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Angoori Devi Vs. Sardari Lal - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberCivil Revision Appeal No. 930 of 1981
Judge
Reported in28(1985)DLT4; 1985RLR288
ActsArbitration Act, 1940 - Sections 6
AppellantAngoori Devi
RespondentSardari Lal
Advocates: V.B. Andley,; Rajinder Mathur,; Vasudha Indurkar and;
Cases ReferredDwarka Nath Kapur v. Rameshwar Nath
Excerpt:
.....on the death of one of the partners, the firm stood dissolved - in view to the said clause, the legal representatives of the deceased filed a suit for rendition of the account and payment of the shares and profits - as a result, the other partners claimed the stay of the suit - it was stated that the legal representatives of the deceased were under the protection of the court rather than subjected to the arbitration as the arbitration could result in denial of the adjudication - it was held that the revision petition in reference to the said suit was acceptable and the stay order was discharged - - it also appears that when a situation like the present occurs then section 37 of the partnership act operates and the legal representatives of a deceased partner have additional rights..........a suit for rendition of accounts and payment of shares and profits, etc. which was filed by the legal representatives of shri kali ram. it appears that there was a partnership in which shri kali ram deceased was a partner. on the death of shii kali ram that partnership stood dissolved. on the dissolution of the partnership, the legal representatives claimed that they were entitled to get their share from the accounts of the firm and assets and properties thereof. this was the object of the suit. the plea raised on behalf of other partners, who were defendants to the suit was that the suit should be stayed under section 34, as there was an arbitration clause in the partnership deed. the wording of the said clause is as follows : 'if any dispute arises amongst the partners, it shall be.....
Judgment:

D.K. Kapoor, J.

(1) This is a revision directed against an appellate order passed under the Arbitration Act, 1948 whereby an order passed under Section 34 refusing the stay of the suit has been reversed and the suit has been ordered to be stayed.

(2) The learned Sub Judge was trying a suit for rendition of accounts and payment of shares and profits, etc. which was filed by the legal representatives of Shri Kali Ram. It appears that there was a partnership in which Shri Kali Ram deceased was a partner. On the death of Shii Kali Ram that partnership stood dissolved. On the dissolution of the partnership, the legal representatives claimed that they were entitled to get their share from the accounts of the firm and assets and properties thereof. This was the object of the suit. The plea raised on behalf of other partners, who were defendants to the suit was that the suit should be stayed under Section 34, as there was an arbitration clause in the partnership deed. The wording of the said clause is as follows : 'If any dispute arises amongst the partners, it shall be decided under the provisions of the Indian Arbitration Act.'

(3) The Sub Judge was of the view that the suit could not be stayed because the partnership stood dissolved on the death of the partner, so the deed would not affect the rights of the successors of the partner. Further more, he thought that the application under Section 34 did not disclose what dispute was referable to the arbitration and, thereforee, it could not be said that the case of the plaintiff was covered by the arbitration agreement.

(4) On appeal to the learned Additional District Judge, it was thought that the point in dispute was covered by Section 6 of the Arbitration Act. That Section provides that the terms of an arbitration agreement shall not be discharged by the death of a party thereto and the agreement would continue to bind the legal representatives. No doubt, as far as this point is concerned, the Appellate Court was absolutely right. The arbitration agreement would continue to operate even after the death of a party thereto.

(5) The difficulty, however, is that in the case of a partnership not only has the agreement to continue to bind the party but it dissolves the partnership by operation of law on the dissolution certain rights come into existence in favor of every partner or his representative. This involves a settlement of the accounts, sale of the firm's property and the payment of debts and a distribution of the surplus, if any. This is provided by Sections 46, 47 and 48 of the Partnership Act and other provision thereof. This process of winding up is a legal right. It was held by Grover, J. in Dwarka Nath Kapur v. Rameshwar Nath 1966 Plr 91 (Delhi Section) that certain types of disputes could not be referred to arbitration. In that case the question was whether the firm should be dissolved. No doubt. In the present case, the rights of the partners and the mode of settlement of accounts, etc. could also be settled by an arbitration, but, this process is complicated in this case because the party which has filed the suit is not one of the original partners but legal representatives. The help of the Court would, thereforee, be necessary in ascertaining the existence of the assets and other steps necessary to enable the proper accounts being taken. It thereforee becomes difficult to see how the legal representatives could take part in such an arbitration. This is more noteworthy in the present case as the legal representatives are the widow, two sons and two daughters, one of whom is a minor. It also appears that when a situation like the present occurs then Section 37 of the Partnership Act operates and the legal representatives of a deceased partner have additional rights beyond those of getting a mere dissolution. In other words, the matter is a complex one which is not easily referable to arbitration. In addition, the terminology of the arbitration clause is to the effect that a dispute between the partners ma.y be decided under the provisions of the Arbitration Act. So, there is a distinct difficulty in determining whether a dispute relating to the share of a partner, who has died, is within the provisions and scope of the arbitration clause. For arguments sake, we may assume that such a dispute can be referred to the arbitration, but must it be referred.

(6) The jurisdiction under Section 34 of the Arbitration Act is to stay the the proceedings in a suit if there is an arbitration clause covering the dispute in question. It is not an automatic provision that says that all such suits must be stayed. It is in the judicial discretion of the Court to grant or refuse the stay even if the matter is covered by the arbitration agreement. As I have remarked, the scope of the arbitration agreement in this case may not cover all the disputes relating to the rights of the legal representatives of a partner after a firm has been dissolved by the death of that partner. Morever, a claim arising under Section 37 is based on the utilisation of the partnership assets by the ex-partners without settling accounts. Such a dispute is certainly not arising as a result of the partnership deed but consequential to the Partnership Act. It is not a dispute between the partners but a statutory right of a legal representative. So, it is doubtful if it can be referred at all. As I have said, assuming that it can be referred, the Court has still to see whether the legal representatives could conduct such an arbitration and whether they should have to do so. The discretion in such cases has to be exercised with a view to protect the interest of the legal representatives who are in a real sense of the word 'outsiders' as far as the partnership business is concerned. It is, thereforee, imperative that the Court must see whether the arbitration held under the clause, if it is possible, could result in a denial of an adjudication as regards those legal representatives.

(7) Taking the facts as they are, I have my doubts that an arbitration is the proper remedy in the circumstances of this case even if it is within the scope of the clause. No doubt, the object of an arbitration is to settle disputes through an agency outside the Court. But this dispute is of a type which cannot be easily settled in this way. I am of the view that even if the claims raised in the suit could be considered to be dispute within the scope of the arbitration clause the suit should not have been stayed. The learned Additional District Judge has merely thought that because the arbitration clause can be enforced by the legal representatives, thereforee the matter should be referred to arbitration. This is not the end of the story. That is only an initial question. The real point is whether the suit should be stayed and I think it should not in the circumstances of this case. Sound judicial discretion would show that the widow and the children of the deceased partner should have the protection of the Court rather than be subjected to an arbitration. Moreover, there is nothing in the clause indicating how an arbitrator is to be appointed. The arbitration clause is, thereforee, difficult to put into practical operation. It would require other proceedings by which an arbitrator would have to be appointed. Already a number of years have passed because the suit was instituted in March, 1978 and it is already 1985. I would, thereforee, accept the revision and discharge the stay order passed under Section 34.

(8) The parties may not appear before the commercial Sub Judge on 15th April 1985.

(9) There will be no order as to costs.


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