N. Radhakrishnan v. M/s. Mastero Engineers A Partnership Firm And Others

(Civil Revision Petition filed against the order dated 7.6.2006 and made in I.A.No.494 of 2006 in O.S.No.526 of 2006 on the file of the First Additional District Munsif Court, Coimbatore.)

As against the dismissal of the Interlocutory Application to refer the matter to Arbitral Tribunal, this CRP has been preferred by the defendant.

2. The suit has been filed by the respondents/plaintiffs against the revision petitioner/defendant for a declaration declaring that the petitioner is not a partner of the first respondent firm with effect from 18.11.2005 and for consequential injunction restraining the petitioner from disturbing the smooth functioning of the first respondent firm. Admittedly there was estrangement between the partners as to the running of the partnership firm. According to the respondents, the revision petitioner did not concentrate much on the business and administration of the first respondents partnership firm but he has been concentrating much on his family business run under the name and style of M/s.Qawn Knitting. Since the revision petitioner wrote to the Banks about the possible expulsion as partner from the said firm, the Banks stopped to honour the cheques issued by the firm which resulted in standstill of the financial activities of the firm. In fact the revision petitioner sent a notice to the firm expressing his willingness to retire from the firm on settled the profit, share arrears and interest with the capital paid to him. Accepting his offer, the respondents instructed the Auditor to close and settle the accounts of the petitioner as on 18.11.2005 and prepare the retirement deeds. But the revision petitioner did not meet the Firms Auditor and executed the retirement documents. Therefore, the respondents entered into a fresh partnership deed with effect from 19.11.2005 and a public notice thereof was also published in one of the Tamil Daily. According to the respondents 2 to 4 even thereafter, the revision petitioner had been disturbing the smooth administration of the first respondent firm and therefore they filed the suit.

3. In the suit the revision petitioner also filed a written statement. Pending the suit, the revision petitioner/defendant filed the I.A., for referring the matter to a sole Arbitrator as per Clause 15 of the Partnership Deed after issuing legal notice expressing his intention to resolve the difference of opinion through an Arbitrator. But the learned I-Addl.District Munsif, Coimbatore on a consideration of the averments and the Exs.P.1 to P.25, dismissed the said application. Aggrieved over the same, the present revision has been filed.

4. Though the learned counsel for the revision petitioner contended that as per Clause 15 of the Partnership Deed, if any difference of opinion arises among the partners during the continuance of the partnership business or termination thereof, such a difference or dispute shall be settled by Sole Arbitrator, if the partners agrees thereof, and if that is not possible arbitrators may be arranged in accordance with the provisions of the Indian Arbitration Act. But in total violation of the terms and conditions of the agreement, the respondents approached the civil Court which is not permissible.

5. A reading of the Clause 15 of the Partnership Deed itself would show that if any difference of opinion arises among the partners during the continuance of the partnership business or termination thereof, such a difference or dispute shall be settled by Sole Arbitrator, if the partners agrees thereof, and this would only mean that consensus of all the partners is a necessary one to refer the matter for arbitration. In the present case, only on 24.2.2006 the revision petitioner has expressed his willingness to go for arbitration to resolve the issue i.e., much after the filing of the suit and his written statement to the suit. By that time even the revision petitioner has been expelled from the partnership and the respondents 2 to 4 have reconstituted the partnership firm by entering into a fresh partnership deed as on 19.11.2005. Thus it is clear that the revision petitioner has not expressed his willingness to opt for arbitration at the earliest point of time, but only chosen to refer the matter after his expulsion from the firm and filing the written statement to the Plaint filed by the respondents.

6. Further, the relief sought for by the respondents namely the declaration cannot be granted by an Arbitrator and only the civil court has the jurisdiction over the dispute and declaration sought for by the respondents. As rightly contended by the learned counsel for the respondents Arbitration Clause in the agreement also only speaks about difference of opinion and not speaks about any dispute. In the present case the stage of difference of opinion has crossed and the respondents 2 to 4 have reconstituted the partnership firm. Therefore the issue does not fall under Section 8 of the Arbitration and Conciliation Act which only deals with disputes.

7. In this case as rightly held by the trial Judge, the revision petitioner has not complied with even the mandatory provision of Section 8(2) of theby filing the Original Arbitration Agreement or a duly certified copy thereof and on this ground also the application is liable to be rejected.

8. Learned counsel for the respondents placed reliance on the judgment of this Court in Oomor Sait HG Vs. O. Asiam Sait, reported in 2001 (3) CTC 269, wherein it has been held thus:-

"Mere existence of Arbitration Clause does not create an embargo on civil court to continue proceeding pending before such court. Power of civil court to refuse to stay of suit in view of Arbitration clause on existence of certain grounds available under 1940 Act continues to be available under 1996 Act as well and the civil court is not prevented from proceeding with the suit despite an arbitration clause if dispute involves serious questions of law or complicated questions of fact adjudication of which would depend upon detailed oral and documentary evidence."

"Section 8 recognizes the age old principle that a party seeking recourse to arbitration should have applied for at first instance itself before submitting his first statement and the expression "shall" occurring in Section 8(1) is not mandatory and Section 8 does not deviate from time tested principles of civil court to refer or not to refer dispute to arbitrator and the Civil Court can decline to refer the dispute to arbitrator."

"Exclusion of jurisdiction of Civl Court is not to be readily and unconditionally assumed. Right of citizen to invoke Courts protection is an inherent one and no one can exclude himself from protection of courts. Civil Court can refuse to refer matter to arbitration if complicated question of fact or law is involved or where allegation of fraud is made."

"Allegations regarding clandestine operation of business under some other name, issue of bogus bills, manipulation of accounts, carrying on similar business without consent of other partner are serious allegations of fraud, misrepresentations etc.,and therefore application for reference to arbitrator is liable to be rejected."

9. The above decision squarely applies to the facts of the present case. In the present case as well there is allegation of running rival firm, interference with the smooth administration of the firm. As already stated since the suit has been filed for declaration to declare that the revision petitioner is not a partner with effect from 18.11.2005 and for consequential injunction restraining the petitioner from disturbing the smooth functioning of the first respondent firm, the issue relates to the causes which compelled the respondents to expel the revision petitioner from the partnership firm and the necessity to reconstitute the firm by entering into a fresh partnership deed. Therefore such issues involves detailed evidence which could be done only by a civil court. Under these circumstances, I do not find any illegality or irregularity in dismissing the Interlocutory Application by the learned Trial Judge.

10. In the result, this CRP is dismissed. Consequently, connected Miscellaneous Petition is also dismissed. No costs.