Gauhati High Court: The present appeal was filed under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 (‘the 1996 Act’) against the impugned order dated 09-08-2024, whereby the Civil Judge (Senior Division), Dibrugarh (‘the Trial Court’) had dismissed a petition filed by appellant under Section 8 of the 1996 Act, praying for dismissal of the analogous Commercial Suit by referring the parties to go for arbitration, under Section 8 of the 1996 Act.
A Single Judge Bench of Robin Phukan, J., opined that since Clause 15 of the partnership deed indicated that the dispute regarding affairs of the firm, its dissolution or discontinuation of the business had to be referred to arbitration, Section 42(c) of the Partnership Act, 1932 (‘the 1932 Act’) would not stand in the way of referring the matter to arbitration in as much as it had been expressly provided in the partnership deed. The Court admitted that in the present case, there existed an arbitration clause and the dispute between the parties was arbitrable and thus opined that in view of the mandatory language of Section 8 of the 1996 Act, the courts below ought to have referred the dispute to arbitration. The Court thus quashed and set aside the impugned order dated 09-08-2024 and directed the Trial Court to refer the matter for arbitration.
Background
Respondents 1 to 4 instituted a Commercial Suit against appellant and claimed that they were the legal heirs and representatives of Late Sampat Lal Verma and that there was a partnership firm in the name and style of Verma Market, which came into existence on 01-04-1984 and thereafter, continued vide deed of partnership dated 01-04-1992 and that appellant, along with Lalmati Devi Verma and Sampat Lal Verma were partners having 1/3rd share each. One of the partners, namely, Lalmati Devi Verma expired on 24-12-2022, and after her death, the firm continued with two partners, that is, appellant and Sampat Lal Verma and since the legal heirs of Lalmati Devi Verma were not interested to take any share in the partnership firm, they relinquished their share in favour of the two continuing partners. Thereafter, Sampat Lal Verma expired on 21-11-2023 and the partnership firm stood dissolved automatically on 21-11-2023.
Respondent requested appellant to render the accounts of the firm and disburse half share of the surplus and property of the firm, but appellant refused to do the same. It was submitted that even after dissolution of the firm, appellant willfully and persistently committed breach relating to the affairs of the dissolved firm and utilized firm’s money for his personal use and was also planning to take the entire share/property of the firm by manipulating the accounts of the firm. Appellant’s acts casted doubt in the mind of respondents about their half share in the property/surplus of the dissolved firm and therefore, prayed for a decree of declaration that the firm, namely, Verma Market had already been dissolved on Sampat Lal Verma’s death or alternatively, a decree for dissolution of the firm and for declaration that respondents were entitled to half share of the surplus and proceeds of the assets and properties of the firm after meeting the liabilities of the firm and for disbursal of the half share of partnership firm and for appointment of receiver, mandatory injunction, etc.
Appellant appeared before the Trial Court on receipt of the summon and since there was a clause for arbitration in the partnership deed, appellant filed a petition to refer the matter for arbitration and to dismiss the Commercial Suit. The Trial Court dismissed the petition and thus, appellant filed the present appeal contending to set aside the impugned order dated 09-08-2024.
Analysis, Law, and Decision
The Court stated that as per Section 42(c) of the 1932 Act, a firm would not get automatically dissolved by the death of a partner and it was subject to the contract between the parties. The Court further stated that Section 42(c) could be applied to a partnership where there were more than two partners. The Court relied on CIT v. Seth Govindram Sugar Mills, (1965) 57 ITR 510 : 1965 SCC OnLine SC 183 and opined that if one of them died, the firm was dissolved; but if there was a contract to the contrary, the surviving partners would continue the firm.
The Court took note of the partnership deed and stated that the same was binding upon the respondents in view of Clause 2 of the deed, wherein it was stated that the death or retirement of any partner shall not have the effect of dissolving the partnership, which would continue between the other partners and one of the heirs or one of the representatives of the deceased partner if so agreed. The partnership could be dissolved by any party giving two months’ notice in writing to the other of his/her intention to do so, by common consent the partnership could be dissolved at any time.
The Court noted that Clause 15 of the partnership deed indicated that in case of dispute or difference of opinion regarding the partnership affairs or regarding dissolution or discontinuance of the partnership business or at any time, the matter shall be referred to arbitration and since the dispute regarding partnership affairs of the firm or regarding dissolution or discontinuation of the partnership business, all have to be governed by the terms and conditions mentioned in the deed of partnership. The Court further noted that Clause 12 of the deed indicated that the Partnership Act and Rules shall cover only those aspects which were not specifically mentioned in the deed.
The Court opined that since Clause 15 of the deed indicated that the dispute regarding affairs of the firm, its dissolution or discontinuation of the business had to be referred to arbitration, Section 42(c) of the 1932 Act would not stand in the way of referring the matter to arbitration in as much as it had been expressly provided in the partnership deed.
The Court opined that the ground assigned by the Trial Court for dismissal of the petition under Section 8 of the 1996 Act, was bereft of any logic. The Court relied on Ravi Prakash Goel v. Chandra Prakash Goel, (2008) 13 SCC 667 and opined that in the present case, the right to sue for the rendition of accounts of the partnership firm i.e., Verma Market survived on the legal representatives of the deceased partner, namely, Sampat Lal Verma and they were also entitled to invoke the arbitration clause contained in the partnership deed and thus, appellant herein also being the sole surviving partner could invoke the arbitration clause contained in the partnership firm deed against the legal heirs of the deceased partner of the partnership firm.
The Court also relied on P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539, wherein the Supreme Court held that the language of Section 8 of the 1996 Act was peremptory and it was, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action.
The Court admitted that in the present case, there existed an arbitration clause and the dispute between the parties was arbitrable and thus opined that in view of the mandatory language of Section 8 of the 1996 Act, the courts below ought to have referred the dispute to arbitration. The Court further relied on Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj, 2023 SCC OnLine SC 1683 wherein it was opined that reference of case to arbitral tribunal could be declined by the court only if the dispute was non-arbitrable.
The Court thus allowed the appeal, quashed, and set aside the impugned order dated 09-08-2024 and directed the Trial Court to refer the matter for arbitration.
[Rampat Lal Verma v. Rahul Verma, 2024 SCC OnLine Gau 1637, decided on 22-10-2024]
Advocates who appeared in this case:
For the Appellant: P.J. Saikia, Senior Advocate and A.K. Gupta, Counsel;
For the Respondents: S. Dutta, Senior Advocate and S. Mochahari, Counsel.
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