Arb.R.No.176 of 2023

``` IN THE HIGH COURT OF KERALA AT ERNAKULAM ``` ``` PRESENT ``` ``` THE HONOURABLE MR. JUSTICE G.GIRISH ``` ``` TUESDAY, THE 30[TH] DAY OF APRIL 2024 / 10TH VAISAKHA, 1946 ``` ``` AR NO. 176OF 2023 ``` ## **`APPLICANT:`** ``` SHIBU R, AGED 52 YEARS, SON OF RAMACHANDRAN NAIR, ABHISHEKAM, MAMOM, KIZHUVILAM P.O., KOONTHALLOOR, ATTINGAL, TRIVANDRUM DT-695104. REPRESENTED BY HIS POWER OF ATTORNEY, KUMARI VIJAYASREE, AGED 49 YEARS, WIFE OF SHIBU.R., RESIDING AT ABHISHEKAM, MAMOM, KIZHUVILAM P.O., KOONTHALLOOR, ATTINGAL, TRIVANDRUM DT-695104. ``` ``` BY ADVS. ``` ``` JACOB ABRAHAM KOCHUMOL KODUVATH ``` ## **`RESPONDENTS:`** - **`1 MANOJ MUYYODI, AGED 48 YEARS, SON OF RADHAKRISHNAN NAIR, KOONIKKAVIL HOUSE, PAPPANNOOR, MOONIYUR, VELIMUKKU SOUTH P.O. MALAPPURAM DT-676317.`** - **`2 PRAMOD KUMAR,AGED 46 YEARS, SON OF RAVEENDRAN NAIR, CHETTIKUNNEL HOUSE, MEENADOM P.O., KOTTAYAM DT686516.`** - **`3 M/S AUTO SPOT, REPRESENTED BY ITS MANAGING PARTNER, MANOJ MUYYODI, SON OF RADHAKRISHNAN NAIR, KOONIKKAVIL HOUSE, PAPPANNOOR, MOONIYUR, VELIMUKKU SOUTH P.O. MALAPPURAM DT-676317.`** ``` BY ADV K.ARJUN VENUGOPAL ``` ``` THIS ARBITRATION REQUEST HAVING COME UP FOR ADMISSION ON 09.04.2024, THE COURT ON 30.04.2024 DELIVERED THE FOLLOWING: ``` 2 Arb.R.No.176 of 2023 ## **G. GIRISH, J.** **-------------------------------------------Arb.R.No.176 of 2023 -------------------------------------------Dated this the 30[th] day of April, 2024** ## **O R D E R** The petitioner, one of the partners of the 3[rd] respondent partnership firm, has filed this request under Section 11(5) of the Arbitration and Conciliation Act, 1996 for the appointment of a sole arbitrator for the settlement of the disputes mentioned in Annexure3 plaint. 2. The 3[rd] respondent partnership firm was constituted by the petitioner and respondents 1 and 2, by virtue of a partnership agreement executed on 11.09.2017 with the objective of conducting a service and repair shop of four wheeler vehicles, wherein, mechanical work, electrical work, body work, wheel alignment and similar activities were proposed to be undertaken. The deed of partnership so executed by the petitioner and respondents 1 and 2 is produced as Annexure-I. Clause(16) of Annexure-1 contains the arbitration clause which reads as follows : ## “16). **ARBITRATION** Any dispute or difference of opinion that may arise between the partners, their representatives or heirs with regard to the accounts, profits and losses of the business or rights or liabilities of partners under this deed or in the event 3 Arb.R.No.176 of 2023 of dissolution of the firm or any matter relating to the firm shall be referred to arbitration and all the provisions of Indian Arbitration and Conciliation Act, 1996 shall apply.” 3. Alleging that respondents 1 and 2 committed various breach of terms of the partnership deed, misappropriation of funds, failure to settle accounts, etc., the petitioner sent a lawyer’s notice dated 11.06.2018 to respondents 1 and 2, dissolving the firm with effect from 11.06.2018. To the above lawyer’s notice, respondents 1 and 2 sent Annexure-2 reply notice through their lawyer, denying the allegations raised by the petitioner. Thereafter, the petitioner instituted Annexure-3 suit before the Sub Court, Tirur, seeking the relief of declaration that the partnership stood dissolved from 11.06.2018, and also for a direction to the defendants to settle the accounts of the partnership firm, from the commencement of the partnership till dissolution, and for giving the share of the plaintiff. The above suit was later on transferred to Commercial Court, Manjeri and it was re-numbered as C.S.No.31 of 2021. Respondents 1 and 2 filed written statement in the said suit referring to the arbitration clause in the partnership deed executed in between the parties, and also contending that the suit is liable to be dismissed for lack of jurisdiction in view of the above arbitration clause. Though respondents 1 and 2 had filed a petition under Section 8 of the 4 Arb.R.No.176 of 2023 Arbitration and Conciliation Act in the abovesaid suit, requesting for a reference of the issue for arbitration, they later on withdrew the above application. Thereafter, on the basis of an application filed by the petitioner, the above suit was permitted to be withdrawn. The petitioner then issued Annexure-5 lawyer’s notice, nominating an advocate practicing at Manjeri as the sole arbitrator to resolve the disputes between the partners. To the above lawyer’s notice, respondents 1 and 2 sent Annexure-6 reply notice, opposing the move on the part of the petitioner to proceed with the arbitration through the Arbitrator nominated by him. The petitioner thereafter, filed M.C.A.No.1 of 2022 before the Commercial Court, Tirur under Section 9 of the Arbitration and Conciliation Act, for a direction to the respondents to furnish security for Rs.18,24,000/- and also for an interim attachment in the event of failure on the part of respondents 1 and 2 to furnish security, as directed. He also sought an injunction restraining the respondents from alienating the ‘B’ Schedule articles mentioned thereunder. The Commercial Court, Tirur, as per order dated 18.11.2023, dismissed the above application filed by the petitioner, holding that the said court is not having jurisdiction to decide the above application. Referring to the withdrawal of Annexure-3 suit, the Commercial Court observed in 5 Arb.R.No.176 of 2023 the above order that, if a party voluntarily gave up his suit seeking the relief of dissolution of partnership and allied reliefs when defendants contended that the parties should be referred for arbitration, he cannot initiate arbitration proceedings independently for the same relief. It was further observed that Section 9 of the Arbitration and Conciliation Act is maintainable only at the instance of a person who will be able to initiate arbitration proceedings thereafter. The Commercial Court, by referring to the decision of this Court in **Kadeeja T.A v. R.K.Manjusha [2018 (2) KLT 145]** , observed that a suit for dissolution of partnership and for consequential settlement of accounts cannot be referred for arbitration. Now, in the present request filed under Section 11(5) of the Arbitration and Conciliation Act, 1996, the applicant seeks the relief of appointment of a sole Arbitrator for the settlement of disputes mentioned in Annexure-3 plaint, and existing among the parties to the above arbitration request, and also to grant such other reliefs, which the applicant may pray for. 4. Respondents 1 and 2 strongly opposed the relief sought for in this arbitration request, contending that the request for arbitration is prima facie not maintainable. According to respondents 1 and 2, after the withdrawal of Annexure-3 suit by the 6 Arb.R.No.176 of 2023 applicant, without obtaining leave from the court for the institution of a fresh suit, it is not possible for the applicant to seek the relief of reference of the matter for arbitration. It is the further contention of respondents 1 and 2 that, the relief of dissolution of partnership and the settlement of accounts which are to follow, cannot be considered in an arbitration proceedings. Referring to the decision of this Court in **Kadeeja T.A** supra, respondents 1 and 2 contended that the dissolution of partnership and the consequences flowing out like, settlement of accounts, etc., cannot be referred for arbitration as the question of discharge of liability and settlement of accounts would not arise unless the court decides that the partnership has to be dissolved. Upon the above grounds, respondents 1 and 2 seek a dismissal of this arbitration request. 5. Heard the learned counsel for the applicant and the learned counsel for the respondents. 6. The point to be decided is whether the request of the applicant for the appointment of a sole Arbitrator for the resolution of the dispute between the applicant and the respondents, can be allowed. 7. It is seen from paragraph No.2 of the statement of facts of this application as well as from the averments in Annexure-3 7 Arb.R.No.176 of 2023 plaint, that the applicant herein had issued a lawyer’s notice dated 11.06.2018 to respondents 1 and 2, dissolving the partnership firm w.e.f. 11.06.2018. The reason stated for resorting to such a step is that respondents 1 and 2 committed various breach of terms of the deed of partnership, like, misappropriation of funds, non-starting of account with a bank, failure to settle accounts or give the details of it to the petitioner, etc. As already stated above, the main relief sought for by the applicant in Annexure-3 suit is a declaration that the partnership stood dissolved from the date of notice, i.e., from 11.06.2018 onwards. As rightly pointed out by the learned counsel for respondents 1 and 2, the above relief of declaration of dissolution of the partnership, is not a matter which an Arbitrator could adjudicate. It is true that, clause (16) of Annexure-1 partnership deed contains specific provision for resolution of the disputes between the applicant and respondents 1 and 2 through arbitration. However, a reading of the above arbitration clause, which is extracted hereinbefore, would reveal that it encompasses two situations, wherein, the parties are given the option for taking recourse to arbitration. The first situation covers the disputes between the parties, which would arise before the dissolution of the partnership. The second part covers post-dissolution issues of the 8 Arb.R.No.176 of 2023 partnership, as per which any matter relating to the firm could be referred to arbitration, in the event of dissolution of the firm. As far as the present case is concerned, the applicant did not care to invoke the above arbitration clause at the time when the dispute or difference of opinion arose between him and respondents 1 and 2. Instead, he retorted to the issuance of a lawyer’s notice indicating that the partnership stood dissolved with effect from a particular date. Thereafter, he had approached the Sub Court, Tirur, seeking a declaration to the effect that the partnership stood dissolved with effect from that date. Now after the withdrawal of the above suit, the applicant wants the matter to be referred for arbitration for the purpose of resolving the disputes covered in the said suit. A reading of the statement of facts in the present application, as well as the averments in Annexure-3 plaint would reveal that the disputes involved in Annexure-3 suit are in fact the circumstances which led to the issuance of lawyer’s notice dated 11.06.2018 by the applicant to respondents 1 and 2, dissolving the partnership firm with effect from 11.06.2018. Going by the mandate contained in Section 44 of the Partnership Act, when one of the partners is aggrieved by the conduct of other partners prejudicially affecting the management and affairs of business of the firm, or wilful and persistent breach of 9 Arb.R.No.176 of 2023 agreement relating to the management of the affairs of the firm, then the remedy lies in the institution of a suit for dissolution of Partnership firm. Thus, the legal sanctity of the dissolution of the partnership firm is the cardinal issue sought to be resolved in the arbitration proceedings. As rightly observed by this Court in **Kadeeja T.A** supra, dissolution of partnership on the ground of breach of agreement of other partners, is a statutory remedy coming under the purview of a judgment in rem, and hence, it can be agitated only in a civil court. It really amounts to declaration of the status of a party. As observed by this Court in **Kadeeja T.A** supra, application for settlement of accounts and discharge of liabilities in respect of a partnership firm, are dealt with under Section 46 of the Partnership Act, which is really the consequence of a dissolution of partnership under Section 44 of the said Act. The settlement of accounts and discharge of liabilities, being the consequences flowing out of dissolution, cannot be referred for arbitration, as the question of discharge of liability and settlement of accounts, would not arise unless the court decides that the partnership has to be dissolved. When viewed in the above perspective, the present arbitration request moved by the applicant is prima facie unsustainable. 8. As already stated above, clause (16) of Annexure-1 10 Arb.R.No.176 of 2023 partnership deed deals with pre-dissolution and post-dissolution matters relating to the dispute between the partners. Now, as far as this case is concerned, the stage could neither be termed as predissolution stage nor post-dissolution stage, since the course adopted by the applicant dissolving the partnership firm by sending a lawyer’s notice dated 11.06.2018 to respondents 1 and 2, is yet to be approved by a competent forum. To put it otherwise, it is not possible for this Court to refer the issue for arbitration, before it is declared by a competent court having jurisdiction that the dissolution of the partnership firm is valid, or passes an order under Section 44 of the Partnership Act that the partnership firm shall be dissolved. When viewed in the above perspective, it is not possible to allow the prayer of the applicant for reference of the dispute to an Arbitrator. In the result, the Arbitration Request stands dismissed. Sd/- ## **G. GIRISH, JUDGE** vgd 11 Arb.R.No.176 of 2023 ## **`APPENDIX OF AR 176/2023`** ## **`PETITIONER’S ANNEXURES`** ``` ANNEXURE 1PARTNERSHIP DEED DATED 11.9.2017 ANNEXURE 2REPLY NOTICE DT 30.6.18 SENT BY THE COUNSEL FOR R1 & R2 ANNEXURE 3PLAINT FILED IN O.S. NO.71/2018 BEFORE THE SUB COURT, TIRUR ANNEXURE 4WRITTEN STATEMENT FILED BY R1 & R2 IN O.S. NO.71/2018 BEFORE THE SUB COURT, TIRUR ANNEXURE 5PETITIONER'S NOTICE DATED 8.2.2023 TO RESPONDENTS ONE AND TWO. ANNEXURE 61ST RESPONDENT’S REPLY DT 14.2.23 TO ANNEXURE-5 ANNEXURE 7POWER OF ATTORNEY EXECUTED BY PETITIONER TO KUMARI VIJAYASREE RESPONDENT’S ANNEXURES ANNEXURE R1(A)TRUE COPY OF ORDER PASSED BY THE HON'BLE COMMERCIAL COURT OF TIRUR ON 18.11.2023 IN MCA NO. 1/2022. ```