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High Court Of Calcutta
SABYASACHI MUKHERJI
BRIJ GOPAL BINANI - Appellant
Versus
SREELAL BINANI - Respondent
Matter 66 Of 1978
Decided On : 03/15/1978
ARBITRATION - STAY OF SUIT - VALIDITY OF ARBITRATION CLAUSE - STEPS IN AID OF SUIT - READINESS AND WILLINGNESS TO GO TO ARBITRATION - DISSOLUTION OF PARTNERSHIP - BENAMI TRANSACTION - FRAUD - DISCRETION OF COURT.
Fact of the Case:
Plaintiff filed a suit against 14 defendants, alleging that the partnership firm Pioneer Match Factory, of which he was a partner, was dissolved, and seeking dissolution of the partnership, winding up of the business, and a declaration that the firm stood dissolved on or about 11th Jan., 1978. The defendants applied for a stay of the suit under Section 34 of the Arbitration Act, 1940, relying on an arbitration clause in the partnership deed.
Finding of the Court:
The court found that the arbitration clause in the partnership deed was valid and enforceable, and that the defendants were ready and willing to go to arbitration. However, the court also found that the dispute regarding the benami transaction between the defendants Nos. 1 to 10 and defendants Nos. 11 to 13 was not covered by the arbitration clause, as the defendants Nos. 11 to 13 were not parties to the arbitration agreement. The court held that this dispute was intimately connected with the dispute of the dissolution of the partnership and taking of accounts, and that the entire suit was a composite cause of action, and therefore, no part of the suit could be stayed.
Issues: 1. Whether the arbitration clause in the partnership deed was valid and enforceable? 2. Whether the defendants were ready and willing to go to arbitration? 3. Whether the dispute regarding the benami transaction was covered by the arbitration clause? 4. Whether the entire suit could be stayed, given that the dispute regarding the benami transaction was not covered by the arbitration clause?
Ratio Decidendi: 1. The arbitration clause in the partnership deed was wide enough to include the disputes between the plaintiff and the defendants Nos. 1 to 10, and was not vague or uncertain. 2. The defendants had taken steps in aid of the suit after the application for stay had been made, which did not disentitle them from obtaining a stay under Section 34 of the Act. 3. The defendants were ready and willing to go to arbitration, as evidenced by their letter to the plaintiff's Solicitor suggesting arbitration. 4. The dispute regarding the benami transaction was not covered by the arbitration clause, as the defendants Nos. 11 to 13 were not parties to the arbitration agreement. This dispute was intimately connected with the dispute of the dissolution of the partnership and taking of accounts, and the entire suit was a composite cause of action, therefore, no part of the suit could be stayed.
Final Decision: The application for stay of the suit was dismissed, with costs of the application to be costs in the suit.
( 1 ) THIS is an application under Section 34 of the Arbitration Act, 1940 for stay of Suit No. 229 of 1978. This is a suit by Sreelal Binani against 14 defendants. Of the 14 defendants, the defendants Nos. 1 to 10 are said to be the partners of Pioneer Match Factory and defendants Nos. 11 to 13 are alleged to be the benamdars and name lenders of the defendants Nos. 1 to 10 and defendant No. 14 is said to be a concern in which the defendants Nos. 11, 12 and 13 are the partners. In the plaint, it is alleged that Pioneer Match Factory has its head office at 11, Sovaram Basak Street Calcutta and its factory is situate at 16, Dum Dum Road, 24-Parganas. The said partnership was carried on under a Deed of Partnership dated 7th Dec. 1971. The said Deed of Partnership contained, inter alia, the following clauses;"clause 3: That partnership shall continue till such time as the partners hereof agree to continue. Clause 12: That all disputes and differences which may arise amongst the partners or between one of them and the personal representatives of the others or between other respective personal representatives and whether during or after the determination of the partnership or whether in relation to the interpretation of this Deed or as to any act or omission by any party to the dispute or any act which ought to have been done by the parties in disputes or in relation to any other matters whatsoever touching the partnership affairs shall be referred to a Sole Arbitrator if the parties agree upon one or in case of disagreement both the partners shall be entitled to nominate and appoint one such arbitrator. Such Arbitrator shall be governed by the Arbitration Act, 1940 and the statutory modifications thereof for the time being in force. But, in any case, the parties hereto shall not be entitled to refer their disputes and differences to any Court of Law. "
( 2 ) IT is the case of the petitioner that the parties had carried on the business under the said Deed of Partnership. In or about Oct. 1972, the business of the said partnership firm was closed as it was neither practicable nor profitable to carry on the said business of manufacture and sale of matches. After the said closure of that business the machinery including the plant of the factory, according to the plaintiff, were kept in a godown within the said factory premises and a portion of the factory premises was let out, without any prior knowledge or consent of the plaintiff, to certain concerns mentioned in the plaint. Even after letting out the portion of the factory premises by the parties, a considerable portion of land in the said factory premises remained vacant, and according to the plaintiff, instead of letting out the remaining vacant portion of land at the market rate in the name of the said partnership firm, the defendants Nos. 1 to 10 took recourse to a fraudulent device, whereby a new partnership was constituted in the name of Joyshree Corporation in which defendants Nos. 11 to 13 were made partners and the partners of Joyshree Corporation, being Nos. 11 to 13, according to the plaintiff, were the name lenders of the defendants Nos. 1 to 10. Therefore, the plaintiff in this suit states that by its notice dated 11th Jan. 1978 the plaintiff has dissolved the firm and in the alternative has prayed for dissolution of the partnership and also further asked for a declaration that the said firm stood dissolved on or about 11th Jan. , 1978 and alternatively a decree for dissolution of the said firm of Pioneer Match Factory and on just and equitable grounds to wind up the business of the firm. The plaintiff after coming to know of the purported tenancy as also the fact of earning profit by Joyshree Corporation by way of letting out the said factory premises has refused to ratify the same. The allegation of the plaintiff is that the defendants Nos. 1 to 10 of the said partnership firm, of which the plaintiff was the partner, are realising rent from Jo
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