2013 (4) TMI 332 - HC - Companies Law

Arbitration agreement in partnership deed remains binding post award

The court held that the arbitration agreement recorded in the partnership deed dated 24th April 2000 continued to exist and was binding on both parties ... Scope of Arbitration agreement - Whether arbitration agreement recorded in partnership deed dated 24th April, 2000 entered into between the parties is exhausted and ceased to have effect on declaration of the award dated 25th June, 2007 made by the Arbitral Tribunal in the earlier proceedings and if the same is not exhausted whether dispute now having arisen between the parties can be referred to arbitration under the said arbitration agreement? - Held that:- On perusal of the prayers setout by the learned arbitrator in para (7) of the said award, it is clear that the respondent himself had sought a declaration that Mr.Mahendra Thakkar, opponent no.5 in the said proceedings be declared as senior partner of the firm as setout in clause 10(a) of the said partnership deed dated 24th April, 2000. The respondent had also prayed for expulsion of the applicants herein from the said firm w.e.f. 22nd August, 2003 and on 1st October, 2003 in view of the alleged breaches of partnership deed as contemplated under clause 9(a) and 9(b) of the said partnership deed dated 24th April 2000. The respondent had also applied for resolution of dispute between the parties on the basis of the arbitration agreement recorded between the parties in the said deed of partnership dated 24th April, 2000. It is not the case of the respondent that there existed any other arbitration agreement between the parties other than the arbitration agreement recorded in the said deed of partnership dated 24th April, 2000. These findings of fact recorded by the learned arbitrator in the said award dated 25th June, 2007 are final and binding. Thus the respondent himself having invoked arbitration clause under the same partnership deed dated 24th April, 2000 which culminated in the said award, which proceedings were filed after 2000, respondent cannot be permitted to raise a plea that the terms and conditions of the partnership deed including arbitration agreement ceased to exist in view of the parties not having executed a fresh partnership deed after 24th April, 2000. From the arbitration proceedings initiated by the respondent himself which culminated in award, it is clear that the rights and obligations of the parties under the said deed of partnership dated 24th April, 2000 including arbitration agreement continued. The respondent has acted upon the said arbitration clause and had demanded various reliefs based on the provisions of the said partnership deed. It is not in dispute that the learned arbitrator has rendered a finding that the partnership business continued on the basis of the said partnership deed. Mr.Mahendra Thakkar also stood retired from the partnership under clause 12(a) of the said partnership deed dated 24th April, 2000 on attaining the age of 65 years in the financial year 2006-07. Thus respondent cannot be permitted to blow hot and cold at the same time. It is not in dispute that the respondent himself has applied for expulsion of the applicants of the said partnership by relying upon clause 9(a) and (b) of the said partnership deed dated 24th April, 2000 in the said arbitration proceedings. The perusal of the Memorandum of Understanding and the Consent Terms relied upon by both parties would indicate that the Consent Terms dated 8th September, 2005 were arrived at between the parties in the proceedings filed under section 9 by the applicants. Perusal of various letters addressed by the respondent to the applicants annexed to the affidavit dated 23rd November, 2012 in Arbitration Petition No. 856 of 2012 makes it clear that the arbitration agreement is not exhausted and continued to be in force and binding on both parties. The respondent himself has repeatedly referred to such arbitration agreement and proceedings initiated by the applicants by letter dated 26th September, 2009. The respondent refused to comply with various requisitions of the applicants by categorically inviting the attention of the applicants to the existence of such arbitration agreement and by repeatedly contending that all such disputes were subject matter of arbitration. The question as to whether profit and loss ratio of the partners remain the same that was recorded in the said partnership deed or was revised and if so, at what rate and distribution of the profit and withdrawal of capital account, disbursement of expenses etc. would be a dispute in connection with the partnership or the said partnership deed which can be referred to arbitration in terms of the said clause. Thus not inclined to accept the submission made by the respondent that the Memorandum of Understanding and the Consent Terms entered into between the parties after execution of the partnership deed dated 24th April, 2000 shall be read in isolation or that the said two documents signed by the parties were in substitution of the partnership deed. The applicants in the present application have prayed that the arbitrator be appointed on behalf of the respondent or in the alternative to appoint Mr.Justice S.K.Shah, former Judge as the sole arbitrator. In view of the fact that the respondent has not agreed to appoint any arbitrator and did not agree to the name of Mr.Justice S.K.Shah, former Judge of this Court as arbitrator, Mr.Justice J.P.Devadhar, former Judge of this Court is appointed as an arbitrator on behalf of the respondent. Both the learned arbitrators are requested to appoint the presiding arbitrator in accodance with the provisions of the Arbitration and Conciliation Act, 1996. Issues Involved:1. Existence and validity of the arbitration agreement post the arbitral award dated 25th June 2007.2. Applicability of the partnership deed dated 24th April 2000 after the arbitral award.3. Whether the disputes arising post the arbitral award can be referred to arbitration under the same arbitration agreement.4. Appointment of arbitrators for the current disputes.Detailed Analysis:1. Existence and Validity of the Arbitration Agreement Post the Arbitral Award:The core issue was whether the arbitration agreement recorded in the partnership deed dated 24th April 2000 continued to exist after the arbitral award dated 25th June 2007. The respondent argued that the arbitration agreement ceased to exist following the award, which required the execution of a fresh partnership deed. However, the court found that the arbitration agreement recorded in the partnership deed continued to exist and was binding on both parties. The respondent himself had invoked the arbitration clause under the same partnership deed, which culminated in the award. The court held that the arbitration agreement was not exhausted and continued to be in force and binding on both parties.2. Applicability of the Partnership Deed Dated 24th April 2000 After the Arbitral Award:The respondent contended that the partnership deed dated 24th April 2000 ceased to exist after the arbitral award, which directed the execution of a fresh partnership deed. The court, however, found that the partnership business continued under the said partnership deed. The Memorandum of Understanding and Consent Terms entered into between the parties subsequently did not supersede the provisions of the partnership deed. The court observed that the parties continued to operate the business under the terms of the partnership deed, and the arbitration agreement recorded therein remained effective.3. Whether the Disputes Arising Post the Arbitral Award Can Be Referred to Arbitration:The court addressed whether the disputes arising after the declaration of the arbitral award could be referred to arbitration under the existing arbitration agreement. It was held that successive references to arbitration under the same arbitration agreement are permissible if the clause exists. The court noted that the disputes which were the subject matter of the current arbitration were separate and distinct from those in the earlier arbitration proceedings. The court relied on several judgments, including those of the Supreme Court and the Calcutta High Court, to support the view that successive references to arbitration are permissible.4. Appointment of Arbitrators for the Current Disputes:The applicants sought the appointment of an arbitrator on behalf of the respondent or, alternatively, that Mr. Justice S.K. Shah (retired) be appointed as the sole arbitrator. The court noted that the respondent had refused to appoint an arbitrator. Consequently, the court appointed Mr. Justice J.P. Devadhar (retired) as an arbitrator on behalf of the respondent. Both the appointed arbitrators were requested to appoint the presiding arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996.Conclusion:The court concluded that the arbitration agreement recorded in the partnership deed dated 24th April 2000 continued to exist and was binding on both parties. The disputes arising post the arbitral award could be referred to arbitration under the same arbitration agreement. The court appointed arbitrators for the current disputes and directed them to appoint the presiding arbitrator. The application was disposed of accordingly, with no order as to costs.