1. An interesting question, which arises in this revision application, is as to whether a party to a partnership deed who repudicates yhe contract with regard to partnership, can be permitted to rely upon a term in the deed of partnership itself and demand a reference to arbitration based on the arbitration clause contained in the said deed of partnership.
2. Plaintiff Bhagwandas Ratanji Panchal and two of the three defendants viz. Manchharam Morarji Panchal (defendant No. 2) and defendant No. 3 Subhaschandra Manchharam. Panchal (son of defendant No. 2 Manchhararn) entered into partnership to do business in the name and style of M/s. Subhash Industries (defendant No. 1) doing business at Vapi, district Bulsar. A deed of partnership was executed on 15th Nov., 1968 and was signed by all the three partners viz. the plaintiff and the said two defendants. ********* The business continued for some time and thereafter, the plaintiff addressed a notice through his advocate on 14th December, 1976 inter alia asking for dissolution of the partnership and winding up of the partnership business and accounts from the defendants. The defendants by their reply dated 21st December, 1976 inter alia contended that the plaintiff was never a partner in the said firm and was not entitled to any account or any other rights in the said partnership business. It was the defendants case that, as the plaintiff was a near relative of the defendants viz. son of theil- sister, they having compassion on him employed him as an employee in the said firm on a salary of Rs. 200/- per month and the partnership deed was executed only in the name's sake in order to maintain status of the plaintiff. But the plaintiff in fact, had not acted as a partner nor done any work therein and he was an employee therein and, after some time, he left the service of the said firm and was doing his own business. He was therefore, not entitled to any accounts or share in the profits of the firm. The plaintiff, thereafter filed regular civil suit No. 60 of 1977 in the court of the Civil Judge (Junior Division) at Pardi for dissolution and accounts. The defendants, while appearing in the said suit filed an application, ex. 11 inter alia contending that as there was a clause with regard Ae,arbitration being clause 14 in the deed of partnership, the plaintiff was not entitled to file the suit and to have recourse to the court of law without getting the matter first referred to arbitration. The defendants, therefore, prayed for stay of the suit under Section 34 of the Arbitration Act without prejudice to their right to file a written statement in the suit later. The learned Civil Judge (Junior Division) at Pardi by his order dated 20th October, 1977 on Ex 11, dismissed the said application inter alia holding that the question regarding dissolution of partnership and accounts would not come within the purview of the Arbitration Act contained in Clause 14 of the partnership deed. He, therefore, ordered the defendants to file the written statement within three weeks. The defendants carried the matter further up in appeal, being civil appeal No. 44 of 1977, to the court of the learned Dist. Judge, Bulsar at Navsari and the learned District Judge by his order dated 13th January, 1978, dismissed the appeal; and hence this revision by the petitioners, that is original defendants. * * * ** * Mr. Amin, secondly, submitted that in the instant case, the defendants themselves having repudiated the contract of partnership between them and the plaintiff, it would not be open to them to have recourse to the partnership deed and the arbitration clause contained therein for the purpose of seeking stay of the proceedings under S. 34 of the Arbitration Act.
5. I find considerable force in the second submission of Mr. Amin, the learned Advocate appearing for the opponent-plaintiff, and, as the matter can be disposed of on the short question which arises as submitted by Mr. Amin, it would not be necessary to go into and consider the other submissions made by Mr. Vyas, the learned Advocate for the petitioner, as also the first contention raised by Mr. Amin.
6. Now, in the instant case, it was the case of the defendants, as it emerges from the correspondence prior to the filing of the suit, that the plaintiff was not a partner in the said business; that he was merely a servant to whom salary of Rs. 200/- per month was being given and that his name was entered in the partnership deed for name's sake, that is, to give him status, meaning thereby that it was nominal and sham, and that he never acted as a partner and was not a partner in, the firm. The defendants themselves completely repudiated the contract between the parties viz. agreement of partnership, as contained in the deed of partnership. They denied the existence of a genuine partnership agreement between the parties and they, therefore, cannot be permitted to rely upon a subsidiary term in the contract and demand a reference to arbitration,
7. It would be seen that, in the instant case, the very existence of the contract of partnership is denied by the defendants, though they admit that they executed an ostensible deed of partnership. Their case, as it emerges from the correspondence which preceded the filing of the suit by the plaintiff, discloses that the said document of partnership was a sham document, not to be acted upon and, in fact, was not acted upon, It, was entered into with the sole idea of giving some status to the plaintiff and was a document entered into for name's sake, that means a document which has no existence in reality. It was also their case that, that document was never acted upon and by that document no relationship of partnership came into existence between the parties, but the relationship between the parties was that of an employer and employee. It is evident that the defendants contended that there was no contract, at all, between the parties. The contract is repudiated completely by the defendants and the very existence of the contract is denied. Can the defendants, in such a case, be permitted to rely on a term in the very contract with regard to arbitration? In my opinion, the defendants cannot be allowed to say in one breath that there is no operative and binding contract of partnership between them and the plaintiff, as is embodied in the deed of the partnership, and also to say in another breath that, as per the terms of a clause contained in the very deed of partnership, the plaintiff is bound to refer the matter to arbitration before having recourse to a court of law and that, therefore, the suit must be stayed by virtue of the provisions contained in Section 34 of the Arbitration Act.
8. I am fortified in the view which I take as expressed above, by a decision of the Calcutta High Court in the case of the Chartered Bank v. Commissioner for the Port of Calcutta, AIR 1972 Cal 198. As observed by a Division Bench of that court:-
'Where a party had repudiated the contract and such repudiation in effect raised the contention that there was no contract at all between the Parties, it was not open to that party to take advantage of that portion of the contract which enjoined arbitration'.
A reference was made by the Division Bench to the observations of Viscount Simon, L. C. in Heyman v. Darwins Ltd. (1942) 1 All ER 337 at p. 341, to the effect -
'If the respondents were denying that the contract had ever bound them at all, such an attitude would disentitle them from relying on the arbitration clause which it contains'.
To the facts of the present case, the said observations of Viscount Simon, L. C. would appropriately apply because, here also, the defendants denied that the contract of partnership bound them, at all, on the ground that the contract was entered into for the name's sake and was not acted upon and the real relationship between the parties was that of an employer and employee; and, therefore6 such attitude on the part of the defendants would disentitle them from relying on the arbitration clause contained in the very agreement which they repudiate. The lower courts, therefore, ill my opinion, were perfectly justified 'in rejecting the defendants application for stay of the suit under Section 34 of the Arbitration Act.
9. Mr. Vyas lastly drew my attention to A. M. Mair & Co. v. Gordhandes Sagarmull, AIR 1951 SC 9, in support of his contention that as the plaintiff in the instant case will have to have recourse to the contract of partnership to establish his case for dissolution and accounts, it would be a dispute under the contract arid the arbitration clause therefore, will apply. The Supreme Court decided the said matter on an entirely different footing and was concerned with a case having distinct facts. In a contract for sale of certain goods, the arbitration clause provided for reference to arbitration of all matters, questions, disputes, differences arid/or claims arising out of and/or concerning or relating to this contract and the dispute was as to whether the party to the contract was acting merely as a broker or was the principal bound by the con-o tract. Taking a view that, as the question turned upon the true interpretation of the contract and the parties had to take recourse to the contract to establish the claim, the Supreme Court held that it was a dispute under or arising out of the contract and thus within the jurisdiction of arbitration. Such are not the facts in the instant case. Here, the contract itself is repudiated. The defendants contend that no such relationship in the nature of partnership came into existence by the said contract, denied existence of the contract and repudiated it On the ground that it was a sham one ostensibly entered into for the name's sake and in fact, was not acted upon and the real relationship between the parties was that of an employer and. employee. The question, therefore, which would arise would be as to whether the defendants, contention that the contract was a sham one, not to be operative, will have to be decided dehors the contract and not by having recourse to the contract and, therefore, the ratio laid down by the Supreme Court in A. M. Mair's case (supra) will not apply. Again, in the instant case the provisions with regard to reference to arbitration are contained in a document whose existence is challenged by the defendants. If the existence of the document is challenged by the defendants, the arbitrator would not be competent to enter into and decide the arbitration, unless it is established that the deed of partnership embodying the contract was a validly executed document and binding, on both the parties. Therefore, when the very existence of the document from which flows the power to refer the matter to arbitration is in dispute, it would be incompetent for the arbitrator to entertain the dispute referred to him on the basis of a d1ause in the said document because that would amount to assuming the validity and the existence of the contract as embodied in the document, which itself is the bone of contention between the parties. Thus, in any view of the matter, it would be for the court to decide the suit in view of the various contentions raised by the defendants, and the arbitration clause, therefore, cannot be availed of by the defendants for the purpose of staying the suit.
10. Rule discharged.
11. Petition dismissed.