The High Court by its judgment and order dated 18.9.2001 rejected application under Section 8 of the Act. The Court arrived at the conclusion that in the suit apart from the relief of dissolution and accounts, plaintiff has prayed for other reliefs. All the defendants to the suit are not parties or partners in the partnership firm and the terms of the partnership deed including the arbitration clause are not binding to them. Only part of the subject matter could at the most be referred to the arbitration. Further, there is no power conferred on the Court to add parties who are not parties to the agreement in the arbitration proceedings. The Court also negatived the alternative prayer for referring part of the subject matter in respect of those parties who are parties to the partnership agreement which contains arbitral clause. The Court arrived at the conclusion that such procedure is not contemplated under the Act. The object and purpose of the Act is to avoid multiplicity of the proceedings and not to allow two forums simultaneously to proceed with the matter. That judgment and order is challenged in this appeal.
Supreme Court of India
Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr on 14 April, 2003
Bench: M.B. Shah, Arun Kumar.
Citation: AIR2003SC2252, 2003(3)ALD75(SC), 2003(3)ALLMR(SC)325, 2003(2)ARBLR43(SC), 2003 3 AWC(Supp)2055SC, 2003(3)BLJR1673, (2003)3CompLJ68(SC), 2003(2)CTC431, JT2003(4)SC58, 2003-4-LW475, 2003(4)SCALE7, (2003)5SCC531, [2003]44SCL146(SC), [2003]3SCR558,
This appeal by special leave is directed against the judgment
and order dated 18.9.2001 passed by the High Court of Bombay in
Arbitration Petition No.500 of 2001.
Appellant and respondent Nos.1 and 2 entered into a
partnership agreement on 30th April 1992 for carrying on business in
the name and style of M/s Hetali Construction Company to develop
the land belonging to Ms Jaykirti Mehta who brought the said land as
her capital contribution. Land was valued at Rs.65,51,000/-. A Plan
for construction of building was submitted in April 1992 and on
20.1.1993, commencement certificate was issued. It is submitted that
till issue of commencement certificate, appellant's contribution in the
said partnership was to the extent of
Rs.1,25,00,000/- as capital contribution. By award dated 11.3.1993,
Ms. Jaykirti Mehta was directed to stand retired from the partnership
firm. It was agreed that after retirement of Ms. Mehta, other partners
were to continue with the partnership. It is submitted that the
appellant provided a fund of Rs.60,88,000/- to the said partnership
firm for being paid to Ms. Jaykirti Mehta which was paid to her along
with the amount of Rs.5,24,000/- in terms of the Award dated
11.3.1999. Further, a sum of Rs.47,50,000/- was paid to one Mr. Kirti
Desai to settle the suit filed by him. The partnership firm entered into
an agreement with M/s Laxman Commercial and Finance Ltd. and
accordingly construction was started. It is contended that from 1996
to 1998, respondents took away some amount from the partnership
without contribution to capital construction. On 7.4.1998, five flats
were sold to the creditors of the partnership firm in order to repay the
loans and excess amount was paid to the firm. In April 1999, M/s
Laxman Commercial and Finance Ltd. sold flats No.401 to 701 to
different purchasers. On 23.6.1999, the partnership firm executed a
Deed of Conveyance subject to rights of other parties in favour of M/s
West End Gymkhana Ltd. in respect of disposed of flats. On
1.1.1999, respondent No.1 wrote to the Income Tax Officer to
complete the assessment of the partnership firm. Accordingly,
assessment order was passed on 30.3.2000.
Thereafter, respondent no.1 filed suit No.1991 of 2000 in the
High Court of Bombay for dissolution of partnership firm and
accounts and inter alia challenging the conveyance deed executed by
partnership firm in favour of M/s West End Gymkhana Ltd.
Respondent no.1 also took out a notice of motion No.1576 of 2000 for
various interim reliefs.
On the same day, appellant filed an application under Section 8
of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as
'the Act'). That application was kept for hearing along with the
notice of motion.
Subsequently, respondent no.1 filed fresh suit bearing No.2812
of 2001 for dissolution of the suit firm, accounts and other reliefs
including the relief for setting aside the transfer of suit flats in favour
of various defendants. The respondent withdrew the suit filed on 9th
May, 2000.
The appellant filed an arbitration petition No.500 of 2001 under
Section 8 of the Act. That application was opposed by respondent
no.1 by contending that the subject matter of the suit is not between
the contracting parties and the reliefs are claimed not only against
respondent nos.1 and 2 who are contracting parties but are claimed
against remaining 23 parties, who are purchasers/so-called tenants of
the disputed flats.
The High Court by its judgment and order dated 18.9.2001
rejected application under Section 8 of the Act. The Court arrived at
the conclusion that in the suit apart from the relief of dissolution and
accounts, plaintiff has prayed for other reliefs. All the defendants to
the suit are not parties or partners in the partnership firm and the terms
of the partnership deed including the arbitration clause are not binding
to them. Only part of the subject matter could at the most be referred
to the arbitration. Further, there is no power conferred on the Court to
add parties who are not parties to the agreement in the arbitration
proceedings. The Court also negatived the alternative prayer for
referring part of the subject matter in respect of those parties who are
parties to the partnership agreement which contains arbitral clause.
The Court arrived at the conclusion that such procedure is not
contemplated under the Act. The object and purpose of the Act is to
avoid multiplicity of the proceedings and not to allow two forums
simultaneously to proceed with the matter. That judgment and order
is challenged in this appeal.
Learned senior counsel Mr. Shekhar Naphade appearing for the
appellant submitted that under Section 8 of the Act, the Court was
required to refer the dispute arising because of the dissolution of the
partnership to the arbitrator as contemplated by the arbitration clause.
He further submitted that in any case there is no bar in referring the
dispute which arises between the appellant and respondent nos.1 and 2
who are bound by the agreement to the arbitrator as envisaged in the
partnership deed. He next contended that if the interpretation given
by the High Court is accepted, arbitration clause could be defeated by
an interested party by adding some reliefs which are not covered by
the arbitration clause or by adding a few parties who are not bound by
the arbitration clause. This interpretation would be against the object
and purpose of the Act and against the spirit of Section 89 of Code of
Civil Procedure.
He also submitted that the third parties who purchased the flat
that is stock-in-trade of the firm and entered into transactions in
connection with the business of the firm, are not necessary parties to
the dispute amongst the partners relating to dissolution and accounts
of the firm and, therefore, dispute ought to have been referred to the
arbitrator.
As against this, learned senior counsel Mr. R.F. Nariman
submitted that the order passed by the High Court does not call for
any interference as the plaintiffs have claimed various reliefs in the
suit which could not be referred to the arbitrator. He further
submitted that defendants no.3 to 25 are not parties to the arbitration
agreement.
For appreciating the contentions raised by the learned counsel
for the parties, we would refer to the relevant provisions namely
Sections 5 and 8 of the Act, which are as under:
"Section 5. Extent of judicial intervention.
Notwithstanding anything contained in any other law for
the time being in force, in matters governed by this Part,
no judicial authority shall intervene except where so
provided in this Part.
Section 8. Power to refer parties to arbitration
where there is an arbitration agreement. (1) A
judicial authority before which an action is brought in a
matter which is the subject of an arbitration agreement
shall, if a party so applies not later than when submitting
his first statement on the substance of the dispute, refer
the parties to arbitration.
(2) The application referred to in sub-section (1)
shall not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy
thereof.
(3) Notwithstanding that an application has
been made under sub-section (1) and that the issue is
pending before the judicial authority, an arbitration may
be commenced or continued and an arbitral award
made."
For interpretation of Section 8, Section 5 would have no
bearing because it only contemplates that in the matters governed by
Part-I of the Act, Judicial authority shall not intervene except where
so provided in the Act. Except Section 8, there is no other provision
in the Act that in a pending suit, the dispute is required to be referred
to the arbitrator. Further, the matter is not required to be referred to
the arbitral Tribunal, if (1) the parties to the arbitration agreement
have not filed any such application for referring the dispute to the
arbitrator; (2) in a pending suit, such application is not filed before
submitting first statement on the substance of the dispute; or (3) such
application is not accompanied by the original arbitration agreement
or duly certified copy thereof. This would, therefore, mean that
Arbitration Act does not oust the jurisdiction of the Civil Court to
decide the dispute in a case where parties to the Arbitration
Agreement do not take appropriate steps as contemplated under sub-
sections (1) & (2) of Section 8 of the Act.
Secondly, there is no provision in the Act that when the subject
matter of the suit includes subject matter of the arbitration agreement
as well as other disputes, the matter is required to be referred to
arbitration. There is also no provision for splitting the cause or parties
and referring the subject matter of the suit to the arbitrators.
Thirdly, there is no provision as to what is required to be done
in a case where some parties to the suit are not parties to the
arbitration agreement. As against this, under Section 24 of the
Arbitration Act, 1940, some of the parties to a suit could apply that
the matters in difference between them be referred to arbitration and
the Court may refer the same to arbitration provided that the same can
be separated from the rest of the subject matter of the suit. Section
also provided that the suit would continue so far as it related to parties
who have not joined in such application.
The relevant language used in Section 8 is "in a matter
which is the subject matter of an arbitration agreement", Court is
required to refer the parties to arbitration. Therefore, the suit should
be in respect of 'a matter' which the parties have agreed to refer and
which comes within the ambit of arbitration agreement. Where,
however, a suit is commenced - "as to a matter" which lies outside
the arbitration agreement and is also between some of the parties who
are not parties to the arbitration agreement, there is no question of
application of Section 8. The words 'a matter' indicates entire subject
matter of the suit should be subject to arbitration agreement.
The next question which requires consideration is even if
there is no provision for partly referring the dispute to arbitration,
whether such a course is possible under Section 8 of the Act? In our
view, it would be difficult to give an interpretation to Section 8 under
which bifurcation of the cause of action that is to say the subject
matter of the suit or in some cases bifurcation of the suit between
parties who are parties to the arbitration agreement and others is
possible. This would be laying down a totally new procedure not
contemplated under the Act. If bifurcation of the subject matter of a
suit was contemplated, the legislature would have used appropriate
language to permit such a course. Since there is no such indication in
the language, it follows that bifurcation of the subject matter of an
action brought before a judicial authority is not allowed.
Secondly, such bifurcation of suit in two parts, one to be
decided by the arbitral tribunal and other to be decided by the civil
court would inevitably delay the proceedings. The whole purpose of
speedy disposal of dispute and decreasing the cost of litigation would
be frustrated by such procedure. It would also increase the cost of
litigation and harassment to the parties and on occasions there is
possibility of conflicting judgments and orders by two different
forums.
Reliance was placed on Section 89 CPC in support of the
argument that the matter should have been referred to arbitration. In
our view, Section 89 CPC cannot be resorted to for interpreting
Section 8 of the Act as it stands on a different footing and it would be
applicable even in cases where there is no arbitration agreement for
referring the dispute for arbitration. Further, for that purpose, the
Court has to apply its mind to the condition contemplated under
Section 89 CPC and even if application under Section 8 of the Act is
rejected, the Court is required to follow the procedure prescribed
under the said Section.
Lastly, considering the language used in Section 8, in our view,
it is not necessary to refer to the decisions rendered by various High
Courts interpreting Section 34 of Indian Arbitration Act, 1940 which
gave a discretion to the Court to stay the proceedings in a case where
the dispute is required to be referred for arbitration.
For the reasons stated above, there is no substance in this
appeal and is, therefore, dismissed. There shall be no order as to
costs.
It would be open to the parties to request the Court for
expeditious disposal of the suit.
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