Jagdish Chandra & Anr vs Hari Narayan & Anr on 11 February, 2010

Rajasthan High Court - Jodhpur

Jagdish Chandra & Anr vs Hari Narayan & Anr on 11 February, 2010
1

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT

JODHPUR.
JUDGMENT
Jagdish Chandra & anr.

vs.

Hari Narain & anr.

S.B. Civil Misc. Appeal No.492/94 under Section

39(v) of the Indian Arbitration Act, 1940 against the
order dated 2.3.1994 passed by the learned District
Judge, Bikaner in Civil Suit No. 184/92.

Date of JUDGMENT:-

February 11,2010.

PRESENT
HON'BLE MR.JUSTICE PRAKASH TATIA

Mr.BL Purohit and Mr. Rajeev Purohit for the appellant.

Mr. GR Singhvi and Mr. MR Singhvi for the respondents.
REPORTABLE
BY THE COURT:

A question of law has been raised by the learned counsel for the appellants that whether seeking
dissolution of partnership firm through the court under Section 44 of the Indian Partnership Act,
1932 is statutory right and not an issue which can be referred to the arbitrator ?
The facts of the case are that the plaintiffs-appellants filed one suit on 23.10.1992 seeking decree for
dissolution of the partnership firm M/s Vishva Jyoti Theater and for rendition of account in the
court of District Judge, Bikaner . According to the appellants in the firm M/s Vishva Jyoti Theatre of
Bikaner, the plaintiffs' share is 1/3rd and for this partnership, a partnership deed was executed on
4.10.1983. Defendant no.1, one of partner in the firm, is the uncle of the plaintiffs and another is
defendant no.2 who is cousin elder brother of the plaintiffs. According to the plaintiffs, all the books
of account are lying with the defendants and in fact they were managing the affairs of the firm being
eldest in the family also. In the year 1972, when the plaintiffs enquired about the financial position
of the firm then the defendants orally informed the plaintiffs that the firm is running in losses and
all capital has already perished and the firm is in debt. However, the plaintiffs were not shown the
books of account etc. The plaintiffs pleaded that since 1983 till the suit was filed in the year 1992,
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picture hall of the firm never remained closed and some times it earned rent of Rs.19,000/- per
week and then Rs.8000/- per week, against total expenditure of Rs.20,000/- per month and in view
of that the cinema hall was giving income of Rs.56,000/- per month and there was no question of
loss to the firm. The plaintiffs on 4.10.1983 again demanded the accounts from the defendants but
they avoided to show the books of accounts and complete accounts. The plaintiffs tried to take help
of other relatives but that effort also failed. Ultimately, the plaintiffs served notice dated 17.3.1990
through their advocate upon defendants asking them to dissolve the firm and give the accounts. Said
notice was received by the defendants on 19.3.1990, but they by their goody- goody talks, misled the
plaintiffs and did not give the accounts to the plaintiffs, however, on 20.3.1991 the defendants with
the help of the relatives, pressed upon the plaintiffs to settle in the manner that the defendants by
19.6.1991 will give Rs.25,00,000/- which shall be against the account of the firm's good will etc.
also, the defendants will show the books of accounts to the plaintiffs and satisfy with the accounts,
the defendants will pay the remaining amount as per the accounts if there will be any dues of the
plaintiffs in the firm. The plaintiffs contended that inspite of that settlement, the defendants neither
paid any amount to the plaintiffs nor shown the accounts and, therefore, the subsequent agreement
which was obtained by misrepresentation of facts and law came to an end.
The plaintiffs thereafter pleaded that the defendants excluded the plaintiffs from the firm and
earning the profits from the business of the firm and they opened new bank account with their own
signatures. With this allegation, the plaintiffs pleaded that now it is necessary to obtain the
dissolution of the firm through the court decree under Section 44 of the Indian Partnership Act,
1932 and to get the rendition of accounts. The plaintiffs, therefore,filed the suit for dissolution of the
firm with declaration of date of dissolution of the firm and with decree for rendition of accounts and
appointment of receiver etc. The defendants submitted an application under Section 34 of the
Arbitration Act and prayed for stay of the proceedings of the suit. The defendant's contention is that
the plaintiffs, by notice dated 20.3.1991, retired from the firm. The defendants denied that any
settlement was arrived on 20.3.1991 as stated by the plaintiffs and since 20.3.1991 the plaintiffs
stand retired from the firm. The plaintiffs have no concern with the firm and its assets and accounts.
It is submitted that since the defendants have raised dispute in their notice, therefore, a dispute has
arisen which can be referred to the arbitrator. The defendants submitted that on 7.10.1992, they sent
a letter of request for settlement of dispute through arbitration. The defendants then appointed
Dwarka Prasad Joshi Advocate as their arbitrator. In view of the condition of arbitration available in
the deed of partnership, the plaintiffs appointed their arbitrator Hardwari Lal Sharma resident of
Bhopal, which was not acceptable to the defendants. It is submitted by the defendants that as per
the deed of partnership dated 4.10.1983, each of partner was required to appoint one arbitrator. The
defendants denied the contention of the plaintiffs that the plaintiffs cancelled their notice to
withdrew their notice to retire from the firm and in fact the plaintiffs continued to accept their
position as of retired partner and they took the cheques from the plaintiffs and after expiry of
validity of the cheques, notice was given by the plaintiffs demanding the amount of the cheques with
threat to initiate criminal case under Section 131 of the Negotiation of Instruments Act.
The plaintiffs submitted reply to the defendants' application filed under Section 34 of the
Arbitration Act, 1940 and disputed the contention of the defendants that the plaintiffs already
retired or the matter was referred to the arbitrator etc. The defendants submitted rejoinder to the
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reply filed by the plaintiffs.

The trial court after hearing arguments of the parties, by impugned order dated 2.3.1994, stayed the
suit proceedings filed under Section 34 of the Arbitration Act. Hence this appeal has been preferred
by the plaintiffs.
The learned counsel for the appellants has raised legal issue that a partner's claim to a decree for
dissolution rests, in its origin, not on contract, but on his inherent right to invoke the Court's
protection on equitable grounds, in spite of the terms in which the rights and obligations of the
partners may have been regulated and defined by the partnership contract. In support of said plea,
the learned counsel for the appellants relied upon the judgment of the Privy Council delivered in the
case of Rehmatunnissa Begum and others v. Prince and others (AIR 1917 PC 116). According to the
learned counsel for the appellants, any partnership firm can be dissolved by serving a notice by any
of the partners provided the partnership is at will. However, a partnership can be dissolved by the
court if suit is filed by the partner of the firm and Section 44 of the Act of 1932 empowered the court
to dissolve a firm on any of the grounds referred in sub-clauses (a) to (g) under Section 44 of the Act
of 1932. The learned counsel for the appellants vehemently submitted that this statutory right of
seeking dissolution of firm through court's decree is not dependent upon contract of partnership
and, therefore, the appellants have inherent right apart from any clause in the arbitration to seek
decree for dissolution of partnership. Meaning thereby, this right is not controlled and limited by
the clause of the arbitration made in the partnership deed.
The learned counsel for the appellants also submitted that Hon'ble the Apex Court in the case of
I.T.C. Ltd.v.George Joseph Fernandes and another (AIR 1989 SC 839), after considering the earlier
judgments of the Hon'ble Supreme Court held that contract (of partnership ) is a outcome of the
agreement between the parties. It is equally open to the party thereto and to court to bring to an end
or to treat it as if it never existed. It has also been observed that it may also be open to the parties to
terminate previous contract or alter the original contract in such a way that it cannot subsist. In that
situation also, since the entire contract is put to an end to, the arbitration clause, which is a part of
it, also perishes along with it. In that situation Hon'ble the Apex Court held that where dispute
between the parties is that the contract itself does not subsist either as a result of its being
substituted by a new contract or by rescission or alteration, that dispute cannot be referred to the
arbitration as the arbitration clause itself would perish. The Hon'ble Apex Court held that the very
jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which
he is appointed and the parties have no right to invoke a clause which perished with the contract.
Another question decided by the Hon'ble Apex Court in the case of I.T.C. Ltd.(supra) is that a
dispute as to the binding nature of the contract cannot be determined by referring to the arbitration
because the arbitration clause itself stands or falls according to the determination of question in
dispute. In sum and substance, in the case of I.T.C. Ltd.(supra), Hon'ble the Apex Court held that
the question as to legality or ab initio invalidity of main contract is de hors and independent of
contract, would not be referable under arbitration clause.
The learned counsel for the appellants also submitted that in the facts of the case, the dispute is not
covered by any arbitration agreement and further the applicants in this case failed to satisfy the
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court that he was willing to get the matter decided by arbitration and for this, the learned counsel
for the appellants relied upon the judgment of this Court delivered in the case of D.C.M. Ltd. v.
Rajasthan State Electricity Board (AIR 1992 Raj.
138). However, in this very case of D.C.M. Ltd., this Court held that the point in issue is is purely
legal then it is to be decided by the Court and not by an arbitrator and finding the case involving a
pure legal question, this Court interfered in the order of the trial court granting stay of the suit
under Section 34 of the Act of 1940. In view of that, the learned counsel for the appellants submitted
that all the issues raised by the appellants can be decided by the court and not by the arbitrator. The
learned counsel for the appellants also relied upon the judgment of the Hon'ble Apex Court
delivered in the case of Food Corporation of India v. M/s Thakur Shipping Co. and others (AIR 1975
SC 469) wherein a question of ready and willingness with reference to Section 34 has been
considered by the Hon'ble Apex Court in detail and submitted that in the facts of the case, the
defendants were ready and willing to get the dispute settled through arbitration and, therefore, their
application under Section 34 should have been rejected by the court below.
The learned counsel for the appellants submitted that the question of rendition of accounts must be
decided by the court and not by the arbitrator, as has been held by the Punjab and Haryana High
Court in the case of Narinder Singh Randhawa and another vs. Hardial Singh Dhillon and others (
AIR 1985 P & H 41).
The learned counsel for the appellants also submitted that Hon'ble the Supreme Court in the case of
Gaya Electric Supply Co. Ltd. vs. State of Bihar ( AIR 1953 S.C. 182) held that where the party seeks
to avoid the contract for reasons de hors it, the arbitration clause cannot be resorted to as it goes
along with other terms of the contract. The learned counsel for the appellants also submitted that
the application under Section 34 of the act of 1940 must be self-content and must satisfy the dispute
that is referable to the arbitration and if the appellants failed to so do, the suit proceedings cannot
be stayed under Section 34 of the Act of 1940.
The learned counsel for the appellant invited my attention to the partnership deed dated 4.10.1983
containing the arbitration clause 15, which reads as under:"(15) That all disputes and questions in connection with the Partnership or interpretation of this
DEED arising between the Partners of this partnership or between any one of them and the legal
representative of the other or between their respective legal representatives and whether during or
after the termination of this Partnership shall be referred to the arbitration or the four arbitrators,
one to be appointed by each partner."
Then invited my attention to the agreement dated 20.3.1991 which was executed between the
plaintiffs with the help of which the defendants are claiming that the plaintiffs retired from the firm
and at the same time, are not in position to dispute that none of the amount mentioned in the deed
dated 20.3.1991 has in fact been paid to the plaintiffs. In the deed dated 20.3.1991, there is further
clause which is claimed to be another agreement between the parties for referring the matter to the
arbitrator .Clause (10) in the deed dated 20.3.1991 is as under:Indian Kanoon - http://indiankanoon.org/doc/1703547/

Jagdish Chandra & Anr vs Hari Narayan & Anr on 11 February, 2010

"(10)
# &
&

,
,,

# #,

"

The learned counsel for the appellants submitted that clause 15 in the partnership deed dated
4.10.1983 does not cover petitioners' claim and relief as claimed in the suit because of the reason
that the petitioners have inherent right to seek dissolution of the firm and seeking dissolution of
firm is not a claim covered under clause 15 of the partnership deed. The agreement dated 20.3.1991
has been executed by the plaintiff alone and not executed by all the parties to the partnership firm
and further more defendants did not act upon this agreement and, therefore, this agreement is of no
use. In the alternative, clause(10) of the deed dated 20.3.1991 is the clause for referring the dispute
between the parties to the two named arbitrators, who now cannot arbitrate and scope under clause
(10) is only limited to settlement of dispute through arbitration which is in relation to the deed
dated 20.3.1991 and, therefore, the question of dissolution cannot be decided by the arbitrator nor
the arbitrator can decree the dissolution of the firm as it can be done by the court under Section 44
of the Act of 1932.
The learned counsel for the appellant relied upon the recent judgment of the Hon'ble Supreme
Court delivered in the case of N. Radhakrishnan vs. M/s Maeestro Engineers (2010 AIR SCW 331),
wherein the Hon'ble Supreme Court held that the case relating to allegations of fraud and serious
malpractices on part of respondents in account books and finances of partnership firm are the issue
which can only be settled in the Court and cannot be by way of arbitration. However, it was case
under the Arbitration and Conciliation Act, 1996.
The learned counsel for the respondents vehemently submitted that the jurisdiction of this Court is
limited and once the the trial court held that there is arbitration agreement between the parties then
this Court may not interfere in that finding of fact recorded by the court below. It is also submitted
that the trial court once has exercised discretion in favour of staying the suit and referring the
matter to the arbitrator, then also there is no reason for this Court to upset that decision because the
trial court has not rejected the suit of the plaintiffs but asked the plaintiffs to approach for
settlement of their dispute and determination of their claim through different form in accordance
with law. The learned counsel for the respondents relied upon the judgment of the Hon'ble Supreme
Court delivered in the case of Uttar Pradesh Co-operative Federation Ltd. vs. Sunder Bros.,Delhi
(AIR 1967 SC
249), wherein Hon'ble the Apex Court held that where the discretion vested in the court under
Section 34 has been exercised by the lower court, the appellate court would be slow to interfere with
the exercise of that discretion. It has been also observed that the appellate court would normally not
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be justified in interfering with the exercise of discretion in appeal solely on the ground that if it had
considered the matter at the trial stage, it may have come to contrary conclusion.
The learned counsel for the respondents relied upon the judgment of the Hon'ble Apex Court
delivered in the case of Erach F.D. Mehta v. Minoo F.D. Mehta (AIR 1971 SC 1653), wherein Hon'ble
the Supreme Court held that the question that, whether parties agreed that partnership be dissolved
is covered by the clause and can be referred to arbitration.
The learned counsel for the respondents also relied upon the judgment of the Hon'ble Apex Court
delivered in the case of V.H. Patel & company & others vs. Hirubhai Himabhai Patel & ors. ( (2000)
4 SCC 368), wherein the arbitrator made an award but held the issue of dissolution beyond his
jurisdiction and that award was confirmed by the High Court, however, set aside the finding
regarding dissolution, then the Hon'ble Supreme Court held that High Court rightly remitted the
matter to the arbitrator to decide the issue of dissolution afresh.
I considered the submissions of the learned counsel for the parties and perused the record of the
case and considered the judgments referred above.
It has been contended by the learned counsel for the appellant that the partnership at will may be
dissolved by any partner by giving notice in writing to all the partners of his intention to dissolve the
firm as per sub-section(1) of Section 43 and as per sub-section (2), 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 and, therefore, in the suit for dissolution of partnership,
substantial dispute survives for rendition of accounts and the dissolution takes place when the act of
one partner for partnership is at will. It is also submitted that the Madras High Court in the case of
Arunachalam & Co. and others v. M. Sadasivam ( AIR 1985 Madras 354), after considering the
judgment of Banarsi Das v. Seth Kanshriram (AIR 1963 SC 1165), held that the term notice used in
Section 43 is vide enough to include within it a plaint filed in a suit for dissolution of partnership
and, therefore, the partnership would be deemed to be dissolved when the summons as
accompanied by the copy of the plaintiff, is served on the defendant. In view of the above, so far as
dissolution of partnership is concerned, it already stands dissolved in present case also. Therefore,
there is no dispute about the dissolution of partnership and, therefore, when there is no dispute, the
matter cannot be referred to the arbitrator. The argument is hollow inasmuch that what deemed to
have been taken place is the plea in a case then it is is required to be decided by the adjudicatory
authority or the court if suit is filed, and it is required to be declared by that adjudicatory authority
or the court that so has happened and if, defendant's plea is accepted then to declare that so has not
happened. The provisions of the partnership Act clearly provides that the partnership shall stand
dissolved when one of the partners gives notice in writing to all other persons of his intention to
dissolve the firm then it can be a plea taken before various authority and such authority, depending
upon facts of each case, may recognise the dissolution of such firm but when a suit is filed in the
court of law with this plea, then the fact is required to be pleaded that notice for dissolution has been
served and it is required to be proved by evidence if denied by the defendant and, thereafter, the
firm has already been dissolved is required to be declared. The court in a suit even for consequential
relief of rendition of account also have to arrive at conclusion that whether the firm stands dissolved
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by service of the notice as required under sub-section (1) of Section 43 of the Indian Partnership Act,
1932. If the fact of dissolution of firm is disputed by the defendant on the ground that no such notice
weas given and in the facts the plea is taken that service of copy of the plaint upon the defendant be
treated as notice of dissolution of the firm, but that is also required to be recognised by the court of
law (or arbitrator if the matter is before arbitrator). Therefore, this fact itself that the summon has
been served upon the defendant of seeking dissolution of the firm, results into dissolution of firm,
cannot be separated from the relief and instantly the court cannot declare the firm dissolved on first
date of hearing when after service of plaint upon the defendant, the defendant enters his appearance
in the suit. If the plea of learned counsel for the appellant is accepted then a partner in a firm can file
a suit (if he is in advantageous position) only for decree for dissolution of a firm and may withdraw
the suit immediately after service of summon upon defendant with the only plea that since plaint for
dissolution of firm has been served upon the defendant, therefore, no decree is needed. Service of
summon of such suit cannot be equated with dissolution of firm by service of notice in undisputed
case of acceptance of dissolution of firm by other partners.
However, the facts of this case are different than the arguments advanced. In this case, the plaintiff
sought decree for dissolution of firm in question specifically. The plaintiff in this case, specifically
sought declaration of the date of dissolution of firm. Further more, it will be suffice to state that,
since the application under Section 34 has been filed by the defendant, therefore, the defendant, at
this stage, could not have submitted his defence to the suit of the plaintiff. Therefore, the issue as
presented by the learned counsel for the appellant that with the service of summon with copy of
plaint upon the defendant, seeking relief of dissolution of firm, already resulted into dissolution of
the firm, cannot arise because it would be travesty of judgment that the defendant be deprived to
dispute the fact of the dissolution of the firm and he deprived to take his defence to plaintiffs' suit
and from all other defences. The view of the Banarsi Das's case (supra) cannot be stressed to this
extent that with the service of plaint upon the defendant containing the relief of dissolution of the
firm results into decree for dissolution of the firm automatically and for this issue, there cannot be
defence of the defendant and the court is not required to declare the firm dissolved and fix the date
for dissolution of the firm.
The learned counsel for the appellant heavily relied upon the judgment of the Privy Council
delivered in the case of Rehmatunnissa Begum & ors. vs. Prince and others (AIR 1917 Privy Council
1917), which may not detain this Court, in view of the judgment delivered in the case of V.H. Patel &
Company and others v. Hirubhai Patel & others ((2000) 4 SCC 368), wherein the judgment of
Rehmatunnissa Begum's case (supra) has been considered by the Hon'ble Supreme Court in detail.
The relevant fact of the said case are in para 4 of the judgment of V.H. Patel & Company's case
(supra), which are as under:"Another ground is raised in support of this contention that the terms of partnership
do not contemplate dissolution of the firm "at will" but by "mutual agreement".
Therefore, it is pointed out that dissolution of the firm is based only on just and
equitable ground and, therefore, partners' claim for a decree for dissolution of the
firm rests in its origin not on contract but on the inherent right to invoke the courts'
jurisdiction on equitable grounds in spite of the terms in which the right and
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obligation of the parties may have been regulated and defined by the partnership
contract. Our attention is drawn to a decision in Rehatunnissa begum v. Prince and
the commentary made by Pollock and Mulla (5th Edn. At p.
147) which reads as follows:"Although the arbitration clause in a partnership agreement may be sufficiently wide
to include the question whether the partnership should be dissolved, the court in its
discretion may not stay a suit for dissolution, if dissolution is sought under Section
44(g)(e). In the undermentioned cases the view taken is that whenever dissolution of
partnership is sought under Section 44(g), then it is for the court to decide, whether it
would be just and equitable to dissolve the partnership or not and such a matter
cannot be left to be gone into and decided by the arbitrator in pursuance of the
arbitration clause contained in the partnership deed."
Hon'ble the Supreme Court even after considering the arguments that the arbitrator
has no power to dissolve the partnership specifically on the ground that such
dissolution based on a ground or any other ground which renders it just and
equitable to dissolve and that is the power of the court, held that :"12.So far as the power of the arbitrator to dissolve the partnership is concerned, the
law is clear that where there is a clause in the articles of partnership or agreement or
order referring all the matters in difference between the partners to arbitration, the
arbitrator has power to decide whether or not the partnership shall be dissolved and
to award its dissolution (see Phoenix v. Pope.) Power of the arbitrator will primarily
depend upon the arbitration clause and the reference made by the court to it. If under
the terms of the reference all disputes and difference arising between the parties have
been referred to arbitration, the arbitrator will, in general, be able to deal with all
matters, including dissolution. There is no principle of law or any provision which
bars an arbitrator to examine such a question. Although the learned counsel for the
petitioner relied upon a passage of Pollock & Mulla, quoted earlier, that passage is
only confined to the inherent powers of the court as to whether dissolution of
partnership is just and equitable, but we have demonstrated in the course of our
order that it is permissible for the court to refer to arbitration a dispute in relation to
dissolution as well as on grounds such as destruction of mutual trust and confidence
between the partners which is the foundation therefor."
It is clear from the said judgment that Hon'ble Supreme Court in V.H.Patel & Co.'s
case(supra) that specific issue which was is Rehmatunnissa Begum's case(supra)
about the jurisdiction of the arbitrator of dissolution of the partnership firm in the
light of the reasonings given by the Privy Council was taken note of and then upheld
the decision of the High Court whereby the High Court set aside the arbitrator's
decision holding that the issue of dissolution of partnership is beyond his jurisdiction
is the correct law and the High Court rightly remitted the matter to the arbitrator to
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decide the issue of dissolution afresh. Therefore, it cannot be said that the arbitrator
cannot decide the issue which otherwise the court is required to decide in the suit for
dissolution of the partnership and at the cost of repetition, it may be stated that the
plaintiff himself in the suit claimed decree for dissolution of partnership as well as for
fixing the date from which that partnership stands dissolved.
The another contention of the learned counsel for the appellant, based on the judgment delivered in
the case of N.Radhakrishnan(supra), is that when there is allegation of fraud and serious
mal-practice on the part of the respondent, then the arbitrator cannot have jurisdiction and is is
required to be settled in the court after detail evidence which may be led by the parties, as these
allegations cannot be properly gone by the arbitrator in the arbitral proceedings, but here in this
case, it is clear that the plaintiffs are closely related to each other. They entered into the partnership
business and some dispute cropped up and thereafter also they amicably decided to settle the
dispute by entering into another agreement which is dated 20.3.1991. The plaintiffs in the plaint
specifically stated that with the intervention of relation, the dispute was settled putting some
liability upon the plaintiffs and defendants with further stipulation that the defendants will render
the accounts to the plaintiffs and will pay the due amounts of the plaintiff which may be found due.
The plaintiffs' contention is that that subsequent agreement was not honoured by the defendants
and, therefore, the said agreement has already come to an end, as it was obtained by
misrepresentation of facts and law. The plaintiffs' further alleged that the defendants excluded the
plaintiffs from the business and its profit and, therefore, it became necessary for the plaintiffs to
seek relief(decree) of dissolution of the firm. The plaintiff, in fact has no knowledge of any
malpractice or fraud as he yet to see the books of account and particularly in the background that he
himself was not very much active partner so as to know detail facts of any misrepresentation by the
defendants or particulars of fraud which may have been played by the defendants. The plaintiff's'
own case is that he has not seen the books of accounts and, therefore, also at this stage, the plaintiff
could not have levelled specific allegations of misrepresentation and fraud in maintaining the
accounts and, therefore, the petitioner sought relief of rendition of accounts and for that purpose
also, he prayed that Commissioner may be appointed, obviously, so that the plaintiff may
understand the accounts. If that can be done by the Commissioner or with the help of the
Commissioner, obviously, this can be well done through the arbitrator, agreed by the parties and he
would be the better person because the arbitrator is appointed by mutual consent and because of
faith reposed upon the arbitrator by the parties who acquires a special position and whose decision
cannot be challenged otherwise than on the ground provided under the Arbitration Act and,
therefore, in the facts of the case, the judgment of N.Radhakrishnan(supra) has no application. In
the judgment of N.Radhakrishnan(supra), even the Hon'ble Supreme Court has referred several
facts in relation to the financial transactions of the firm which clearly distinguishes the present case
from the facts of N.Radhakrishnan's case.
One of the grounds of the learned counsel for the appellants, with the judgment delivered in the case
of I.T.C. Ltd(supra) of the Hon'ble Supreme Court, is that whereby because of substitution, a new
contract came into existence and where by virtue of that substitution of new contract, the arbitration
clause itself falls and became non-existent then, no one can rely upon the contract which the parties
agreed to bury. How this proposition has any application to the facts of the case, is not clear and
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rather say, do not support the appellant because of the plain and simple reason that the partnership
deed is admitted document wherein there is a clause for arbitration. The appellants' own contention
is that the second contract is result of misrepresentation of facts and law and that has come to an
end automatically as pleaded in para 17 of the plaint then how, the plaintiffs-appellants can say that
the earlier agreement (partnership deed) has come to an end wherein clause of arbitration is there.
If second agreement, which admittedly has been executed, also contains the clause of settlement of
dispute through arbitration. However, both of the named arbitrators have died, is a subsequent
event, therefore, in both the contracts, the parties agreed for settlement of dispute through
arbitrator and it is not a case where the arbitration agreement has been substituted by a new
contract for limited purpose and under the new contract, provision has been made for referring the
matter to the arbitrator. Therefore, the judgment of I.T.C. Ltd.(supra) has no application to the facts
of the present case.
With the help of judgment of this Court delivered in the case of D.C.M. Ltd.(supra), it was submitted
that when point in issue is purely a legal question then it is to be decided by the court and not by the
arbitrator. However, from the argument of the learned counsel for the appellant, is is clear that it is
not a suit wherein only a pure question of law is involved even from the plaint's averments. The
appellants' contention before this Court itself clearly demonstrates that the plaintiffs in the plaint
has based the claim on the basis of fact. The misrepresentation and playing fraud upon the plaintiffs
are allegations of facts and cannot be a question of law, rather say, it may always be question of fact.
Therefore, the case of D.C.M. Ltd.(supra) has no application to the facts of the present case.
It will be appropriate to notice at this stage that the decision of the Punjab and Haryana delivered in
the case of Narinder Singh Randhawa & anr. v. Hardial Singh Dhilon and others (AIR 1985 P & H
41) cannot be accepted to be correct view in the light of decision of the Hon'ble Supreme Court
delivered in the case of V.H. Patel & Co.'s case(supra). In V.H.Patel & Co.'s case(supra), there was
plea that one of the parties-respondent no.1 sought to establish that he has not retired from the
partnership and the party was entitled to raise this question even then the award of the arbitrator
was upheld and here in this case also, there is contract for retiring some of the partners of the firm
and that is also not in dispute, therefore, the Hon'ble Supreme Court held that so far as the power of
the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a clause in
the articles of partnership or agreement or order referring all the matters in difference between the
partners to arbitration, the arbitrator has power to decide whether or not the partnership shall be
dissolved and to award its dissolution.
The appellants also submitted that from the facts it is clear that the defendants were not ready and
willing to perform their part of the contract, obviously, for referring the matter to the arbitrator.
This plea, in appeal can also be raised but in view of the emphasis for settlement of dispute through
alternative dispute of dissolution of the firm, the old concept of residuary to proposition cannot be
applied now and an order passed by the trial court staying the proceeding of the suit need not to be
interfered by the appellate court lightly because of the further reason that the order staying the suit
under Section 34 of the Arbitration Act is substantially not an adverse order affecting the rights of
the parties as such except affecting his right to choose the forum for redressal of his grievance. The
stay of the dispute is not destruction of right of the party. Normally it is presumed that if the court
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Jagdish Chandra & Anr vs Hari Narayan & Anr on 11 February, 2010

refers the matter to the arbitrator, then the party gains out of it because of the reason that the
parties may get dispute settled through arbitration expeditiously with less chance of further
litigation and that too from a person in whom they have reposed faith.
Therefore, I do not find any reason to interfere in the order dated 2.3.1994 passed by the trial court.
Hence the appeal of the appellants is dismissed.
( PRAKASH TATIA ),J.
mlt.

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