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Gujarat High Court
Judgename :K.M.Mehta
HEMENDRA BABULAL SHAH HUF THRO MANAGER AND KARTA - Appellant
Versus
DILIPKUMAR BABULAL SHAH - Respondent
Civil Revision Application 775 Of 1998
Decided On : 05/05/2006
Dissolution of partnership firm - Suit for - Allowing application to stay - Propriety of - Sustainability - Finding of.
Head Note :
Arbitration Act, 1940 (Central Act 10 of 1940) - Section 34 - Partnership Act, 1932 (Central Act 9 of 1932) - Sections 4, 39, 40, 42 and 43 - Civil Procedure Code, 1908 (Central Act 5 of 1908) - Section 115 Order 20 Rule 15 - Dissolution of partnership firm - Suit for - Allowing application for stay - Propriety of - Sustainability - Finding of - The provisions under the Act provides power to stay legal proceedings where there is an arbitration agreement but such an agreement itself does not take away the jurisdiction of the Court - The power to stay is discretionary in nature and if the parties have invoked the jurisdiction of the Court they cannot seek stay - Further there must be valid and subsisting and binding agreement capable of being enforced - The application must be made at the earliest stage of proceedings and subject matter must also be within the scope of arbitration agreement - In the instant case the suit relates to dissolution of partnership firm and dissolution of partnership firm cannot be subject matter of arbitration - Therefore, suit sought to be stayed does not fall within the scope of the Act - As a result Court quashed and set aside the impugned order of Chamber Judge City Civil Court dated 25.11.1997 with direction to proceed further in the suit.
Held :
Court has also to consider Section 34 of the Old Arbitration Act which provides power to stay legal proceedings where there is an arbitration agreement. The said Section 34 provides that if an arbitration agreement does not itself take away the jurisdiction of the Court, further if the parties have invoked jurisdiction of the Court, they cannot seek stay. The power under Section 34 is also a discretionary power in this behalf. The requirements of Section 34 are as under:-
(1) There must be a valid and subsisting and binding arbitration agreement capable of being enforced.
(2) The subject-matter in question in the legal proceedings which is sought to be stayed must be within the scope of the arbitration agreement.
(3) The application must be made by a party to the arbitration agreement or by some person claiming under him.
(4) The application must be made at the earliest stage of the proceedings, i.e., before filing a written statement or taking any other step in the proceedings.
(5) The application must be made to the judicial authority before which the proceedings are pending.
(6) The applicant must satisfy the Court not only that he is, but also that he was at the time when the proceedings were commenced, ready and willing to do all things necessary to the proper conduct of the arbitration.
(7) The Court is satisfied that there is no sufficient reason why the matter should not be referred. [Para 10]
Court has considered the facts of the case, as the case relates to dissolution of partnership firm and dissolution of partnership firm cannot be subject matter of arbitration for which Court rely upon the judgment of this Court in the case of Manibhai Shankerbhai Patel vs. Swashray Construction Co. & Ors., reported in 1982 (1) GLR 312. The said judgment is squarely applies in this case, and, therefore, this Court is of the view that the arbitration agreement does not cover the case of dissolution of partnership firm. So the subject matter in question i.e., a suit which has been filed for dissolution of the firm which is sought to be stayed by the defendants does not fall within the scope of Arbitration Act. [Para 11]
Law Laid Down :
Dissolution of partnership cannot be subject matter of arbitration.
Case Law Analysis :
Manibhai Shankerbhai Patel vs. Swashray Construction Co. & Ors., 1982 (1) GLR 312;; Rameshchandra vs. Haridas, 1984 (4) GLH (UJ) 24.-Relied on
Conclusion :
In the instant case suit relates to dissolution of partnership firm and dissolution of partnership firm cannot be subject matter of arbitration - Therefore, chamber Judge City Civil Court erred in allowing the application for stay of proceeding in the suit.
Cases Referred :
Ram Singh vs. Ram Chand, AIR 1924 Privy Council 2;; Sathappa Chetty & Ors. vs. S.N. Subrahmanyan Chetty & Ors., AIR 1927 Privy Council 70;; Banarsi Das vs. Kanshi Ram & Ors., AIR 1963 SC 1165;; Smt. Premlata & Ors., vs. M/s. Ishar Dass Chaman Lal & Ors., AIR 1995 SC 714;; Madhukantaben Nagindas Sheth vs. M/s. Arvindlal Kantilal & Co. & Ors., 1985 (2) GLR 1169.
Decided in Favour of :
Applicant
Application Allowed
( 1 ) RULE. Mr. P. R. Nanavati, learned advocate waives service of rule on behalf of respondents.
( 2 ) HEMENDRA Babulal Shah and others, petitioners-original plaintiffs, have filed this revision Application before this Court under section 115 of the Code of Civil Procedure, against the judgment and order dated 25. 11. 1997 passed by the learned Chamber judge, City Civil Court, Ahmedabad in Civil suit No. 2942 of 1992; Order below Exh. 14. The learned Judge by his impugned judgment and order was pleased to allow the application of defendant filed under Section 34 of the Arbitration Act, 1940, for staying of the suit.
( 3 ) THE facts giving rise to this Revision application are as under:-Originally Hemendra Babulal Shah -plaintiff no. 1 and Smt. Smitaben hemendrakumar Shah - plaintiff no. 2 had filed a Civil Suit No. 2942 of 1992 before the city Civil Court at Ahmedabad. In the said suit, the plaintiffs contended that there is a firm known as "m/s. Siddharth Tyres" which is a registered firm and a partnership deed is executed on 7th August, 1987. The plaintiff- Smt. Smitaben Hemendrakumar Shah and defendant no. l Babulal Shivlal Shah and defendant no. 2 Kailashben Rameshchandra mehta were the partners of the said partnership firm. The main purpose of the partnership firm was trading in tyres, tubes and other accessories. Clause (5) of the said partnership deed provides to carry on business and the duration of the partnership firm is at will.
( 4 ) IN the suit it was contended that the defendants have committed breach of the conditions of partnership deed dated 7. 8. 1987. Now it is not reasonably practicable for plaintiff to continue to carry on business of suit partnership firm. In view of the same it was submitted that a partnership is at will therefore it can be dissolved by any one of the partners. So it was submitted that it is just and equitable to dissolve the partnership firm. It was contended that in these circumstances the plaintiff was constrained to file suit and obtaining the decree of accounts. So ultimately in the prayer clause it was prayed that the Court may be pleased to pass a decree to dissolve the suit partnership firm, namely M/s. Babulal Shivlal shah constituted by partnership deed dated 7. 8. 1987 and shares of plaintiff and each defendant in the suit partnership firm may please be declared. The said suit was filed on 4. 6. 1992. The Court has issued notice and that is how the defendants were served.
( 5 ) THEREAFTER the defendants filed application on 8. 6. 1992 under Section 34 of the Arbitration Act, 1940 (hereinafter referred to as "the old Act" ). It was submitted that Clause 9 of the Partnership Deed provides if any dispute arises in or in connection with the partnership firm, such dispute has to be resolved by a method of arbitration instead of approaching the court of law. The suit filed by the plaintiffs is clearly contrary to and inconsistent with the said clause, and therefore, they filed this application with a prayer that the Court may stay the present proceedings of the suit. The defendants further prayed that the Court may be pleased to refer the dispute and difference between the plaintiffs and the defendants in connection with the suit partnership firm to arbitration.
( 6 ) THE learned Judge has also considering the fact of the case and having regard to arbitration clause in the partnership deed, parties are under obligation to resolve the dispute through the process of arbitration. The Court held that, as the parties to the proceedings are members of one family and close relatives, it is therefore desirable to resolve the dispute through arbitral proceedings and to exercise discretion and powers conferred under section 34 of the Old Act in favour of the defendant to stay the proceedings. Being aggrieved and dissatisfied by the said order the appellants-original plaintiffs filed this Civil Revision Application before this Court.
( 7 ) THE learned Counsel Mr. M. C. Bhatt h
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