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 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 for various interim reliefs.
On the same day, appellant filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 . That application was kept for hearing along with the notice of motion.
Subsequently, respondent no.1 filed fresh suit 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 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 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.
“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.”
RATIO OF THE JUDGEMENT-
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.