1. The petitioner filed a suit for dissolution of partnership firm known as Messrs Punjab Rice Barkas and Flour Mills, Kaithal, and rendition of its accounts against respondent Tialk Raj and his wife Smt. Raj Rani, Tilak Raj defendant on appearance filed an application under S. 34, Arbitration Act, (for short called the Act) to stay the proceedings in the suit alleging that the arbitration agreement contained in Clause 11 of the partnership deed exists between the parties according to which all disputes touching the partnership affairs are referable to arbitration and that the matter regarding accounts of the firm already stands referred to Shri Amar Nath who was appointed the sole arbitrator by mutual consent of the partners. He also pleaded that no suit for dissolution was competent as the firm stood already dissolved.
The plaintiff contested the application and controverted the pleas raised though admitted the existence of the arbitration agreement. The principal contention raised to oppose the application was that Smt. Raj Rani being not a party to the agreement, the whole subject-matter of the suit was not referable to the arbitrator and as such the suit could not be stayed. The trial Court after recording evidence and hearing the parties held that the partnership was never dissolved prior to the filing of this suit but stood dissolved on the date the suit was filed. It further found that Shri Amar Nath was appointed the arbitrator to go into the accounts of the six running firms including the one in dispute and that the subject-matter of the dispute was never referred to him. Holding that the arbitrator was competent to go into the questions of embezzlement of funds and the benami nature of the property purchased by the defendant in the name of his wife under the arbitration agreement, further proceedings in the suit were stayed, its order having been affirmed in appeal by the learned Additional District Judge the plaintiff has come up in this revision.
2. The sole ground urged to assail the legality of the impugned order was that one of the substantial relief claimed in the suit is that some property purchased by Tilak Raj in the name of his wife Smt. Raj Rani had been purchased with the funds of the partnership and as such are the assets of the partnership and liable to be accounted for. This question cannot be decided in the absence of Smt. Raj Rani. As she is not a party to the arbitration agreement the question whether she is really the owner of the said properties or the same belong to partnership cannot be referred to the arbitrator. Thus one of the parties to the suit cannot be a party to the arbitration nor whole of the subject-matter of the suit can be adjudicated upon by the Arbitrator. In these circumstances the learned counsel contends that the court had no jurisdiction to stay the suit. In support of his contention he has relied on Middle East Trading Co., Bombay v. The New National Mills Ltd., Ahmedabad, AIR 1960 Bom 292, Asiatic Shipping C. (Pvt.) Ltd. v. P. N. Djakarta Lloyds, AIR 1969 Cal 374 The Chartered Bank v. Commissioner for the Port of Calcutta, AIR 1972 Cal 198 and Sheodatta Lonkaran v. Parkash Distributors, AIR 1954 Nag 289. In Asiatic Shipping Co.'s case (supra) the suit had been filed against the principal debtor and the guarantor. There existed arbitration agreement between the plaintiff and the principal debtor to which the guarantor was not a party. The application of the defendant to stay the suit was declined because no reference was possible against the guarantor. In the remaining three cases relied upon by the petitioner the prayer to stay the suit was declined on the ground that whole of the subject matter of the suit could not be referred nor the full relief claimed before the arbitrator. All these decisions, therefore, fully support the contention of the petitioner.
3. The learned counsel for the respondent, on the other hand, urged that the allegation of embezzlement and the benami nature of the purchases have been unnecessarily raised and Smt. Raj Rani joined as party simply to defeat the arbitration agreement and that the pleas have in fact no substance. Reliance for this contention was placed on Naresh Chand v. Ram Parshad. (1981) 83 Pun LR 58 and Srivenkateshwara Constructions v. Union of India, AIR 1974 Andh Pra 278. However, both the cases are distinguishable on facts and have no bearing on the present case. In Naresh Chand's case (supra) C. S. Tiwana, J. held that as neither the amount embezzled had been made known nor the actual person who embezzled it was mentioned, it appears that the allegations had been made simply to exclude the authority of the arbitrator. With these observations the prayer not to stay the suit was declined. The plea of fraud and embezzlement by itself is not sufficient to oust the jurisdiction of the arbitrator but where there are serious allegations in this regard the courts normally decline to stay the suits in exercise of their discretion because the arbitrator is not expected to dispose of such pleas satisfactorily. there was thus no such legal impediment in the way which could justify the declining of the application under S. 34 of the Act in this case.
4. In Srivenkateswara Construction's case (AIR 1974 Andh Pra 278) (supra) the plaintiff filed a suit against the Union of India for a money decree. He also impleaded Andhra Bank as defendant though no relief was claimed against it. The Union of India filed an application under S. 34 of the Act that the dispute and the claim raised in the plaint have to be decided by an arbitrator as per arbitration clause by which the contract between the parties was governed. One of the pleas raised to oppose the application was that the Andhra Bank being not a party to arbitration agreement the suit could not be stayed. This plea was rejected holding that the Andhra Bank had been joined unnecessarily in the suit against whom no relief was claimed and the whole subject matter of the suit could be adjudicated upon the arbitrator. Obviously, this decision as well is not of any help to the respondent nor it runs counter to the decisions cited by the learned counsel for the petitioner. The proposition of law, therefore, seems to be well settled that whenever all the necessary parties to the suit are not parties or whole of the subject matter of the suit is not covered by the arbitration agreement the suit cannot be stayed under S. 34 of the Act.
5. In the present case as noticed above one of the substantial reliefs claimed in the suit is that some of the properties in dispute were purchased by Tilak Raj benami in the name of Smt. Rah Rani, his wife and the same having been purchased with the funds of the partnership in fact belonged to it. This relief could not be granted in the absence of Smt. Raj Rani and she was, therefore, a necessary party to the suit. She being not a party to the arbitration agreement neither a reference could be made against her nor the arbitrator adjudicate upon her title concerning the properties of which ownership was claimed by her. The courts below thus acted illegally in accepting the application and staying the suit under S. 34 of the Act.
6. For the reasons recorded above, this petition is allowed and the impugned order set aside. No costs.
7. Petition allowed.