The allegation of forgery is something that would be gone into at the stage of trial before the Sole Arbitrator. I am not persuaded by the contention of respondent no. 1 that there has been a novation which has rendered the above Arbitration Application incompetent. The contention that the arbitration clause being a component of the contract, superseded by another by a novation as contemplated in Young Achievers (supra) would not apply to
the present case since the signature of respondent no. 1 appears on the Retirement Deed of 4th September, 2006 which signature has not been denied. Therefore I am of the view that the decision of Young Achievers (supra) is of no assistance to respondent no.1. {Para 21}
22. It is also pertinent that I make reference to the admissions in the affidavit in reply of respondent no. 1 which in paragraph 25 admits that he has “left the firm” long back and that he was not aware of the working of the firm and hence could not comment on the same. This was obviously an incorrect statement since it is respondent no. 1 who was handling bank account at the material time. He also goes on to incorrectly deny that he has been paid any amount more than his dues since it is his own case that Summary Suit has been filed against Mahaveer Corporation in which the applicant is also a partner. The respondent no. 1 reiterates in paragraph 25 of his affidavit that his account in respect of profit and loss of the firm after taking into consideration all current and future benefits were made up and
settled in 2007 and then “ I retired me from J. P. Enterprises” * Although there is a denial of having overdrawn a sum of Rs.5.53 crores, the fact remains that this is an aspect that needs to be gone into in the arbitration. All other aspects in the affidavit in reply pertain to the merits of the case and which are not relevant at this stage of appointment of an Arbitrator. *(sic)
23. Prima facie I am satisfied that there is an Arbitration Agreement and the dispute will have to be referred to arbitration.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION APPLICATION NO.483 OF 2019
Praful A. Mehta Vs Nainesh M. Gandhi and 3 Ors.
CORAM : A. K. MENON, J.
DATED : 21st FEBRUARY, 2022
1. This is an application under Section 11 of the Arbitration and
Conciliation Act, 1996 seeking appointment of a Sole Arbitrator in terms of
Arbitration Agreement embodied in a Deed of Partnership dated 19th June,
2004. The firm is said to have been dissolved pursuant to notice dated 27th
December, 2018 and the applicant one of the partners has invoked
arbitration vide letter dated 9th October, 2019.
Parties
2. The Applicant an individual claims as a partner of one J. P. Enterprises
a partnership firm having its registered office in Mumbai. Respondent nos. 1
to 4 are said to have been the other partners of the firm at the material time.
Respondent nos. 2 and 3 are also individuals. Respondent no. 3 however is
Karta and Manager of Dhiren N. Mehta HUF, Respondent no. 4 is a limited
company. All of whom are partners of the firms.
3. It is the Applicant’s case that the firm was initially constituted on
19th June, 2004 for carrying out the business of construction and
development of immovable property. Clause 23 of this deed of 19th June,
2004 contained an arbitration clause which provides for reference to
Arbitrators nominated by parties and a tribunal constituted under the
provisions of the Arbitration and Conciliation Act.
4. It is the case of the Applicant that in 2005 the constitution of the firm
underwent changes and Respondent no. 1 was admitted as partner.
Respondent no. 1 - Nainesh Gandhi is said to be Karta and Manager of
Nainesh Gandhi HUF. The partners of the reconstituted firm executed a Deed
of Partnership dated 1st April, 2005. Clause 24 of the Deed of 2005 contained
an arbitration clause providing for reference of disputes to a Sole Arbitrator
or to Arbitrators nominated by each contesting party and for those Arbitrators
to appoint a presiding Arbitrator. Under the said Deed there were five
partners two of whom are not parties to the present application. The
applicant, respondent no. 1 and respondent no. 3 were the remaining
partners under the 2005 Deed.
5. Thereafter the firm underwent a further change and reconstitution as
recorded under Partnership Deed dated 4th September, 2006 in which firm
the applicant and respondent nos. 1 to 3 to the present application and one
State Street Securities Pvt. Ltd. were partners. Reliance is placed on the said
Partnership Deed of 2006. While this partnership was at will, Clause 24
embodied an Arbitration Agreement. Under the deed of 2006 share of the
applicant was 35% and those of the respondent nos. 1, 2 and 3 were 10%,
15% and 25% respectively.
6. It is the Applicant’s case as canvassed by Mr. Purohit that the original
Partnership Deeds are not available with him. Only photocopies thereof are
available. Mr. Purohit submits that between 2004 to 2007 various businesses
were carried out by the the firm and the partners were entitled to their share
of profit. Respondent no. 1’s share was Rs.3,79,43,828/-. This amount was
said to have been drawn till March, 2008. However, it was found that
respondent no. 1 had drawn a sum of Rs.5.53 crores from the firms’ bank
account and upon ascertaining the share of respondent no. 1 in the
partnership, respondent no. 1 was found to have drawn in excess of
Rs. 2,31,15,500/- as of 6th August, 2007. On that date respondent no. 1 is
said to have transferred the said amount to one Mahaveer Corporation
wherein the applicant along with one Mr. Suresh Gaikwad and Mr. Pinakin
Shah were partners. The overdrawn amount was reflected in the balance
sheet of J. P. Enterprises. Mr. Purohit has relied upon Income Tax Returns of
J.P. Enterprises as well for the period 2007-08, 2008-09 and 2017-18 and as
late as 2018-19. These returns are believed to reflect the amounts
overdrawn by respondent no. 1.
7. Mr. Purohit submitted that respondent no.1, Mr. Nainesh Gandhi had
filed a Summary Suit No. 612 of 2018 in this court against the said Mahaveer
Corporation and its partners which included the applicant seeking recovery
of a sum of Rs. 2,31,15,000/- which was transferred to Mahaveer
Corporation by respondent no.1. In the Summary Suit respondent no. 1
claims that the amount was advanced for purchase of flats but was thereafter
converted to a loan. Thus he sought to recover the amount of loan advanced
to the firm. In that suit the current partnership J. P. Enterprises is not
impleaded. In an affidavit in rejoinder filed in the Summons for Judgment
while dealing with the contents of the applicant’s reply, respondent no. 1 had
apparently stated that all his accounts with J. P. Enterprises had been “squared
up” and that the credit/debit balances in J.P. Enterprises were reduced to “Nil”.
8. According to Mr. Purohit this was a wrong statement since respondent
no.1 had siphoned out funds from J. P. Enterprises and had not returned it.
Whether the amount was siphoned or not is not currently known since the
applicant himself is a partner in Mahaveer Corporation, the recipient of the
said funds. The application contains references to contents of the plaint and
the affidavit in rejoinder which Mr. Purohit has pressed into service to point
out that there is indeed a partnership arrangement between the parties to the
application and that in the ledger accounts in the books of J. P. Enterprises a
sum of Rs.5.53 crores approximately was shown payable by respondent no. 1
to the firm as of 31st March, 2018. Upon receiving this sum the amounts are
required to be distributed amongst other partners viz. applicant and
respondent nos. 2 to 4 and accordingly it is now necessary to proceed against
respondent no.1. The applicant intends to recover the amount by invoking
the Arbitration Clause embodied in the Partnership Deed of 2006. Mr.
Purohit submits that Arbitration was invoked vide letter dated 9th October,
2019 and three names were proposed of which a Sole Arbitrator was required
to be appointed.
9. Respondent no. 1 vide his reply dated 29th October, 2019 contended
that he had not signed the Partnership Deed dated 1st April, 2005, reiterated
that his accounts and that of J. P. Enterprises had been drawn up and settled
in 2007 and therefore there is no occasion to make him liable under the
Partnership Deeds. Mr. Purohit while canvassing the applicants case has
pointed out that the denial by respondent no. 1 is incorrect and dishonest,
inasmuch as he invites my attention to the fact that in the affidavit in
rejoinder filed in the Summons for Judgment respondent no. 1 has denied his
signature on the Partnership Deed dated 1st April, 2005 but has omitted to
mention how he became a partner in J.P Enterprises.
10. Secondly in the letter of 29thOctober, 2019 in response to invocation of
the Arbitration Agreement, respondent no. 1 did not specify the Deed under
which he was inducted as partner of the firm. He also did not mention his
share in the profits and losses. He contended that he had retired from the
firm and his accounts had been settled without reference to any document.
He also admitted that he had withdrawn his share in the capital account of
the firm as of 31st March, 2007 clearly acknowledging the fact that he was
indeed a partner. However, the fact that accounts had been settled and that
he owed nothing has not been established. The fact that he was a working
partner and handling the funds of the firm has not been disputed at any stage
and hence Mr. Purohit submitted that there is a obvious admission which
cannot be overlooked and cannot be brushed aside. The invocation of
arbitration therefore is good and he sought appointment of a Sole
Arbitrator.
11. Mr Purohit has placed reliance on the observations of the Supreme
Court in Vidya Drolia and Ors. vs. Durga Trading Corporation and Ors.1 in
support of his contention that there was an agreement in writing as between
respondent no. 1 and the others, in particular the applicant. The Arbitration
Agreement satisfies Section 10 of the Contract Act and Section 7 of the
Arbitration and Conciliation Act. He also relied upon decision of Pravin
Electricals Pvt. Ltd. vs. Galaxy Infra & Engineering Pvt. Ltd.2 in which the
Supreme Court held in paragraph 27 that the existence of an Arbitration
Agreement would involve a deeper consideration of a case. Pravin Electricals
1 (2021) 2 SCC 1
2 (2021) 3 SCJ 164
(supra) refers to the judgment of Vidya Drolia (supra) and the conclusion
that on a case to case basis one will have to consider whether an Arbitration
Agreement existed and then a deeper consideration of the case would be left
to the Arbitrator(s) who will examine the documentary evidence produced
and after witnesses were cross examined Mr. Purohit referred to the fact that
the Delhi High Court had appointed an Arbitrator and had requested the
Arbitrator to consider a preliminary issue as to whether an Arbitration
Agreement existed between the parties and go on to decide the merits, only if
such agreement is found to exist.
12. The application is opposed by Dr. Saraf on behalf of respondent no.1.
At the outset Dr. Saraf submits that the existence of the Arbitration
Agreement is not established. It is not admitted since the application does not
comply with the provisions of the Arbitration and Conciliation Act. A party
approaching this court under Section 11 is required to furnish and annex the
originals or certified true copies of the agreements or instrument containing
the arbitration clause, whereas in the present case what has been annexed is
neither the original nor a true copy of the Partnership Deed and therein the
annexures to the Arbitration application and the subsequent Deed dated
19th June, 2004 and 1st April, 2005 to which the respondent no. 1 is said to
be a party and the Partnership Deed dated 4th September, 2006 in which
respondent no.1 is said to be a party, but is not seen to have been executed by
him. Besides all are certified to be true copies of photocopies of the
agreement. Dr Saraf submits that respondent no.1 was not a party to the
Partnership Deed. He had not executed it and he reiterated the case of the
respondent no. 1 in his reply to the notice of invocation by contending that
the deeds in question have not been signed by his clients since the signatures
are clearly forged.
13. Dr. Saraf has invited my attention to the Respondent no. 1’s Advocates
letter dated 29th October, 2019 by which respondent no.1 disputed having
executed the Partnership Deeds. In paragraph 5 respondent no. 1 has dealt
with paragraph 1 of the applicants Advocate letter invoking arbitration. Dr
Saraf submitted that accounts have already been settled and the applicant is
unable to demonstrate that the Partnership Deed has indeed been executed.
According to Dr. Saraf the first Partnership Deed of 19th June, 2004 is of
relevance inasmuch as it is the case of the applicant that when the firm was
incorporated as J. P. Enterprises on 19th June, 2004, respondent no. 1 was not
a party. The only partners were one Praful Mehta, M/s. State Street Securities
Pvt. Ltd. and M/s. Bhuta Securities Pvt. Ltd. Since respondent no. 1 was not a
party to the said Partnership Deed, the Arbitration clause contained in Clause
23 of the Partnership Deed at Exhibit A was not binding on respondent no.1.
14. As far as second Partnership Deed of 1st April, 2005 is concerned Dr
Saraf submitted that he was never a partner in the firm upon its first
incorporation and hence there no liability in that behalf. Respondent no. 1
had denied his signature on the Partnership Deed. Dr. Saraf submitted that
the signature of respondent no. 1 was forged. He had never executed the
Partnership Deed and hence there is no question of being liable under clause
24 which provides for reference to arbitration. The third Partnership Deed of
4th September 2006 once again shows respondent no. 1 as a party but it is
evident from the face of the document that respondent no. 1 had not executed
it. In these circumstances Dr Saraf submitted that there is no case made out
against his client.
15. Inviting my attention to affidavit in reply of respondent no. 1 dated
14th May, 2020 Dr Saraf submitted that the application was merely a collusive
application as between the applicant and respondent nos. 2 to 4. The
affidavit reiterates the fact that respondent no. 1 had caused searches to be
taken in the office of the Registrar of firms and found that the firm J. P.
Enterprises had not been registered. He reiterated the fact that respondent no.
1 had not signed the alleged Deed of 4th September, 2006 and apparently
seeks to dissolve and reconstitute the firm.
16. Meanwhile Dr. Saraf had relied upon decision of the Supreme Court
Young Achievers vs. IMS Learning Resources Private Limited3 and invited my
attention to paragraph 5 in which the Supreme Court considered the survival
of an arbitration clause as between two agreements. According to Dr Saraf
there has been a novation and the invocation of Arbitration vide letter dated
9th October, 2019 proceeded on the basis that the partnership was dissolved
3 (2013) 10 SCC 535
vide letter dated 27th December, 2018. The notice makes mention of the Deed
of Partnership dated 19th June, 2004 read with subsequent dates ending with
Partnership Deed dated 4th September, 2006. Dr. Saraf submits that
respondent no. 1 was admittedly not a partner on 19th June, 2004 when J .P.
Enterprises was formed. The contention that respondent no. 1 was a party to
the second Partnership Deed dated 1st April, 2005 has been denied since
according to the respondent his signature appearing on the document is
forged and in any event it is the applicant’s case that the arbitration was being
invoked by virtue of the last deed dated 4th September, 2006 thereby
effectively contending that there was a novation and such a novated
agreement has not been signed by the respondent no. 1 and hence the
arbitration clause embodied in the Partnership Deed dated 4th September,
2006 is not binding on respondent no.1. It is in support of this contention
that he has relied upon the decision of Young achievers (supra) wherein the
court considered the survival of an arbitration clause as between two
agreements one dated 1st April, 2007 and one dated 1st April, 2010. The court
observed that an arbitration clause in an agreement cannot survive if the
agreement containing the Arbitration clause has been superseded or novated
by a later agreement. Reference must then be made to the arbitration clause
embodied in such later agreement.
17. Relying upon this observation of the Supreme Court in Young
Achievers (supra) Dr. Saraf invited me to hold that in the present case
novation is evident from the different Partnership Deeds that have been
pressed into service by the applicant and by virtue of the novation and the last
deed containing the arbitration clause had admittedly not been signed by
respondent no. 1 and therefore there is no arbitration agreement in existence.
On this basis learned counsel for the respondent no. 1 has invited me to hold
against the applicant.
18. Having heard the learned counsel for the parties and having perused
the record I am of the view that an Arbitrator is required to be appointed.
Even assuming there has been a novation, I am unable to accept the
contention that as a result of a novation the arbitration clause cannot be
invoked. In the facts of the present case I find that there is an unequivocal
admission on the part of respondent no. 1 to having been involved in the
partnership business. In paragraph 7 of his Advocates reply to the notice
invoking arbitration, respondent no. 1 has contended thus “profit and loss of
the firm were made up and settled in or about 2007 when you retired my
client from all your concerns and took charge of all projects from my client”.
This contention on behalf of respondent no.1 in its Advocates letter clearly
admits to the respondent no. 1 having been a partner not only of the present
concern J. P. Enterprises but also other concerns, probably including
Mahaveer Corporation to which I have made reference earlier.
19. This admission and the contention in paragraph 8 of respondent
no.1’s Advocate reiterating that accounts had been drawn up in 2007 and
hence there was no question of respondent no. 1 making payment or
discharging any alleged liability must be held against respondent no.1. All the
Partnership Deeds contain arbitration clauses. Respondent no. 1 has not
pointed out under which deed he was inducted as a partner and under which
deed he was made to retire. If it is his case that he was partner, it was
incumbent upon respondent no. 1 to disclose the document under which he
was inducted into the partnership business. The relationship between the
parties as partners at some point in time has not been disputed. It is the Deed
of Partnership dated 4th September, 2006 that the respondent no. 1 claims
that he has not signed. However Exhibit K to the Arbitration Application is a
Deed of Retirement also dated 4th September, 2006 in relation to the firm J. P.
Enterprises which evidences retirement of M/s. Bhuta Securities Pvt. Ltd. This
Deed of Retirement appears to have been signed by respondent no. 1. It is also
pertinent to note that in paragraph 2.19 (vi) the applicant has stated that on
4th September, 2006 a Deed of Partnership was executed by all other partners
except respondent no. 1 but a Deed of Retirement was also been executed on
the same date which was signed by respondent no. 1 as a continuing partner.
This is a clear indication of the fact that the 4th September, 2006 Partnership
Deed is admitted. Continuation of the partnership including respondent no. 1
as a partner is evident since he has been described as one of the continuing
partners in the said Deed of Retirement. The Deed of Retirement copy of
which appears at Exhibit K has not been denied by the respondent no. 1
reference being had to paragraph 31 of the affidavit in reply dated 14th May,
2020 filed by respondent no.1. In that affidavit while dealing with sub-paras
2.18 and 2.19 all that the respondent no. 1 states is that the applicant could
not invoke arbitration since it was barred. Without prejudice it is further
contended that all persons suggested by the applicant as Arbitrators are/or
have been, in one or the other way, connected with the applicant and all of
them have derived some benefits from the applicant. There is no allegation
of forgery as far as the Deed of Retirement is concerned.
20. Prima facie I find that the contentions of the respondent no. 1 cannot
be accepted since he has not explained under which Partnership Deed he was
inducted into the partnership. Secondly perusal of Exhibit B to the petition
reveals that the bank account of J. P. Enterprises was been operated by
respondent no. 1 and all these entries therein are attributed to operations by
respondent no.1. The address at which the firm was carrying on business is
shown to be the very address provided in the Partnership Deed viz. 99 Radha
Nivas, P. M. Road (North), Vile Parle (East), Mumbai-400 057. This address is
also to be found in the bank statement under the name of respondent no.1.
There is no joint holder shown in the account at that stage. Furthermore
copies of Income Tax Return for the year 2007-08 which has been furnished
reflect the name of the respondent no. 1 (HUF) with debit entry of Rs. 2.32
crores against his name and that is carried forward even as of 2017-18
where the opening balance in the partners current capital account for the
year 31st March, 2017 is shown against the name of respondent no. 1 is
shown to be Rs. 5.53 crores with profit share shown at 10% which is identical
to that disclosed in the Partnership Deeds. This debit balance is carried
forward to the next year and even as of 31st March, 2018 the same amount of
Rs.5.53 crores is showing as debit balance in the name of respondent no.1.
Thus prima facie it is evident that an Arbitration Agreement exists as between
the parties.
21. The allegation of forgery is something that would be gone into at the
stage of trial before the Sole Arbitrator. I am not persuaded by the contention
of respondent no. 1 that there has been a novation which has rendered the
above Arbitration Application incompetent. The contention that the
arbitration clause being a component of the contract, superseded by another
by a novation as contemplated in Young Achievers (supra) would not apply to
the present case since the signature of respondent no. 1 appears on the
Retirement Deed of 4th September, 2006 which signature has not been denied.
Therefore I am of the view that the decision of Young Achievers (supra) is of
no assistance to respondent no.1.
22. It is also pertinent that I make reference to the admissions in the
affidavit in reply of respondent no. 1 which in paragraph 25 admits that he
has “left the firm” long back and that he was not aware of the working of the
firm and hence could not comment on the same. This was obviously an
incorrect statement since it is respondent no. 1 who was handling bank
account at the material time. He also goes on to incorrectly deny that he has
been paid any amount more than his dues since it is his own case that
Summary Suit has been filed against Mahaveer Corporation in which the
applicant is also a partner. The respondent no. 1 reiterates in paragraph 25
of his affidavit that his account in respect of profit and loss of the firm after
taking into consideration all current and future benefits were made up and
settled in 2007 and then “ I retired me from J. P. Enterprises” * Although
there is a denial of having overdrawn a sum of Rs.5.53 crores, the fact
remains that this is an aspect that needs to be gone into in the arbitration. All
other aspects in the affidavit in reply pertain to the merits of the case and
which are not relevant at this stage of appointment of an Arbitrator.
*(sic)
23. Prima facie I am satisfied that there is an Arbitration Agreement and
the dispute will have to be referred to arbitration. In view of the above I pass
the following order :
(i) Petition is allowed in terms of prayer clause (a)
(ii) Shri Hormaz Daruwalla, Advocate is appointed as Sole Arbitrator to
adjudicate upon claims and counter claims, if any.
(iii) The learned Arbitrator is requested to file his disclosure statement
under Section 11(8) and Section 12(1) within three weeks with the
Prothonotary and Senior Master and provide copies to the parties.
(iv) Parties to appear before the Sole Arbitrator on a date to be fixed by him
at his earliest convenience.
(v) Fees payable to the Sole Arbitrator will be in accordance with the
Bombay High Court (Fee Payable to the Arbitrators ) Rules, 2018.
(vi) Application is disposed in the above terms.
(A. K. MENON, J.)
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