REPORTABLE      

      IN THE SUPREME COURT OF INDIA        CIVIL APPELLATE JURISDICTION

       CIVIL APPEAL NO.7019 OF 2009        [Arising out of SLP©No.5994 of 2007]

N. Radhakrishnan             -------Appellant

Versus

M/s. Maestro Engineers & Ors.          -----Respondents

J U D G M E N T  

TARUN CHATTERJEE,J.

1. Leave granted.

2. This appeal is directed against the final judgment and order dated,  

8th of January, 2007, of the High court of Judicature at Madras in  

CRP No 1246 of 2006, whereby the High Court had dismissed the  

Civil  Revision  Petition  filed  by  the  appellant  against  the  order  

dated 7th of June, 2006 passed in I.A. No. 494 of 2006 (in O.S. No.  

526  of  2006)  by  the  1st Addl.  District  Munsif  at  Coimbatore,  

wherein the appellant had prayed for appointment of an Arbitrator.

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3. The facts leading to the filing of this appeal which could be derived  

from the case made out by the appellants are summarized in a  

nutshell for the better understanding of the dispute at hand:

The  appellant  had  entered  into  a  partnership  with  the  

respondents on 7th of April, 2003 to constitute a partnership firm for  

the purpose of carrying on the business of Engineering Works under  

the name and style of “Maestro Engineers”. The abovementioned firm  

had initially commenced its functioning from the premises situated at  

41, KPR Lay Out 5th Street, Nanda Nagar Singanallur, Coimbatore-5,  

(in  short  the  “suit  premises”),  which  belonged to  the  father  of  the  

appellant. The appellant took active part in setting up the firm and  

was instrumental for the construction of the same.

Differences started creeping up between the appellant and the  

respondents and the appellant sent a notice dated 3rd of November,  

2005, to the respondents, being dissatisfied with their conduct. The  

appellant had asserted in the notice that the firm was set up by a  

partnership  deed  dated  7th of  April,  2003  and  that  he  and  the  

respondent no 3 had initially invested a sum of Rs.2,70,000/-, each  

for the capital investment of the firm but in the partnership deed it was  

only mentioned as Rs.1,00,000/- against the name of the appellant.  

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He  had  further  asserted  malpractices  happening  inside  the  firm,  

which  were  supported  by  the  respondents.  There  were  also  

allegations of collusion amongst the respondents for driving out the  

clients  of  the  appellant  and  forging  the  accounts  of  the  firm.  The  

appellant also offered his retirement from the firm and asked for his  

share of the salary and the profits incurred by the firm.

In response to the notice sent by the appellant, the respondents  

sent a reply dated 11th of November, 2003, wherein they admitted the  

factum of the partnership entered into by them with the appellant but  

allegedly denied the claim of the appellant  that  he had invested a  

sum of Rs.2,70,000/- towards the establishment of the firm.

In response to the reply sent by the respondents, the appellant  

sent  a  notice  dated  1st of  December,  2005,  wherein  he  again  

reiterated his stand that he had invested a sum of Rs.2,70,000/- for  

the establishment of the firm and not an amount of Rs.2,50,000/- as  

was alleged by the respondents in their reply.

The  appellant,  thereafter,  sent  another  notice  dated  24th of  

February, 2006, to the respondents stating that the respondents were  

responsible for the problems created by the parties and it was their  

responsibility to resolve the disputes amicably between them. It was  

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alleged that  the  respondents  had  colluded themselves  in  order  to  

siphon of the money of the partnership firm for their personal gain. In  

the notice dated 3rd of November, 2005, the appellant had reiterated  

that he was ready to retire from the firm if the share of profits and  

arrears of salary due to him and the interest thereon was given to  

him. He had further called upon the respondents to settle the arrears  

of  amount  within  15  days  and  to  make  arrangements  for  his  

retirement failing which he had put them on notice to refer the matter  

to arbitration.

The respondents subsequently filed a suit being O.S. No. 526  

of 2006, under Order 7 Rule 1 of CPC before the Court of the District  

Munsif  of  Coimbatore  for  a  declaration  that  the appellant  is  not  a  

partner  of  the  Respondent  No  1  (the  firm  herein)  after  18th of  

November, 2005, and to prevent him from causing any disturbance to  

the respondent no 1 for its peaceful running by way of a permanent  

injunction.  

The appellant thereafter filed an application under Section 8 of  

the  Arbitration Act 1996, (hereinafter referred to as the “Act”) being  

I.A.No.494 of 2006 in the Court of the District Munsif at Coimbatore  

on 12th of March 2006, which was rejected by his order dated 7th of  

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June, 2006. Feeling aggrieved by the aforesaid order, the appellant  

filed a civil revision case being CRP(PD) No. 1246 of 2006 along with  

a petition for  stay being M.P.  No.  1 of  2006 in  the High Court  of  

Judicature  at  Madras.  The  High  Court  by  its  order  dated  8th Of  

January, 2007, affirmed the aforesaid order of the District Munsif at  

Coimbatore  and  dismissed  the  civil  revision  petition  and  also  the  

petition for stay filed by the appellant. It is against this order of the  

High Court in respect of which the instant special leave petition was  

filed by the appellant, which on grant of leave was heard by us in the  

presence of the learned counsel for the parties.

4. We have heard the learned counsel appearing for the parties and  

perused the materials on record. The learned counsel appearing  

for the appellant at the first instance contended that the dispute  

was relatable to the factum of retirement of the appellant from the  

partnership firm and its reconstitution after the respondents had  

created a new partnership deed to that effect without the appellant  

being a part of it, was unfair and not proper. It was his contention  

that the appellant had only made a conditional offer to retire from  

the firm provided his dues were settled and the respondents had  

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grossly made a willful error in considering his offer as a final one  

and,  therefore,  committed  a  grave  error  by  reconstituting  the  

partnership firm after taking the appellant to have retired from the  

same. The learned counsel appearing for the respondents on the  

other hand contended that the offer of the appellant to retire from  

the firm was an unequivocal one and the same was accepted by  

the respondents after a meeting amongst themselves, thus under  

the  provisions  of  the  Indian  Contract  Act,  this  was  a  binding  

contract amongst the parties and the respondent could not deny  

the  same.  Moreover,  the  learned  counsel  for  the  respondents  

argued that they had sent a notice to the effect to the appellant  

stating that his offer to retire from the firm was accepted by them  

and his dues would be settled accordingly within 15 days from the  

receipt of the notice dated 3rd of March, 2005 sent by the appellant  

intimating about his retirement. Therefore, the appellant had prior  

knowledge  of  the  fact  that  the  respondents  had  accepted  his  

notice offering to retire and they were acting upon the same. The  

appellant on the other hand contended that the respondents had  

only  claimed  to  act  which  in  reality  they  did  not,  and  no  

cooperation  was  provided  to  the  appellant  when  he  had  

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approached  the  Auditor  of  the  respondents  to  inspect  his  

accounts. We are not in a position to determine the veracity of the  

statements of either parties.  The main issues which need to be  

determined is whether the case falls within the jurisdiction of the  

Arbitrator,  and  if  it  does,  whether  the  procedural  requirements  

under  Section  8  (2)  of  the  Act  had  been  complied  with  to  the  

satisfaction of the court.  

5. The learned counsel for the respondents further argued that the  

subject matter of the suit being OS No. 526 of 2006 was a different  

one and it was not within the ambit of the arbitration clause of the  

partnership deed dated 7th of April, 2003 and that the partnership  

deed had ceased to exist after the firm was reconstituted due to  

the alleged retirement of the appellant. Therefore, the trial  court  

was  justified  in  not  referring  the  matter  to  the  Arbitrator.  The  

appellant had on the other hand contended that the subject matter  

of  the  suit  was  within  the  ambit  of  the  arbitration  clause  since  

according  to  him  the  dispute  related  to  his  retirement  and  the  

settlement  of  his  dues  after  he  was  deemed  to  have  retired  

according to the respondents. Further, it was his contention that  

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the partnership deed dated 6th of December, 2005 was not a valid  

one  as  it  was  not  framed in  compliance  with  the  requirements  

under  the  Partnership  Act.  Therefore,  the  argument  of  the  

respondents that the subject matter of the suit did not fall within  

the ambit of the arbitration clause of the original partnership deed  

dated 7th of April, 2003, cannot be sustained. We are in agreement  

with the contention of the appellant to this effect. It is clear from a  

perusal of the documents that there was a clear dispute regarding  

the reconstitution of the partnership firm and the subsequent deed  

framed to that effect. The dispute was relating to the continuation  

of the appellant as a partner of the firm, and especially when the  

respondents  prayed  for  a  declaration  to  the  effect  that  the  

appellant  had  ceased  to  be  a  partner  of  the  firm  after  his  

retirement, there is no doubt in our mind that the dispute squarely  

fell within the purview of the arbitration clause of the partnership  

deed  dated  7th of  April,  2003.  Therefore,  the  Arbitrator  was  

competent  to  decide the matter  relating to  the existence of  the  

original deed and its validity to that effect. Thus the contention that  

the subject matter of the suit before the 1st Addl. District Munsif  

Court  at  Coimbatore  was  beyond  the  purview of  the  arbitration  

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clause, cannot be accepted. Having found that the subject matter  

of  the  suit  was within  the  jurisdiction of  the  Arbitrator,  we now  

proceed to decide whether the Arbitrator was competent to deal  

with the dispute raised by the parties. The learned counsel for the  

appellant  contended  that  the  High  Court  was  wrong  in  its  

interpretation of the clause “difference of opinion” and held that it  

did not mean dispute under the Act. This, in our view, cannot be  

sustained.  Difference of  opinion leads to dispute,  and it  is  very  

difficult to imagine that difference of opinion and disputes are an  

altogether different thing in the circumstances leading to this case.  

6. The appellant had cited a catena of judicial pronouncements to  

contend that when there is an express provision to that effect, the civil  

courts are bound to refer the matter to an Arbitrator in case of any  

disputes  arising  between  the  parties.  The  appellant  had  raised  

various issues relating to misappropriation of funds and malpractices  

on the part of the respondents and the allegations to that effect have  

been made in the notice sent to the respondents and subsequently in  

its written statement filed before the civil court. The learned counsel  

for  the  respondents  on  the  other  hand  argued  that  when  a  case  

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involves  substantial  questions  relating  to  facts  where  detailed  

material  evidence  (both  documentary  and  oral)  needed  to  be  

produced by either parties, and serious allegations pertaining to fraud  

and malpractices were raised, then the matter must be tried in court  

and the Arbitrator could not be competent to deal with such matters  

which involved an elaborate production of evidence to establish the  

claims relating to fraud and criminal misappropriation.  

7. In our opinion, the contention of the respondents relating to the  

jurisdiction of the Arbitrator to decide a dispute pertaining to a matter  

of  this  proportion  should  be  upheld,  in  view  of  the  facts  and  

circumstances of the case. The High Court in its impugned judgment  

has rightly held that since the case relates to allegations of fraud and  

serious malpractices on the part of the respondents, such a situation  

can only be settled in court through furtherance of detailed evidence  

by either parties and such a situation can not be properly gone into by  

the Arbitrator.  

8. Reliance was placed by the learned counsel for the appellant  

on  a  decision  of  this  Court  in  the  case of  Hindustan  Petroleum  

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Corpn. Ltd. vs. Pinkcity Midway Petroleums [2003 (6) SCC 503],  

wherein this Court in Para 14 observed:

“If in an agreement between the parties before the   civil  court,  there  is  a  clause  for  arbitration,  it  is   mandatory for the civil court to refer the dispute to   an arbitrator. In the instant case the existence of an  arbitral clause in the Agreement is accepted by both   the parties as also by the courts below. Therefore,   in view of the mandatory language of section 8 of  the Act, the courts below ought to have referred the  dispute to arbitration.”

9. The learned counsel  for  the  appellant  relying  on the  above-

mentioned  observations  of  this  Court  in  the  aforesaid  judgment  

submitted that the High Court was wrong in ignoring the ratio of the  

case  and  should  have  accordingly  allowed  the  petition  of  the  

appellant for setting aside the order of the trial court.

10. The learned counsel appearing on behalf of the respondents on  

the  other  hand  contended  that  the  appellant  had  made  serious  

allegations against the respondent alleging that they had manipulated  

the accounts and defrauded the appellant by cheating the appellant  

of his dues, thereby warning the respondents with serious criminal  

action against them for the alleged commission of criminal offences.  

In this connection, reliance was placed in a decision of this Court in  

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the  case  of  Abdul  Kadir  Shamsuddin  Bubere  vs.  Madhav  

Prabhakar  Oak and Another,[  AIR  1962  SC 406]  in  which  this  

court under para 17 held as under:

“There is no doubt that where serious allegations of   fraud are made against a party and the party who is  charged with  fraud desires that  the matter  should  be tried  in  open court,  that  would be a  sufficient   cause  for  the  court  not  to  order  an  arbitration  agreement  to  be  filed  and  not  to  make  the  reference…….”

11. In our view and relying on the aforesaid observations of this  

Court in the aforesaid decision and going by the ratio of the above  

mentioned case, the facts of the present case does not warrant the  

matter  to  be  tried  and  decided  by  the  Arbitrator,  rather  for  the  

furtherance of justice, it should be tried in a court of law which would  

be  more  competent  and  have  the  means  to  decide  such  a  

complicated matter involving various questions and issues raised in  

the  present  dispute.  This  view  has  been  further  enunciated  and  

affirmed by this Court in the decision of  Haryana Telecom Ltd. vs.  

Sterlite Industries (India) Ltd.[  AIR 1999 SC 2354],  wherein this  

court under para 4 observed :

“Sub-section (1)  of  section 8 provides that  where  the  judicial  authority  before  whom  an  action  is  brought  in  a  matter,  will  refer  the  parties  to  

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arbitration the said matter  in  accordance with the  arbitration agreement. This, however, postulates, in  our  opinion,  that  what  can  be  referred  to  the  Arbitrator  is only  that dispute or matter  which the  Arbitrator is competent or empowered to decide.”

12. The learned counsel for the respondent further elaborated his  

contention  citing  the  decision  of  the  High  Court  of  Judicature  at  

Madras in the case of Oomor Sait HG Vs. Asiam Sait, 2001 (3) CTC  

269, wherein it was held:

“……Power of civil court to refuse to stay of suit in  view of arbitration clause on existence of certain  grounds available under 1940 Act continues to be  available under 1996 Act as well and the civil court   is  not  prevented  from  proceeding  with  the  suit   despite  an  arbitration  clause  if  dispute  involves  serious questions of law or complicated questions  of fact adjudication of which would depend upon  detailed oral and documentary evidence.

..Civil  Court  can  refuse  to  refer  matter  to  arbitration if complicated question of fact or law is  involved or where allegation of fraud is made.

….Allegations regarding clandestine operation of   business under some other name, issue of bogus  bills,  manipulation  of  accounts,  carrying  on  similar business without consent of other partner   are  serious  allegations  of  fraud,   misrepresentations  etc.,  and  therefore  application for reference to Arbitrator is liable  to be rejected.”

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13. We are in consonance with the above-referred decision made  

by the High Court  in the concerned matter.  In the present dispute  

faced by us, the appellant had made serious allegations against the  

respondents  alleging  him  to  commit  malpractices  in  the  account  

books and manipulate the finances of the partnership firm, which, in  

our opinion, cannot be properly dealt with by the Arbitrator. As such,  

the High Court was justified in dismissing the petition of the appellant  

to refer the matter to an Arbitrator. In this connection, it is relevant to  

refer  the  observation  made  by  the  High  Court  in  its  impugned  

judgment :

“The above decision squarely applies to the facts of   the present case. In the present case as well there  is allegation of running rival firm, interference with  the  smooth administration  of  the  firm.  As already  stated since the suit has been filed for declaration  to  declare  that  the  revision  petitioner  is  not  a  partner  with  effect  from  18.11.2005,  and  for  consequential  injunction  restraining  the  petitioner  from disturbing the smooth functioning of  the first   respondent  firm,  the  issue  relates  to  the  causes  which  compelled  the  respondents  to  expel  the  revision petitioner from the partnership firm and the  necessity to reconstitute the firm by entering into a   fresh  partnership  deed.  Therefore  such  issues  involve detailed evidence which could be done only  by a civil court……”

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14. Arguments were favoured by either parties relating to the ambit of  

Section  8  (2)  of  the  Act  wherein  the  scope  of  the  mandatory  

requirement to file the original copy of the partnership deed dated  

7th of April, 2003 was elaborately discussed. It is to be noted that  

since we have already decided that  there is  no requirement  to  

appoint an Arbitrator in view of the matter that the issues involved  

in  the  case  involved  detailed  investigations  into  the  same and  

production of elaborate evidence to prove the allegations or refute  

the  same,  there  is  no  need  to  dwell  into  this  matter.  Even  

assuming that a dispute subsists and an Arbitrator is appointed,  

still  the  appellant  cannot  absolve  himself  from  the  mandatory  

requirement of filing an original copy of the deed.  The learned  

counsel  for  the  appellant,  however,  argued  that  since  the  

notarized copy of the deed was already filed by the respondents  

before the 1st Addl. District Munsif Court at Coimbatore, there was  

no need for the appellant to produce the same. Learned counsel  

for the appellant cited various decisions to substantiate his claim.  

But  from a careful  perusal  of  the  order  of  the 1st Addl.  District  

Munsif Court at Coimbatore, in I.A. No. 494 of 2006 (in O.S. No.  

526 of 2006) it would be evident that the learned Munsif had noted  

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that the appellant had filed a Xerox copy of the partnership deed  

dated 7th of April 2003 and had not filed the original copy thereof.  

Further,  Ex-P23 is  the  notarized  copy  of  the  Partnership  deed  

dated 6th of December, 2005, which was the reconstituted deed  

formed after the alleged retirement of the appellant from the firm.  

The learned counsel for the appellant pointed out to this deed and  

argued that since the  original copy of this deed was filed by the  

respondents, there was no need for him to file the original copy  

thereof under section 8 (2) of the Act. But it is to be noted herein  

that the claim of the appellant regarding the dispute was under the  

arbitration clause mentioned under the original partnership deed  

and not on the subsequent one. Since the original deed was not  

filed within the requirement of Section 8(2) of the Act, it must be  

held that the mandatory requirement under the Act had not been  

complied  with.  Accordingly,  even  if  we  accept  the  factum of  a  

dispute relating to the retirement of the appellant under the original  

deed  dated  7th of  April,  2003,  still  the  Court  would  not  be  

empowered to  refer  the matter  to  an Arbitrator  due to  the  non  

compliance of the provisions mentioned under Section 8(2) of the  

Act.  For  the  above-mentioned  reasons  and  in  view  of  our  

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discussions  made  hereinabove,  we,  therefore,  do  not  find  any  

merit in this appeal and we direct the 1st Addl. District Munsif at  

Coimbatore to dispose of the suit being O.S.No.526 of 2006 filed  

by the respondents for a declaration that the appellant was not a  

partner  of  the  Respondent  No  1  (the  firm  herein)  after  18th of  

November, 2005 and to prevent him from causing any disturbance  

to  the  respondent  no  1  for  its  peaceful  running  by  way  of  a  

permanent injunction within a period of six months from the date of  

receipt of a copy of this judgment.

15.It  will  be  open  to  the  parties  to  adduce  evidence  (both  

documentary and oral) to prove their respective claims relating to  

the  contentions  of  fraud  and  the  retirement  of  the  appellant  in  

consonance with the original partnership agreement.  

16.The appeal is thus dismissed. There will be no order as to costs.

……………………………J. [Tarun Chatterjee]

New Delhi; ……………………………..J. October 22, 2009. [V.S.Sirpurkar]

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