Madras High Court
M/S. New Natural Fibre vs S.Eliyas on 21 December, 2021
Arb.O.P (Comm.Div.) No.157 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 21.12.2021
Coram:
THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P. (Comm.Div.) No.157 of 2021
1.M/s. New Natural Fibre, Firm
Rep.by its Partner Mr.S.Habebullah,
Office at No.3/1, Ramanimudali Pudur,
Anaimalai, Pollachi (tk), Coimbatore – 624104.
2.S.Habebullah
Partner of New Natural Fibre,
Office at No.3/1, Ramanimudalipudur,
Anaimalai, Pollachi (tk), Coimbatore – 624104.
3.A.Sengiskhan
Partner of New Natural Fibre,
Office at No.3/1, Ramanimudalipudur,
Anaimalai, Pollachi (tk), Coimbatore – 624104.
4.Z.Imran Khan
Partner of New Natural Fibre,
Office at No.3/1, Ramanimudalipudur,
Anaimalai, Pollachi (tk), Coimbatore – 624104. .. Petitioners
Vs.
S.Eliyas .. Respondent
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Arb.O.P (Comm.Div.) No.157 of 2021
This Original Petition has been filed under Section 11(5) of the
Arbitration and Conciliation Act, 1996 praying to constitute an arbitral tribunal
consisting of a sole arbitrator, seated in Chennai, to decide all disputes under
the Partnership Deed dated 14.09.2018.
For petitioners : Mr.I.Abrar Md.Abdullah
For respondent : Mr.S.S.Rajesh,
For Mr.R.Ravee Kumar
ORDER
This petition is filed by a partnership firm and three of its partners
against the other partner of the partnership firm. The petitioners refer to and
rely upon the Deed of Partnership dated 14.09.2018 (the Partnership Deed)
and, in particular, Clause 20 thereof, which is as under:
“20.In the case of disputes between the partners, the
partners can refer such disputes to arbitration and for such
arbitrations; the Arbitration Act shall be applicable.”
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2. The petitioners also refer to the notices issued to the respondent on
08.01.2021 and 28.01.2021. By such notices, it was alleged that the respondent
had misappropriated funds of the partnership firm to the extent stated therein.
For such reason, it was stated that the other partners decided to expel the
respondent. The present petition is filed because the respondent did not respond
to such notices.
3. The above submissions are refuted by the respondent. The respondent
states that the petitioners can only refer a dispute to arbitration. By adverting to
Sections 7 and 21 of the Arbitration and Conciliation Act, 1996, it is contended
that arbitral proceedings are held in order to resolve a particular dispute. The
respondent also points out that he had issued a notice of dissolution of the
partnership firm prior to the notice from the petitioners. In the case at hand, the
respondent contends that the notice dated 28.01.2021, which preceded this
petition, does not set out the nature of dispute which is proposed to be referred
for arbitration. Instead, the respondent contends that an allegation of
misappropriation is made and it is asserted that the arbitrator would decide the
amount misappropriated by the respondent and the amount due to the
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Arb.O.P (Comm.Div.) No.157 of 2021
respondent. According to the respondent, the petitioners are attempting to
engage the services of the arbitrator to conduct an audit.
4. In support of these contentions, learned counsel for the respondent
relies upon the judgment of the Hon'ble Supreme Court in DLF Home
Developers Limited v. Rajapura Homes Private Limited and Another, (2021)
SCC OnLine SC 781, and, in particular, paragraph 18 thereof, wherein the
Hon'ble Supreme Court held that a Court may examine the existence of the
arbitration agreement and whether the disputes are ex facie non-arbitrable. In
exercise of such jurisdiction, the respondent contends that the present petition
is liable to be rejected on the ground that no particular or specific dispute has
been set out in the notice invoking arbitration.
5. On this issue, the respondent also relies upon the judgment of this
Court in N.Rajagopal, Proprietor v. Motor Co. (2021) 5 CTC 187, wherein this
Court referred to several judgments as to what constitutes a dispute and held
that the existence of a dispute is an essential pre-requisite to the exercise of
jurisdiction by an arbitral tribunal. On the facts of that case, the Court
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Arb.O.P (Comm.Div.) No.157 of 2021
concluded that the arbitral proceedings were without jurisdiction in the absence
of a dispute.
6. In light of the rival contentions, the question to be determined is to
whether the petitioners have made out a case to refer the dispute for arbitration.
In paragraph 154.4 of Vidya Drolia v. Durga Trading Corporation, (2021) 2
SCC 1, the Hon'ble Supreme Court held as under:
“154.4. Rarely as a demurrer the court may interfere
at Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non-existent, invalid
or the disputes are non-arbitrable, though the nature and
facet of non-arbitrability would, to some extent, determine
the level and nature of judicial scrutiny. The restricted and
limited review is to check and protect parties from being
forced to arbitrate when the matter is demonstrably “non-
arbitrable” and to cut off the deedwood. The court by default
would refer the matter when contentions relating to non-
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arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and
inconclusive; when facts are contested; when the party
opposing arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings. This is not the stage for
the court to enter into a mini trial or elaborate review so as
to usurp the jurisdiction of the Arbitral Tribunal but to affirm
and uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism.”
7. The above judgment of the Hon'ble Supreme Court instructs that the
scope of review under Section 11 of the Arbitration and Conciliation Act, 1996
is limited to examining whether it is manifestly and ex facie clear that the
arbitration agreement is non-existent or invalid and whether the dispute is ex
facie non-arbitrable. If the said test is applied to this case, the undisputed
position is that Clause 20 of the Partnership Deed contains an arbitration
clause. The only question that remains is whether the petition should be
rejected because the dispute has not been precisely set out in the notice
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invoking arbitration. Therefore, the said notice should be examined. In
paragraph 2 of the notice, the petitioners referred to the report of the auditor for
the period 01.01.2020 to 31.08.2020 and stated that the said report indicates
misappropriation by the respondent of the funds of the firm to an extent of
Rs.30,23,000/-. The notice proceeds to record that the other partners decided to
expel the respondent on such account. In paragraph 3, the petitioners state that
the arbitrator should decide the quantum of amounts misappropriated by the
respondent and the actual amount, if any, due to the respondent from the
partnership firm.
8. Given the limited scope of scrutiny under Section 11 of the Arbitration
and Conciliation Act, 1996, I am of the view that the notice dated 28.01.2021
satisfies the requirements for purposes of reference of the dispute to arbitration.
However, it is open to the respondent to raise objections as to the arbitrability
of claims or even to the jurisdiction of the arbitral tribunal, if appropriate.
9. For reasons set out above, Arb.O.P.No.157 of 2021 is allowed by
appointing Mr.Daniel Haridoss, retired Sub Judge, No.2C, KARSNA
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Apartments, Egmore, Chennai, as the Sole Arbitrator. The Sole Arbitrator is
directed to enter upon reference and adjudicate the dispute between the parties
in accordance with law. The Sole Arbitrator may fix his fees and expenses in
connection with such arbitral proceedings.
21.12.2021
Internet: Yes/No
Index: Yes/No
smv
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Arb.O.P (Comm.Div.) No.157 of 2021
SENTHILKUMAR RAMAMOORTHY J.
smv
Arb.O.P (Comm.Div.) No.157 of 2021
21.12.2021
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