C.A.V. JUDGMENT

(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

1. The appellant has filed the present appeal under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 [A&C Act], impugning an order dated 25.04.2024 passed by the learned II Additional District Commercial Court, Udupi District [Commercial Court] rejecting I.A.No.3 in Com.OS.No.121/2023. The appellant had filed the said application under Section 8 of the A&C Act, praying that the parties be referred to arbitration.

2. Respondent No.1 [the plaintiff] had filed the aforementioned suit (Com.OS.No.121/2023) seeking recovery of an amount of `4,00,10,000/-, along with interest at the rate of 18% per annum from the date of the suit till payment, as well as the costs.

3. It was the plaintiff’s case that he intended to enter into a partnership with the appellant [defendant no.3] and respondent Nos.3 to 5 [defendant Nos. 2, 4 and 5]. The plaintiff stated that the defendants Nos.2 to 5 were partners in the firm M/s Sea Line Trading [defendant No.1 firm], which was arrayed as defendant No.1 in the suit, and was engaged in the business of trading in seafood. The plaintiff claimed that defendant Nos.2 to 5 had demanded a sum of `2,85,00,000/- (Rupees Two Crores Eighty Five Lakhs Only) from the plaintiff as investment and had represented that on the plaintiff investing the said amount, he would be joined as a partner in the defendant No.1 firm. He also claimed that persons arrayed as defendant Nos.6 to 8 had also promised to join as partners in defendant No.1 firm. The plaintiff claimed that he was under a bona fide belief that all defendant Nos.2 to 8 were partners in defendant No.1 firm. And, on the said basis, he transferred a sum of `2,85,00,000/- directly in the account of the defendant No.1's firm. However, inconsistent with the said pleading, the plaintiff also claimed that out of the said sum, he had paid a sum of `2,72,57,315/- in the said bank accounts of the firm and `12,42,685/- in cash.

4. The plaintiff claimed that despite making huge investments, the defendants were hesitating to enter into any documents to evidence the plaintiff’s entering as a partner of the firm. However, after repeated reminders, they agreed to reduce the terms into writing. The plaintiff also averred that “the transaction of the plaintiff entering into the Partnership is evidenced by an agreement and deed of retirement of partners from the partnership firm M/s. Sea Line Trading on 01.03.2019 ".

5. He claimed that in the said agreement, defendant Nos.2, 5, 6, 7 and 8 were shown as partners and the plaintiff was shown as an incoming partner, who had invested `2,85,00,000/- (Rupees Two Crores Eighty Five Lakhs Only).

6. The plaintiff claimed that the actual registered partnership deed was amongst defendant Nos.2 to 5 as partners and defendant Nos.6 to 8 were not partners. However, by misrepresentation, had joined the agreement and the deed of retirement dated 01.03.2019 to “dupe the plaintiff".

7. The plaintiff claimed that after realising the fraudulent intention of the defendants, he pressurised them for a refund of his investment. The defendants issued cheques dated 20.05.2019 and 06.06.2019 for a sum of `95,00,000/- (Rupees Ninety Five Lakhs Only) each, but both the cheques were dishonoured. The plaintiff filed a complaint under Section 138 of the Negotiable Instruments Act, 1881, which is pending.

8. The plaintiff claimed that after receiving court summons, the defendants had come forward and entered into a compromise on 28.10.2022 and settled the disputes for a sum of `4,00,00,000/- (Rupees Four Crores Only), inclusive of interest, in full discharge of the said amount. It is stated that the defendants had issued cheques aggregating to `4,00,00,000/- to discharge the liability. However, the said cheques were dishonoured on presentation. The concerned bank returned the cheques with the remarks “account blocked”.

9. Defendant No.3 (the appellant in the present case) filed an applic