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2024 Supreme(Cal) 1207
IN THE HIGH COURT AT CALCUTTA
SABYASACHI BHATTACHARYYA, J.
Prashant Mohta - Petitioner
Versus
Manoj Kumar Bothra & Ors. - Respondents
APO No. 98 of 2023, IA No: GA 1 of 2023
Decided On : 09-07-2024
For the Petitioner: Mr. Anirban Ray, Mr. Debangshu Dinda, Mr. Snehal Kakrania, Ms. Nikita Khaitan.
For the Respondents: Mr. Sarvapriya Mukherjee, Mr. Shoham Sanyal, Mr. Kunal Saraogi.
IMPORTANT POINT
An arbitrator cannot compel a party to sign documents that may incriminate them, as it violates fundamental legal principles and exceeds the arbitrator's jurisdiction.
Headnote:
Arbitration - Partnership Dispute - Arbitration and Conciliation Act, 1996 (Sections 17, 37) - Income Tax Act, 1961 (Sections 271, 271A) - The court held that the arbitrator's order compelling a partner to sign disputed financial statements was beyond jurisdiction and violated principles of justice.
Fact of the Case:
The petitioner, a partner in a firm, retired and later disputed financial statements, claiming inaccuracies and seeking arbitration. The arbitrator ordered him to sign the disputed statements, leading to this appeal.
Finding of the Court:
The court found the arbitrator's order to compel signing of financial statements was beyond jurisdiction, potentially incriminating the petitioner under tax laws, and thus set aside the order.
Issues: Whether the arbitrator had the authority to compel the petitioner to sign disputed financial statements and whether such an order was binding on the Income Tax Authorities.
Ratio Decidendi: The court emphasized that the arbitrator's order violated the petitioner's rights under the Income Tax Act and the Constitution, as it could lead to self-incrimination and was outside the scope of arbitration.
Result: The court set aside the arbitrator's order compelling the petitioner to sign the financial statements.
JUDGMENT :
Sabyasachi Bhattacharyya, J.
1. The petitioner was one of the partners, along with the respondent nos.1 and 2, in the respondent no. 3-partnership firm, Ultra Carbon Industries, till he executed a Deed of Retirement on September 17, 2022. The firm is a registered partnership firm running a business of manufacturing carbon brushes, carbon components and silver impregnated graphite contact for railway signalling relays, etc.
2. Subsequently a dispute having arisen between the parties regarding the alleged dues of the petitioner from the partnership firm, the petitioner invoked the arbitration clause in the Retirement Deed and appointed an Arbitrator. Thereafter the petitioner filed his statement of claim, thereby alleging manipulation of accounts by the respondents and claiming his alleged dues to the tune of Rs.74,78,622.78 p. and his share of goodwill of the firm as on September 16, 2022, in the alternative seeking an enquiry into the accounts of the firm between April 1, 2022 and September 16, 2022 by appointment of a surveyor and/or independent auditor and also to carry out the formalities in terms of the Deed of Retirement, along with consequential reliefs.
3. The respondents filed their statement of defence with a counter claim, seeking a declaration that the stock-in-trade of the firm as on September 16, 2022 included 3,00,000 SIG semi-finished contacts and claiming sums of Rs.12,31,553.50p as the petitioner's share in loss of the firm as well as Rs.8,12,63,041/- as the share of the respondent nos. 1 and 2 in the goods allegedly retained by the petitioner.
4. An independent auditor was appointed by the learned Arbitrator on the prayer of the petitioner.
5. In an application filed by the respondents under Section 17 of the Arbitration and Conciliation Act, 1996, the learned Arbitrator passed an order dated May 19, 2023 directing the claimant/petitioner to sign financial statements of the partnership firm caused to be prepared by the respondents, upon the auditor recording discrepancies found by the petitioner therein in the form of notes to accounts. Challenging the said order, the petitioner has taken out the present appeal under Section 37 of the 1996 Act.
6. Learned counsel for the petitioner argues that the petitioner has challenged in his claim before the learned Arbitrator the veracity of the very books of accounts on the basis of which the financial statements, including the balance sheet and profit and loss accounts of the firm, are to be prepared. Therefore the petitioner would be compelled to sign by virtue of the impugned order statements which are inaccurate as per the petitioner.
7. It is contended that such signatures on incorrect statements would make the petitioner liable to penal action under Sections 271 and 271A of the Income Tax Act. Thus, he cannot be compelled to incriminate himself. The learned Arbitrator, despite recording the disputes raised by the petitioner against the entries in the accounts which are to be filed with the Registrar of Firms, observed that such apprehension expressed by the claimant/petitioner is not very relevant for the adjudication of the present dispute as the notes are to be inserted by the auditor explaining the objection of the claimant with regard to the disputed entries and the said document is to be signed under directions and/or orders of the arbitral tribunal; the question of the claimant being hauled up for active concealment of income under Sections 271 and 271A of the Income Tax Act, 1961 does not and cannot arise.
8. The claimant/petitioner was directed to formulate specific “matter paragraphs” which would be asked by the respondents to be incorporated by the auditors as notes in the accounts as far as possible.
9. It was also recorded in the order that the claimant should not be hauled up for any concealment of income or any other non-compliance, penalty or coercive action from any statutory authorities for signing the said balance sheet and profit and loss acco
