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Andhra Pradesh High Court
Judges : M.JAGANADHA RAO, P.RAMACHANDRA RAJU
Muthavarpu Venkateswara Rao - Appellant
Versus
N.Subbarao - Respondent
Decided On : 02-08-84
ARBITRATION - STAY OF PROCEEDINGS - FRAUD OR ALLEGATIONS AFFECTING PROFESSIONAL REPUTATION - PRINCIPLES OF LAW - APPLICATION TO FACTS - DISCRETION OF COURT - INTERFERENCE BY APPELLATE COURT.
Fact of the Case:
The respondent filed a suit for settlement of accounts of the 1st defendant firm and for rendition of accounts and for allotting to the respondent his share of 10 paise in the property and in amounts that may be found due on settlement of accounts. He also alternatively claimed for dissolution of the said firm and settlement of accounts and for the appointment of a receiver. The appellant-2nd defendant filed I. A. Number 5336/82 under Section 34 of the Indian Arbitration Act 1940 (hereinafter referred to as the Act) praying the Court to pass an order staying the proceedings in the suit.
Finding of the Court:
The Court below rejected the appellants (plaintiffs?) contention that the arbitration clause was surreptitiously included by the appellant in Ex. B. partnership dated 21-10-1976. It also rejected a contention of the plaintiff that the arbitration clause was vague. Coming to the allegations of fraud made against the appellant it pointed out that the plaintiff was contending that Ex. A. 4 letter dated 26-2-1982 was forged by the appellant and other partners. It also referred to the minutes book Ex. A. 6 and pointed out that pages 31 to 58 appear to have been prima facie inserted into the minutes book by removing some of the sheets inasmuch as these sheets were in different colour than the other sheets in the book, that the margin on the top and on the left hand side is different from the other pages in the book and that the resolution dated 7-3-1982 relied upon by the appellant was contained at pages 42 to 44 of Ex. A. 6. It therefore held that there were mutual accusations between the parties; that whereas the plaintiff alleged fraud, forgery and tampering of the records against the appellant, the appellant accused the respondent of blackmail "touching his integrity". It came to the conclusion that the decision on the various questions arising in the suit as to facts as also to the question of fraud, forgery and tampering of accounts and relating to the integrity of the plaintiff involved intricate and complicated questions of law and that therefore the matter was better decided by the civil court. It adverted to contention on behalf of the respondent that the plaintiff was not ready and willing for the arbitration but did not give any specific finding on that question. In the result the Court below dismissed the application for stay filed by the appellant-2nd defendant.
Issues: Whether the discretion exercised by the lower Court in refusing to grant stay under Section 34 of the Arbitration Act is liable to be interfered with by this Court.
Ratio Decidendi: 1. 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. 2. 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. 3. 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. 4. Cases involving allegations of professional/occupational negligence, impropriety or dishonesty shade into one another and the above principles applicable to cases of allegations of fraud equally apply to such cases.
Final Decision: The appeal therefore fails and is dismissed but in the circumstances without costs.
( 1 ) THE question that falls for consideration in this appeal relates to the power of the Court to grant stay under Section 34 of the Arbitration Act. 1940 in cases involving allegations of fraud or allegations affecting professional reputation.
( 2 ) THE respondent filled the suit D. S. No. 580 of 1982 in the Court of the Subordinate Judge, 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 paise in the property and in amounts that may be found due on settlement of accounts. He also alternatively claimed for dissolution of the said firm and settlement of accounts and for the appointment of a receiver. Originally there was a registered partnership deed dated 27-11-75 which is marked as Ex. B. 1 in these proceedings. The partnership was at will and consisted of 17 partners. One of the partners gave 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 subsequently 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 form 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 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 was thereafter reconstituted on 7-4-1982 under another deed Ex. 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 plaintiffs lawyer issued a notice of dissolution of the firm with effect from 7-11-1982 the plaintiff was informed by the appellant that the plaintiff was paid a sum of Rupees 82,270-8- as per Ex. A. 5. and the firm was reconstituted on 7-4-1982 as per Ex. A. 14. It was stated that the plaintiff has 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 various allegations contained in Ex. A. 15. thereafter the plaintiff filed the present suit on 30-11-1982.
( 3 ) IT was at the stage that the appellant-2nd defendant filled I. A. Number 5336/82 under Section 34 of the Indian Arbitration Act 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 said application that the plaintiff retired form the partnership, that he was duly paid for his share and that the firm was reconstituted, as mentioned above. It was further stated that the appellant and the other partners who issued the reply notice had informed the plaintiff that they were ready and willing to have the matter referred to arbitration and that the course and that they arbitration. They therefore prayed for stay of the suit.
( 4 ) THE respondent-plaintiff filed a counter-affidavit sta
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