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Ashok Kumar Malhotra & Others v/s Kasturi Lal Malhotra

    Arb. Case No. 90 of 2011

    Decided On, 27 January 2012

    At, High Court of Punjab and Haryana

    By, THE HONOURABLE MR. JUSTICE HEMANT GUPTA

    For the Petitioners: Mr. Anand Chibbar, Advocate. For the Respondent: Mr. Harkesh Manuja, Advocate.



Judgment Text

HEMANT GUPTA, J

Petitioners have sought appointment of an Arbitrator to resolve the dispute between the parties arising out of the partnership deed dated 6.8.2004 (Annexure P-1).

The partnership is at will and contains the following arbitration clause to resolve the disputes between the parties:-

'13. That in case of any difference amongst the partners with regard to this partnership, the matter shall be referred to and got decided by Arbitration in accordance with the provisions of Indian Arbitration Act, in force.'

Petitioners have averred that the respondent has filed a petition for dissolution of partnership firm before the Civil Judge (Senior Division), Jagadhri. In the said petition, the respondent has asserted that the disputes are required to be resolved by way of arbitration. The said application is stated to be still pending.

Learned counsel for the respondent has raised a preliminary objection that in term of Section 44 of the Indian Partnership Act, 1932 (for short `the Act’), the Court alone can order dissolution of firm and that the arbitrator cannot order dissolution of a partnership firm. Therefore, the present application before this Court is not maintainable. In support of such arguments, learned counsel for respondent has referred to two judgments of this Court reported as B.K.Kapoor & anr vs. Mrs. Tajinder Kapoor & anr, 2009(3) Civil Court Cases 649 (P&H) and M/s Sharda Ginning Pressing & Oil Mills and ors vs. Smt. Bimla Devi, 2007(2) PLR 807.

On the other hand, learned counsel for the petitioners has referred to a judgment of Hon’ble Supreme Court reported as Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, (2011) 5 SCC 532; Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651 and V.H.Patel & Company and others vs. Hirubhai Himabhai Patel and ors, (2000) 4 SCC 368. Reference is also made to Mahendra Kumar Poddar vs. M/s Bansal Builders and ors, AIR 2001 Calcutta 58 and J.B.Dadachanji Vs. Ravinder Narain 2002(4) R.C.R.(Civil) 7 (Delhi), wherein, the learned Single Bench of Calcutta and Delhi High Court have taken a view that the arbitrator is competent to dissolve a partnership firm. The petitioners have also relied upon a recent Single Bench judgment reported as Rajinder Prasad Goyal vs. Royal Orchid Company and ors 2011(3)PLR 266 to contend that the arbitrator was found entitled to examine the question of dissolution of the firm.

The dissolution of a partnership firm can be arrived at in numerous ways including by consent of the parties. Section 40 of the Act stipulates that a firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. Section 41 of the Act provides for compulsory dissolution of a firm by the adjudication of all the partners or all the partners but one as insolvent, or by the happening of certain contingencies as mentioned in Section 42. Still further, a firm can be dissolved by notice of partnership at will as provided under Section 43 of the Act. The manner of dissolution of firm is purely contractual. The jurisdiction of the Court to order dissolution is not exhaustive and exclusive.

The reasoning given in the judgments relied upon by learned counsel for respondent that the power to wind up a company is conferred on the Company Court, therefore, on the same analogy, the power to dissolve the partnership firm will vest with the Court alone runs counter to the judgment of the Hon’ble Supreme Court in Booz Allen and Hamilton Inc. (supra) and Olympus Superstructures (P) Ltd. 51 ( supra). It has been held that in-rem orders can be granted only by courts but orders in respect of personal rights can be adjudicated upon by the arbitrator. In Olympus Superstructures (P) Ltd. (supra) the Supreme Court held:

33. We may point out that the Punjab High Court in Lakshmi Narain v. Raghbir Singh AIR 1956 Punj 249, the Bombay High Court in Fertiliser Corpn. Of India v. Chemical Construction Corpn, ILR 1974 Bom 856, 858 (DB) and the Calcutta High Court in Keventer Agro Ltd. v. Seegram Comp. Ltd, APO 498 of 1997 & APO 449 of (401) dated 27.1.1998 (Cal) have taken the view that an arbitrator can grant specific performance of a contract relating to immovable property under an award. No doubt, the Delhi High Court in Sulochana Uppal v. Surinder Sheel Bhakri, AIR 1991 DEL 138 has however held that the arbitrator cannot grant specific performance. The question arises as to which view is correct.

34. In our opinion, the view taken by the Punjab, Bombay and Calcutta High Courts is the correct one and the view taken by the Delhi High Court is not correct. We are of the view that the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree - with a view to shorten litigation in regular courts - to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act, 1996 which contained a prohibition relating to specific performance of contracts concerning immovable property.

35. It is stated in Halsbury's Laws of England, 4th Edn., (Arbitration, Vol. 2, para 503) as follows:

'503. Nature of the dispute or difference.-

The dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction (Cf. Bac Abr Arbitrament and Award A).'

Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman, (1846) 9 QB 371: 15LJQB 360: 115 ER 1315). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst, (1801) 2 Bos & P444: 126 ER 1376, Wilson v. Wilson, (1848) 1 HL Cas 538 and Cahill v. Cahill, (1883) 8 AC 420 : 49 LT 605 HL).

36. Further, as pointed out in the Calcuttacase i.e. Keventer Agro Ltd., (surpa) merely because there is need for exercise of discretion in case of specific performance, it cannot be said that only the civil court can exercise such a discretion. In the above case, Ms Ruma Pal, J. observed:

'... merely because the sections of the Specific Relief Act confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by a forum of their choice. If the converse were true, then whenever a relief is dependent upon the exercise of discretion of a court by statute e.g. the grant of interest or costs, parties could be precluded from referring the dispute to arbitration.'

We agree with this reasoning. We hold on Point 3 that disputes relating to specific performance of a contract can be referred to arbitration and Section 34(2)(b)(i) is not attracted. We overrule the view of the Delhi High Court. Point 3 is decided in favour of the respondents.

Recently, in B ooz Allen and Hamilton Inc. (Supra), the Supreme Court dealt with issues of disputes which are arbitrable. It held:

33. But where the issue of 'arbitrability' arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

34. The term 'arbitrability' has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:

(i) Whether the disputes are capable of adjudication and settlement by arbitration?

That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).

(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the 'excepted matters' excluded from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be 'arbitrable' if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.

35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

36. The well-recognised examples of nonarbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.)

38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.

42. The distinction between disputes which are capable of being decided by arbitration, and those which are not, is brought out in three decisions of this Court. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd (1999) 5 SCC 688, this Court held: (SCC pp. 689-90, paras 4-5)

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

5. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company.

That could obviously not be referred to arbitration and, therefore, the High Court, in our opinion was right in rejecting the application.' (emphasis supplied)

43. A different perspective on the issue is found in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651, where this Court considered whether an arbitrator has the power and jurisdiction to grant specific performance of contracts relating to immovable property. This Court held: (SCC p. 668, para 34)

'34. … We are of the view that the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree-with a view to shorten litigation in regular courts- to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act, 1996 which contained a prohibition relating to specific performance of contracts concerning immovable property.'

44. Approving the decision of the Calcutta High Court in Keventer Agro Ltd. (supra), this Court held that disputes relating to specific performance of a contract can be referred to arbitration and Section 34(2)(b)(i) will not be attracted. This Court held:

(Meena Vijay Khetan case (supr0}), SCC p. 669, para 36)

'36. Further, as pointed out in the Calcuttacase i.e. Keventer Ago Ltd (supra), merely because there is need for exercise of discretion in case of specific performance, it cannot be said that only the civil court can exercise such a discretion. In the above case, Ms Ruma Pal, J. observed:

‘… merely because the sections of the Specific Relief Act confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by a forum of their choice. If the converse were true, then whenever a relief is dependent upon the exercise of discretion of a court by statute e.g. the grant of interest or costs, parties could be precluded from referring the dispute to arbitration.’ '

This Court further clarified that while matters like criminal offences and matrimonial disputes may not be the subject-matter of resolution by arbitration, matters incidental thereto may be referred to arbitration: (Meena Vijay Khetan case (supra), SCC p. 669, para 35)

'35. … Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir’s case (supra). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter….'.

45. In Chiranjilal Shrilal Goenka v. Jasjit Singh, (1993) 2 SCC 507 this Court held that grant of probate is a judgment in rem and is conclusive and binding not only on the parties bu

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t also the entire world; and therefore, the courts alone will have exclusive jurisdiction to grant probate and an Arbitral Tribunal will not have the jurisdiction, even if consented to by the parties to adjudicate upon the proof or validity of the will. 46. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by the courts of law and not by Arbitral Tribunals. In view of the above judgments, the view of this court in B.K.Kapoor & anr and M/s Sharda Ginning Pressing & Oil Mills is not the correct view. The judgment in Olympus Superstructures (P) Ltd. (supra) was not brought to the notice of the court in the aforesaid cases. The other judgment in Booz Allen and Hamilton Inc. (Supra) came to be delivered recently. Therefore, the judgments relied upon by learned counsel for the respondent no longer hold good and are not a binding precedent. The judgment of the Company Court to order winding up is an order in-rem whereas; the order of dissolution of partnership is order in-personam. Therefore, Section 44 of the Act does not oust the jurisdiction of the arbitrator to consider the dissolution of the firm. In view of the above, the disputes between parties are required to be decided by an arbitrator. Shri U.B. Khanduja, former Additional District and Sessions Judge resident of H. No. 792-A, Sector 8, Panchkula is appointed as Arbitrator. He shall be entitled to fee as per Punjab and Haryana High Court (Arbitrator's Panel and Fee) Rules, 2011.
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