Jagannadha Rao, J.
1. The question that falls for consideration in this appeal relates to the power of the Court to grant stay under Section 34 of the Arbitration Act. 1940 in cases involving allegations of fraud or allegations affecting professional reputation.
2. The respondent filled the suit D. S. No. 580 of 1982 in the Court of the Subordinate Judge, Vijayawada for settlement of accounts of the 1st defendant firm ' Sri Venkateswara Estates' and for rendition of accounts and for allotting to the respondent his share of 10 paise in the property and in amounts that may be found due on settlement of accounts. He also alternatively claimed for dissolution of the said firm and settlement of accounts and for the appointment of a receiver. Originally there was a registered partnership deed dated 27-11-75 which is marked as Ex. B. 1 in these proceedings. The partnership was at will and consisted of 17 partners. One of the partners gave site of 6000 square yards for the purpose of construction of a commercial complex at Vijayawada. The plaintiff owned a Share of 10 paise while the remaining shares were owned by the other partners. On 1-10-1976 the partner who gave the site for the partnership relinquished his right. He also died subsequently on 8-10-1976. Thereafter a new partnership was formed on 21-10-76 under Ex. B.2 Which also consisted of 17 partners. It is stated that subsequently there were disputes between the partners. It is the case of the appellant who is the 2nd defendant that the plaintiff expressed his desire to retire form the business as per his letter Exx. A.4 dated 26-2-1982 and that there was a resolution passed by the partnership on 7-3-1982 accepting the said resignation. It also the case of the appellant that as per the receipt Ex. A.5. dated 31-3-1982 the respondent -plaintiff received a sum of Rs. 82,270-80 towards the amount due to him from the partnership was thereafter reconstituted on 7-4-1982 under another deed Ex.14 and that in the new partnership the plaintiff was not a partner. The plaintiff has disputed the letter Ex. A.4 as well as the resolution dated 7-3-1982 and the receipt Ex. A.5. According to him, he never retired from the business and he never executed any receipt. It is also his case that the minutes of the meeting dated 7-3-1982 were introduced into the minutes book by tampering and introducing fresh pages in replacement of certain pages in the book. The plaintiff wrote a letter Ex. B.4. on 8-5-1982 complaining that he was not furnished with any accounts and that the plaintiff was thinking of getting the firm dissolved. On 2-11-1982 under Ex. A.2. the plaintiff's lawyer issued a notice of dissolution of the firm with effect from 7-11-1982 the plaintiff was informed by the appellant that the plaintiff was paid a sum of Rupees 82,270-8- as per Ex. A.5. and the firm was reconstituted on 7-4-1982 as per Ex. A.14. It was stated that the plaintiff has bear the consequences in case he resorted to any proceedings. The plaintiff sent a rejoinder on 20-11-1982 as per Ex. B.6. denying the various allegations contained in Ex. A.15. thereafter the plaintiff filed the present suit on 30-11-1982.
3. It was at the stage that the appellant-2nd defendant filled I.A. Number 5336/82 under Section 34 of the Indian Arbitration Act 1940 (hereinafter referred to as the Act) praying the Court to pass an order staying the proceedings in the suit. It is stated in the affidavit filed in support of the said application that the plaintiff retired form the partnership, that he was duly paid for his share and that the firm was reconstituted, as mentioned above. It was further stated that the appellant and the other partners who issued the reply notice had informed the plaintiff that they were ready and willing to have the matter referred to arbitration and that the course and that they arbitration. They therefore prayed for stay of the suit.
4. The respondent-plaintiff filed a counter-affidavit stating that the arbitration clause was introduced into the partnership deed dated 21-10-1976 i.e. Ex. B. 2, without his knowledge and consent. It is further stated that the respondent reiterates the allegations in the plaint and that the defendants were guilty of not maintaining accounts, not convening meetings and was also guilty of malfeasance. It is averred that dissolution under Section 44(g) of the Indian Partnership Act can be directed only by the Court and not by the arbitrators. It is stated that the plaintiff never expressed his desire to retire from the firm and that therefore Ex. A-4 was not true, that the resolution was concocted and that the plaintiff did not receive any money. It was stated that several disputed questions of fact viz., about the retirement of the plaintiff, about the resolution accepting his retirement and about the payment of money arose in the case, that the arbitrators were not fit to decide the genuineness of signatures and whether the partnership was liable for dissolution. It was therefore contended that the arbitrators were not fit to decide these issues. It was also contended that the appellant was never ready and willing for arbitration as is clear from his reply Ex. A. 15 dated 17-11-82. It is also stated that as the stakes involved were very heavy the matter should not go to arbitrators. The allegation of the 2nd defendant that the appellant orally informed the plaintiff that they were ready and willing for arbitration was denied and for that purpose the reply notice issued by the appellant dated 17-11-1982 was referred to.
5. The respondent-plaintiff filed an additional counter stating that the arbitrators should not (be) permitted to decide questions of fraud, forgery, falsification of accounts and falsification of minutes book. It was stated that the arbitrators were not competent and trained to decide the questions of forgery.
6. The respondent-plaintiff also alleged in the additional counter that the appellant was blackmailing the plaintiff, that the plaintiff was a leading heart specialist of the medical profession enjoying great respect in society and that these serious charges on character made against the plaintiff cannot be decided by arbitrators.
7. the Court below rejected the appellant's (plaintiff's?) contention that the arbitration clause was surreptitiously included by the appellant in Ex. B. partnership dated 21-10-1976. It also rejected a contention of the plaintiff that the arbitration clause was vague. Coming to the allegations of fraud made against the appellant it pointed out that the plaintiff was contending that Ex. A.4 letter dated 26-2-1982 was forged by the appellant and other partners. It also referred to the minutes book Ex. A. 6 and pointed out that pages 31 to 58 appear to have been prima facie inserted into the minutes book by removing some of the sheets inasmuch as these sheets were in different colour than the other sheets in the book, that the margin on the top and on the left hand side is different from the other pages in the book and that the resolution dated 7-3-1982 relied upon by the appellant was contained at pages 42 to 44 of Ex. A. 6. It therefore held that there were mutual accusations between the parties; that whereas the plaintiff alleged fraud, forgery and tampering of the records against the appellant, the appellant accused the respondent of blackmail 'touching his integrity'. It came to the conclusion that the decision on the various questions arising in the suit as to facts as also to the question of fraud, forgery and tampering of accounts and relating to the integrity of the plaintiff involved intricate and complicated questions of law and that therefore the matter was better decided by the civil court. It adverted to contention on behalf of the respondent that the plaintiff was not ready and willing ofr the arbitration but did not give any specific finding on that question. In the result the Court below dismissed the application for stay filed by the appellant-2nd defendant.
8. It is against this order that the 2nd defendant has preferred this appeal.
9. In this appeal it is contended by Sri P. Ramachandra Reddy the learned counsel for the appellant-2nd defendant that the Court below has no doubt given a finding that prima facie the pages in the minutes book Ex. A. 6 were found to be tampered with but the lower court has refused stay only because complicated questions of law and fact including those relating to forgery, fraud and tampering of records arose in the case and that this approach was not justifiable. According to him, it is the privilege of the person against whom allegations of fraud are made to have his character vindicated in a civil court and that a person who alleges fraud does not have a right to obtain an adjudication of his allegations in the civil court. He also contended that the rule that prima facie proof of fraud is sufficient for an enquiry by a civil court was not applicable in India even though such a principle is known to the English law of arbitration in view of the amendment in the English statute in 1934.
10. On the other hand it is contended by the learned Additional Advocate General Sri E. Manohar, appearing for the respondent-plaintiff that there are serious allegations against the plaintiff affecting his professional reputation as a doctor and that therefore the plaintiff was entitled for an open enquiry in a civil court. While conceding that it is the privilege of the person against whom allegations of fraud are made to have his character vindicated in a civil court, he argued that in this case the allegations against the plaintiff involved his professional reputation and therefore the plaintiff was entitled for an enquiry in the civil court. Alternatively he argued that the allegations made by his client against the defendants related to forgery, fraud and falsification of minutes book and accounts and that in cases where there was prima facie proof in that regard, the English rule in favour of the charging party was equally applicable in India. Another contention raised by him was that plaintiff was never ready and willing for the arbitration at the commencement of the suit. He also argued that hate suit involved an alternative relief of dissolution of the firm which was a power vested in the civil court under Section 49(g) of the Partnership Act and that therefore the arbitrators could not be entrusted with the power to decide whether dissolution was necessary on the facts of the case. In any event the appellate court cannot interfere with the discretion of the lower Court granting stay, according to him.
11. On these rival contentions, the question that arises for consideration in this appeal is : Whether the discretion exercised by the lower Court in refusing to grant stay under Section 34 of the Arbitration Act is liable to be interfered with by this Court.
12. Before adverting to the main question mentioned above it will be necessary to briefly refer to the principles of law in the context of Sec. 34 of the Arbitration Act in cases where allegations of fraud or allegations involving professional reputation are made.
13. The leading case on this subject is the one in Russel v. Russel, (1880) 14 Ch D 471. In that case one of the defendants issued a notice to the plaintiff desiring to dissolve a partnership on the expiration of three calendar months. The plaintiff issued a reply making various charges, of fraud against the two defendants and claiming a declaration that the above notice of dissolution was void and for an injunction. The charges of fraud were denied by the defendants. The case was governed by Section 11 of the Common Law Procedure Act, 1854. Referring to the plaintiff's desire to exclude arbitration, Sir George Jessel, the Master of the Rolls observed at page 477 :
'Does the party charging fraud desire it, or the party charged with the fraud desire it? When the party charged with the fraud desires it, I can perfectly understand the court saying 'I will not refer your character against your will to a private arbitrator.'
Referring to the case of a person charging fraud and desiring to exclude arbitration, it was observed :
'His character is not at stake, and the other side may say, 'The very object that I have in desiring the arbitration is that the matter shall not become public. It is very easy for you to trump up a charge of fraud against me, and damage my character, by an investigation in public'...............I must say that I am by no means satisfied that the mere desire of the person charging the fraud is sufficient reason for the Court refusing to send the case to arbitration.
It may be that that must depend, upon the circumstances of the case, not forgetting both the evidence before the court when the motion is made, and the nature of the charge that is actually made ...............'
This was explained further at page 481 of the report as follows:-
'There must be sufficient prima facie evidence of fraud, not conclusive or final evidence, because it is not the trial of the action, but sufficient prima facie evidence.'
On the facts the prima facie proof was held not made out and the proceeding was stayed.
14. In Minifie v. The Railway Passengers Assurance Co., 44 LT 552. Pollock J., speaking for himself and for Stephen J., referred to the above case and observed:
'........................ if the person charging the fraud does not desire a reference, the Court ought to investigate the circumstances, and may, on a prima facie case refuse the order.'
But held that in cases where the persons charged with fraud desired to avoid the arbitrator, stay was to be refused 'as a rule',
15. Romer, J., in Barnes v. Youngs, (1898) 1 Ch 414 was dealing with a case where it was alleged that the power of expulsion of the plaintiff was not exercised bona fide by the defendants, the deed providing for issuing such a notice when a partner was guilty of immorality or other scandalous conduct. It was held:
'There was an additional ground on which arbitration should not as matters stand, have been directed - that there was a charge by the plaintiff that the defendants did not exercise their power of expulsion bona fide. That was a charge which, had it arisen for decision, would have been better dealt with in Court. I therefore make no order upon the motion to stay . . . . . . . .' and stay was refused.
16. The Common Law Procedure Act, 1854 of England contained in Section 11 thereof, a procedure for stay of proceedings initiated in the Court. Thereafter the English Arbitration Act, 1934 was passed as an act to amend the law relating to arbitration. It contained a special provision in sub-clause (2) of Section 14 that where the dispute involved a question whether any such party had been guilty of fraud, the Court should so far as may be necessary to enable that question to be determined by the Court, have power to order that the agreement shall cease to have effect and power to give leave to revoke any submission thereunder.
17. The said provisions were replaced by the English Arbitration Act, 1950. Section 4 thereof contains the general power of Court to grant stay. Section 24 of this Act (corresponding to Section 14 of the 1934 Act) in sub-clause (2) thereof provides that in cases where an issue of fraud arises, the High Court shall have power to order that the agreement shall cease to have effect etc.
18. It will thus be seen that since 1934, the English law of Arbitration granted to the Court not only a general power to grant stay but also stated that in case where fraud was alleged, the Court shall have power to refuse arbitration. The language of the staute did not however direct that they shall be refused but only directed that the Court shall have power to refuse stay.
19. adverting to these special provisions Russel states in his book 'The Law of Arbitration' (18th Ed 1970) as follows:-
'Even where there is a question of fraud, the Court contains a full discretion to stay or not. It may be however that in view of Section 24 the Court will be less inclined to order stay in such cases than it was before 1934, when the provisions of that section were introduced.'
That would mean that after 1934, in cases involving an issue of fraud, the Court would be more incined to have the matter adjudicated in the Court than before 1934.
20. Coming to allegations which tend to affect professional reputation of one of the parties (and even of the plaintiff) which may not amount to an allegation of fraud, Ponnycuick V. C. in Radford v. Hair (1971) 2 All ER 1089 observed:-
'The principles must be equally applicable in a case where actual dishonesty is alleged, even though the word 'fraud' is not mentioned and that must be at least as such as in the case where professional reputation is involved, as in any other case . . . . . I conclude that the plaintiff is entitled to have this case tried by a Judge in open Court so that he can meet these allegations of dishonesty against him.
The learned Judge stated that the same principles apply to cases of allegations of negligence, impropriety and dishonesty affecting professional reputation of a person. This extension in principle was based upon the judgment of Viscount Simon L. C. in Charles Osenton & Co. v. Johnston (1941) 2 All ER 245 : (1942) AC 130.
21. The professional reputation of the plaintiff was again involved in Turner v. Penton, (1982) 1 All ER 8 Warner, J. while refusing stay and while holding that arbitration was not desirable. Held :-
'There is, however, a clear vindication in Charles Osenton & Co. v. Johnston ( (1941) 2 All ER 245) that, where a professional man's reputation is at stake, he ought to have the benefit of a trial in the High Court. It is, at the end of the day, a matter of discretion, and I have come to the conclusion that in this case the plaintiff ought to be allowed to proceed with his action in this court.'
22. We shall now refer to a few rulings arising under the Indian Arbitration Act.
23. The Supreme Court in Printers (Mys) Private Ltd., v. P. Joseph : 3SCR713 speaking through Gajendragadkar, J. (as he then was) was dealing with the right of the party charged with fraud. It was observed at page 1159:-
'xxx . . . . . . . . If fraud or dishonesty is alleged against a party it may b4e open to the party whose character is impeached to claim that it should be given an opportunity to vindicate its character in an open trial before the Court rather than before the domestic tribunal . . . . . .' Earlier, a Division Bench of the Andhra Pradesh High Court in Andhra Co-operative Spinning Mills v. C. Srinivasan, AIR 1958 Andh Pra 158 had accepted the same rule with regard to the right of the person charged with fraud, even though the provisions of Section 14 (2) of the English Arbitration Act, 1954 are not adopted in India. Another Division Bench of our High Court dealt with the question of 'fraud' in Raja Picture Palace v. M. Jagga Rao, : AIR1981AP410 . While noticing that the plaintiff alleged fraud against the defendants the learned Judges refused to grant stay and relied upon ruling of the Calcutta High Court in R. E. Works Ltd. v. Union of India, : AIR1972Cal281 , for the proposition that where fraud is alleged against the petitioner, the suit should not b e stayed.
24. The above cases did not have occasion to deal with the question of the right of the charging party to move the Civil Court.
25. We shall now deal with cases where that question was considered.
26. The Calcutta High Court laid down that where there was prima facie proof of fraud, against the petitioner, stay should be refused - vide Manindra Chandra v. Low & Co., AIR 1924 Cal 796; Ballavdas Acharya v. Shyam Sundar, ILR (1946) 1 Cal 203 and Nitya Kumar v. Sukhender, : AIR1977Cal130 following Russel v. Russel (1880-14 Ch D 471). Recently in General Enterprises v. Jardine Henderson Ltd., : AIR1978Cal407 reference was made to Russel v. Russel elaborately on the question of prima facie proof of fraud by Sabyasachi Mukharji, J. (as he then was) who stated :
'Having regard to the nature of the allegations of fraud and having regard to the facts averred, in my opinion, it cannot be said that there was no prima facie evidence of fraud'.
And stay was refused. In Champa Pictures v. Md. Ibrahim, : AIR1981Cal89 the Division Bench granted stay as it felt that such prima facie proof was wanting and it felt that allegations of fraud were set up only for the purpose of getting out of the arbitration clause.
27. The Madras High Court in C. D. Gopinath v. Gordon Woodroffe & Co., ILR (1980) 1 Mad 184 : 92 Mad LW 531, also referred to Russel v. Russel (1880-14 Ch D 471) and stated :
'the party against whom the charge is made will have the option to go either before the arbitrator or before the Court. However if the objections to arbitration is by the party alleging the fraud the Court will not necessarily accede to it, unless a prima facie case of fraud is established by him.'
The case was held not only to satisfy the test of prima facie proof but also another extended test laid down by the said Bench i.e. the absence of 'recklessness' in making the allegations of fraud.
28. Therefore from these rulings a plaintiff's right to move the civil court by making out a prima facie case of frauyd is now fairly well-settled.
29. From the aforesaid rulings, the following principles of law can be summarised. In an application for stay under Section 34 of the Arbitration Act, 1940 in a case involving allegations of fraud, the person against whom fraud is alleged has an option to have the matter decided by the civil court to vindicate his conduct in a regular trial in the civil Court. If the party charged is the plaintiff against whom such allegations have been made the plaintiff is equally entitled to have the matter decided by the Civil Court. However a plaintiff who charges fraud against the defendant cannot insist on a trial in Court unless the plaintiff makes out a prima facie case that the defendant has played fraud. Cases involving allegations of professional/occupational negligence, impropriety or dishonesty shade into one another and the above principles applicable to cases of allegations of fraud equally apply to such cases.
30. On account of the several rulings above stated we are not prepared to agree with the learned counsel for the appellant Sri P. Ramachandra Reddy that the Supreme Court in Printers (Mys.) Private Limited v. P. Joseh : 3SCR713 has not accepted the principle that in cases of prima facie proof of fraud, the matters are to be decided by suit. In our opinion the said question did not arise in that case. Nor can we say that their Lordships had intended to enumerate exhaustively all the situations where stay has to be refused under Section 34. We do not also agree with him that the pre-1934 Law of England does not accept this principle. We have also shown that the English law after 1934 did not make it mandatory for the Court to refuse stay in cases involving allegations of fraud. The amendment continued to retain the Court's discsretion even after 1934 btu the Court was more free to refuse stay than before 1934. In our opinion the principles adumbrated by Jessel M. R. In Russel v. Russel (1880-14 Ch D. 471) therefore continue to hold the field so far as the Indian Arbitration Act, 1940 is concerned. The ruling in Andhra Co-operative Spinning Mills v. C. Srinivasan (AIR 1958 Andh Pra 158) did not, in our view, lay down anything different from what we have stated above.
31. Applying the above principles of law to the facts of the case, we agree with the lower Court that the plaintiff has made out a prima facie case that the defendants have tampered with the crucial pages in the minutes-book. Ex. A. 6. That finding is sufficient to entitle the plaintiff to have the matter tried in a suit notwithstanding the fact that the person charged with these allegations has opted not to have the case tried in a civil Court.
32. Coming to the alternative contention raised by the respondents' counsel that there are allegations against the professional reputation of the plaintiff giving him an option for a trial by suit, we are of the view that unlike in the cases in Radford v. Hair (1971-2 All ER 1089) and Turner v. Penton (1982-1 All ER 8), there are here the allegations impinging upon the plaintiff's professional status as a member of the medical profession. Hence while we accept the principle in law, we reject the respondent's contention on facts. Such a contention was, in fact, not argued in the Court below.
33. The respondent is entitled to succeed on another ground too. Section 34 of the Indian Act stipulates that the applicant who prays for stay, must have been ready and willing, at the commencement of the proceedings and still remain to be ready and willing to do all things necessary for the proper conduct of the arbitration vide Anderson wright Ltd. v. Moran & Co., : 1SCR862 . Where a party remains silent when the plaintiff sent him a notice under S. 80 C. P. C. that by itself may not, without more, disentitle him to seek stay under Section 34 vide State of Punjab v. Geeta Iron & Brass Works Ltd. : 1SCR746 . But when a party maintains silence in the face of repeated requests by the other party for arbitration, the case is not one of 'mere inaction' but is one of positive gesture signifying unwillingness or want of readiness to go to arbitration. (Food Corporation of India v. Thakur Shipping Co., : 3SCR146 )
34. In Sri Venkateswara Constructions v. Union of India : AIR1974AP278 relied on for the appellant it was no doubt stated that such readiness or willingness need not be expressly shown as existing before the suit. We are of the view that in that case the defendant's notice expressly referred to arbitration and therefore the above observations are in the nature of an obiter and are too broadly stated.
35. On the facts of the present case, the plaintiff issued Ex. A. 2 notice dated 2-11-1982 informing the defendant that the plaintiff is dissolving the firm with effect from 7-11-1982, that the defendant is required to render accounts, failing which the plaintiff would be constrained to take necessary action for the reliefs he is entitled to under law together with costs of the case. The defendant-appellant replied as per Ex. A. 15 dated 17-11-82 stating that if the plaintiff chose to take action for the reliefs abovesaid, the plaintiff will be doing so at his own risk and peril. The plaintiff then got issued Ex. B. 6 (Ex. A. 3) registered notice dated 20-11-82 stating that the plaint was already prepared on 14-11-1982 and that the plaintiff is filing the suit. The suit was filed on 30-11-1982.
36. In the affidavit filed along with the application under Section 34, the defendant specifically pleaded that the defendant and others informed the plaintiff orally that they were ready and willing for arbitration. As already stated, the said allegations that the plaintiff was so orally informed was denied in the counter of the plaintiff in para 26 and it was further stated that the appellant came forward with this plea because the appellant was conscious of the absence of such an averment in Ex. A-15 dated 17-11-82.
37. In the light of the above positive case set up by the appellant for which there is neither proof nor adequate support in the reply notice Ex. A. 15 dated 17-11-82, we hold that the appellant did not so inform the plaintiff. We are therefore of the view that the appellant was not ready and willing at the commencement of the proceedings for arbitration.
38. It is however contended for the appellant that Ex. A. 2 dated 2-11-82 did not specifically speak of arbitration. But, in our opinion, the plea of the defendant in the affidavit about their orally informing the plaintiff implies that the appellant clearly understood the plaintiff as moviung the civil court. In any event, any ambiguity in this regard was clearly removed by the further notice Ex. B. 6 (Ex. A. 3) of the plaintiff dated 20-11-82 which clearly referred to the suit. Hence we reject this contention raised on behalf of the appellant.
39. The above grounds namely, the prima facie proof of fraud made out by the plaintiff and the absence of readiness or willingness of the appellant at the commencement of the proceedings are, in our view, sufficient to dismiss this appeal.
40. The respondent's counsel has however referred to Oliver v. Hillier (1959) 2 All ER 220 followed. In P. Subbarao v. M. Veeraiah (1979) 2 Andh LT 380 and the Calcutta, Madrass rulings cited therein for the view that the question of dissolution of partnership as per the alternative case, is one for the Civil Court under Section 44(g) of the Partnership Act. On the other hand, it is contended for the appellant that the arbitrator can equally pass an award for dissolving a firm. While we see force in the contention of the appellant (in) answer to the respondent's (alternative case) we do not feel called upon to go into this question in view of our conclusions on other points in favour of the respondent.
41. WE do not also agree that the case raises complicated questions of fact or the whenever such questions arise the arbitrator is not competent to decide them. No authority has been cited before us to justify this principle. The law only says that when complicated questions of law or questions of constitutional law arise, an arbitration will be refused. In our view, this case does not raise any questions of that category. Nor can we accept the plea for the respondents that the stakes are too high and therefore arbitration has to be avoided.
42. However, for the reasons mentioned above, we are of the view that no case is made out for interfering with the discretion exercised by the court below in refusing to stay the suit.
43. The appeal therefore fails and is dismissed but in the circumstances without costs.
44. Appeal dismissed.