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Judgment
Honourable Ms. Justice S.G. Gokani
The petitioners herein have preferred this petition under Article 227 of Constitution of India challenging the judgment and order dated 6th January 2011 passed by the learned Additional Senior Civil Judge, Surat made below application Exh. 11, in Summary Suit No. 61 of 2002. The respondent No. 1-Dipakbhai Pravinchandra Shah (HUF) filed a Summary Suit No. 61 of 2002 against the petitioners (defendant Nos. 1 & 3) for recovery of a sum of Rs. 2,47,830/- with interest and costs. Before filing written statement and after the summons were issued on 28th March 2003, the petitioners gave an application Exh. 11 praying for referring the dispute between the parties to an arbitrator under the Arbitration & Conciliation Act, 1996 on the ground that the partnership deed contained a clause for conciliation. After hearing both the sides, this application was rejected by the learned Additional Senior Civil Judge, Surat.
This petition is preferred, being aggrieved by such rejection. It is urged by the petitioners (original defendants) that there is a clear clause in the partnership deed for arbitration in case of any dispute between the partners and when a suit for recovery of a sum of Rs. 2,47,830/- is preferred on account of partnership firm on the basis of dissolution of the partnership firm on 31st March 1998, the Court failed to appreciate clause 17 of the partnership deed.
It needs to be noted that a draft amendment has been made presumably, where at the time of filing Special Civil Application, copy of amended partnership deed dated 1st April 1996 is brought on the record instead of the partnership deed dated 1st April 1995.
Affidavit-in-reply; if is examined, it is urged that the partnership has been desolved on 1st April 1998 and that fact is not in challenge and in fact it has been admitted in para 15 of an application for leave to defend that the present respondent is not a partner with effect from 1st April 1998. He, therefore, urged that the clause of arbitration would not be applicable to him Original defendant had demanded, according to the respondent, the outstanding dues in summary suit by submitting account statement and TDS certificates. The dues are un-controverted. He urged that there is no error committed by the learned Judge in refusing the matter to be referred to the arbitrator. He further urged that when the person has shown his intention to retire from the firm and the partnership has come to an end, this being a partnership at will, decision rendered in case of Mohanlal Sajandas (Supra) shall come to the rescue of the respondents herein.
Heard the learned advocates appearing for the respective sides.
6.1 Learned advocate Ms. Brahmbhatt heavily relied upon the following two authorities to substantiate her contentions with regard to referring the disputes to the arbitrators. These are :
M/s. Indian Drugs and Pharmaceuticals Ltd. Vs. M/s. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. and others, ;
Reva Electric Car Company P. Ltd. Vs. Green Mobil, .
6.2 Ms. Kapadia for the respondent has urged that partnership if is at will, even if the partnership deed contain a clause as regards appointment of arbitrator, the same cannot be invoked once intention is shown by either of the partners to put an end to the partnership at will. She insisted that no interference is desirable. She relied upon heavily on the decision of this Court in case of Mohanlal Sajandas Vs. Hareshkumar Narandas, .
On thus hearing both the sides and on close reading of the order impugned, it can be noted that the request of referring the dispute to the arbitrator has been denied and rejected by the trial Court essentially on the ground that the partnership firm has been dissolved on 31st March 1998 and as the very partnership deed did not remain in existence, the dispute cannot be referred to the Arbitrator as the partnership deed has come to an end. The Court also noted that whenever there is a partnership of will, there is a clause of referring the dispute to the arbitrator, once intention is already declared to bring an end to such partnership, such arbitration clause cannot be operated and essentially relying on the decision in case of Mohanlal Sajandas (Supra) this has been rejected.
In the matter before this Court in case of Mohanlal Sujandas (Supra), the partnership at will was put an end to by the respondent No. 1 therein on 31st March 1999 and the Court held that if any question has arisen thereafter, the same can not be said to have been arisen during or in the course of partnership business and therefore, arbitration clause would not operate, nor the same can be invoked by the parties.
In the judgment of Apex Court rendered in case of M/s. Reva Electric Car Co. Pvt. Ltd. (Supra) wherein, it is held that even on termination of the agreement contract, arbitration agreement would still survive. It further held that once parties have entered into a legally valid and enforceable Memorandum of Understanding providing inter alia for the respective obligation of both the parties and terms of the said MOU was clear that if any dispute arise between the parties, arbitration clause would be covering any dispute or claim that pertains to a period subsequent to the terms of MOU. In other words, even where disputes arose in relation to the termination of MOU and consequent thereof, they would be covered by the arbitration clause. Thus, in the event of any dispute arising at any point of time between the parties in relation to the agreement the same shall be referred to a sole arbitrator and such clause was held not to be limited to the dispute relating to the initial period of MOU. The Court also relied upon Section 16(1) of the Arbitration & Conciliation Act to hold that the legislature makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, the arbitration clause which forms part of the contract has to be treated as an agreement independent of the other terms of the contract. This Section presumes existence of a valid arbitration clause and mandates the same to be treated as an agreement independent of the other terms of the contract. The Apex Court went to an extent of saying that by virtue of this provision, the arbitration clause continues to be enforceable notwithstanding a declaration of the contract being null and void.
Reference is also required to be made to a decision of the Apex Court in case of Indian Drugs and Pharmaceuticals Ltd. (Supra) wherein, there was an arbitration clause in the agreement which ceased to be operative where either there is substitution by a new contract or rescission of the original contract. But, where contract is terminated by one of the parties by giving a three months'' notice to the other party in accordance with the terms of the contract, though performance of the contract would come to an end, the arbitration clause would remain in existence for the purpose of disputes arising under the contract or in connection there with.
The facts of this case are undisputed. Admittedly, this is a partnership at will. The respondent herein had intended to end the partnership and the partnership firm was dissolved on 31st March 1998 and in absence of any partnership deed in existence, clause of arbitration was held not be operative. In the judgment of this Court, rendered in case of Mohanlal Sajandas [Supra] holding that the question cannot be said to have arisen during or in the course of partnership business, and therefore, clause was not found to be operative once there was an intention shown by either of the partners to end the partnership at will. Clause 17 of the partnership deed dated 1st April 1995 clearly specifies that this was a partnership at will. It further notes that any dispute with regard to partnership firm''s business or in respect of any matter incorporated in the partnership deed, the dispute/s would require to be referred to the Arbitrator.
However, in wake of the decision of the Apex Court in M/s. Reva Electric Car Co. Ltd. (Supra) and also rendered in case of Indian Drugs and Pharmaceuticals Ltd. (Supra) as there appears to be arbitration clause for the purposes of the dispute/s arising under the partnership deed, or in connection with it, the order requires to be interfered with and set aside. These decisions of the Supreme Court though rendered in relation to termination of the MOU as well as termination of the contract, they clinch the issue. When disputes that have arisen between the parties are found to be relating to the subject of relationship between the parties which existed through the memorandum of understanding, the dispute raised by the petitioner is required to be referred to the arbitrator. Resultantly, petition succeeds. The impugned Judgment and Order dated 6th January, 2011 passed below Exh. 11 in Summary Suit No. 61 of 2002 passed by the learned 7th Additional Senior Civil Judge, Surat is set aside. Rule is made absolute to the above extent.