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IN THE HIGH COURT AT CALCUTTA
AJOY KUMAR MUKHERJEE, J.
Sanjay Saha – Appellants
Versus
Nandita Misri & anr. – Respondents
CO 1948 of 2019
Decided on : 20-07-2023
PARTNERSHIP - ARBITRATION AGREEMENT - MAINTAINABILITY OF SUIT - SECTION 8 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - SCOPE AND APPLICABILITY - COURT'S JURISDICTION - BIFURCATION OF RELIEF AND PARTIES - LEGALITY AND VALIDITY OF ARBITRATION AGREEMENT - APPOINTMENT OF ARBITRATOR - ESTOPPEL - OBJECT AND PURPOSE OF THE ACT.
Fact of the Case:
A partnership firm, registered under the Indian Partnership Act, 1932, had an arbitration clause in its partnership deed stating that all disputes in connection with the partnership business shall be referred to an arbitrator. One of the partners, who was not a party to the arbitration agreement, filed a suit against the other partner, seeking various reliefs, including dissolution of the partnership, rendering of accounts, and injunction. The defendant partner filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the matter to arbitration. The trial court allowed the application and referred the matter to arbitration, holding that the suit was not maintainable before the civil court.
Finding of the Court:
The High Court held that the trial court was justified in referring the matter to arbitration. The court held that the arbitration clause was valid and enforceable, and that the defendant partner, who was not a party to the arbitration agreement, had locus standi to make the application under Section 8 of the Act, as he was acting under the partner who was a party to the agreement. The court also held that there was no question of bifurcation of relief or parties in the suit, as all the prayers made in the plaint related to disputes in connection with the partnership business and the arbitrator had the power to adjudicate all the prayers. The court further held that the petitioner was estopped from challenging the appointment of the arbitrator or the arbitral proceeding, as he had not denied the existence or applicability of the arbitration agreement and had not challenged the order of the High Court appointing the arbitrator.
Issues: 1. Whether the suit filed by the plaintiff was maintainable before the civil court in light of the arbitration clause in the partnership deed? 2. Whether the defendant partner, who was not a party to the arbitration agreement, had locus standi to make the application under Section 8 of the Arbitration and Conciliation Act, 1996? 3. Whether there was any question of bifurcation of relief or parties in the suit? 4. Whether the petitioner was estopped from challenging the appointment of the arbitrator or the arbitral proceeding?
Ratio Decidendi: 1. The court held that the suit was not maintainable before the civil court in light of the arbitration clause in the partnership deed. The court relied on Section 8 of the Arbitration and Conciliation Act, 1996, which provides that a judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement, shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. 2. The court held that the defendant partner, who was not a party to the arbitration agreement, had locus standi to make the application under Section 8 of the Act, as he was acting under the partner who was a party to the agreement. 3. The court held that there was no question of bifurcation of relief or parties in the suit, as all the prayers made in the plaint related to disputes in connection with the partnership business and the arbitrator had the power to adjudicate all the prayers. 4. The court held that the petitioner was estopped from challenging the appointment of the arbitrator or the arbitral proceeding, as he had not denied the existence or applicability of the arbitration agreement and had not challenged the order of the High Court appointing the arbitrator.
Final Decision: The High Court dismissed the revision petition filed by the petitioner, upholding the order of the trial court referring the matter to arbitration.
JUDGMENT :
Ajoy Kumar Mukherjee, J.
1. Order No.9 dated November, 30, 2017 passed by learned Civil Judge (Junior Division), Fast Court, Malda, in connection with O.C. Suit No. 141 of 2017, is under challenge in the present Application. Petitioner’s case is that plaintiff/opposite party no. 1 herein filed aforesaid suit praying interalia for declaration and permanent injunction and for rendering accounts of partnership against the defendant no. 1/petitioner and other defendant no, 2,3 and 4.
2. Upon receipt of summon of the said suit the petitioner and opposite party no. 2,3 and 4 herein appeared in the said suit and on September, 18, 2017, the opposite party no. 2 filed impugned petition before the court below challenging the maintainability of the suit. Opposite party no.2 by filing copy of partnership deed, (wherein clause 18 recorded that in case of any dispute between the parties, the matter shall be referred to the arbitrator), prayed before the court that the suit is not maintainable before the civil court and it shall be referred to the arbitration. On November, 11, 2017 the opposite party no. 1 herein being plaintiff filed written objection against the said petition. It is not in dispute that the partnership firm, in question, is a registered firm in which the opposite party no. 1 happens to be the first part and petitioner herein is second part of the firm. The partnership deed was executed and registered on the basis that the profit and loss will be divided and borne between the parties and not by any third party.
3. Mr. Debasis Basu learned counsel appearing on behalf of the petitioner strenuously argued that the partnership deed was entered between the opposite party no. 1 and the petitioner herein and as such opposite party no. 2/defendant No. 2 is a stranger to the deed. Petitioner herein never applied before the court below challenging maintainability of the aforesaid suit. He further submits that by the impugned order dated 30th November, 2017, learned Trial Court upon hearing the respective parties and relying upon Judgment of Apex Court passed in Branch Manager, Magma leasing and finance Ltd and another Vs. Potluri Madhavilata and another, reported in (2009) 10 SCC 103 and M/s Sundaram Finance Ltd. and another Vs. T. Thankam, reported in (2005) 14 SCC 444 was of the view that the matter should be referred to an arbitrator for proper adjudication of the dispute and accordingly order was made allowing the prayer made by opposite party no. 2, challenging the maintainability of the suit, with further observation that the civil court does not have any jurisdiction to try the said suit. Mr. Basu contended that it is surprising that neither of the parties to the partnership agreement challenged maintainability of the aforesaid suit but on the basis of the application made by opposite party no. 2 with whom the subjected partnership deed was not entered, the court below allowed the said application. He further submitted that opposite party no. 1 filed an application under section 11 of the Arbitration and Conciliation Act 1996 before this High Court, being A.P. No. 378 of 2018. By an order dated July, 24, 2018, this High Court was pleased to allow the said application under section 11 filed by opposite party no. 1 herein and relegated the matter into arbitration interalia upon appointing a sole Arbitrator with consequential directions.
4. Being aggrieved and dissatisfied with the said order passed by this High Court, the petitioners herein preferred special Leave Petition before Supreme Court being SLP(Civil) No. 10214 of 2019, which was dismissed summarily by the Apex Court on 06th May, 2019. Meanwhile, pursuant to aforesaid order of appointment by High Court, the sole Arbitrator accepted the appointment and entered into the reference. Furthermore opposite party no. 1 already filed her statement of claim before the learned sole arbitrator. Thereupon the learned arbitrator directed the petitioner herein to file his counter
A party to an arbitration agreement or any person claiming through or under him is entitled to apply for referring the dispute before the arbitrator, unless it is found that prima facie no valid arbi....
The referral court's scope under Section 11(6-A) is limited to the prima facie existence of an arbitration agreement. A formal notice under Section 21 is not mandatory if the respondent has prior kno....
Court clarified that initial appointment of an Arbitrator must derive authority from the Arbitration Act, rejecting jurisdiction under Section 8 and confirming that participation does not waive juris....
The mere existence of an arbitration clause does not automatically oust the jurisdiction of civil courts unless explicitly stated in law.
A partner cannot submit a dispute to arbitration without express authority from all partners, as required by Section 19(2)(a) of the Indian Partnership Act.
Legal heirs of a deceased partner are bound by the arbitration clause in the partnership deed, allowing disputes to be referred to arbitration despite the death of a partner.
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