TaxTMI 
TaxTMI 
2008 (1) TMI 949
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 arising out of or concerning or in connection with or in consequence of or relating to this contract 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 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 ....