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Ganesh Chandra Dey And Another v. Kamal Kumar Agarwalla .
Structured Summary of the Legal Opinion
Factual and Procedural Background
This application was brought under Section 34 of the Indian Arbitration Act, 1940 seeking a stay of a suit filed by the respondent, Kamal Kumar Agarwal. The parties are three partners in a firm called "ESBI CYCLE INDUSTRIES" under a partnership deed dated November 26, 1968. The deed recorded capital contributions of Rs. 5,000 each by Ganesh Chandra Dey and Ghanshyam Das, and Rs. 20,000 by Kamal Kumar Agarwal. The deed also provided that Mr. Agarwal would arrange further capital as required, bearing interest at 9% per annum, while profit and loss sharing was to be equal (one-third each).
Disputes arose in June 1969. The respondent is alleged to have caused the firm's bank account payments to be stopped (letter dated July 22, 1969) and served a notice of dissolution of partnership (letter dated August 12, 1969, despatched August 18, 1969, received by petitioners on or about August 22, 1969). The petitioners sought reference to arbitration under clause 14 of the partnership agreement by letters dated September 5, 1969 and September 29, 1969 (the latter nominating an arbitrator). On October 3, 1969 the respondent instituted a suit for declaration of dissolution, accounts, appointment of a Receiver and injunction; a Receiver was appointed. The petitioners then filed the present application on November 27, 1969 seeking a stay of that suit under Section 34 of the Arbitration Act, 1940.
Legal Issues Presented
- Whether the suit instituted by the respondent should be stayed under Section 34 of the Indian Arbitration Act, 1940 in view of the arbitration clause (clause 14) in the partnership deed.
- Whether the arbitration clause (clause 14) covers the question of dissolution of the partnership and matters "after it has ceased functioning" — i.e., whether dissolution itself is a matter for arbitration.
- Whether the arbitration clause is sufficiently clear and workable, or is so vague and ambiguous as to render arbitration impracticable.
- Whether, having regard to the strained relations between the parties and the specific circumstances (including the respondent's notice of dissolution and the relief sought under Section 44(f) and (g) of the Indian Partnership Act), the court should exercise its discretion to refuse a stay even if an arbitration clause exists.
Arguments of the Parties
Petitioners' Arguments
- Clause 14 of the partnership agreement requires that disputes and differences arising among the parties in relation to the partnership be referred to arbitration by as many arbitrators as there are parties in difference (i.e., three arbitrators nominated by the three partners).
- Accordingly, the disputes between the partners should be referred to arbitration and the pending suit should be stayed under Section 34 of the Arbitration Act, 1940.
Respondent's Arguments (Mr. Pyne)
- The arbitration clause is vague and unworkable: phrases such as "interpretation of this business" and "in any matter touching the rights and liabilities of the partners either continuing of the terms or after it has ceased functioning" are ambiguous and capable of more than one meaning.
- The declaration for dissolution of the partnership sought in the suit cannot properly be the subject-matter of arbitration under the clause as drafted.
- The respondent proposed a practical alternative (each side to nominate one arbitrator and the arbitrators to resolve disputes, with the court to appoint an arbitrator if parties do not agree), and asked the court to appoint an arbitrator if petitioners would not accept that arrangement.
- The respondent expressed a bona fide apprehension of not receiving a fair award if the two petitioners could nominate two arbitrators and the respondent could only nominate one, given the strained relations and allegations that the petitioners were excluding the respondent from the business.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Oliver v. Hiller, (1959) 2 All ER 220 | Example where an action claiming dissolution of partnership on the ground that it was just and equitable to dissolve it was not stayed despite an arbitration clause that purported to refer "all disputes and questions whatsoever" to arbitration. | The court relied on this authority to support the proposition that a claim for just and equitable dissolution may properly be retained by the court and not referred to arbitration when the arbitration clause does not clearly cover that question. |
| N.C. Padmanabhan v. S. Srinivasan, AIR 1967 Mad 201 (Madras High Court) | Holds that disputes relating to dissolution of a firm on the ground that it is just and equitable to do so should be decided by the court; court should exercise discretion in not staying the suit despite an arbitration clause. | The court cited this decision as persuasive domestic authority aligning with the view taken in Oliver v. Hiller and applied it to justify refusing a stay where the suit seeks just and equitable dissolution. |
| Madan Mohan Dey v. Satya Gopal Pal (unreported judgment of A.N. Sen J., Dated 7-10-1966) (Calcutta High Court), Award No. 105 of 1966 (Cal) | Held that disputes relating to dissolution of the firm on just and equitable grounds should be decided by the court and the court should exercise its discretion not to stay the suit notwithstanding an arbitration clause. | Used as supporting Calcutta High Court authority for the proposition that the court may refuse a stay where the question of dissolution on just and equitable grounds is presented to the court. |
| Sailendra Nath Kumar v. Chillar M. Ram, ILR (1951) 2 Cal 140 (Bench decision of this Court) | Referenced as a bench decision relevant to the jurisdictional or discretional aspects in similar partnership/arbitration controversies. | Relied upon as local precedent consistent with the Court's exercise of discretion in matters involving partnership dissolution and arbitration clauses. |
Court's Reasoning and Analysis
The court's analysis proceeded through a sequence of factual and legal considerations:
- Interpretation and workability of clause 14: The court examined the wording of the arbitration clause and found it "not happily expressed." Phrases such as "the interpretation of this business" and "in any matter touching the rights and liabilities of the partners either continuing of the terms or after it has ceased functioning" were held to be vague and capable of multiple meanings. The court identified two specific ambiguities: (a) the phrase "interpretation of the partnership business" being senseless in context; and (b) the uncertainty whether the clause was intended to cover disputes after the partnership had ceased functioning or disputes about whether the partnership had been dissolved.
- Jurisdictional uncertainty if arbitration proceeded: The court reasoned that permitting arbitration in that uncertain state might lead to awards that could be challenged on jurisdictional grounds — for example, that the arbitrators had no power to decide the validity of the notice of dissolution — thereby producing delay rather than finality.
- Practical unworkability and apprehension of unfairness: The court accepted the respondent's bona fide apprehension that, given the strained relations and allegations that the petitioners were preventing the respondent from participating in the business, allowing the two petitioners to nominate two arbitrators while the respondent nominated only one arbitrator could produce an appearance or reality of inequity in the arbitration process. The court emphasized its duty to ensure that the agreed mode of arbitration would be workable and fair in the particular circumstances.
- Convenience and substance of the suit: Even if the arbitration clause were clear and workable, the court concluded that in the specific circumstances the disputes would be more conveniently and properly decided in the pending suit. Key points were that the petitioners originally sought arbitration on the basis that the partnership was subsisting (and did not contemplate valuation of assets and goodwill upon dissolution), whereas by the time of the suit the respondent had served a notice of dissolution and also sought relief under Sections 44(f) and (g) of the Indian Partnership Act — relief which, on its face, appears to be within the court's jurisdiction.
- Precedent and discretion: The court relied on English authority (Oliver v. Hiller) and Indian High Court decisions (N.C. Padmanabhan and Madan Mohan Dey) and a bench decision of the Court (Sailendra Nath Kumar) to support the exercise of discretion to refuse a stay where the suit seeks dissolution on just and equitable grounds and the arbitration clause does not clearly manifest an intention to submit such relief to arbitration.
- Conclusion of analysis: Balancing the textual ambiguity of the clause, the risk of jurisdictional challenges to any award, the real possibility of unfairness in the arbitration mechanism as practically proposed, and the nature of the relief sought in the suit (including court power under Section 44(f) and (g) of the Partnership Act), the court exercised its discretion under Section 34 to decline to stay the suit.
Holding and Implications
Holding: There will be no order staying the suit — the application under Section 34 of the Indian Arbitration Act, 1940 is not granted.
Consequences and immediate effects:
- The respondent's undertaking (presumably given pending the application) is vacated.
- The costs of this application are to be the costs in the pending Suit No. 3471 of 1969 (i.e., they will be treated as costs in the main suit).
- The suit for declaration of dissolution, accounts, appointment of Receiver and injunction will proceed in the court rather than being stayed for arbitration.
The opinion does not articulate any broader rule intended to create a new binding precedent; it rests on the court's exercise of discretion in the particular factual circumstances and on established authorities that support refusing a stay where the arbitration clause is ambiguous with respect to dissolution on just and equitable grounds.
1. This is an application under Section 34 of the Indian Arbitration Act, 1940 for stay of a suit filed by the respondent Kamal Kumar Agarwal. The petitioners, Ganesh Chandra Dey and Ghanashyam Das and the respondent are the partners of a firm known as “ESBI CYCLE INDUSTRIES” at No. 7, Ganesh Chandra Avenue, Calcutta, under a deed of partnership dated November 26, 1968. It provides that the capital of the partnership firm shall be as follows:
1. Shri Ganesh Chandra Dey— Rs. 5000/- 2. Shri Ghanshyam Das— Rs. 5000/- 3. Shri Kamal Kumar Agarwal— Rs. 20000/-
2. It is further provided that in addition to the above capital contribution Shri Kamal Kumar Agarwal shall arrange for further capital required for the business of the firm which shall bear an interest @ 9% per annum. But under the said agreement the profits and losses of the firm are to be determined equally among them that is to say each of the partners will have ⅓rd share in the profits and losses. Sometime in June, 1969 disputes and differences arose between the petitioners on the one hand and the respondent on the other as set out in paragraph 9 of the petition. By a letter dated July 22, 1969, the respondent is alleged to have caused First National City Bank, Braboume Road Branch, Calcutta to stop all payments of the current account in the name of the said partnership firm, The respondent thereafter by his letter dated August 12, 1969 but despatched on August 18, 1969 sent a notice of dissolution of partnership which was received by the petitioners on or about August 22, 1969. By a letter dated September 5, 1969 Ganshyamdas requested the respondent for referring their disputes to arbitration in terms of clause 14 of the agreement. The other petitioner Ganesh Chandra Dey also intimated the respondent by a letter dated September 29, 1989 that the pending disputes should be referred to the arbitration and in fact nominated Shri Narayan Chandra Banerjee of No. 2 Ganesh Chandra Avenue, as arbitrator on his behalf. It is alleged that the respondent with Ms father and uncle started negotiation for settlement of the disputes between the parties through the intervention of a common friend Shri Vinod Shankar Tiwari. On October 3, 1969 the respondent instituted a suit in this Court for a declaration that the said partnership between the parties stood dissolved on August 18, 1969, for accounts, appointment of a Receiver and injunction. The petitioners came to know of this fact from the notice of motion which was taken by the respondent for appointment of a Receiver in the said suit on or about October 6, 1969, In fact a Receiver has already been appointed by T.K Basu, J. over the partnership business. Thereafter the present application has been made by the petitioners on November 27, 1969.
3. The learned counsel for the petitioners has drawn my attention to clause 14 of the agreement which reads as follows:—
“That in case of any dispute and difference arising amongst the parties either in the interpretation of this business or in any matter touching the rights and liabilities of the partners either continuing all the terms or after it has ceased functioning in any other matter relating to in the partnership such dispute shall be referred to the arbitration of as many arbitrators as there may be parties in difference and the Award of the said arbitrators or Umpire selected by the arbitrators shall be binding on all the parties equally.”
4. He has submitted that the disputes between the partners should be referred to the arbitration of three arbitrators being the nominees of three partners and the pending suit should be stayed inasmuch as the suit was instituted in respect of the rights and liabilities of the parties in the partnership business.
5. Mr. Pyne on behalf of the respondent has, however, urged that the arbitration clause is vague and unworkable and the declaration for the dissolution of the partnership which he has prayed for in the suit cannot be a subject-matter which could be decided by the arbitrators under the arbitration clause. It may be stated here that I suggested the counsel for both the parties that as the notice of dissolution of partnership has admittedly been made it is better that the petitioners on the one hand and the respondent on the other shall each nominate one arbitrator and the arbitrators should decide all the disputes between the parties including the determination of the assets and liabilities of the partnership firm, Mr. Pyne has not only agreed to my suggestion but also requested the court to appoint an arbitrator if the petitioners are not agreeable to the said suggestions, The matter has been adjourned to consider the said suggestions but the learned counsel for the petitioners have stated, on instruction from his clients, that under the arbitration clause there must be three arbitrators to be nominated by the three partners. Under the circumstances Mr. Pyne has requested the court to proceed with the application. I agree with the contention of Mr. Pyne that the arbitration clause is not happily expressed. The words, “the interpretation of this business” and “in any matter touching the lights and liabilities of the partners either continuing of the terms or after it has ceased functioning in any other matter relating to in the partnership” are vague and give rase to more than one meaning. Firstly, dispute regarding the interpretation of the partnership business does not carry any sense. Secondly, disputes and difference in respect of matters after the partnership business has ceased to function in any other matter relating to the partnership may be understood in two ways. It may be said that the business has ceased to function but the partnership agreement has not been terminated or it may also be construed that disputes even after the dissolution of the partnership would also be determined by the arbitration clause. There is no doubt that the parties intended to have their disputes and differences in respect of the partnership business to be decided in a private forum, i.e, before the arbitrators but, in the present case, apart from the original disputes between the parties the respondent has served a notice of dissolution of partnership which has been duly received by the petitioners. It has, therefore, been legitimately argued that the termination of the agreement or the dissolution of the partnership business cannot be determined by the arbitrators specially in view of the fact that the petitioners are not accepting dissolution. Thus there is force in the contention of Mr. Pyne that the arbitration clause does not make it clear whether the dissolution of the partnership itself can be decided by the arbitrators. This confusion may give rise to a situation which may delay the determination of the disputes between the parties. If the arbitration is allowed to continue and the award is made the parties against whom the award would be made might challenge the said award on the ground that the arbitrator had no jurisdiction to decide the validity of fee notice of dissolution of the partnership.
6. There is another reason why I am of the opinion that the arbitration clause as agreed upon by fee parties would be unworkable inasmuch as there is a bona fide apprehension of the respondent in not getting a fair award after fee two petitioners are allowed to nominate two arbitrators and fee respondent to nominate one Arbitrator. There is no doubt that the parties agreed to such clause and It is fee duty of fee court to see that three arbitrators should decide the disputes as agreed upon by the respondent. But in the facts of this case the relationship between the parties is very strained and it is alleged that the respondent is not being allowed by the petitioner to take part in the business although his share of the capital is very much in excess of fee joint contribution of the petitioners. I therefore, hold that this is a fit and proper case where I should exercise my discretion in not staying the suit under Section 34 of the Act
7. Even assuming that the arbitration clause is not vague and is workable I am of opinion that in fee facts and circumstances of this case the disputes and differences between the parties would be conveniently decided in the suit. When fee petitioners referred their dispute to arbitration in September, 1969 they proceeded on the basis that the partnership business was subsisting. The determination of the assets and liabilities including the valuation of the goodwill were not contemplated by the petitioners. The petitioners proceeded on the basis that the partnership would continue. It is true feat the disputes covering a matter after fee business ceased to function might also attract fee arbitration clause. But in the present case the partnership business has not only ceased to function but the respondent has served a notice of fee dissolution of the partnership. Further the suit as framed has been instituted not only on fee basis of the notice of dissolution of the partnership but also on the grounds that it is just and equitable to dissolve the partnership under Section 44(f) and (g) of the Indian Partnership Act It appears from the words in fee said language that the Court alone has jurisdiction to dissolve a partnership under the said sub-sections. It is quite possible that the parties may agree to have fee question of dissolution of partnership under Section 44(f) and (g) also decided by arbitration. But in the present case such intention cannot be spelt out from the arbitration clause. Reliance may be made on Oliver v. Hiller, (1959) 2 All ER 220 where an action claiming dissolution of the partnership on the ground that it was just and equitable to dissolve it has not been stayed although, fee arbitration clause provided that
“All disputes and questions whatsoever each shall either during the partnership or afterwards arise between the person …………………… touching this agreement …………………… or any account, valuation or division of assets, debts and liabilities to be made hereunder …………… shall be referred to a single arbitrator.”
8. It may be added here that following the said English decision the Madras High Court in N.C Padmanabhan v. S. Srinivasan, AIR 1967 Mad 201 and the Calcutta High Court in Madan Mohan Dey v. Satya Gopal Pal (unreported judgment of A.N Sen J., D/- 7-10-1966) in Award No. 105 of 1966 (Cal) have held that the dispute relating to dissolution of firm on the ground feat it is just and equitable to do so should be decided by the court and fee court should exercise its discretion in not staying fee suit in spite of the arbitration clause.
9. Reference may also be made to the Bench decision of this Court in Sailendra Nath Kumar v. Chillar M. Ram, ILR (1951) 2 Cal 140.
10. For all the reasons stated above there will be no order on this application. The undertaking of the respondent is vacated. The costs of this application will be costs in the pending Suit No. 3471 of 1969.
11. Order accordingly.
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