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Smt. Sailabala Biswal and anr. Vs. Akshaya Kumar Routray - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberMisc. Appeal No. 75 of 1981
Judge
Reported inAIR1981Ori198; 52(1981)CLT203
ActsArbitration Act, 1940 -Sections 2, 8 and 20
AppellantSmt. Sailabala Biswal and anr.
RespondentAkshaya Kumar Routray
Appellant AdvocateM.R. Panda, ;J.K. Tripathy, ;C.S. Dash and ;S.K. Dash, Advs.
Respondent AdvocateG.C. Jena and ;K.C. Kar, Advs.
DispositionAppeal dismissed
Cases ReferredIn Arjun Agarwalla v. Baidya Nath Roy
Excerpt:
.....out that the application under section 8 of the act was not maintainable, the plaintiff having filed the application under section 20 and thereafter not pressing his application under section 8, will not preclude him from proceeding with the application under section 20. there is no dispute between the parties that the application under section 8 was not maintainable and the petition was misconceived. at that time, the appellant changed his mind and did not like to proceed with the arbitration. the discussions made above will clearly show that there was no bar for the plaintiff to file the present application under section 20 of the act. section 141 of the code of civil procedure clearly says that the provisions of the code of civil procedure are applicable to other proceedings as..........the plaintiff has not retired from the partnership firm.5. undisputedly, the plaintiff originally filed an application under section 8 of the arbitration act. the defendants raised objection that the application under section 8 of the act was not maintainable and the plaintiff, therefore, filed the present application under section 20 and did not press his application under section 8.6. the defendants vehemently asserted in the trial court as well as in this court that the partnership agreement (ext. 2) was not properly executed and it came into existence by undue influence, and misrepresentation. there is no such pleading in the objection filed in the trial court. on the other hand, the defendants have admitted the existence of the partnership agreement. in paragraphs 6 and 7 of the.....
Judgment:

N.K. Das, J.

1. Defendants are appellants against an order directing appointment of two arbitrators for disposal of the disputes to be referred to them by the Court who will choose an umpire, on a petition filed under Section 20(1) of the Arbitration Act.

2. The case of the plaintiff is that in 1974 he submitted a scheme to the Small Industries Service Institute and the Director of Fisheries. The plaintiff was the sole proprietor of the scheme The scheme was approved and was registered by the Director of Industries. The plaintiff thereafter applied to the Orissa State Financial Corporation for sanction of loan. The State Financial Corporation suggested that a partnership firm should be formed for the purpose oil sanction of the loan. A partnership firm was constituted with the plaintiff and the defendants as partners the plaintiff having 51% share; defendant No. 1 having 31% and defendant No. 2 having 19% (18%?) share in the firm. The defendants are very close relations of the plaintiff and they were taken as partners at their own request. The firm was also registered. Towards the end of July, 1978, the plaintiff fell ill and he entrusted the work of production and sale of the ice-blocks to defendants on 1-8-1978 for two months and directed them to pay him the sale proceeds. On 25-9-1978 the plaintiff demanded payment of the sale proceeds lying with the defendants. But the latter though promised to pay the same within 2/3 days, in fact, did not pay the same.

On 29-9-1978 the workers of the firm approached the plaintiff alleging that they had been dismissed by the defendants and their husbands. When the plaintiff came to enquire about this, the husband of defendant No. 2 and the defendants hurled a sharp edged knife towards the plaintiff and threatened to kill him. The defendants with the help of their husbands declined to render any accounts of the sale proceeds; they dismissed the workers of the firm without any authority and wanted to oust the plaintiff from the firm. Therefore, the plaintiff issued a notice to the defendants on 27-5-1979 to show cause why they should not be expelled from the partnership firm. The plaintiff also issued a notice to the defendants requesting them to refer the disputes arising between them for disposal by arbitrators and to name one of the arbitrators for the purpose. The defendants then sent a reply stating that there was no dispute among them and, as such, there was no necessity to refer any matter to arbitrators. Hence, the suit.

3. The defendants filed a joint written statement denying the allegations of the plaintiff. They have averred that the partnership agreement contains several items which are contrary to law and cannot be enforced. They have invested the entire amount for the firm and also paid money on behalf of the plaintiff. As the plaintiff is a close relation of the defendants, he has exploited the relationship. They further allege that the partnership constituted by the plaintiff and the defendants is no longer in existence as the plaintiff has voluntarily retired. The defendants have thereafter reconstituted another partnership firm taking the husband of defendant No 2 as one of the partners. On these grounds they claim that as the plaintiff has ceased to be a partner, he cannot take recourse to Section 20 of the Arbitration Act and that there are no disputes between them.

4. The trial Court has held that Ext. 2, the partnership agreement, is a genuine and valid document; that disputes have arisen between the partners and that by virtue of the terms of the partnership agreement the disputes are to be referred to arbitrators. It has further been held that the plaintiff has not retired from the partnership firm.

5. Undisputedly, the plaintiff originally filed an application under Section 8 of the Arbitration Act. The defendants raised objection that the application under Section 8 of the Act was not maintainable and the plaintiff, therefore, filed the present application under Section 20 and did not press his application under Section 8.

6. The defendants vehemently asserted in the trial Court as well as in this Court that the partnership agreement (Ext. 2) was not properly executed and it came into existence by undue influence, and misrepresentation. There is no such pleading in the objection filed in the trial Court. On the other hand, the defendants have admitted the existence of the partnership agreement. In paragraphs 6 and 7 of the written statement (objection), the defendants have admitted the existence of the partnership agreement as also the disputes between the parties. Ext. 5 is the notice sent by the plaintiff to the defendants for referring the disputes to arbitrators. Ext. 6 is the reply to Ext. 5. The only assertion in the reply is that there was no dispute between the parties and, as such, there was no question of reference. It would thus appear that the only question was the existence of disputes to be gone into. The agreement Ext. 2 is a registered document which would show that both parties understood the contents. Ext. 14 is the written objection filed by the defendants to the petition of the plaintiff filed under Section 8 of the Arbitration Act. In this objection, the defendants have contended that the remedy of the plaintiff was to file an application under Section 20 of the Act and, as such, they admitted the existence of the agreement. This Ext. 14 was filed and verified by the husband of defendant No. 1 who has stated therein that he was looking after the case on behalf of defendant No. 1. In the present appeal, the application for stay is also supported by an affidavit of the husband of defendant No. 2.

P. W. 1, the plaintiff, has stated on oath about the execution of the partnership agreement. I have already described that in the written objection filed by the defendants there is no plea of any undue influence, coercion or that the defendants executed the document without knowing the contents thereof. In cross-examination, it has been elicited from the plaintiff (P.W. 1) that the contents of the documents were explained to the defendants, who, after understanding the same, executed the same. The husband of the defendants were also taking active part in execution of the document. The plaintiff has further asserted in his evidence that the husbands of the defendants are Government servants. In such circumstances, it cannot be believed that the defendants executed the partnership agreement without knowing the contents of the same. The trial Court has elaborately discussed the evidence in this respect. For the aforesaid reasons. I am in agreement with the findings of the trial Court that there exists a partnership agreement between the parties for running the business.

7. The next contention of the defendant-appellants is that the plaintiff filed an application under Section 8 of the Arbitration Act and during the pendency of that application he filed the present application under Section 20. Thus, this application under Section 20 of the Act is not maintainable during the pendency of the application under Section 8. It is contended by the plaintiff-respondent that the petition under Section 8 of the Act was under misconception. When the defendants objected to the maintainability of that petition the plaintiff filed the application under Section 20 wherein he has also mentioned that the proper provision is Section 20; Ext. 14 is the objection filed by the defendants to the petition of the plaintiff under Section 8 of the Act. It was contended in Paragraph 8 of Ext. 14 that the only remedy of the plaintiff was to file the application under Section 20 of the Act. Accordingly, the plaintiff has filed the present application and did not press his application under Section 8. Section 8 of the Arbitration Act provides only for appointment of arbitrator either by consent of parties, or by Court. But Section 20 of the Act relates to filing of the arbitration agreement and after hearing the parties for reference of the disputes to the arbitrator. It has been held by a Division Bench of this Court that a plain reading of Section 20 shows that before a person applies under Section 20, four conditions have to be satisfied, namely:--

(a) there is an arbitration agreement between him and some other person;

(b) the agreement has been entered into before the institution of any suit with respect to the subject matter of the agreement;

(c) a deference has arisen between the parties to which the agreement applies; and

(d) the Court to which the application is made has jurisdiction in the matter to which the agreement relates. It has further been held in the said decision that the words 'instead of proceeding under Chapter II'' in Sub-section (1) of Section 20 suggest that the remedy provided in that Section is alternative to that provided in Chapter II of the Act (See Orissa Co-operative Insurance Society Ltd. v. Chandanlal Agarwala, (1973) 1 Cut WR 949).

In Maheswari & Co. Pvt. Ltd. v. Corporation of Calcutta, AIR 1975 Cal 165, question arose if an application under Chapter II of the Act has already been filed, an application under Section 20 would not be maintainable. It was held that Sub-section (1) of Section 20 of the Act does not exclude operation of the other provisions of Section 20 in so far as these are applicable even in a case where parties have chosen to make a reference and proceed with arbitration under Chapter II of the Arbitration Act. Sub-section (4) of Section 20 is clear indication of the fact that where arbitration agreement is filed the court can and has a right to make either an order directing the arbitration to proceed in accordance with the arbitration agreement by the parties or appoint an arbitrator directly which is a consequential order following from the filing of the arbitration agreement. Chapter II of the Arbitration Act does not deal with filing of arbitration agreement. Therefore, in so far as Section 20 in its substantive provision deals with rights of the parties for filing of arbitration agreement, there is no parallel provision in Chapter II of the Arbitration Act. In such a situation, no question of having exercised option by the parties arises. Reliance has been placed by the Calcutta High Court for the aforesaid observation on Dhanrajamal Govindaram v. Shamji Kalidas & Co., AIR 1961 SC 1285.

In view of the aforesaid dictum of this Court as well as the Calcutta High Court and the fact that when the defendants pointed out that the application under Section 8 of the Act was not maintainable, the plaintiff having filed the application under Section 20 and thereafter not pressing his application under Section 8, will not preclude him from proceeding with the application under Section 20. There is no dispute between the parties that the application under Section 8 was not maintainable and the petition was misconceived. If the application was not maintainable, then there was no valid application pending before the Court. This will not debar the plaintiff from filing an application under Section 20 of the Act.

8. Reliance has been placed on behalf of the appellants on Ravu Venkata Surya Rao v. Ravu Venkata Rao, AIR 1963 Andh Pra 286. This was a case where a preliminary decree had been passed on a compromise and partition had been effected amicably. Thereafter, there was an agreement for reference to arbitrator. The arbitrator had already entered on the reference and the parties had filed their statements. Some adjournments were also taken. At that time, the appellant changed his mind and did not like to proceed with the arbitration. Before expiry of 4 months, the appellant gave notice to the arbitrator asking him not to proceed with the arbitration. Long time thereafter, an application was made to the court. Relating to Section 20 of the Act, it has been observed as follows (at p. 287):--

'The Sub-clauses (4) and (5) furnish clear indicia of the appropriate stage at which the provisions of Section 20 can be availed of. It is manifest that they are to be availed of before an arbitrator has entered on reference.' It was further held in that case (at p. 287) :

'The arbitrator appointed by the parties admittedly entered on reference. His authority could not be revoked under the clear provisions of Section 5 except with the leave of the Court which was not obtained.' It would thus appear that the facts and circumstances of the case are not applicable to the present case.

The appellants have also relied on Ramvallabh Tibrewalla v. Dwarka Das and Co., AIR 1966 SC 402. That was a case in which an arbitration agreement was entered into while the suit was pending. Therefore, the Supreme Court came to the conclusion that if an arbitration agreement is entered into while a suit is pending, the agreement cannot be enforced under Section 20. The facts and circumstances are absolutely different from the facts and circumstances, of the instant case.

Reliance has also been placed by the appellants on Union of India v. Om, Prakash, AIR 1976 SC 1745. It was held in that case that it is clear from the provisions of Chapter II that after the appointment of arbitrator, the proceedings are to be outside court, and up to the stage of filing the award intervention of court is not contemplated unless any occasion arises requiring the court to remove the arbitrator under Section 11.

The appellants have further relied on Wazir Chand Mahajan v. The Union of India, AIR 1967 SC 990. The facts and circumstances of this case are not applicable to the instant case. That case related to question of limitation applicable to applications under Section 20 of the Arbitration Act.

In view of the decisions discussed above, which have been explained by a Division Bench of this Court, I hold that the petition under Section 20 of the Arbitration Act is maintainable.

9. The next contention of the appellants is that the respondent did not press the application filed under Section 8 and no leave was granted for instituting the present case and, as such, the application is not maintainable. The discussions made above will clearly show that there was no bar for the plaintiff to file the present application under Section 20 of the Act. Section 141 of the Code of Civil Procedure clearly says that the provisions of the Code of Civil Procedure are applicable to other proceedings as far as practicable. In the instant case, there was no scope for the plaintiff to abandon the entire claim or to part with any claim while withdrawing the case. It has been specifically mentioned in the application under Section 20 of the Act that the application under Section 8 was not maintainable. The stand taken by the present appellants is also that the application under Section 8 was not maintainable. In view of these facts and circumstances, I hold that there was no bar on the part of the plaintiff to file the present application.

10. The appellants contend that the agreement was unworkable. It is well settled that reference cannot be made on an agreement which is invalid. An invalid agreement is an agreement which is void ab initio, i.e. that the agreement was against public policy or is against any provision of law, or is tainted with fraud, misrepresentation or coercion. I have already held that the appellants have not taken the stand of fraud, misrepresentation or coercion in their objection filed in the trial court. In view of such circumstances, the conclusion should be that the agreement is not invalid. It is further contended that the term of appointment of the arbitrators is also confusing. The term in the agreement (Ext. 2) about the appointment of arbitrators can be covered under Section 10 of the Arbitration Act, There are two parties in this case --plaintiff is one party and both the defendants are one party. Both the parties have also fought out this litigation on that stand. Their case in the trial court as well as in the agreement is that the plaintiff is one party and the defendants are the other party. In view of this position, no prejudice is caused to the defendants at all, inasmuch as they have been constantly taking this stand. According to Section 10, if two arbitrators are appointed, both the arbitrators can appoint one umpire and the decision can be given by them. The trial court has also based his order according to the terms of Section 10 of the Arbitration Act. In view of this position, I, do not find anything wrong in the decision of the trial court.

11. It is contended by the appellants that the partnership does not exist and the plaintiff has already retired from the partnership. The trial court, after discussing the materials available on record has come to the conclusion that the partnership of the plaintiffs and defendants still exists. Whether the partnership exists or not, is a question which can be decided by the arbitrators.

In Arjun Agarwalla v. Baidya Nath Roy, AIR 1980 Cal 354, it has been held that whether the firm has been dissolved or not is a dispute between the partners relating to the partnership and, as such, an arbitrator can decide that question. The disputes between the parties arising in the instant case are; The plaintiff states that the defendants have appropriated the income of the business and they are not rendering accounts; and the stand taken by the defendants is that the plaintiff is no longer in the partnership and they are not liable to render any accounts. There is allegation of misappropriation by the defendants, These are all disputes arising out of the partnership agreement and, as such, the arbitrators have jurisdiction to go into that question.

All the contentions raised by the appellants fail.

12. In the result, the appeal fails and is dismissed. In the circumstances of the case, there will be no order as to costs.


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