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Madhukantaben Nagindas Sheth Vs. Arvindlal Kantilal and Co. and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtGujarat High Court
Decided On
Judge
Reported in(1985)2GLR1169
AppellantMadhukantaben Nagindas Sheth
RespondentArvindlal Kantilal and Co. and ors.
Cases Referred and Anr. v. Haridas Narandas and Ors.
Excerpt:
.....is an arbitration agreement it would cover taking of accounts of a dissolved firm. thus though in the reply to the notice defendants have not expressly stated that they would like to resort to arbitration and though they had not pointed out the arbitration clause to the plaintiff in the said reply, the mere silence on their part in this connection would not disentitle them to move under section 34 of the arbitration act and seek stay......heed to her demands and had declined to account. the plaintiff has therefore filed the aforesaid suit for accounts as well as for the appointment of a receiver of defendant no. 1 firm in respect of which a new deed dated 18th december, 1978 had been executed.3. exh. 9 is an application which was preferred by defendant no. 2 under section 14 of the arbitration act praying for stay of the suit. exhibit 13 is another application preferred by defendant no. 1 under the signature of defendant no. 2 as a partner wherein also it has been prayed that the suit ,be stayed under the said section 34. both the applications are similar and raise the same contentions. the said applications were resisted by the plaintiff as per the reply exhibit 14. the trial court in the aforesaid circumstances had.....
Judgment:

R.J. Shah, J.

1. This appeal from order arises at the instance of the original plaintiff who has challenged the order dated 21st October, 1980 passed below Exhs. 9 and 13 in Special Civil Suit No. 27 of 1979 by second Joint Civil Judge (Senior Division) Godhra wherein the above applications preferred under Section 34 of the Arbitration Act, 1940 were allowed and the suit of the plaintiff was ordered to be stayed.

2. In order to appreciate the rival contentions it would be necessary to State a few relevant facts. The plaintiff is the widow of one Nagindas Kalidas Sheth who' expired on 12th November, 1978. The deceased husband of the plaintiff was a party to the deed of partnership dated 13th December, 1977 of the firm which was carrying on business in the name and style of Messrs Arvindlal Kantilal and Co. The plaintiff claims that she is the sole heir of the deceased. The plaintiff has alleged that when her husband expired he had as deposit an amount of more than Rs. 1 lakh in the said firm, Rs. 1,20,000 as fixed capital and he was receiving some remuneration for managing the firm. The deceased husband was also entitled to a share of profits of the said firm till the time he expired. The plaintiff further alleges that after the death of her husband she had demanded the aforesaid from the defendants but no heed was paid to the same. Ultimately, she served a notice dated 29th January, 1979 through an advocate and defendant No. 1 replied to the same but the defendants had not paid any heed to her demands and had declined to account. The plaintiff has therefore filed the aforesaid suit for accounts as well as for the appointment of a Receiver of defendant No. 1 firm in respect of which a new deed dated 18th December, 1978 had been executed.

3. Exh. 9 is an application which was preferred by defendant No. 2 under Section 14 of the Arbitration Act praying for stay of the suit. Exhibit 13 is another application preferred by defendant No. 1 under the signature of defendant No. 2 as a partner wherein also it has been prayed that the suit ,be stayed under the said Section 34. Both the applications are similar and raise the same contentions. The said applications were resisted by the plaintiff as per the reply Exhibit 14. The trial Court in the aforesaid circumstances had disposed of the said application in favour of the defendants ordering stay of the proceedings as per the order under appeal.

4. Mr. S.K. Zaveri, the learned advocate for the appellant has contended in the first place that as the suit 'has been filed against the new firm pursuant to the aforesaid partnership deed dated 18th December, 1978 and not against the old firm wherein the deceased husband of the plaintiff was a partner, there is no subsisting arbitration agreement between the parties at all and therefore no question of staying the suit under the said Section 34 would arise. The order under appeal is therefore vitiated on this score. Reading the plaint as a whole, it is evident that the said contention is without any foundation. If the suit was against the new firm alone then the plaintiff could not have prayed for accounts from the defendants up to the death of her husband from the new firm. The relief at paragraph 7.1 of the plaint clearly shows that the plaintiff had asked for accounts from defendant No. 1 firm up to the date 12th November, 1978, that is to say, from S.Y. 2035 up to the date of her husband's death. Apart from that the relief at plaint paragraph 7.3 is specifically against the new firm and a prayer is made for appointment of a Receiver of that firm. While asking for relief at paragraph 7.1 of the plaint, the plaintiff has not stated that the said relief for accounts should be given by the firm which had entered into a new agreement dated 18th December, 1978. Furthermore, in the title of the plaint the plaintiff has nowhere clarified that defendant No. 1 firm only means the firm which has come into existence pursuant to the partnership deed dated 18th December, 1978. The plaintiff would not have failed to mention the same if the plaintiff was asking for the accounts from the new firm and not from the old firm. It would therefore seem that the trial Court has rightly concluded that the suit of the plaintiff is against the old firm of which the deceased husband of the plaintiff was a partner. It is therefore not possible to accept the above submissions made on behalf of the appellant.

5. Alternatively, it has been submitted on behalf of the appellant that if it is held that the suit is against the old firm than the arbitration clause contained in the deed of partnership dated 13th December, 1977 concerning the said old firm could not have bound even the husband of the plaintiff had he been alive for the simple reason that it did not cover the accounts of a firm which was dissolved assuming for the sake of argument that there was a dispute regarding the accounts of dissolved film much less therefore it could bind the plaintiff. In support of the said submission, reliance was placed on Manibhai Shankerbhai Patel v. Swashray Construction Co. and Ors. 23(1) G.L.R. 312. In this case, Section 43 of the Partnership Act was considered in the context of an arbitration clause in the partnership deed in question. The question was posed this way: If a partner does not desire to carry on business with his other partners and has a right to dissolve the firm under Section 43 of the Partnership Act, can it be said on an interpretation of Clause (16) of the partnership deed that that right is taken away and the partner has no remedy but to continue with the partnership assuming the arbitrator holds against him in the proceedings that may be commenced under the Arbitration Act? The said question was answered in the negative observing that in a partnership at will it is open to partner even if there is no dispute between the partners whatsoever to dissolve the firm by virtue of Section 43 of the Partnership Act. In the present case the facts are different. The question whether a partner has a right to dissolve the firm is; or is not covered by an arbitration clause is not before me. What was relied upon by the learned advocate for the appellant in this connection were the following observations made by the Court in the said case:

It is, therefore, difficult to understand how a partner who desires to dissolve the firm can be forced to resort to arbitration. It, therefore, necessarily follows that Clause (16) of the partnership deed has application only during the subsistence of the partnership and it does not have the effect of taking away the right conferred on a partner by Section 43 of the Partnership Act to have the partnership dissolved by notice if the partnership is a partnership at will.

From the aforesaid observations, the learned advocate for the appellant wants this Court to come to the conclusion that as soon as partnership is dissolved arbitration clause, comes to an end and therefore, in this case also no question can arise of referring the disputes to an arbitrator and so the applications for stay ought to have been rejected. It seems to me that the learned advocate for the appellant is reading more into those observations than what they really contain. The said observations do not go to the extent that in case of every dissolution of a firm the arbitration clause would come to an end so far as taking of accounts of a dissolved firm is concerned. As a matter of fact, such a wider question was not put before the said Court. Apart from that, a reference may be made in this connection to Section 42 of the Indian Partnership Act, 1932 which provides for dissolution on the happening of certain contingencies. One of such contingencies is that a firm is dissolved by the death of a partner subject to contract between the partners. The aforesaid deed of partnership dated 13th December, 1977 does not provide as to what is to happen to the firm if a partner dies during the continuance of partnership. Therefore, by virtue of the said Section 42, the partnership in question would stand dissolved on the death of the partner viz. on the death of the husband of the plaintiff.

6. In this connection, a reference may also be made to Section 6(1) of the Arbitration Act, 1940 which provides that an arbitration agreement shall not be discharged that an arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or any other party, but shall in such event be enforceable by or against the legal representative of the deceased. The aforesaid clearly shows that the arbitration agreement if there be one between the partners the same would not be discharged by the death of any partner and shall be enforceable as stated in the said section and therefore if there is an arbitration agreement it would cover taking of accounts of a dissolved firm. The same would bind not only the partners themselves during the life time but also the representatives of a deceased partner. In the light of the aforesaid it needs to be considered as to what the arbitration clause in the present case provides

It would seem that the said clause is of a very wide import and it covers not only the disputes regarding accounts but also any other dispute or even a misunderstanding. On the other hand, there is nothing in the said clause which points in the direction that accounts subsequent to dissolution were to be excluded from the operation of the said arbitration clause. The dominant intention between the parties is to go to the forum of their own choice and not to a Court of law. In this connection, a reference was made to Sundarlal Haveliwala v. Smt. Bhagwati Devi and Ors. : AIR1967All400 of the judgment it has been observed as under:

13. A perusal of Section 39 onwards of the Partnership Act makes it clear that even after dissolution the partners are called partners though they are partners of the dissolved firm. For example, Section 46 lays down that:

On the dissolution of a firm every partner or his representative is entitled as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights.Similarly the partners of the dissolved firm are referred to as partners in Sections 47 to 55 of the Partnership Act. Consequently, the word 'partner' used in clause 9 of the partnership agreement in question must be given the same meaning and this clause shall govern partners even after the dissolution of the firm and disputes among the partners existing after the dissolution shall have to be referred to arbitration and cannot be raised in a regular suit. To put it differently, if Seth Madan Lal wanted to seek remedy after dissolution of the partnership firm, it would have been necessary for him to take steps for arbitration and where all the parties were not agreeable to refer the disputes to arbitration, to make an application under Section 20 of the Act. Legal remedy which Seth Madan Lal could have taken recourse to can, in view of Section 6 of the Act, be adopted by his legal representatives. The present application under Section 20 of the Act was thus maintainable.

The aforesaid observations would go to show that in a case such as the present if the deceased husband of the plaintiff himself wanted to seek remedy after the dissolution of the partnership firm it would have been necessary for him to take steps for arbitration and if all the parties were not agreeable to refer the disputes to arbitration to make an application under Section 20 of the said Act. It is therefore not correct to say that the accounts subsequent to the dissolution are mot covered by the present arbitration clause, nor is it correct to say that it would not have bound the deceased husband of the plaintiff during his life time and so it would also not bind the widow of the deceased partner, viz. the plaintiff.

7. It was next urged on behalf of the appellant that ,in any event as the plaintiff was the heir of the deceased partner the said agreement was not binding on her. The said submission has no foundation at all in view of the aforesaid Section 6(1) of the Arbitration Act. It is therefore not necessary to dilate on this aspect of the matter any further.

8. It was next submitted on behalf of the appellant that if accounts were not rendered the same cannot be said to be a dispute covered by the said clause. It was submitted that the said clause related to a dispute which arose in the process of taking accounts and not to a case where accounts were not rendered. In Gaya Electric Supply Co. Ltd. v. State of Bihar : [1953]4SCR572 , it has been observed while considering Section 34 of the Arbitration Act that if the arbitration agreement is broad and comprehensive and embraces any dispute between the parties 'in respect of the agreement, or in respect of any provision in the agreement, or in respect of anything arising out of it, and one of the parties seeks to avoid the contract, the dispute is referable to arbitration if the avoidance of the contract arises out of the terms of the contract itself. The disputes which have arisen have been mentioned in paragraph 3 of the plaint and the same were not resolved till the suit was filed and therefore the plaintiff had to seek the relief for accounts covering all the said disputes from defendant No. 1 firm and to ascertain the amounts which would become payable to her at the foot of accounts. In this connection, in 'Law of Agency' by K. Venkoba Rao, 1974 Edition, Page 183, what has been stated on 'rendering of accounts' is as under:

The mere production of an account without explaining the same and without producing vouchers to support the figures, where the same are necessary, cannot be held to be rendering an account so as to disentitle the principal from 'bringing a suit for accounts against the agent. Merely by submitting accounts, the agent's duty is not discharged.

An agent must explain the accounts. The agent must also explain the accounts and pay any balance that may be found due on taking accounts.

It is therefore evident that the plaintiff asked for dissolution of her accounts it would cover the case where the accounts have not been rendered at all after they have been asked. The aforesaid submission, therefore, has little or no force in it.

9. Another submission on the part of the appellant is based on Section 34 of the Arbitration Act. It was urged that the applicants praying for stay were not at the time when the proceedings were commenced and thereafter ready and willing to do all things necessary to the proper conduct of the arbitration and on that basis the applications ought to have been rejected. As stated above, before the suit was filed a notice was served on the defendants and the same was replied as per Exhibit 18. It was pointed out in the said reply that there was an arbitration clause and before resorting to it proceedings cannot be taken in a, Court of law. Apart from that as soon as the summons of the suit was served and before taking any part in the proceedings, the present application had been preferred wherein it has been specifically mentioned that the applicants were ready and willing before the suit and at the time when the application was made to resort to an arbitration for resolving the aforesaid disputes. If the applicants were not minded to resort to arbitration, they would not have preferred the applications in question.

10. In the aforesaid connection, it was also submitted that a caveat under Section 148A of the Code of Civil Procedure was preferred before the filing of the suit by the applicant and so it should be concluded that the defendants were not ready and willing to resort to arbitration. The learned trial Judge has rightly concluded that the filing of a caveat application cannot amount to a step in aid of proceedings. Nothing has been shown on authority where a view is taken that the filing of a caveat application amounts to a step in aid of proceedings. In Chhabildas Nandlal & Co. v. Damodar Khetsey & Co. AIR 1940 Bombay 199 it has been held that where notwithstanding the arbitration clause in a contract which was binding on the plaintiff and the defendant, the plaintiff instituted a suit against the defendant without asking him whether he desired to go to arbitration the fact that before the suit the defendant had taken up the attitude that he had a right to cancel the contract containing the arbitration clause cannot preclude him from relying on the arbitration and is no reason for not granting his application for stay. Thus even when a defendant takes up an attitude that he had a right to cancel the contract containing the arbitration clause prior to the suit the same would not preclude him from relying on the arbitration clause and it would not be a reason for not granting his application for stay. Even from this standpoint, filing of a caveat application would not come in the way of the defendants so as to refuse their application for stay of proceedings.

11. Again in State of Punjab v. Geeta Iron & Brass Works Ltd. : [1978]1SCR746 it has been observed that as a matter of law mere silence on the part of the defendant when a notice under Section 80 CPC is sent to him may not, without more, disentitle him to move under Section 34 and seek stay. Thus though in the reply to the notice defendants have not expressly stated that they would like to resort to arbitration and though they had not pointed out the arbitration clause to the plaintiff in the said reply, the mere silence on their part in this connection would not disentitle them to move under Section 34 of the Arbitration Act and seek stay. In that view of the matter, it is not possible to hold that the defendants were not ready and willing as required under Section 34 of the Arbitration Act.

12. It was further submitted that Section 34 does not make it incumbent on the Court that once the defendant satisfies the Court regarding the requirements thereunder, the Court is bound to stay the proceedings. It cannot be gainsaid that where parties have 'by contract agreed to refer the dispute 40 arbitration, the Court should as far as possible proceed to give an opportunity for resolution of disputes by arbitration rather than by judicial adjudication but even so there is a residual discretion vested in the Court to stay or not to stay having regard to the totality of circumstances. It is true that the trial Court has not approached the problem from this angle.

13. However, it is clear in the facts and circumstances of the present case that the said discretion has to be exercised, in favour of the defendants and not the plaintiffs. In other words, in the circumstances of the present case, the suit is required to be stayed even from this standpoint. Partnership deed dated 13th December, 1977 shows that the deceased husband of the plaintiff had 8-2/3 paise share in the partnership. The said partnership had not lasted for a long time as the deceased husband of the plaintiff expired on 12th November, 1978. It has not been alleged in the plaint that the defendants were likely to perpetrate fraud or had perpetrated fraud in the matter of accounts of the partnership. What has been alleged in the plaint is that the defendants were not rendering accounts and were not paying up the amounts which were due from the partnership to her husband. As stated above, despite the reply to the notice the plaintiff has not shown any willingness to go to arbitration and has resorted to a Court of law despite the arbitration clause. It does not appear that any circumstances have been made out by the plaintiff which may persuade the Court to use the said discretion in favour of the plaintiff.

14. It was next submitted that Section 34 of the Arbitration Act does not cover agreements-to arbitrate which are contained in the partnership deed. This submission is to be merely stated to be rejected. There are no such limitations under Section 34 of the Arbitration Act. There is nothing in Section 34 which points in the direction that arbitration clauses contained in partnership agreements are not covered by the same. It is not shown on authority by the learned advocate for the appellant that the said Section 34 excludes agreements to arbitrate which are obtained in partnership deeds from its operation. The said submission therefore also fails.

15. The learned advocate for the appellant also referred to Rameshchandra Ranchhoddas- and Anr. v. Haridas Narandas and Ors. 1984 G.L.H. (U.J.) 24 in support of his submission that where there was a partnership at will. the arbitration clause did not stand attracted when the question related to winding up. Going through the judgment it would seem that it has proceeded on a construction of clause 20 of the partnership deed in question. It has not been urged that the present arbitration clause is similar in nature. This decision therefore cannot help the appellant.

No other submission was urged before me. In the result, the Appeal from order fails and is hereby dismissed. In the circumstances of the case, there will be no order as to costs.


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