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CASE NO.: Appeal (civil)  10 of 2008

PETITIONER: Atul Singh & Ors.

RESPONDENT: Sunil Kumar Singh & Ors.

DATE OF JUDGMENT: 04/01/2008

BENCH: G.P. Mathur & Aftab Alam

JUDGMENT: J U D G M E N T

Arising out of Special Leave Petition (Civil) No.24729 of 2005)

G. P. MATHUR, J.

1.      Leave granted.

2.      This appeal, by special leave, has been preferred against the  judgment and order dated 4.8.2005 of Patna High Court, by which the  Civil Revision Petition preferred by Sunil Kumar Singh (defendant  No.3 in the suit) was allowed and the order passed by the trial Court  on 17.3.2005 rejecting his prayer for referring the dispute for  arbitration under Section 8 of the Arbitration and Conciliation Act,  1996 (hereinafter referred to as \021the 1996 Act\022) was set aside.    

3.      In order to understand the controversy raised, it is necessary to  mention the basic facts of the case.  The appellants herein filed Title  Suit No.296 of 1998 in the Court of Sub-Judge-I, Patna, against Sunil  Kumar Singh (defendant no.3) and 5 others for a declaration that the  reconstituted partnership deed dated 17.2.1992 (effective from  1.4.1992) is illegal, void and without jurisdiction and was also without  any intention or desire of Shri Rajendra Prasad Singh (who died after  17.2.1992) to retire from the partnership. A declaration was also  sought that the plaintiffs being heirs of late Shri Rajendra Prasad  Singh will be deemed to be continuing as partners to the extent of his  share.   It was further prayed that a decree for rendition of accounts of  the firm from 1.4.1992 upto date may be passed and the defendants  may be directed to pay to the plaintiffs their share of the profits of the  partnership as well as interest and principal amount of unsecured loan  advanced by the firm. A further relief for grant of an ad-interim  injunction restraining the respondents from mismanaging and  misappropriating the funds of the firm was also sought, besides  appointment of a Receiver during the pendency of the suit to manage  the firm.    

4.      The case of the plaintiffs, as set out in plaint, in brief, is as  under. A partnership firm in the name and style of M/s Veena  Theatres Pvt. Ltd. was formed by a deed of partnership on 25.12.1959  and the business of the firm was to book pictures with film  distributors at various places and to get them screened or exhibited in  the picture hall owned by M/s Veena Theatres Pvt. Ltd.   The capital  in the firm was invested by the members of the family of Shri  Shatrughan Prasad Singh. Shri Rajendra Prasad Singh also  subsequently became a partner of the firm by making investments and  a deed of partnership was executed on 20.12.1972.  The partnership  was reconstituted on 21.5.1976, in which the share of Shri Rajendra

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Prasad Singh was 21% and on the death of Brij Mohan Prasad Singh,  his widow Smt. Sona Devi was inducted as a partner and a fresh deed  was executed on 13.1.1989 in which Shri Rajendra Prasad Singh  continued to be a partner having 21% share.  Shri Rajendra Prasad  Singh died on 5.9.1992 leaving behind plaintiff nos.2, 3, 5 and 7, who  are his grandsons, as his heirs. The wife and two sons of Shri  Rajendra Prasad Singh had predeceased him. The case of the plaintiffs  further is that the defendants fraudulently executed another  partnership deed on 17.2.1992, in which Shri Rajendra Prasad Singh  was not shown as one of the partners, though he had neither given any  consent nor had expressed his desire for retiring from the partnership.    The plaintiffs made a request to the defendants to give the accounts of  the partnership firm and give them their share of profits, but the  defendants refused to do so on the ground that they or their  predecessor-in-interest viz. Shri Rajendra Prasad Singh were not  partners in the partnership deed which was executed on 17.2.1992.   The suit was accordingly filed on 1.8.1998 for the reliefs mentioned  above.  

5.      The suit proceeded ex-parte against all the defendants except  Birendra Kumar Singh (defendant no.2), who appeared before the trial  Court and moved an application for giving time to file written  statement.  He also moved an application for rejecting the plaint under  Order VII Rule 11 CPC on 18.9.1998, which was rejected on  16.1.2002.   A review petition seeking review of the aforesaid order  was filed but the same was dismissed on 29.4.2004.  He, thereafter,  moved an application on 3.8.2004 for referring the dispute for  arbitration, but subsequently his counsel conceded that the said  application was not maintainable.   

6.      Sunil Kumar Singh (defendant no.3), who is son of Birendra  Kumar Singh (defendant no.2) did not put in appearance despite  service of summons and the trial Court vide order dated 28.6.1999  directed to proceed ex-parte against him.   After more than 5 years  defendant no.3 moved two applications on 14.10.2004 for setting  aside the order dated 28.6.1999 by which the Court had directed to  proceed ex-parte against him and also sought time to file written  statement. On the concession made by the plaintiffs, the order to  proceed ex-parte against defendant no.3 was set aside on 3.11.2004.    The defendant no.3 thereafter moved an application on 25.11.2004  under Section 34 of the Arbitration Act, 1940 praying that in view of  the arbitration clause in the agreement dated 13.1.1989, the  proceedings in the suit may be stayed and the matter may be referred  to arbitration.  The plaintiffs filed an objection to the application on  1.12.2004.  On 16.12.2004, defendant no.3 filed a supplementary  petition in support of his earlier petition dated 25.11.2004 reiterating  the prayer for referring the dispute to arbitration. Subsequently, on  28.2.2005, defendant no.3 moved a petition purporting to be  supplementary petition to the petitions dated 25.11.2004 and  16.12.2004, wherein it was averred that as the suit is of the year 1998,  to avoid any chances of confusion, his earlier petitions may be treated  to have been filed under Section 8 of the Arbitration and Conciliation  Act, 1996.  This petition was opposed by the plaintiff appellants.  The  trial Court dismissed the petition by the order dated 17.3.2005 mainly  on the ground that as Shri Rajendra Prasad Singh (predecessor-in- interest of the plaintiffs) was not a party to the partnership deed which  was executed on 17.2.1992, and as the main relief sought in the suit  was that the said partnership deed dated 17.2.1992 was illegal and  void, which question could only be decided by the civil Court, the  dispute could not be referred to arbitration. The defendant no.3  challenged the aforesaid order by filing a Civil Revision Petition  which was allowed by the High Court by the impugned order dated  4.8.2005.  The operative portion of the order passed by the High Court  only says that \023the Court below has committed error in passing the  impugned order.   Accordingly, the impugned order is set aside and

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this civil revision is allowed.\024   No specific order making reference to  arbitration was passed.

7.      Shri Ranjit Kumar, learned senior counsel for the appellants,  has submitted that the main relief claimed in the suit is that a  declaration be made that the reconstituted partnership deed dated  17.2.1992 was illegal, void and without jurisdiction as there was no  intention or desire on the part of Shri Rajendra Prasad Singh to retire  from the partnership and that the plaintiffs being heirs of Shri  Rajendra Prasad Singh, shall be deemed to be continuing as partners  to the extent of his share.   The other relief regarding rendering of  accounts of all transactions from 1.4.1992 onwards was dependent  upon the first relief inasmuch as Shri Rajendra Prasad Singh or the  plaintiffs were admittedly not shown as partners of the firm in the  deed dated 17.2.1992 and unless the said document was declared as  void, they could not claim any rights on the basis of earlier deed dated  13.1.1989.  Learned counsel has submitted that Shri Rajendra Prasad  Singh or the plaintiffs being not parties to the deed dated 17.2.1992,  Section 8 of the 1996 Act can have no application to the facts and  circumstances of the case and the High Court committed manifest  error of law in setting aside the order of the trial Court and allowing  the revision petition filed by defendant no.3.  Learned counsel has  also submitted that having regard to the facts of the case, the relief of  declaration that the partnership deed is illegal or void or the relief of  cancellation thereof can only be granted by the Civil Court and not by  an arbitrator.   In support of his submission Shri Ranjit Kumar has  placed reliance on the following observations made in Khardah  Company Ltd. v. Raymon & Company (India) Pvt. Ltd., AIR 1962 SC  1810 :      It cannot be disputed that the expression \023arising  out of\024 or \023concerning\024 or \023in connection with\024 or \023in  consequence of\024 or \023relating to this contract\024 occurring  in an arbitration clause in an agreement to purchase  goods are of sufficient amplitude to take in a dispute as to  the validity of the agreement.  But the arbitration clause  cannot be enforced when the agreement of which it forms  an integral part is held to be illegal.  On principle it must  be held that when an agreement is invalid every part of it  including the clause as to arbitration contained therein  must also be invalid.  (1942) AC 356 and AIR 1959 SC  1362 and ILR (1948) 2 Cal 171 and AIR 1954 Mad  528(531), Rel. on; AIR 1952 SC 119, Ref. (Para 4).               Accordingly, a dispute that the contract of which  the arbitration clause forms an integral part is illegal and  void is not one which the arbitrators are competent to  decide under the arbitration clause although it is of  sufficient amplitude to take in a dispute as to the validity  of the agreement and in consequence a party to the  contract is entitled to maintain an application under S. 33  for a declaration that the contract is illegal and that in  consequence the proceedings taken thereunder before the  arbitrators and the award in which they resulted were all  void : AIR 1959 SC 1357, Rel. on.  (para 13)               Learned counsel has also submitted that the suit was filed on  1.8.1998 and defendant no.2 having failed in his attempt to get the  matter referred to arbitration, his son Sunil Kumar Singh (defendant  no.3) who was set ex-parte on 28.6.1999 moved the application for  staying the suit under Section 34 of Arbitration Act, 1940 on  5.11.2004 and then moved the application giving rise to the order  under challenge on 28.2.2005 and such an application having been  moved after an inordinate delay, it was wholly improper on the part of  the High Court to have accepted his prayer.   It has been further urged  that there was non-compliance of Sub-section (2) of Section 8 of the

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1996 Act as the application moved by defendant no.3 was not  accompanied by the original arbitration agreement or a duly certified  copy thereof and, therefore, the same ought to have been rejected.   Shri S.B. Sanyal, learned senior counsel for the respondent, has  submitted that the plaintiffs in fact are claiming rendition of accounts  and their share in the partnership business for which they are basing  their claim on the partnership deed dated 13.1.1989 to which Shri  Rajendra Prasad Singh was a party and the said deed contains an  arbitration clause.  In such circumstances, the High Court rightly  referred the dispute for arbitration and the contention raised by  learned counsel for the plaintiffs has no substance.    

8.      In order to appreciate the contention raised by learned counsel  for the parties, it will be convenient to set out Sections 7 and 8 of the  1996 Act : 7. Arbitration agreement. - (1) In this Part, ’arbitration  agreement’ means an agreement by the parties to submit  to arbitration all or certain disputes which have arisen or  which may arise between them in respect of a defined  legal relationship, whether contractual or not.       (2) An arbitration agreement may be in the form of  an arbitration clause in a contract or in the form of a  separate agreement.       (3) An arbitration agreement shall be in writing.       (4) An arbitration agreement is in writing if it is  contained in-  (a) a document signed by the parties;  (b) an exchange of letters, telex, telegrams or other  means of telecommunication which provide a  record of the agreement; or  (c) an exchange of statements of claim and defence  in which the existence of the agreement is  alleged by one party and not denied by the  other.       (5) The reference in a contract to a document  containing an arbitration clause constitutes an arbitration  agreement if the contract is in writing and the reference is  such as to make that arbitration clause part of the  contract.  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 subsection (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.               Sub-section (1) of Section 8 of the 1996 Act says that 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.  Therefore, for application of  Section 8, it is absolutely essential that there should be an arbitration  agreement between the parties.   It is an admitted fact that neither Shri  Rajendra Prasad Singh nor the plaintiffs are parties to the partnership

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deed dated 17.2.1992.  There is no document as defined in Section 7  of 1996 Act which may contain the signature of either Shri Rajendra  Prasad Singh or the plaintiffs.  Similarly, there is no document as  contemplated by clauses (b) or (c) of Sub-section (4) of Section 7 of  1996 Act from which it may be spelled out that either Rajendra Prasad  Singh or the plaintiffs were parties to clause relating to arbitration  contained in the partnership deed dated 17.2.1992. It is also an  admitted fact that Shri Rajendra Prasad Singh was alive when the said  partnership deed dated 17.2.1992 was executed.  Therefore, on the  face of it Section 8 of 1996 Act would not apply to any dispute  concerning the said partnership deed dated 17.2.1992 and the matter  cannot be referred to arbitration.  

9.      The first relief claimed by the plaintiffs in the suit is a decree  for declaration that the reconstituted partnership deed dated 17.2.1992  was illegal and void and there was no intention or desire of Shri  Rajendra Prasad Singh to retire from the partnership and further that  the plaintiffs being heirs of Shri Rajendra Prasad Singh will be  deemed to be continuing as partners to the extent of his share.   It is  true that the plaintiffs have also sought rendition of accounts and their  share of profits from the partnership as well as interest over the  unsecured loan and the principal amount of unsecured loan on  rendition of accounts.  For getting this relief, the plaintiffs  undoubtedly rely upon the partnership deed dated 13.1.1989.   However, this deed of 1989 could be relied upon and form the basis of  the claim of the plaintiffs only if the partnership deed dated 17.2.1992  was declared as void.   If the deed dated 17.2.1992 was not declared  as void and remained valid and operative, the plaintiffs could not fall  back upon the earlier partnership deed dated 13.1.1989 to claim  rendition of accounts and their share of profits.   Therefore, in order to  get their share of profits from the partnership business, it was  absolutely essential for the plaintiff appellants to have the partnership  deed dated 17.2.1992 declared as illegal, void and inoperative.  The  relief for such a declaration could only be granted by the civil Court  and not by an arbitrator as they or Shri Rajendra Prasad Singh through  whom the plaintiffs derive title, are not party to the said deed.   The  trial Court had, therefore, rightly held that the matter could not be  referred to arbitration and the view to the contrary taken by the High  Court is clearly illegal.    

10.     Sub-section (2) of Section 8 of the 1996 Act says that 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.    As already stated in the earlier part of  the judgment, defendant no.3 had moved an application on 25.11.2004  under Section 34 of the Arbitration Act, 1940 for staying the  proceedings of the title suit and for referring the matter to arbitration.    He filed a supplementary petition to the aforesaid application on  16.12.2004. Herein also reference was made to Section 34 of  Arbitration Act, 1940. Thereafter, he filed an application on 28.2.2005  praying that as the Arbitration Act, 1940 had been repealed and the  suit is of 1998, to avoid any confusion, his earlier petitions may be  treated to have been filed under Section 8 of the Arbitration Act,  1996.  None of these petitions were accompanied by the original  arbitration agreement dated 17.2.1992 or a duly certified copy thereof.   In fact, there is no requirement of filing the original arbitration  agreement or a duly certified copy thereof under Section 34 of  Arbitration Act, 1940 and as such there was no occasion for defendant  no.3 to file the aforesaid document.   The third petition filed on  28.2.2005 contained the following prayer :         \023It is, therefore, prayed that your honour may  graciously be pleased to treat the petitions dated  25.11.04, 16.12.04 and the present petition as supplement  and part of each other for deciding the prayer with regard  to stay of the proceedings of the aforesaid suit and/or to

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refer to arbitration in view of the arbitration agreement  covering the subject matter of this suit.\024

       There is no whisper in the petition dated 28.2.2005 that the  original arbitration agreement or a duly certified copy thereof is being  filed along with the application.   Therefore, there was a clear non- compliance of sub-section (2) of Section 8 of 1996 Act which is a  mandatory provision and the dispute could not have been referred to  arbitration.   Learned counsel for the respondent has submitted that a  copy of the partnership deed was on the record of the case.   However,  in order to satisfy the requirement of sub-section (2) of Section 8 of  the Act, defendant no.3 should have filed the original arbitration  agreement or a duly certified copy thereof along with the petition filed  by him on 28.2.2005, which he did not do.   Therefore, no order for  referring the dispute to arbitration could have been passed in the suit.

11.     In view of the discussions made above, the appeal is allowed  with costs and the impugned order dated 4.8.2005 passed by the High  Court in Civil Revision No.1010 of 2005 is set aside.