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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SUNITA AGARWAL, C.J.
Haresh Nagjibhai Ramani & Ors. – Appellants
Versus
Uday Dineshchandra Bhatt & Ors. – Respondent
R/Petn. Under Arbitration Act No. 143 of 2019
Decided on : 04-10-2024
JUDGMENT :
SUNITA AGARWAL, C.J.
(1) The present petition has been filed under Section 11 (6) of the Arbitration and Conciliation Act’ 1996 (for short, ‘the Act’ 1996’) seeking for appointment of arbitrator in a dispute between the two sets of partners of the partnership firm “Uday Developers”.
(2) There is a strong opposition on the part of the respondents to refer the dispute to the arbitrator on the ground that there are criminal complaints against the petitioners and a First Information Report has been lodged after the order dated 10.07.2022 passed by the competent magistrate under Section 156 (3) of the Code of Criminal Procedure under Sections 406 , 409 and 420 etc. of the INDIAN PENAL CODE . The contention is that criminal allegations against the petitioners would have a serious implication in the public domain as they permeate to the entire contract making the dispute non-arbitrable.
(3) Noticing the context, in brief, this Court may take note of certain relevant facts.
(4) The partnership firm namely Uday Developers had started its business in the year 2007 i.e. 27.04.2007 with the respondents as its partners. The firm was re-constituted on 01.09.2008 and the petitioners and few others were inducted as partners. Vide Partnership Deed dated 13.11.2014, the firm was again re-constituted on the retirement of some partners and the business of the partnership firm continued with the petitioners and the respondents as partners.
(5) It seems that a legal notice dated 05.09.2019 issued by the respondents was served upon the petitioners and several other family members of the petitioners on the allegations of siphoning off partnership funds, mismanagement of the business of the firm, illegal investment of partnership funds in personal business etc. whereby the respondents have demanded the sum of Rs.32 crores from the petitioners on the ground that the petitioners have siphoned of the said amount.
(6) In the reply dated 13.09.2019, the petitioners have made counter allegations asking the respondents to refund the amount of Rs.3,19,78,095/- to the firm on the premise that the respondents have withdrawn huge amount from the bank account of the partnership firm and thereby caused huge loss to the petitioners. It was alleged that the respondents have taken advantage of the fact that the partnership account in the bank was being operated with the signatures of any two partners and the respondents have not shared the accounts of the firm, which is in their custody since the very inception of the business of the firm and that they have acted to the detriment of the interest of the firm.
(7) It seems that the notice dated 13.09.2019 was a composite notice as per Arbitration Clause ‘16’ in the Deed of Partnership and the petitioners have invoked Arbitration Clause while taking course to Section 21 of the Act’ 1996. In reply thereto, the respondents have claimed that the petitioners have committed systematic fraud and the dispute between the parties is non-arbitrable in nature.
(8) In Section 9 petition preferred by the petitioners namely Arbitration Civil Misc. Application No.115 of 2019 on 27.09.2019, notice has been issued on 18.11.2019 and the same is awaiting adjudication.
(9) It seems that the partnership was ‘partnership at will’ and the dispute between the partners is about dissolution of partnership ond accounting. There are allegations and counter allegations by two sets of partners against each other and the questions concerning the conduct of partners and the accounts of partnership firm are to be adjudicated. The stand of the petitioners is that the respondents have dissolved the partnership being the ‘partnership at will’ and the accounts are to be settled. Both the parties are at variance with regard to the conduct of the partners and accounts of partnership firm.
(10) The question before the Court is as to whether at the pre-reference stage, plea of non-arbitrability can be looked into.
(11) Mr. Shalin Mehta, learned Senior Advoc
The court established that serious allegations of criminality do not automatically render partnership disputes non-arbitrable unless they permeate the entire arbitration agreement.
The court affirmed that objections regarding non-arbitrability of disputes are not to be considered at the pre-referral stage under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The court held that allegations of fraud and misappropriation of funds, when inter se and with no public implications, are arbitrable under the Arbitration and Conciliation Act, 1996.
Mere allegations of fraud do not inherently preclude arbitration unless they raise complex issues requiring a full trial; straightforward financial disputes remain arbitrable under the Arbitration an....
The court reaffirmed that the existence of an arbitration agreement must be established, and disputes should generally be referred to arbitration unless clearly non-arbitrable.
The court reinforced the principle that arbitration agreements must be enforced and that jurisdictional issues regarding non-signatories should be resolved by arbitral tribunals, aligning with preced....
Disputes involving serious fraud allegations do not preclude arbitration; issues of non-arbitrability and limitations should be resolved by the arbitral tribunal, not courts.
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