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Yashvant Chunilal Mody Vs. Yusuf Karmali Kerwala and Others - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberArbitration Application (L.) No.859 of 2013
AppellantYashvant Chunilal Mody
RespondentYusuf Karmali Kerwala and Others
1. this is an application for appointment of a sole arbitrator u/s.11 of the arbitration and conciliation act, 1997 (the act) by the applicant who is one of the eight partners of the partnership firm of which the arbitration agreement is alleged. several of the partners have expired. their heirs and legal representatives are some of the respondents. the claim of the applicant is of having entered into a partnership on 1st april, 1974 consequent upon the introduction of the partners in february, 1974 and their desire to carry on joint business since march, 1974. 2. it is the applicant's case that initially the written agreement between the parties was not executed. it has been executed on 24th september, 1975 after the oral partnership without any formal document came into existence. in.....

1. This is an application for appointment of a sole arbitrator U/s.11 of the Arbitration and Conciliation Act, 1997 (the Act) by the Applicant who is one of the eight partners of the partnership firm of which the arbitration agreement is alleged. Several of the partners have expired. Their heirs and legal representatives are some of the Respondents. The claim of the Applicant is of having entered into a partnership on 1st April, 1974 consequent upon the introduction of the partners in February, 1974 and their desire to carry on joint business since March, 1974.

2. It is the Applicant's case that initially the written agreement between the parties was not executed. It has been executed on 24th September, 1975 after the oral partnership without any formal document came into existence. In fact it is one of the claims that no formal partnership deed was initially executed upon certain advise (presumably legal). This is specifically stated in view of the facts which shall be considered presently. The partnership was to be between the parties and the joint business of the partners was to be the business of dairy farming. The Applicant had certain cattle. He wanted to expand his business. He wanted to purchase a farm and obtained new cattle and carry on dairy business.

3. In fact an agreement was entered into in the name of one V.Y. Shah and Co. for purchase of the land on which the business would be carried out. Earnest of Rs.20,000/- was paid out of the total consideration of Rs.1.76 lacs for the purchase of the land. The agreement was executed on 31st December, 1974. Thereafter a conveyance has been executed in 1975. The date of the execution of the conveyance is not shown in a photocopy of the unregistered conveyance produced by the Applicant. The conveyance is in the name of the partnership firm between the parties. It appears to be executed well after at least 19th July, 1975 which date is recited in the conveyance. The conveyance is for Rs.1.50 lacs, Rs.20,000/- being the earnest paid on 31st December, 1974, the date of the agreement. Rs.1.30 lacs is paid on 24th May, 1975 constituting the full consideration of Rs.1.50 lacs. The conveyance appears to have been lodged for registration on 29th July, 1976. The unregistered conveyance came to be registered under a deed of confirmation executed on 10th June, 1981 by the partnership firm as the purchaser. The Deed of confirmation shows the factum of the lodging of the conveyance for registration. There is no mention of the execution of the partnership deed in any of these documents.

4. The partnership, however, had come into existence. It has been registered with the Registrar of Firms on 22nd September, 1975. The fact of the partnership and the partners is admitted by Respondent Nos.1 and 2 who are the contesting Respondents.

5. The Respondents, however, claim that the there was no written partnership deed. The Applicant claims that the partnership agreement was executed on 24th January, 1975 inter-alia containing the arbitration clause.

6. Respondent Nos.1 and 2 have relied upon a very unique evidence to contradict the specific case of the execution of the written partnership deed and consequently the written partnership agreement containing as one of its clauses, the arbitration clause upon which the arbitration is sought and the application for appointment for an arbitrator is made. The Respondent Nos.1 and 2 have annexed to their affidavit in reply and a photocopy of an earlier notice given by six partners to Respondent Nos.1 and 2 through their Advocate Rajesh C. Shah on 6th March, 1998 claiming under a deed of partnership dated 1st April, 1974. It must be remembered that the present case of the Applicant is of the execution of the partnership deed on 24th January, 1975 upon a specific case that initially the parties were advised not to have any partnership deed executed. The difference in the dates is, therefore, not only an inadvertent error. The agreement for sale consequent upon which the conveyance was made in the name of the firm was not in the name of the firm at all. Hence case of the Applicant showing a new date of partnership deed after the date of the agreement is a distinct afterthought. The agreement being dated 31st December, 1974 in the name of the Y.V. Shah and Company, the partnership deed could not have been prepared on 1st April, 1974 as earlier alleged in the notice of the erstwhile Advocate of the Applicant.

7. It is also argued, and correctly on behalf of the Respondent Nos.1 and 2, that despite the reference to the deed of partnership dated 1st April, 1974 in that notice, arbitration is not invoked and the notice only threatens legal proceedings. Indeed that also is pointer to the fact that the mere vague statement of the Applicant in paragraph 4(k) about the arbitration agreement is far fetched and made up.

8. The notice given since March, 1998 has not been acted upon. No action at law is initiated. No claim is made or prosecuted thereon.

9. The new case of the deed of partnership dated 24th January, 1975 made out by the Applicant is without the production of the partnership deed or its copy. The agreement to arbitrate stated to be contained in the arbitration clause in the partnership deed is, therefore, not shown to be in writing. Only an averment is made in paragraph 4(k) of the application relating inter-alia to the arbitration clause.

10. The Applicant has sought to set out certain of the clauses of the partnership deed stated to have been executed on 24th January, 1975 by and between the parties. His claim is that of sharing of profits in a particular ratio, the kind of business, the fact that it was at will, the fact that it will continue even in the event of the death of any of the partners, the address of the firm and the arbitration clause. The specifics of the distribution of profits of the firm is stated in paragraph 2(f) but not as a part of the partnership deed. The particulars of the capital of the partners, the facts relating to the premises from which the activities of the firm were carried on and the capital which was brought from time to time into the firm as “introduced” and the account of the firm are also not shown or stated as part of the written partnership deed.

11. There is absolutely no corroborative or circumstantial evidence to show or suggest the execution of partnership deed dated 1st April, 1974 or 24th January, 1975. The notice dated 6th March, 1978 only specifies the aggregate share of the four groups of the 8 partners, the fact of the parties having done business since 1980 (and not from 1974 as stated in this application) and the fact that there was then no business of the firm.

12. From such sketchy case of the execution of the deed of partnership, the Applicant claims to have the arbitration agreement in writing. An arbitration agreement is mandatorily required to be in writing U/s.7 (3) of the Act. It is stated to be an agreement in writing under partnership deed executed on 24th January, 1975 without any corroborative evidence. It is stated to contain a clause that in the event of a dispute and difference arising between the parties in respect of the erstwhile firm a sole arbitrator will be appointed.

13. An arbitration clause of the kind may give narrow as well as wide powers of the reference of the dispute to arbitration to the arbitrator. It may appoint one or more arbitrators. It may refer some or all of the disputes and differences. It may specify the kind of disputes to be referred. How the Applicant has set out the kind of arbitration clause as is done in paragraph 4(k) is not explained and cannot be envisaged.

14. U/s.7 (1) of the Act the arbitration agreement is to submit to arbitration certain disputes which have arisen between the parties or which may arise between them in respect of their relationship. The application of the Applicant does not specify the particulars of which certain disputes were to be referred to the arbitration.

15. For the reference of the dispute to arbitration the Applicant has issued a notice as late as on 10th October, 2011 addressed to all the other partners and their legal representatives including Respondent Nos.1 and 2 dissolving the firm invoking arbitration and calling upon them to appoint sole arbitrator as per “registered' partnership deed dated 24th January, 1975. Respondent Nos.1 and 2, whilst denying the execution of the partnership deed, called upon the Applicant to produce a copy of the registered deed from the registration office. The partnership deed is not registered. It is stated to be dated 24th January, 1975. It is in view of such notice that the Respondents have produced the earlier original notice given by six partners to Respondent Nos.1 and 2 on 6th March, 1998. The partnership deed as also the arbitration clause therein has thus remained nebulous and anomalous.

16. The specific statutorily mandate for reference of a dispute to arbitration is only under a written agreement. Section 7(3) runs thus :

“An arbitration agreement shall be in writing”.

17. It would have to be seen whether the party invoking arbitration must, therefore, produce that mandatory written agreement or whether such party can only allege that an agreement is in writing and seek to prove it by oral evidence.

18. A partnership may be oral or in writing. It may or may not be registered with the Registrar of Firms. An oral partnership may also be registered as in this case. A partner of a firm under an oral agreement can certainly sue by maintaining an action in law. However, for reference of the dispute of such partners specifically to the mode of the resolution of the dispute by arbitration, the party invoking the arbitration must conform with the mandatory requirements of the Act. Even in the Arbitration Act, 1940 the arbitration agreement was to be a written agreement U/s.2 (a) thereof. That provision has been amplified in the short, concise and precise Section 7(3) of the amended arbitration law under the Act.

19. The purpose of this specific requirement must be understood. It is to weed out oral agreements for reference of the dispute to arbitration. The agreement to be in writing, therefore, must be shown to be so at the time the arbitration is invoked.

20. This application is made for appointment of the sole arbitrator upon failure of the Respondents to appoint the sole arbitrator under the notice dated 10th October, 2011 upon the contention that the agreement between the parties to arbitrate is in writing under the aforesaid partnership deed. It is contended that that written agreement shall be proved by the Applicant by secondary evidence of the oral account of the contents of the document given by him U/s.63 (5) of the Indian Evidence Act, 1872. Section 63 (5) which sets out one of the modes in which secondary evidence can be led runs thus :

5. “Oral accounts of the contents of a document given by some person who has himself seen it”.

21. It should be oral evidence of the witness who has seen the document. This contemplates the exclusion of hearsay evidence. The Applicant claims to have executed it along with seven other partners. Hence he claims to have seen the document. He would certainly be entitled to give an oral account of the partnership deed dated 24th January, 1975 in an action in law. It would have to be seen whether such oral account of a written document is contemplated to be allowed for invoking an arbitration.

22. The Applicant offers to lead evidence and be cross examined in that behalf. The Applicant can be examined and cross examined upon a case made out by him prima facie in his application or his affidavit. That case is sought to be made out in paragraph 4(k) and (l) of this application. The oral account is not given of the entire document. It is also not given of all the relevant parts of the document. It contains the inaccuracies and inadequacies stated above, the most important of which, is the vague arbitration clause not specifying the specific disputes that in this case were agreed to be referred to arbitration by the parties under such written agreement as required by Section 7(1) of the Act.

23. Mr. Anturkar on behalf of the Applicant relied upon the judgment in the case of M/s. SBP and Co. Vs. M/s. Patel Engineering Ltd. and Anr., AIR 2006 Supreme Court 450(1) in Paragraph 38 and followed by DHV BV Vs. Tahal Consulting Engineers Ltd. (Israel) and Anr., (2007) 8 Supreme Court Cases 321 in Paragraph 14, laying down the guidelines as to the ambit of various provisions of the Act including the application U/s.11 (6) of the Act. It shows that the Chief Justice of the right High Court would have to decide whether there was an arbitration agreement, whether the Applicant was a party to such agreement, whether the claim made was a dead one or whether the arbitration was long barred or satisfied by final payment or whether the Applicant satisfied the conditions of Section 11(6) of the Act. The relevant part of paragraph 38 runs thus :

38. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection.

The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act.

24. Mr. Anturkar would lay much stress upon the later part of the said paragraph to show how these aforesaid aspects could be decided. That part runs thus :

For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary.

25. Mr. Anturkar, therefore, argued that evidence of the Applicant may be directed to be taken before deciding this application. The Applicant thus offers himself for cross examination by the Respondent Nos.1 and 2. It would have to be seen whether the specific legislative mandate in Section 7 would permit such a course. Section 7(3) would have to be read along with Section 7(4). Both sections relate to written arbitration agreement. Sections 7(3) and 7(4) runs thus :

7(3) An arbitration agreement shall be in writing.

7(4) An arbitration agreement is in writing if it is contained in –

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

26. Section 7(3) specifies the mandate of a written agreement. Section 7(4) contemplates the types of written agreements. Hence the written arbitration agreement may be one document signed by the parties or it may by way of correspondence or by a statement in which its existence is not denied.

27. In this case there is no agreement in writing shown yet. There is no correspondence which would constitute any such agreement. The statement of the Petitioner in the notice invoking arbitration itself is denied. These are the only three modes specified under the statute in which an agreement can be taken to be an agreement in writing by the word “if”. Section 7 (4) is exhaustive. It does not contemplate that an oral account of a document signed by the parties would also be an arbitration agreement. Had that been so Section 7 (4) would have mentioned that provision as sub section 'd'. There may be various other circumstances by which a written agreement can be proved and accounted for but that is not within the contemplation of the Arbitration Act. An arbitration agreement is in writing only if it falls within sub section a, b or c of Section 7(4).

28. Upon such legislative mandate allowing a party to prove a written arbitration agreement by oral evidence of its contents by secondary evidence as specified in Section 63(5) of the Indian Evidence Act would be to legislate another sub section which the Court cannot do.

29. In view of the legislative mandate taking evidence for such purpose is ruled out. Though evidence may be recorded or cause to be recorded of a (written) arbitration agreement, as observed in the case of M/s. SBP and Co. (Supra) it was to see whether the claim was dead or alive or whether the disputes at all remained or were concluded or whether conditions for the application U/s.11(6) was satisfied.

30. The purpose of this provision is specifically to exclude oral agreements unlike in a civil suit which can be filed on oral agreements so that an oral account of a written agreement can be tendered in evidence by way of secondary evidence. The purpose of having arbitration agreement only in writing rules out an oral agreement. The purpose would be wholly destroyed if parties are allowed to claim orally, as has been done in this case, that some agreement of some specific or vague nature was entered into and which the party can prove by oral evidence. This would open floodgates not only not contemplated but specifically excluded by the legislature. Consequently the observation of the Supreme Court in the case of M/s. SBP and Co. supra with regard to whether there was arbitration agreement is upon the contention of the parties with regard to interpretation of whether or not a particular written document would constitute an arbitration agreement and not for allowing to prove a written agreement hitherto not produced. In view of the specific ambit of Section 7(4), the mandatory requirement of Section 7(3) must be read to require only a written agreement to be produced for commencing any arbitration proceeding. Hence an application under Section 11 for appointment of arbitrator cannot be made in case where an arbitration agreement is not in writing and is not produced at the first instance.

31. Of course, the Applicant may maintain a legal action which would be considered in accordance with law including the law relating to the period of limitation of his claim.

32. The exercise of passing off a written agreement for referring the dispute to another mode of adjudication without payment of the necessary court fee is seen to be lacking bonafides. Mr. Anturkar argued that the denial of the agreement lacks bonafides since that would entail the requirement of filing a suit and having the dispute delayed for its adjudication because of the usual courts' delays. Even if that was so, the legislative mandate does not permit the Applicant to apply for appointment of a sole arbitrator or any arbitrator in the absence of producing a written arbitration agreement.

33. It is also argued on behalf of Respondent Nos.1 and 2 that the claim is hopelessly barred by Limitation.

34. As observed by the Supreme Court in the case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., 2009 (4) BCR 891 this Court is enjoined to consider, prima facie, the question of the bar of limitation.

35. The Petitioners are two of the partners of the firm. The partnership has long since been dissolved.

36. In the case of K. Gopal Chetty and Anr. Vs. L.G. Vijayaraghavachariar, AIR 1922 Privy Council 115, a partner of a dissolved firm sued for accounts and share in the assets. The partnership has stood dissolved in 1910. The suit was filed in 1913 after a period of three years from the dissolution. The suit for accounts was distinctly barred under Article 106 of schedule I to the Limitation Act of 1908 (which is on par with Article 5 of the Limitation Act, 1963). The question that was to be considered was whether when the suit for accounts was barred, the suit for share in the assets be also barred. This is what the Privy Council has had to observe at Pg.119 of the judgment :

If on the other hand no accounts have been taken and there is no contest that the partners have squared up, then the proper remedy where such an item falls in is to have the accounts of the partnership taken; and if it is too late to have recourse to that remedy, then it is also too late to claim a share in an item as part of the partnership assets, and the Plaintiff does not prove, and cannot prove that upon the due taking of the accounts he would be entitled to that share.

37. In the case of Nilmadhab Nandi and Ors. Vs. Srimati Nirada Sundari Dasi, Calcutta Weekly Notes, (Civil Appellate Jurisdiction) Pg.1065, a suit filed by legal representative for accounts as also a share in the assets was held not barred under article 106 of the Limitation Act because under Article 106 the right of the legal representative was taken to be not to a share in the profits of the dissolved partnership, but a right accruing to him by subsequent dealing with the assets belonging to the deceased partner. It was observed that where on the death of the partner the partnership business was continued by the remaining partners, the representative of the deceased partner is entitled to a share of his predecessor-in-interest in the assets and to the profits attributable to the use of that share. Hence he is entitled to have accounts U/s.37 of the Partnership Act. It was held that the right of the legal representative is not right to share in the profits of the dissolved partnership within the meaning of Section 106 of the Limitation Act, 1908. It is a right accrued into him by subsequent dealing with the assets belonging to the deceased partner. Hence he can sue for the share of the assets of the business and for the profits which the Defendant made from the business after the death of the partner and the suit would not be hit by Section 106 of the Limitation Act.

38. In the case of Addanki Narayanappa and Anr. Vs. Bhaskara Krishnappa, AIR 1966 Supreme Court 1300 (V 53 C 251), the case of the property of the partnership firm came to be considered whilst the firm was going concern. A property brought into the partnership and which became the property of the firm was held to represent the money value of the property upon dissolution.

39. The firm would have no legal existence upon dissolution. The partnership property would vest in all the partners and further the partners would have interest in the property of the partnership. It is observed in paragraph 3 (iv) of the judgment thus :

No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership.

40. The question is when would the right to claim the interest that the partner has in the partnership property be exercised?

41. In the case of M.M. Valliammai Achi and Ors. V. Kn. Pl. v. Ramanathan Chettiar, AIR 1969 Mad 257, a suit for partnership accounts and a half share in the immovable property was filed by the heirs of a deceased partner. The property was acquired from the moneys due to the partnership and formed the assets of the partnership. The partner who was predecessor-in-title of the Plaintiff died in 1933. Other partners died in 1947. A suit for accounts was filed in 1959. It was the case of the Plaintiff that the suit property was withdrawn from the partnership and used by the Plaintiff and the surviving partners as co-owners. Relying upon Privy Council decision in the case of K. Gopal Chetty (Supra) it was held in a suit for accounts and the share of the assets of the firm, the former being barred, the latter would also stand barred. It was observed in paragraph 8 that:

The proper remedy of a partner in the circumstances is to have accounts taken to ascertain his share and if the right to sue for accounts is barred by limitation, the partner cannot sue any partner in possession of the assets for a share therein.

It was observed that suit was filed and the share in the items were claimed a quarter century after the death of partner, the properties could be dealt with by the surviving partner, one of whom was also died after the first partner. It was observed:

The silence for nearly quarter of a century is therefore significant.

42. The Court considered the case of Ahinsa Bibi V. Abdul Kader Saheb (1902), ILR 25 Mad 26, in which five partners carried on business. One of them died in 1890. No accounts were taken. No representatives of the deceased partner were taken into the partnership. The surviving partners continued the business and in 1891 one of the surviving partners was also died. No accounts were taken. No representatives of that partner were also taken in the partnership. The other surviving partners continued the business. In 1898 the legal representatives of the 2nd deceased partner sued for a share of the profits of the partnership. It was only because one of the Plaintiffs was a minor on the death of the partner in 1891 and on the date of the suit, that the case was held to fall U/s. 7 and 8 of the Limitation Act, 1908. The case of Nilmadhab Nandi V. Nirada Sundari Dasi, (Supra) was distinguished as not applicable to the facts of that case.

43. The Court considered that the business was continued and the profits were made by the use of the assets of the deceased partner in the dissolved firm and hence the right of the legal representatives was not in the share in the profits of the firm within the meaning of Article 106 of the Limitation Act. It was observed that when the business was continued and the firm made profits using the deceased partner's assets in the business, the cause of action can be taken to have in continued from day to day.

44. In this case the business is stated not to have continued. The property stands in the name of the partnership firm. Two of the partners and or their legal representatives have sued, the other six partners or their legal representatives. If the business has not continued and the firm has not continued to make profits utilising the partner's assets in the business, the position would be different.

45. In the case of Deoki Prasad Rajgarhiah Vs. Anar Dai Poddar, A 1999 Patna 22, the partnership was stated to be at Will so in fact carried on specific job for particular duration and no other venture was undertaken by the partnership. It was held that the such partnership could not be at Will and the suit for accounts of the partnership which stood dissolved beyond the period of three years during which no accounts were submitted or taken was held barred. In that case upon the construction work of a bridge having been completed, the partnership was observed to have come to an end with the end of the venture and hence was dissolved. It was observed that the Plaintiff did not show that the partnership had any other venture and was continued.

46. In this case the Petitioner accepts that there was no business of the partnership firm since many years and that only the suit property was taken in the name of the partnership and remained at that. The partnership is seen to have been dissolved beyond the period of three years. No accounts have been asked for or given. The analogy in the case of the Deoki Prasad (Supra) would apply. The claim for the share in the partnership property upon the dissolution which took place long years ago would stand barred as much as a suit for accounts as held in the earliest case of K. Gopal Chetty (Supra).

47. It was contended by Mr. Reis on behalf of Respondent Nos.3 to 5 that upon the dissolution of the firm the partners would be co-owners and hence can sue for partition and their share.

48. Salmond on Jurisprudence 12th Edition at Pg.45 has considered sole ownership and co-ownership thus :

It is not correct to say that property owned by co-owners is divided between them, each of them owning a separate part. It is an undivided unity, which is vested at the same time in more than one person. If two partners have at their bank a credit balance of £1,000, there is one debt of £1,000, owing by the bank to both of them at once, not two separate debts of £500 due to each of them individually. Each partner is entitled to the whole sum, just as each would owe to the bank the whole of the firm's overdraft. The several ownership of a part is a different thing from the co-ownership of the whole. So soon as each of two co-owners begins to own a part of the thing instead of the whole of it, the co-ownership has been dissolved into sole ownership by the process known as partition. Co-ownership involves the undivided integrity of what is owned.

49. The main differences between co-ownership and partnership have been set out in Lindley on the Law of Partnership, 15th Edition at Pg 79 thus :

1. Co-ownership is not necessarily the result of agreement. Partnership is.

2. Co-ownership does not necessarily involve community of profit or of loss. Partnership does.

3. One co-owner can, without the consent of the others, transfer his interest, or in the case of land his equitable interest, to a stranger, so as to put him in the same position as regards the other owners as the transferor himself was before the transfer, except that in the case of a transfer by a joint tenant the stranger will become a tenant in common, or in the case of land a tenant in common in equity with the other owners. A partner is in a much more restricted position.

50. In view of these differences the claim of the partner of the dissolved firm or his legal heirs or representatives as co-owners of the property is not prima facie shown. The claim is prima facie seen to be barred by the Law of Limitation.

51. Upon seeing that there is no written agreement to arbitrate and also that the claim is prima facie barred by Limitation, no arbitrator can be appointed.

52. Consequently the application is rejected.

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