w w w . L a w y e r S e r v i c e s . i n

Cash and Gain Finance and Investments rep. by its Managing Partner S.Vasatha & Others v/s Manjula Udaya Shankar

    CRP (PD) No.1337 of 2008 and M.P.No.1 of 2008
    Decided On, 31 October 2008
    At, High Court of Judicature at Madras
    For the Petitioner : N. Anand Venkatesh, Advocate. For the Respondents : M.S.Krishnan, Sr.Counsel for M/s Sarvabhuman Associates, Advocates.

Judgment Text
I. Genesis of action

The defendants in a suit filed at the instance of a partner of a firm seeking for dissolution, moved an application under Section 8 of the Arbitration and Conciliation Act of 1996 seeking for a reference to arbitration on the basis that the subject matter of suit was governed by an arbitration agreement. The application was dismissed and the aggrieved parties are the Civil Revision Petitioners before this Court.

II. Core reason for dismissal of the petition.

2. While dismissing the application, the Court below took note of the averments in the plaint regarding the so called mismanagement and fraud practiced by the defendants and interpreted them to mean that disputes arising out of such a situation would not be governed by the relevant clause in the partnership deed though provided with an arbitration clause.

III. The relevant clause for consideration.

3. The partnership deed provided as follows:-

"Any disputes arising out of this partnership or as to interpretations operation or enforcement of terms of this partnership between the parties or their legal representatives shall be referred to the arbitration of a person appointed by the partners whose decision shall be final and binding on all partners and their legal representative".

IV. Principal grounds of challenge.

4. It is contended by the counsel for the revision petitioners that the interpretation given by the Court below was clearly wrong and that any issue relating to winding up and the entitlement of any party to resort to the provisions of Section 44 are squarely governed within the term disputes and amenable to arbitration by the operation of the clause referred to above.

V. Reference to arbitration Factors agaisnt, as urged in C.R.P.

5. The learned senior counsel for the respondent has difficulties to support the line of reasoning adopted by the Court below but sets out his objections as follows:

(a) The reference to arbitration will be an exercise in futility since it will be barred by limitation.

(b) The original or a duly certified copy of arbitration agreement has not been filed along with the petition under Section 8 and hence the petition is liable for rejection.

VI. Examination of the issue of limitation.

6. The suit had been instituted in the year 1999 and even before filing the written statement, the defendants had filed an application under Section 8 with a copy of the partnership deed containing the arbitration clause. On 13.07.200o, the suit had been subsequently transferred to the District Munsif Court at Coimbatore and the petition was pending all along without any orders of the Court.

A. Plaintiff's objections:

(a) Initiative for arbitral process not taken by defendants.

7. The argument unfolds on the premise that section 8(3) of the Arbitration and Conciliation Act allows for the commencement of arbitration proceedings, its continuance and rendering of an arbitral award, notwithstanding an application filed under Section 8(1). The petitioners ought to have taken steps to have an Arbitrator appointed by resort to Clause 18 of the Partnership Deed and if there was no concurrence in the appointment of an Arbitrator, they ought to have applied under Section 11 of the Act by an application before the Chief Justice for appointment of an Arbitrator.

(b) The commencement of the dispute relevant period for computing limitation.

8. The learned senior counsel relied on Section 21 of the Arbitration and Conciliation Act to state that the arbitral proceedings in respect of a particular dispute would commence on the date on which a request for the dispute to be referred to arbitration is received by the respondent. This request must be read into the application under Section 8(1) and if such a construction is made, it would mean that the cause of action had arisen on 13.07.2000 when the petition had been filed. The petitioners are bound to have taken steps within 3 years for appointment of the Arbitrator by an application of rule under Article 137 of the Limitation Act, 1965. He cites (i) The Kerala State Elecy. Board, Trivandrum v. T.Kunhaliumma AIR 1977 SC 282 (ii) Major Inder Singh Rekhi v. Delhi Development Authority (AIR 1988 SC 1007) (iii) The Madras Metro Water Supply and Sewerage Board v. Ramakrishna Reddy (1995) 2 LW 695, in support of the plea that for application for appointment of arbitrator, Art. 137 Limitation Act is applicable. A petition which the petitioners will be compelled to file under Section 11, in view of a priori decision of the plaintiff , not to concur in the appointment of the Arbitrator, would be barred by limitation and therefore it would be futile to refer the parties to arbitration.

(c) Rejection of suit for a failure of prospect of arbitral proceeding will be unjust.

9. If the suit was to be dismissed by application of Section 8 and if it is so happened that the application under Section 11 before the Chief Justice is also dismissed, according to the submissions of the counsel for the respondent, it would lead to an irreversible situation when the adjudication relating to winding up of the partnership could not be undertaken at all.

B. The Pleas in support of arbitration

(a) Proceeding under Section 8(3) Optional

10. The counsel for the revision petitioners response to the arguments submitted by the Senior Counsel for the respondent is that reference under Section 8(3) of the Arbitration Act making possible the continuance of proceedings before the Arbitral Tribunal, notwithstanding his application under Section 8(1) before the Civil Court ought not to be read as a mandate. His own application before the Civil Court under Section 8(1) had been filed well within time, that is, even before he filed the written statement and if the Court had for any reason not passed an order, the conduct of the Court ought not to prejudice the cause of the litigant.

(b) Court's duty to make reference is unexceptional

11. Reference under Section 8(1) is peremtory and he refers to the Supreme Court's judgment in Anand Gajpati Raju vs. P.V.G.Raju reported in AIR 2000 SC 1886 where it held that it shall be obligatory for the Court to refer the parties to arbitration in terms of the arbitration agreement.

(c) Limitation is non-issue

12. The revision petitioners further contend if his original application were to be understood as a commencement of the cause of action and if it were also to be assumed that the respondent would not concur in appointment of any arbitrator, how the Chief Justice may pass an order under Section 11 of the Act when such a procedure is adopted, cannot be a matter for adjudication before the Court which is bound to make a reference under Section 8. Even if such a consideration must enter into the ken of reasoning, Section 14 of the Limitation Act, according to the counsel for the petitioners, ought to provide succor with the presumption of bonafides of prosecution of litigation by resort to an application under Section 8 before the Civil Court and that the time so taken shall be excluded for consideration of the application under Section 11.

C. Section 8(1) & Section 20 operate in different fields:

13. On reading through the provisions of Section 8 and 21 of the Arbitration and Conciliation Act, I am of the view that the provisions operate under two distinct circumstances. An application filed under Section 8 is not an application that is contemplated under Section 21 at all. Section 8 is a petition before the Court where a suit is pending and where the Court is bound to pass an order. Section 21 contemplates that the arbitral proceeding in respect of a particular dispute commences when a request for a reference is received by the respondent. If a suit had not been filed at all, and if one of the parties under the partnership deed had applied to the other partner for a reference to arbitration, that is when Section 21 will be attracted. If such a demand is made and if the other party does not concur in the appointment of an Arbitrator, it would be necessary to apply under Section 11 within a period of 3 years or if the Court refer the parties to arbitration, the starting point of limitation would begin when one party proposes an arbitrator to the other.

14. In the present case, if a suit had been instituted by one of the partners without reference to the arbitration agreement, the Court was bound to pass an order referring the parties to arbitration if there existed an arbitration clause. The duty of the Court is unexceptional. The mere fact that the party could have also approached by request for an arbitration and for commencement of arbitral proceedings under Section 8(3) of the Act cannot be understood as a necessary mandate that the party seeking for reference ought to have also taken steps under Section 8(3). It may be noted that Section 8(3) contains expression that an arbitration may be commenced.

15. The Principles of Statutory Interpretation by Justice G.P.Singh, 10th Edition 2006 at page 431 states

" 'may' will not be construed as mandatory if such a construction would defeat the purpose of the Act or wold lead to unjust results" (Chief Settlement Commissioner vs. Ram Singh, (1987) 1 SCC 612 AIR 1987 SC 1834

16. The expression 'may' here has to be understood only as a mere option available for the purpose of seeking for arbitration, because Section 8(1), on the other hand, contains a mandate to the Court to refer the matter to arbitration if there existed an arbitral agreement. It may be that the party may not concur in the arbitration that might necessitate the aggrieved party to resort to the application under Section 11. When such an application is done, there would be no need to refer to Section 21 to ascertain when the dispute commenced, because as I have already pointed out Section 21 contemplates only a situation of the commencement of dispute in a case where a request is made to the party to refer to arbitration. A petition under Section 8(1) is not a request to the party. If at all Section 21 must be applied, it must be applied and given its full expression only from the time when a request is made subsequent to the order of the Court under Section 8(1) directing the parties to arbitration.

D. Proceeding under Section 8 by Civil Court and steps under Section 11 by Chief Justice are guided by independent considerations.

17. In view of the construction which I have made to Section 8 and Section 21, I do not think that it is necessary for me to enter a finding whether the prosecution of the case before the Court could be treated as bona-fide and whether the petitioners would be justified in invoking section 14 at a time when an application under Section 11 is to be filed. It would be wholly a matter within the jurisdiction of the learned Chief Justice, while deciding to pass an order under Section 11, to consider all the relevant facts and circumstances it would be always open for the parties to raise the bar of limitation when such a proceeding is taken. The Court dealing with the petition under S.8 shall do no more than see whether there exists an arbitral agreement and if there is, refer the parties to resort to arbitration.

E.Act of Court shall prejudice no man

18.The learned District Munsif or the Court before which the petition under Section 8 was filed originally was bound to have passed necessary orders with due alacrity. As the maxim goes: 'Actus curiae neminem gravabit'. There is whole wealth of case law in India through pronouncements of the Supreme Court that approbate this maxim. The delay in passing orders under Section 8 ought not to result in a party losing his remedy through arbitral process by a plea limitation attributable to Court's delay. (Please see decision in B). Essential Commodities Supply Corpn. V.Swadesh Agro Farming and Storage Pvt. Ltd., (1999) 8 SCC 315 (para 14); Kedarnath V. Mohanlal Keserwari (2002) 2SCC 16 (para8): AIR 2000 SC 582. Drawing weighty consideration of the maxim, the Supreme Court said in Gays Prasad Vs. Pradeep Srivastava (2001) 2 SCC 604: AIR 2001 SC 803, " the judicial tardiness for which our system has acquired notoriety causes the lis to creep through the line for long, long years from the start to the ultimate termini, is a malady afflicting the system. During this long interval, many many events are bound to take place which might happen in relation to the parties as well as the subject matter of lis. If the cause of action is to be submerged in such subsequent events on account of malady of the system, it shatters the confidence of the litigant, deposits the impairment already caused."

I have no doubt that in the circumstances, the delay caused at the Court in disposing of the application under section 8(1) of the Act could not be put out against a party seeking for reference to arbitration.


19. The objections regarding the non filing of the original or the certified copy of the arbitration agreement itself does not appear to be tenable and the reliance on the decision of the Supreme Court reported in ATUL SINGH & OTHERS Vs. SUNIL KUMAR SINGH & OTHERS reported in 2008(2) CTC 856 is not helpful. The Supreme Court has dealt with the case where the arbitration agreement itself was denied and they found that no document had even been filed along with the suit. On the other hand, in the present case, the partnership deed which contains the arbitral agreement is relied on by the plaintiff herself and it is that

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document which is the basis for the suit. 20. The revision petitioners refer me to the fact that the partnership deed containing the arbitral agreement has been filed by the petitioners along with the application and the expression duly certified copy would include a certification made by the party that it is a true document. The counsel for the revision petitioners refers me also to the following decisions reported in AIR 1997 CALCUTTA 397, AIR 2003 SC 2252 and 2007 1 MLJ 769 to the effect that non filing of the original arbitral agreement is not fatal, even the arbitral agreement itself is not denied. 21. I have no hesitation in coming to the conclusion that in a case where the document containing an arbitration agreement is admitted and made the basis of the suit itself, such a party cannot complain that there has been non compliance of the requirement under Section 8(2). As stated above, the filing of the copy certified by the party is adequate to satisfy the requirement of Section 8(2). VIIIFINAL DISPOSITION 22. Under the circumstances, I find that the order of the Court below is erroneous and liable to be set aside. While allowing the Civil Revision Petition, I direct that the dispute raised by the plaintiff in the suit shall be referred to arbitration through an Arbitrator duly appointed in the manner known to law. The Civil Revision Petition is allowed on the above terms, but, however, there shall be no direction to costs. Consequently, connected miscellaneous petition is closed.