Manibhai Shankerbhai Patel v. Swashray Construction Co. And Others

A.M Ahmadi, J.:— The appellant is the original plaintiff. He filed a suit in the Court of the learned Civil Judge (Senior Division), Baroda, for dissolution of the partnership and accounts. On the service of the summons of that suit, respondent No. 2 filed an application under protest and without submitting to the jurisdiction of the Court for stay of proceedings under Section 34 of the Arbitration Act on the basis of Clause 16 of the partnership deed (Mark 4/3). That application was resisted by the present appellant by his reply Exhibit 26. The learned Judge, however, came to the conclusion that Clause 16 of the partnership deed was wide enough to take into its fold any and every dispute between the partners and accordingly directed stay of proceedings. It is against this order passed by the learned trial Judge that the present appeal is filed under Section 39 of the Arbitration Act.

2. It transpires from the averments made in the plaint that a partnership firm under the name and style of Swashray Construction Company was floated some time in October 1967 and thereafter there were changes in the constitution of the firm on two occasions and with every change a new partnership deed came to be executed. The last deed of partnership is dated 27th October 1973. Clause 16 of the said document which is in Gujarati language provides that if there is any dispute in regard to any matter concerning the firm, the same shall be resolved under the provisions of the Arbitration Act without resort to Court and the decision of the arbitrator on such dispute shall be binding on all the partners. The plaintiff-appellant contends that before the institution of the suit efforts were made to resolve the disputes concerning accounts between the partners through arbitration but because of the non-cooperation of respondent No. 2, even though two precious years were lost, the dispute could not be settled one way or the other and hence the plaintiff-appellant was constrained to sue for dissolution of the partnership and rendition of accounts. Allegations have been made in the plaint to the effect that respondent No. 2 who was in the management of the business of the firm was guilty of misappropriation of partnership funds and had also resorted to forgery for the purpose of defeating the rightful claims of the appellant.

3. On the basis of these allegations, which need not be set out in detail, the suit was instituted in October 1976 for the dissolution of the firm and for taking accounts, particularly from respondent No. 2.

4. As stated earlier, immediately after the summons of the suit was served on respondent No. 2, he filed an application Exhibit 16 under protest and without submitting to the jurisdiction of the Court for stay of proceedings under Section 34 of the Arbitration Act on the basis of Clause (16) of the partnership deed dated 27th October 1973. In that application, Exhibit 16, respondent No. 2 has referred to the earlier efforts made to resolve the disputes by arbitration. These averments are to be found in clauses (c) to (i) of the application, Exhibit 16. It was, therefore, contended by respondent No. 2 that the appellant having already submitted to arbitration twice before the institution of the suit, was not entitled to have recourse to Court and hence the proceedings in the suit were required to be stayed under Section 34 of the Arbitration Act. It may, however, be mentioned that in the application, Exhibit 16, respondent No. 2 has nowhere stated that he is ready and willing to do everything that is necessary for the proper conduct of arbitration proceedings if any issue is referred to arbitration.

5. The appellant filed a detailed reply, Exhibit 26, pointing out how his earlier efforts to have the disputes resolved by arbitration were thwarted because of want of cooperation from respondent No. 2. He also emphasises in the said reply that respondent No. 2 was never ready and willing to have the disputes resolved by arbitration either in the past or at the date of the application, Exhibit 16, or thereafter. Admittedly no rejoinder has been filed by respondent No. 2 to controvert this allegation.

6. No provision is made in the partnership deed fixing the duration of the partnership and, therefore, by virtue of Section 7 of the Partnership Act, where no such provision is made by contract between the partners, the partnership is a ‘partnership at will’. Section 43 of the Partnership Act next provides that where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. Once such a notice is given, the firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice. It is well-settled that if a suit is instituted for the dissolution of the partnership and for rendition of accounts, the service of the summons along with the copy of the plaint on the other partners is notice of dissolution within the meaning of Section 43 of the Partnership Act. It is, therefore, obvious that if in a partnership at will one of the partners does not desire to carry on business in partnership with the other partners and serves notice of dissolution, the firm stands dissolved from the date of dissolution mentioned in the notice and if no such date is mentioned, from the date of communication of the notice to the other partners. That is the effect of Section 43 of the Partnership Act. It is in the context of this statutory position emerging from a conjoint reading of Section 7 and Section 43 of the Partnership Act, that one has to determine the scope of Clause (16) of the partnership deed. Now, that clause states that if there is any dispute in regard to any matter concerning the firm between the partners, without resorting to the Court of law the partners shall have it determined under the Arbitration Act through an arbitrator and the decision of the arbitrator will be binding on all the partners. If under the provisions of the Partnership Act it is open to a partner to dissolve a partnership at will in the manner provided by Section 43 of the Partnership Act that right conferred on a partner cannot be denied to him on the interpretation that Clause (16) of the partnership deed is wide enough to cover any and every dispute between the partners. If a partner does not desire to carry on business with his other partners and has a right to dissolve the firm under Section 43 of the Partnership Act, can it be said on an interpretation of Clause (16) of the partnership deed that right is taken away and the partner has no remedy but to continue with the partnership, assuming the arbitrator holds against him in the proceeding that may be commenced under the Arbitration Act? The answer to this poser must necessarily be in the negative. In a partnership at will it is open to a partner, even if there is no dispute between the partners whatsoever, to dissolve the firm by virtue of Section 43 of the Partnership Act. That Section does not lay down that there must exist a dispute between the partners for the purpose of dissolving the firm. All that it says is that if the partnership is at will, it is open to any partner to dissolve the firm by giving notice in writing to all the other partners of his intention so to do and on the service of such notice the partnership will stand dissolved from the date mentioned in the notice or from the date of communication, as the case may be. Therefore, in a partnership at will if a partner desires to dissolve the firm by giving notice as required by Section 43 of the Partnership Act, his right cannot be taken away by such an arbitration clause in the partnership deed. If it was the intention of the partners that the partnership should not be dissolved till a certain event happened, then such a specific provision would have been found in the document and the partnership would not have been a partnership at will. It is, therefore, difficult to understand how a partner who desires to dissolve the firm can be forced to resort to arbitration. It, therefore, necessarily follows that Clause (16) of the partnership deed has application only during the subsistence of the partnership and it does not have the effect of taking away the right conferred on a partner by Section 43 of the Partnership Act to have the partnership dissolved by notice if the partnership is a partnership at will. On this interpretation as regards the scope of Clause (16) of the partnership deed, it must be held that the learned trial Judge was not right in staying further proceedings in the suit under Section 34 of the Arbitration Act.

7. Two further submissions were made by Mr. Jadeja, the learned Advocate for the appellant, on the basis of averments made in Exhibits 16 and 26, respectively: (i) by Section 34 of the Arbitration Act discretion has been conferred on the Court to direct stay that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and (ii) the applicant was at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration. Mr. Jadeja submitted that the learned trial Judge had overlooked the fact that before the appellant took the extreme step of having the firm dissolved and prayed for rendition of accounts by the institution of the suit, he had made endeavours for almost two years to have the dispute or difference between him and the other partners settled through arbitration. It is obvious from the averments made in Exhibits 16 and 26, respectively that in the past efforts were made to have the disputes settled through arbitration; but unfortunately those efforts were unsuccessful. In Exhibit 16 even respondent No. 2 admits that twice efforts were made to resolve the dispute by arbitration but in vain. It is averred in paragraph (d) that the dispute was referred to Dahyabhai Fulabhai Patel and Jashbhai Ashabhai Patel and the said two arbitrators had entered upon arbitration and had held as many as three sittings at the residence of the appellant himself but because of non-co-operation on the part of the appellant and his refusal to furnish details as demanded by the arbitrators, the arbitrators were unable to resolve the dispute. It is further averred that thereafter somewhere in the month of August 1979 the appellant suggested the name of one Chartered Accountant Shri Arvindbhai N. Shah as his arbitrator while the respondent No. 2 appointed Shri Kanubhai Patel, also a Chartered Accountant, as his arbitrator; but thereafter on the question of settling the terms of arbitration the matter was delayed and ultimately a draft was prepared for referring the dispute to the said two arbitrators but the appellant instead of signing the document of reference, instituted the present suit in question. Of course, on the part of the appellant the allegation is that the dispute could not be settled by arbitration because of non-cooperation on the part of respondent No. 2. Correspondence has also been placed on record to show who was to blame for the failure of the earlier two efforts to have the dispute resolved by arbitration. It is not necessary for me to determine who was responsible for the failure of the arbitration proceedings but it is sufficient to state that two precious years were lost in attempting to have the dispute settled by arbitration. The learned trial Judge ought to have taken this fact into consideration before exercising discretion under Section 34 of the Arbitration Act. It is needless to emphasise that it was the appellant who was keen to have the dispute with the other partners settled and that is why efforts were made to settle the dispute by arbitration before taking the extreme step of having the firm dissolved. When these efforts failed, he saw no alternative but to seek dissolution of the firm and rendition of accounts through Courts. The learned trial judge ought to have appreciated these efforts to have the disputes resolved by arbitration, no matter who was to blame, before exercising his discretion under Section 34 of the Arbitration Act. I think in this background of the facts emerging from the averments in Exhibits 16 and 26 respectively, the learned trial Judge ought not to have exercised the discretion in favour of staying the suit under Section 34 of the Arbitration Act.

8. There is also substance in the contention that one of the requirements of Section 34 of the Arbitration Act is that the party applying for stay of proceedings under Section 34 must show that he was at the time when the proceedings were commenced, ready and willing to do all things necessary to the proper conduct of the arbitration and that he continues to remain ready and willing to do so at the date of the disposal of the application. Nowhere in Exhibit 16 has the respondent No. 2 while applying for stay of proceedings under Section 34 of Arbitration Act stated that he was at the date of the making of that application ready and willing to do all things necessary to the proper conduct of arbitration. Even after the appellant in his reply, Exhibit 26, averred that the respondent No. 2 was not ready and willing to do all things necessary to the proper conduct of arbitration not only at the date of the presentation of Exhibit 16 but even thereafter, respondent No. 2 did not file any affidavit-in-rejoinder denying that allegation. Therefore, having regard to this fact also, I think that the learned trial Judge was not justified in the background of the facts placed before him in directing stay of proceedings under Section 34 of the Arbitration Act.

9. In the result this appeal succeeds and the order of the learned trial Judge dated 1st December 1977 staying further proceedings in the suit under Section 34 of the Arbitration Act is set aside. Having regard to the fact that the suit was instituted in 1976 I direct that the learned trial Judge will proceed to dispose of the suit expeditiously. Respondent No. 2 will pay the costs of this appeal. The interim relief granted on the Civil Application does not now survive in view of the order made in appeal and hence the rule granted on the Civil Application is discharged with no order as to costs.

10. Appeal allowed.