Mahendra Singh Dahiya vs Dinesh Nagori

Prakash Shrivastava, J.—This is an application u/s 11 of the Arbitration and Conciliation Act, 1996 for appointment of the Arbitrator. The case of the petitioner is that petitioner and respondent were partners in partnership firm M/s. Nagori & Dahiya as per the agreement of admission to partnership dated 1st January 2005, Annexure P-1. The petitioner had agreed to retire from the firm on certain terms and conditions. Accordingly, the M.O.U. dated 2nd March 2007 was singed containing the terms of retirement of the petitioner from the firm. The respondent did not comply with the terms of M.O.U., therefore, the petitioner had initially sent the legal notice to the respondent and thereafter asked the respondent to appoint Arbitrator in terms of Arbitration Clause of the agreement dated 1/4/2007 for amicable settlement of the dispute, but the respondent had not considered the said request hence, the petitioner has filed the present application for appointment of the Arbitrator.

A reply has been filed by the respondent taking the stand that there is no arbitration clause in the M.O.U. and the arbitration clause in the agreement dated 1/1/2005 cannot be read in the M.O.U. dated 2/3/2007. A further plea was raised that the M.O.U. dated 2/3/2007 was got executed from the respondent under the duress, coercion and is unconscionable contract and therefore, the respondent is not liable to pay in terms of the said M.O.U.

Learned counsel appearing for the petitioner submits that original agreement dated 1st January 2005 contains the arbitration clause therefore, the dispute is required to be settled in terms of the said arbitration clause. He further submits that the M.O.U. was executed in respect of dispute arising out of the agreement dated 1st January 2005 therefore, no arbitration clause was needed in M.O.U. and even otherwise the arbitration clause can be read into the said M.O.U. by reference and alternatively, the issue if the rights of the parties under the agreement are superseded by the M.O.U., itself is an arbitrable issue and can be examined by the Arbitrator.

As against this, learned counsel for the respondent submits that the M.O.U. does not contain the arbitration clause and the arbitration clause of the main agreement can not be read in the M.O.U.. In this regard, he has placed reliance upon Section 7(5) of Arbitration and Conciliation Act. He further submits that the M.O.U. is not properly stamped and that cannot be looked into by this Court.

Having heard the learned counsel for the parties and on perusal of the record, it is found that the agreement dated 1/1/2005 undisputedly contains the following arbitration clause:

Arbitration:- That, all the disputes relating to this partnership business, the partners or their representatives, if cannot be settled mutually, the same shall be referred to arbitration and entire proceeding thereof shall be governed as per provisions of the Arbitration Act.

The parties were partners of partnership firm M/s. Nagori and Dahia under the deed of partnership dated 1/1/2005. The M.O.U. dated 2nd March 2007 has also been executed between the petitioner and respondent in their capacity as partners of the firm for the purpose of retirement of the petitioner from the firm w.e.f. 1st March 2007 and deletion of the title Dahiya from the firm''s name. In terms of the said M.O.U. certain amounts were payable to the petitioner which the petitioner allegedly has not received. The M.O.U. has been executed to settle the dispute relating to partnership business by retiring the petitioner but since allegedly the M.O.U. has not been honoured therefore, the dispute relating to partnership business and receipt of the due amount to the petitioner on his retirement from the partnership business has remained unsettled.

It is settled position in law that the arbitration clause is an agreement within an agreement. It is a collateral term of the contract, independent of and distinct from its substantial terms and it is treated to be an agreement independent of other terms of the contract. Hence, the arbitration clause continues to be enforceable even if the contract is terminated. [See:- Reva Electric Car Company P. Ltd. Vs. Green Mobil, ; M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd., ; National Agricultural Co-op. Marketing Federation India Ltd. Vs. Gains Trading Ltd., ]. Hence the arbitration clause contained in the partnership agreement dated 1st January 2005 will continue to survive and enforceable even after the dissolution of the partnership firm.

The contention of the respondent is that since the M.O.U. dated 2nd March 2007 was executed which did not contain any arbitration clause, therefore, the dispute cannot be referred to the arbitrator. Such an argument cannot be accepted for the simple reason that on the one hand the respondent in his reply before this Court has raised the plea that the M.O.U. dated 2/3/2007 was executed under duress, coercion and is an unconscionable contract and on the other hand he is raising the plea that in view of the said M.O.U. the arbitration clause of the main agreement cannot be invoked. The respondent cannot be permitted to blow hot and cold in the same breath. Even otherwise it is the settled position in law that whether rights of the parties under agreement were superseded by subsequent settlement agreement can itself be an arbitrable issue which can be examined by the Arbitrator. [See:- Sirajuddin Kasim and Another Vs. Paramount Investment Ltd., ]

It is also worth noting that the primary and mother agreement is the partnership agreement and the M.O.U. dated 2nd March 2007 is not an independent agreement but it is an agreement for retirement of one of the partner of the firm on certain conditions. Considering the nature and contents of the M.O.U. it would not be appropriate to read it independent of the partnership agreement dated 1st January 2005 since it is inextricably connected with the partnership agreement. The arbitration clause No. 14 in the partnership agreement itself provides for settlement of dispute by the arbitrator in case if the parties fail to settle the same mutually. Since the parties have failed to settle the dispute by M.O.U. dated 2/3/2007, therefore, the arbitration clause No. 14 has come into play. Clause 14 is widely worded and all the disputes relating to partnership business have been covered under Clause 14. Therefore, the respondent''s contention that on account of execution of the M.O.U. dated 2/3/2007 the dispute is no longer arbitrable, cannot be accepted. [See Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. and Others, ; and National Aluminum Company Limited Vs. The Doaba Industrial and Trading Company (P) Limited, ].

So far as the reliance of the counsel for the respondent on judgment of the Supreme court in the matter of M.R. Engineers and Contractors Pvt. Ltd. (supra) is concerned, the respondent is not entitled to the benefit of the said judgment in view of the fact that the respondent himself has alleged the M.O.U. dated 2/3/2007 to be an unconscionable contract and that as per the respondent''s own version by the said M.O.U. the dispute between the parties has not been mutually settled and therefore, in terms of the clause 14 of the partnership agreement dated 1st January 2005, the matter is to be referred to the arbitration. In view of the aforesaid analysis respondent''s objection against the appointment of arbitrator is rejected. It would be open to the parties to raise all legally permissible plea before the Arbitrator. Looking to the nature of dispute it is found necessary to appoint an independent and impartial Arbitrator u/s 11 of the Act. Accordingly Shri P.V. Namjoshi, Advocate is appointed as Arbitrator.

Parties are directed to appear before the Arbitrator on 22/10/2013.