.
7.10 It is also important to note that it is not the Petitioners
case that they were not heard by the Learned Sole Arbitrator
before passing the order or that opportunity was not afforded,
thereby weeding out the allegation of breach of principles of
natural justice. However, it is contended by the Petitioners that
the Learned Sole Arbitrator has given an erroneous finding that
the Learned Counsel for both the sides requested the Learned
Sole Arbitrator to render the decision on Section 16
applications under A&C Act, without awaiting the outcome of
the quashing petition because no such concession was given by
Learned Advocate for the Petitioners. In the opinion of this
Court, this contention cannot form the sole basis to discard an
otherwise well-reasoned order. In the order dated 26.02.2024,
the Learned Sole Arbitrator has apart from this fact, taken note
of several other factors to reject the applications, which cannot
be overlooked. Additionally, it is noticed that after passing of
the order dated 26.02.2024, no application was filed by the
Petitioners seeking to correct this alleged mistake recorded in
the order. Lastly, it is also noted that the Learned Advocate
representing the Petitioners before this Court and in the
Arbitration, Proceedings is different, which assumes significance
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when it comes to disassociating from concessions given, if any.
Therefore, there is no breach of principles of natural justice
warranting interference of this Court under Article 226 of the
Constitution of India.
7.11 In such circumstances, this Court answers Issue (i) in the
Negative and holds that the facts of the present cases do not
classify as "exceptional rarity" so as to prompt this Court to
interfere in an order passed under Section 16 of A&C Act. This
Court further holds that continuation of the arbitration
proceedings neither leaves the Petitioners remediless, since
Section 16(6) of A&C Act itself stipulates the remedy nor can it
be concluded that the arbitration proceedings involve "bad
faith" since the issues being adjudicated by the Learned Sole
Arbitrator would eventually help in resolving the dispute
between the parties.
7.12 Since Issue (i) is answered in the Negative, the necessary
corollary would have been to either not address Issue (ii) or
answer the said Issue in the Negative without discussion,
however since the Learned Advocate for the Petitioners has
taken this Court thread-bare through each finding of the order,
this Court deems it fit to also address Issue (ii).
7.13 As noted above, the main argument of the Petitioners is
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that due to the intervening circumstances that arose post
25.01.2023 and with police authorities being involved, the
issues being adjudicated by the Learned Sole Arbitrator has
become un-triable on account of matter being converted from
personam to rem. As opposed to this, Learned Advocate for the
Respondents has inter alia contended that the issues continue
to be in personam and merely because criminal complaints are
filed, would not ipso facto strip the jurisdiction of the Learned
Sole Arbitrator.
8. To address this contention of the Petitioners, even if this
Court was to brush aside the technical objections raised by the
Respondents of participation in arbitration proceedings till now
and delay in filing the Section 16 applications, the order dated
26.02.2024 deals with each and every contention raised by the
Petitioners in respect of non-arbitrability. Firstly, this Court
finds merit in the contention of the Respondents that though
the Petitioners have premised the Section 16 applications on
basis of subsequent developments, the Petitioners had in their
Statement of Defence and Counter-claim already made
allegations of siphoning of funds and misappropriation of
partnership assets. Therefore, at the initial stage itself, the
allegations of fraud were made and hence the reason given for
belated filing of the Section 16 applications is wrong.
Secondly, on one hand in the criminal proceedings, bail is
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sought and granted by this Court relying on the contention of
the Petitioners categorizing the dispute as "civil" in nature
and in the arbitration proceedings, recourse is taken of the
pending criminal proceedings to scuttle the arbitration.
Therefore, the Petitioners cannot be allowed to approbate and
reprobate as per their convenience. Thirdly, it is not the
Petitioners case that the arbitration clause contained in the
Partnership Deeds has become null and void and therefore,
with the arbitration clause not being vitiated by fraud, if any,
the arbitration proceedings are bound to continue. Lastly, the
reliefs as claimed before the Learned Sole Arbitrator are not
such that would hamper the criminal investigation. On the
contrary, the issues can be resolved by the Learned Sole
Arbitrator by rendering an award on the entitlement of each
party, which only requires to be given effect to at a later
stage.
9. In view of the aforesaid, the judgments since are dealt
with in great detail by the Learned Sole Arbitrator, do not
require re-appreciation by this Court, particularly when the
arguments advanced by the Petitioners remain the same.
10. On the above facts in the opinion of this Court, the
Learned Sole Arbitrator has considered the issue in great detail
and passed a well-reasoned order dated 26.02.2024. Further,
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no applications were filed under Section 16 of the A&C Act till
December, 2023. Moreover, in Criminal Miscellaneous
Application No. 7929 of 2023 on a contention that the dispute
between the parties is of a civil nature, the bail application
was allowed. Even this aspect has been noted in the order
dated 10.07.2023 in Criminal Miscellaneous Application
granting bail. Even the Special Criminal Application (Quashing)
No. 14525 of 2023 seeking to quash the FIR registered against
the Petitioners is also pending, wherein one of the defense of
the Petitioners is that the proceedings are of civil nature. The
Learned Sole Arbitrator has taken cognizance of the nature of
dispute between the parties wherein one of the issues framed
is dissolution of firm and upon dissolution, proportionate
distribution of share to the Petitioners and Respondents. Most
importantly, it is not the case of the Petitioners that the
arbitral agreement is a fraudulent agreement and therefore, the
Learned Sole Arbitrator has no jurisdiction.
11. In view of above, the petitions being devoid of merits are
rejected with no order as to costs. Rule is discharged.
sd/-
(MAUNA M. BHATT,J)
SHRIJIT PILLAI
