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Andhra Pradesh High Court
Judges : M.JAGANADHA RAO, P.RAMACHANDRA RAJU
MUTHAVARAPU VENKATESWARA RAO - Appellant
Versus
N.SUBBARAO - Respondent
Decided On : 02-08-84
ARBITRATION - STAY OF SUIT - FRAUD - PROFESSIONAL REPUTATION - DISCRETION OF COURT - INDIAN ARBITRATION ACT, 1940, SECTION 34.
Fact of the Case:
The respondent filed a suit for settlement of accounts and allotment of his share in a partnership firm. The appellant, the 2nd defendant, filed an application under Section 34 of the Indian Arbitration Act, 1940, praying for a stay of the proceedings in the suit, contending that there was an arbitration clause in the partnership deed and that the plaintiff had retired from the partnership and was paid his share. The respondent filed a counter affidavit denying the allegations and alleging fraud, forgery, and falsification of accounts by the appellant.
Finding of the Court:
The court below rejected the appellant's contention that the arbitration clause was surreptitiously included in the partnership deed and also rejected the respondent's contention that the arbitration clause was vague. It found that there were mutual accusations between the parties, with the respondent alleging fraud, forgery, and tempering of records against the appellant, and the appellant accusing the respondent of blackmail "touching his integrity". It concluded that the decision on the various questions arising in the suit involved intricate and complicated questions of law and fact and that therefore the matter was better decided by the civil court.
Issues: 1. Whether the court below erred in refusing to grant a stay of the suit under Section 34 of the Indian Arbitration Act, 1940, in a case involving allegations of fraud and professional reputation? 2. Whether the respondent made out a prima facie case of fraud to entitle him to have the matter tried in a suit? 3. Whether the appellant was ready and willing to go to arbitration at the commencement of the proceedings?
Ratio Decidendi: 1. The court below did not err in refusing to grant a stay of the suit. The respondent made out a prima facie case of fraud to entitle him to have the matter tried in a suit. The appellant was not ready and willing to go to arbitration at the commencement of the proceedings. 2. In an application for stay under Section 34 of the Arbitration Act, 1940, in a case involving allegations of fraud, the person against whom fraud is alleged has an option to have the matter decided by the civil court to vindicate his conduct in a regular trial in the civil Court. If the party charged is the plaintiff against whom such allegations have been made the plaintiff is equally entitled to have the matter decided by the Civil Court. However a plaintiff who charges fraud against the defendant cannot insist on a trial in Court unless the plaintiff makes out a prima facie case that the defendant has played fraud. Cases involving allegations of professional reputation, negligence, impropriety or dishonesty shade into one another and the above principles applicable to cases of allegations of fraud equally apply to such cases. 3. Where a party remains silent when the plaintiff sent him a notice under S. 80 C. P. C. that by itself may not, without more, disentitle him to seek slay under Section 34-vide State of Punjab vs. M/s Geeta Iren and Brass Works Ltd. But when a party maintains silence in the face of repeated requests by the other party for arbitration, the case is not one of mere inaction but is one of positive gesture signifying unwillingness or want of readiness to go the arbitration. Food Corf oration of India vs. Thakur Shipping Co.
Final Decision: Appeal dismissed.
( 2 ) THE respondent filed the suit O. S. No. 580 of 1982 in the Court of the Subordinate Jndge, Vijayawada for settlement of accounts of the 1st defendant firm "sri Venkateswara Estates" and for rendition of accounts and for allotting to the respondent his share of 10 paisc in the property and in the amounts that may be found due on settlement of accounts. Ho also alternatively claimed for dissolution of the said firm and settlement of accounts and for the appointment of a receiver.
( 3 ) ORIGINALLY there was a registered partnership deed dated 27-11-1975 which is marked as Ex. B-l. in these proceedings. The partnership was at will and consisted of 17 partners. One of the partners gave a site of 6000 square yards for the purpose of construction of a commercial complex at vijayawada. The plaintiff owned a share of 10 paise while the remaining shares were owned by the other partners. On 1-10-1976 the partner who gave the site for the partnership relinquished his right. He also died subsequentiy on 8-10-1976. Thereafter a new partnership was formed on 21-10-76 under Ex. B-2 which also consisted of 17 partners. It is stated that subsequently there were disputes between the partners. It is the case of the appellant who is the 2nd defendant that the plaintiff expressed his desire to retire from the business as per his letter Ex. A-4 dated 26-2-1982 and that there was a resolution passed by the partnership on 7-3-1982 accepting the said resignation. It is also the case of the appellant that as per the receipt ex. A-5 dated 31-3-1982 the respondent-plaintiff received a sum of rs. 82,270-80 towards the amount due to him from the partnership and that the partnership was thereafter reconstituted on 7-4-1982 under another deed ex. A-14 and that in the new partnership the plaintiff was not a partner. The plaintiff has disputed the letter Ex, A-4 as well as the resolution dated 7-3-1982 and the receipt Ex. A-5. According to him, he never retired from the business and he never executed any receipt. It is also his case that the minutes of the meeting dated 7-3-1982 were introduced into the minutes book by tampering and introducing fresh pages in replacement of certain pages in the book. The plaintiff wrote a letter Ex. B-4 on 8-5-1982 complaining that he was not furnished with any accounts and that the plaintiff was thinking of getting the firm dissolved. On 2-11-1982 under Ex. A-2 the plaintiff s lawyer issued a notice of dissolution of the firm with effect from 7-11-1982 to the appellant and proposing further action. As per Ex. A-15 dated 17-11-1982 the plaintiff was informed by the appellant that the plaintiff had desired to tetire as per Ex. A-4, dated 26-2-1982, that the resignation was accepted as per the minutes of the meeting dated 7-3-1982 and that the plaintiff was paid a sum of Rs, 82 270-80 as per Ex. A-5 and the firm was rsconstituted on 7-4-1982 as per Ex. A-14. It was stated that the plaintiff has to bear the consequences in case he resorted to any proceedings. The plaintiff sent a rejoinder on 20-11-1982 as per Ex. B-6 denying the verious allegations contained in Ex. A-15. Thereafter the plaintiff filed the present suit on 30-11-1982.
( 4 ) IT was at that stage that the appellant-2nd defendant filed I. A. No. 5336/82 under section 34 of the Indian ARBITRATION ACT, 1940, 1940 (hereinafter referred to as the Act) praying the Court to pass an order staying the proceedings in the suit. It is stated in the affidavit filed in support of the laid application that the plaintiff retired from the partnership, that he was duly paid for his share and that the firm was reconstituted as mentianed above. It was further stated that the appellant and the other partners who issued the rep
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