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High Court Of Delhi
SITA HOLIDAY RESORTS LIMITED - Appellant
Versus
MOHAN LAL HARBANS LAL BHAYANA AND COMPANY - Respondent
Interim Application 10518 of 1997
Decided On : 05/01/1999
Held:
It is an undisputed fact that in 1993 when the contract was entered into Shri P.N. Bhatia was not partner of the defendant firm. It is also not disputed that the contract was performed by defendant No. 1 and after completion of the contract, the dispute arose relating to payment.
Seeing the provisions of Section 16, even if it is accepted prima facie that Mr. P.N. Bhatia had no authority to enter into the arbitration agreement, it is apparent that such a question could be raised before the arbitral tribunal. And, in this case not only it has been raised but issue has also been framed on the point. It cannot be said that Section 16 does not cover all the possible objections with respect to the existence or validity of the arbitration agreement.
I feel that it may be a very material fact in case of a partnership firm to decide the question as to whether a contract should be entered into with a partnership firm or not for, it depends on creditworthiness of individual partners of the finn more or less like a sole proprietary concern. I feel that Explanationn may be of no help to the defendant.
As regards the exception to Section 19, I feel that this may also be of no help for in ordinary course, a person is supposed to act upon the antiquity and continuity of the things. "Antiquity of time forty fifth all titles and supposeth the base beginning the law can given them" It is a maxim of the law of England to give effect to everything which appears to have been established for a considerable course of time, and too presume that what has been done was done of right, and not of wrong. (See Brooms Legal Maxim 10th Edn. Page 640). It may be mentioned that Section 109 of the Indian Evidence Act provides: "When the question is whether persons are partners, landlord and tenant or principal and agent, and it has been shown that they have been acting as such, the burden of proving that they do not stand, or have ceased to stand, to each other in those relationships respectively, is on the person who affirms it." In this connection, Section 106 of the Indian Evidence Act provides: "When any fact is specially within the knowledge of any person, the burden of proving that fact is upon him." Accordingly, person who knows and claims about the discontinuity of such a relationship is supposed to disclose about discontinuity. If such a case of discontinuity of relationship is not disclosed, it must amount fraudulent misrepresentation for it amounts to active concealment of fact by one having knowledge or belief of the fact. Since Mr. P.N. Bhatia was admittedly a partner earlier and it was in his special knowledge that he was no more a partner of the defendant firm at the time of executing the Articles of Contract, and the question of entering into a contract depends on creditworthiness of individual partners, non-disclosure of such a fact certainly amounted to fraud. Firstly, Mr. P.N. Bhatia knowing that he was not a partner of the defendant firm suggested that he was a partner and secondly, it amounted to active concealment of a material fact by one having knowledge or belief of the correct facts. Accordingly, I feel that exception and Explanationn to Section 19 of the Contract Act are of no help to the defendant.
( 1 ) IN this case, the question is whether there is a valid arbitration agreement in between the parties for, Mr. P. N. Bhatia who had signed on behalf of the defendant firm as partner, was allegedly not a partner, and as such, the defendant could not prima facie enforce the arbitration agreement.
( 2 ) BEFORE proceeding further, it is desirable to appreciate the factual matrix. According to the plaintiffs case, late Shri P. N. Bhatia represented himself as a partner of defendant M/s Mohan Lal Harbans Lal Bhayana and Co. and signed the alleged Articles of Contract dated 12th February 1993 for and on behalf of defendant No. 1, was not the partner on that date. A fraud was played on the plaintiff by producing photostat copies of some alleged partnership deed dated 24th May 1986 and a photostat copy of office order No. 208 (Bandr) New Delhi dated September 1986 from the Government of India, Directorate General, Central Public Works Department indicating that late Shri P. N. Bhatia was one of the partners of defendant No. 1. Believing that Mr. P. N. Bhatia was competent to sign contract dated 12th February 1993, plaintiff entered into contract. Some disputes arose in between the parties relating to the said contract and the disputes were referred to arbitration in terms of Articles of Contract dated 12th February 1993 and from discovery and production of documents, it transpired that late Shri P. N. Bhatia, the signatory of the Contract, was not the partner and he represented as partner of the defendant No. 1. It also transpired that the defendant firm was not registered under Section 69 of the Partnership Act. Mr. Ashish Bhatia who signed and verified the claim petition represented himself to be one of the partners of defendant No. l, was also not a partner. Now, the defendants are claiming that Mr. P. N. Bhatia and Mr. Ashish Bhatia were Attornies of defendant No. l and have allegedly filed forged and fabricated documents. Consequently, the plaintiff raised objection on 24th October 1997 that there was no valid executable and subsisting Article of Contract (including the arbitration agreement) and therefore no arbitration could take place. The matter could be tried only u/s 9 of the Civil Procedure Code and not under the Arbitration.
( 3 ) THE arbitrator has already framed an issue and since the new Arbitration act applies, under section 9 it is only for the arbitrator to decide the issue first for this court has no jurisdiction to enter into those questions. Under section 22 of the Partnership Act, even an outsider could appoint the firm and firm could reconfirm the agreement; even oral authorisation was permissible.
( 4 ) THE plaintiff has moved an application for ad interim injunction for staying the proceedings before defendant No. 2 the Arbitrator.
( 5 ) THE suit as well as this application is being contested by the defendant. lt is claimed that the defendant No. l is a partnership concern of primarily two families Bhayanas and Bhatias. For administrative convenience, Shri P. N. Bhatia moved out of the partnership and a separate partnership was formed by late Shri P. N. Bhatia in the year 1992. However, Shri P. N. Bhatia continued to be attorney of continuing partnership firm of defendant No. 1. In these circumstances, he signed the Articles of Contract dated 12th February 1993. Consequently, the legality and validity of the contract was not affected. Only mis-description of persons signing Articles of Contract could not affect the validity or the execution of the contract for, the contract already stood executed. Shri P. N. Bhatia was fully authorised to enter upon the contract by all the partners of defendant no. 1 and Mr. Ashish Bhatia was also an authorised person on behalf of defendant No. 1. He was also partner of sister concern Mohanlal Harbanslal Bhayana and Company (III ). It is denied that any Power of Attorney was forged.
( 6 ) IT is claimed that the defendant No. l had completed the task but the
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