Bajranglal & Ors. vs M/s. Parekh Textile & Anr.

Rule. Rule made returnable forthwith. With the consent of the learned counsel for the parties, the petition is taken up for final hearing.

By way of this petition, the Petitioner has putforth the following prayer;

The dispute between the respondent and M/s. Sarda Cloth Stores, Ahmednagar was referred to arbitration, culminating in an arbitration award rendered exclusively against the said M/s. Sarda Cloth Stores. The petitioners were not parties to these original arbitration proceedings, nor did the award determine any individual liability against them.

During the execution proceedings of the award, the respondent filed an application at Exhibit 6 seeking to implead the present petitioners as parties, which was allowed by the learned District Judge, Ahmednagar, vide order dated 17.02.2011. Thereafter, on 10.02.2012, an application was moved seeking the issuance of a warrant against the petitioners. The executing Court eventually passed an order dated 26.09.2013 below Exhibits 58 and 59, directing the petitioners to pay the award amount indicating coercive steps, followed by a consequential order dated 30.09.2013.

Aggrieved by these orders, the petitioners have approached this Court by way of the present Writ Petition.

Mr. Sancheti, learned counsel for the petitioners, submits that it was not open for the executing Court to independently determine the status of the petitioners as partners of the firm. He contends that where the individual liability of an alleged partner is disputed, the issue must essentially tried and determined in the manner, as mandated under Order XXI Rule 50(2) of the Code of Civil Procedure, 1908. It is submitted that the executing Court, by summarily fastening liability through execution orders without a prior, formal adjudication of partnership status, has fundamentally exceeded its jurisdiction.

Per contra, Mr. Bhandari, learned counsel for respondent No.1, supported the impugned orders and submitted that the executing Court correctly recorded the status of the petitioners as partners of the firm. The executing Court arrived at this finding after due consideration of the partnership deed executed between the judgment-debtors, as well as a document in the nature of a 'Samatipatra' (Consent Letter), which unequivocally binds and obligates the petitioners to satisfy the arbitral award. Consequently, it is submitted that the orders rendered by the executing Court are sustainable in law and do not warrant any interference by this Court.

In support of his submissions, Mr. Bhandari placed reliance on the following judgments of the Hon’ble Supreme Court:

Having heard the submissions of the respective sides and upon persual of the record indicates that the issue which arises for consideration is whether the executing Court can determine the status of the petitioners as partners and directly fasten individual substantive liability during execution, when their liability was never adjudicated by the original forum that passed the award.

To appreciate this issue, it is apposite to refer to the mandatory statutory framework under Order XXI Rule 50 of the Code of Civil Procedure, 1908 (CPC) which reads as under

A plain reading of Order XXI Rule 50(2) CPC makes it clear that if a decree/award-holder wishes to enforce liability personally against an alleged partner who does not fall under the clauses (b) or (c) of sub-rule (1), an application for leave must be presented to "the Court which passed the decree". Where such liability is disputed, that Court must order the issue to be formally tried and determined in the manner of a regular suit.

By no stretch of imagination is it open for an executing Court, upon a mere transfer of the award for execution, to bypass this mandatory threshold and summarily create an independent liability. An executing Court derives its jurisdiction strictly from the decree or award sent to it; it cannot travel beyond its scope, nor can it convert summary execution proceedings into a trial for determining an independent, liability in absence of adjudication. To hold otherwise would render the statutory mandate of Order XXI Rule 50(2) completely redundant.

When confronted by this Court to demonstrate that the individual liability of the petitioners was ever determined or adjudged by the court of original jurisdiction, i.e. the learned Arbitrator who passed the award, the learned counsel for the respondent could not demonstrate any material on record to that effect. Instead, the respondent attempted to justify the fastening of liability by arguing that the executing Court had independently "recorded" their status based on a partnership deed and a Samatipatra (Consent Letter).

This Court finds such an argument fundamentally flawed. Merely recording a finding on status in execution proceedings cannot validate an order that suffers from an inherent lack of jurisdiction.

Likewise, the respondent's submission that the petitioners cannot seek protection under sub-rule (2) of Rule 50 in the absence of taking recourse to sub-rule (1) cannot be countenanced. Order XXI Rule 50(1) lists restricted, conditions where execution can proceed directly. When a person is explicitly not covered by those clauses, sub-rule (2) becomes an absolute statutory embargo against summary execution, mandating a formal adjudication by the court of original jurisdiction.

Having carefully perused these precedents relied upon by the Learned Counsel for the Respondent, the same do not lend any support to the respondent's case. In those matters, the Hon'ble Apex Court was dealing with distinct factual and legal matrixes involving persons who either appeared upon summons or were specifically summoned as partners but chose to stay away, thereby falling within the parameters of Order XXI Rule 50(1) CPC.

In the present case, the petitioners were completely foreign to the original arbitration proceedings. They were neither served any summons as partners by the Arbitrator, nor did they have any opportunity to contest the claim on merits. Where a third party's status as a partner is a heavily disputed question of fact, the liability cannot automatically attach without the adjudication mandated by sub-rule (2). Thus, the judgments are entirely distinguishable and inapplicable to the facts at hand.

Consequently, the writ petition deserves to be allowed and is accordingly allowed in terms of prayer clause “B”. Pending civil application, if any, stands disposed of.

The respondents shall be at liberty to pursue such remedies as may be available to them in law to establish and enforce liability against the person/entity legally liable under the arbitration award.

Rule is made absolute in above terms.

No order as to costs.