% Judgment Reserved on: Judgment delivered on: IA No /2009 in CS(OS) No. 1275/2009

Transcription

1 * THE HIGH COURT OF DELHI AT NEW DELHI % Judgment Reserved on: Judgment delivered on: IA No /2009 in CS(OS) No. 1275/2009 RAMESH KUMAR JAIN... Plaintiff Vs SANDEEP JAIN & ORS.... Defendants Advocates who appeared in this case: For the Plaintiff For the Defendants : Mr S.C. Maheshwari, Sr. Advocate with Mr M.P.S. Tomar & Mr Jabar Singh, Advocates for the Plaintiff. : Mr Sudhir Nandrajog, Sr. Advocate with Mr Laliet Kumar & Mr Deepak Vohra, Advocates for the Defendant nos. 1&2. Ms Sandhya Goswami & Ms Nikhar Berry, Advocates for defendant no. 3. CORAM :- HON'BLE MR JUSTICE RAJIV SHAKDHER 1. Whether the Reporters of local papers may be allowed to see the judgment? No 2. To be referred to Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes RAJIV SHAKDHER, J IA No /2009 [u/s 8(1) of the Arbitration & Conciliation Act, 1996 by Defendant nos. 1 & 2] 1. In order to dispose of the captioned application it may be necessary to note certain prefatory facts which, in my view are necessary to appreciate the stand taken by the parties in the present proceedings. 2. There are broadly two warring groups. At one end the plaintiff Mr Ramesh Kumar Jain and his 37 years old divorced daughter Monica Jain, i.e., defendant no. 3; on the other are two disconsolate sons Sandeep Jain (defendant no. 1) and Pankaj Jain (defendant no. 2). The disputes pertain to various assets and properties which are owned by the Jain family. The plaintiff/mr Ramesh Kumar Jain has averred that he inherited a family business, which delved in, the manufacture, purchase and sale of chemical and CS(OS) Page 1 of 11

2 chemical plants. The partners in the firm at the relevant point in time were the plaintiff Mr Ramesh Kumar Jain, his father Ram Kishan Jain and two sons of his brother Mohinder Jain, i.e., Ajay Jain and Sanjay Jain. The business was run under the name and style of Jainco Industry. The abovementioned persons shared their profits and losses in the following ratio: Name Profit Loss 1. Ram Kishan Jain 30% 1/3 rd 2. Ramesh Kumar Jain 30% 1/3 rd 3. Ajay Jain } sons of Mohinder 20% 1/3 rd 4. Sanjay Jain } Sain Jain 20% Nil 2.1 The aforesaid broad arrangement purportedly is reflected in the partnership deed dated In April, 1982 the partnership firm Jainco Industry it is stated to have brought within its fold, the business of manufacture of LPG gas stove. On , it appears there was a reconstitution in the partnership firm. The reconstitution resulted in the father of the plaintiff, i.e., Ram Kishan Jain retiring from business. Ajay Jain, the other partner, had left for USA. His father Mohinder Jain joined the business. According to the plaintiff/mr Ramesh Kumar Jain he was the key functionary in the partnership firm Jainco Industry, and consequently at the relevant point of time had 50% share in the business. It appears that disputes had arisen in the family. Consequent thereto, the disputes were amicably settled. This resulted in the passing of an arbitration award of August, It is the plaintiff s/mr Ramesh Kumar Jain s stand that in accordance with the award of August, 1987 the following assets fell to his share: (i) The firm Jainco Industry together with its goodwill, business assets and liabilities as on ; (ii) The firm Sales Continental together with its good will, business assets and liabilities as on ; (iii) Proprietary and lease hold rights in property No. E-43, Okhla Industrial Area Phase II, New Delhi; (iv) Trade name/mark HOT POINT for marketing gas/cooking stove/range; (v) Trade name/mark CHETAK in relation to gas/cooking stove/range in common with Shri Mohinder Sain Jain and family provided it is also mentioned CS(OS) Page 2 of 11

3 on the item that the said item is manufactured by Jainco Industry/Sales Continental, Okhla Industrial Area Phase II, New Delhi. 2.2 On , the plaintiff says, he executed a partnership deed qua Jainco Industry, whereby he acquired 50% share, while his daughter Alka Jain and son Sandeep Jain (defendant no. 1) acquired 25% share each in the partnership firm. This he says was only an arrangement for the purposes of accounting since at the relevant time both his children were minors. The business was effectively carried out by the plaintiff/mr Ramesh Kumar Jain. The partnership was reconstituted on , whereby the plaintiff s youngest son Pankaj Jain (defendant no. 2) and youngest child Monica Jain (defendant no. 3) were also inducted as partners. 2.3 On there was once again a change in the constitution of the partnership firm Jainco Industry. The firm was reconstituted; the partners in Jainco Industry were: plaintiff/mr Ramesh Kumar Jain, Pankaj Jain (defendant no. 2) and Monica Jain (defendant no. 3). Alka Jain had retired from partnership w.e.f At the relevant time the plaintiff/mr Ramesh Kumar Jain had 45% shares, Pankaj Jain (defendant no. 2) had 35% shares, and Monica Jain (defendant no. 3) had 20% shares. 2.4 On the plaintiff and his sons constituted another partnership firm in the name and style of Jainco Paints and Chemicals to run and manage its newly set up factory at Sahibabad Industrial Area. The plaintiff s/mr Ramesh Kumar Jain s share in the said firm is 20%. 2.5 A third partnership firm was set up in the name and style of Jainco Chemicals on The partners in the said firm were Ramesh Kumar Jain, HUF and Sandeep Jain (defendant no. 1) each having 50% share. 2.6 In nut shell the Jain family has undisputedly, its business spread out in three partnership firms, namely, Jainco Industry, Jainco Paints and Chemicals and Jainco Chemicals. In Jainco Industry by virtue of the partnership deed dated the plaintiff/mr Ramesh Kumar Jain alongwith his daughter Monica Jain (defendant no. 3) claims 65% share, while defendant no. 2/Pankaj Jain holds the balance 35% share. This is CS(OS) Page 3 of 11

4 of course disputed by the contesting defendant nos. 1 and 2 who say that the plaintiff has only 50% share. A stand which is recorded in hearing held before me on In Jainco Chemicals the plaintiff/mr Ramesh Kumar Jain HUF, which plaintiff represents as Karta, has 50% share, while the balance 50% share is with Sandeep Jain (defendant no. 1). In Jainco Paints and Chemicals the plaintiff/mr Ramesh Kumar Jain has only 20% share. The shareholding in Jainco Chemicals and Jainco Paints and Chemicals is not disputed by defendant nos. 1 and 2 (See order dated ). As indicated above, the dispute is only with respect to the share in Jainco Industry. 3. This is as far as the broad facts with respect to the three partnership firms are concerned. The plaintiff has averred in paragraph 13 of the plaint that in 1992 he had purchased a SFS DDA Flat No. 61, South Park Apartment, Kalkaji, New Delhi (in short flat no. 61 ) in the name of his wife Pushpa Jain. The plaintiff says that he had temporarily moved out of the said flat for the purposes of renovation in the year 2006 and, shifted into a newly purchased flat no. 127, South Park Apartment, Kalkaji, New Delhi (in short Flat no. 127 ), in the same complex. The plaintiff says that he had spent more than Rs. 20 lacs in renovating flat no. 61 which is presently forcefully occupied by Sandeep Jain (defendant no. 1). In the course of argument there has been some reference on behalf of the plaintiff that he wishes to re-occupy the flat no. 61 and for that purpose a request has been made to Sandeep Jain (defendant no. 1), who has refused to oblige. 4. Apart from the above, there are averments in the plaint with regard to misappropriation of funds by defendant nos. 1 and 2 as also misappropriation of properties including vehicles registered in the name of the firms. There is a specific averment that the defendant nos. 1 and 2 have, out of the funds siphoned from the firms, set up a separate factory at Pune. The allegations in respect of misappropriation of funds and properties are contained in paragraphs 21 to 29 of the plaint. 4.1 The sum and substance of these allegations is that the plaintiff, who was the main protagonist of the family business, has today been rendered helpless and reduced to almost penury by none other than his own, i.e., sons, that is, defendant nos. 1 and 2. CS(OS) Page 4 of 11

5 5. The plaintiff/mr Ramesh Kumar Jain has briefly touched upon his travails which include the fact that he is carrying on with a disfunctional kidney which requires him to be on dialysis; he has to bear the monetary and emotional burden of his daughter who is suffering from cancer, which is in its fourth stage, having spread to her ovary, rectum, liver and pelvic region; he has to ensure that sufficient funds are garnered to enable his daughter to pursue her doctorate in economics in USA, the cost for which evidently is Rs lacs per academic session; and lastly, he has to look after the interest of his wife Pushpa Jain in his present enfeebled state and advancing age. 6. It is because of these circumstances that the predecessor Judge had passed orders from time to time to give succour to the plaintiff in his hour of need. 6.1 The plaintiff today requires a quick resolution of his disputes as perhaps the time is not on his side. The contesting defendant nos. 1 and 2 eventhough apparently are not averse to an arbitration; which is the reason why I would assume, that they are pressing the captioned application they however outrightly reject the suggestion for resolution through arbitration in respect of matters which are not within the ken of the aforementioned partnership firms. It is in this context I have to examine the stand taken by the contesting parties. 7. Mr Sudhir Nandrajog, learned senior counsel assisted by Mr Laliet Kumar, Advocate appearing for defendant nos. 1 and 2 made a very short and pointed submission. The learned senior counsel submitted that in view of the fact that the disputes pertain to the aforementioned three partnership firms, each of which in their respective partnership deed contain an arbitration clause; this court has no jurisdiction to proceed further with the suit. The learned senior counsel buttressed his submission by relying upon the provisions of Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Arbitration Act ). In support of his submissions he referred to the observations made by the Supreme Court in the following judgments: Hindustan Petroleum Corp Ltd vs Pinkcity Midway Petroleums (2003) 6 SCC 503 at page para 14, Kalpana Kothari (Smt) vs Sudha Yadav (Smt) & Ors (2002) 1 SCC 203 at page para 8 and Branch CS(OS) Page 5 of 11

6 Manager, Magma Leasing and Finance Limited & Anr vs Potluri Madhavilata & Anr (2009) 10 SCC 103 at page para Let me say at the outset that the law as of now seems to be settled that where there is an arbitration agreement obtaining between parties, and an action is pending before a judicial authority in respect of a matter, which is also the subject of the said arbitration agreement, then if the party, which seeks to rely upon the said arbitration agreement, applies to the judicial authority before submitting his first statement on the substance of the dispute, the judicial authority shall have no discretion but to relegate the parties to an arbitration. Such is the mandate of Section 8 of the Arbitration Act which is fortified by the provisions of Section 5 of the Arbitration Act. Therefore, in order to trigger the provisions of Section 8 of the Arbitration Act, which, as I have indicated above are mandatory, the pre-requisites contained therein have to be fulfilled. For this purpose I need not look any further than rely upon the judgments of the Supreme Court in the case of P. Anand Gajapati Raju vs PVG Raju (2000) 4 SCC 539 para 5 at page 542. The Supreme Court in the said case has observed that while the language of Section 8 of the Arbitration Act is peremptory, that is, a reference is mandatory; it is, however, subject to the fulfillment of the conditions contained therein before parties can be relegated to a arbitral forum. The conditions paraphrased in the said judgment are briefly as follows: (i) (ii) there is in place an arbitration agreement; the party which has brought the action to court is a party to the arbitration agreement; (iii) that the subject matter of the action is the same as the subject matter of the arbitration agreement; and, (iv) lastly, the applicant/party, which seeks a direction from the court that parties should be relegated to arbitration, should move the court before submitting his first statement on the substance of the dispute. (Also see observations of the Supreme Court in the case of Sukanya Holdings (P) Ltd. vs Jayesh H. Pandya & Anr (2003) 5 SCC 531 paras 12 to 16 at pages ) CS(OS) Page 6 of 11

7 8.1 Apart from the above, of course the other condition contained in sub-section (2) of Section 8 of the Arbitration Act, which is, that the original arbitration agreement or a duly certified copy of the same should accompany the application filed under sub-section (1) of Section 8 of Arbitration Act, is also undoubtedly a pre-requisite. Since in the instant case, there evidently is no dispute with regard to the fact that there is an arbitration clause in each of the partnership deeds pertaining to the three partnership firms referred to above, I need not detain myself in examining this condition. The reason being that even though this condition is not strictly fulfilled by the applicant, since the plaintiff/non-applicant has not disputed the existence of the same, I would take it that the condition is fulfilled. 8.2 This brings me to the other conditions referred to above. There is no dispute that the defendant nos. 1 and 2/applicants have not filed their first statement on the substance of the dispute. Therefore, this condition is also stands fulfilled; which practically leaves me with the remaining two conditions whether the parties, which has brought to an action to the court is a party to the arbitration agreement and whether the subject matter of the action in court is the same as the subject matter of the arbitration agreement. In so far as the plaintiff is concerned it is definitely a party to the arbitration agreement, which finds mention in the partnership deeds. The plaintiff, however, has impleaded defendant no. 3, who, on the return of notice on had taken a stand before the court that she is supporting the plaintiff and does not wish to file a written statement. In sum and substance she is really a plaintiff in the present suit. In the present application defendant nos. 1 and 2 have averred that vide dissolution deed dated , Monica Jain (defendant no. 3) had retired from the business of Jainco Industry, a fact which according to them has been concealed, as also the factum of reconstitution of the firm vide partnership deed dated As per the defendant nos. 1 and 2 in so far as the partnership firm under the name and style of Jainco Industry is concerned, it is governed by clause 13 of the partnership deed dated which reads as follows: That in case of any dispute arising between the partners, the same shall be referred to an arbitrator duly appointed by both the partners whose decision CS(OS) Page 7 of 11

8 shall be final and binding on both the partners as per the provisions of the Indian Arbitration Act. 8.3 It is the say of the defendant nos. 1 and 2 that by virtue of partnership deed dated in Jainco industry have only two partners, that is, the Plaintiff Ramesh Kumar Jain and Pankaj Jain (defendant no. 2). The question would then arise as to whether it would include, on their own stand, Monica Jain, who had retired as a partner from Jainco Industry. As opined by me above Monica Jain is really a plaintiff in the suit, even though she is impleaded as defendant no. 3. It is debatable whether Monica Jain (defendant no. 3) is bound by clause 13 of the partnership deed referred to hereinabove. But then I would in the present situation perhaps give benefit of doubt to the defendant nos. 1 and 2 in as much as that Section requires the court to look only at the plaintiff and determine as to whether the plaintiff is a party to the arbitration agreement. If the court is required only to look at the plaintiff then, as indicated by me hereinbefore, this condition also stands fulfilled. 8.4 This brings me to the last condition as to whether the subject matter of the action in court is the same as that which is encapsulated in the arbitration agreement. For this purpose, in my view, the averments in the plaint would require a closer look. In paragraph 21 of the plaint there is a specific averment to the following effect: The entire property of the partnership, whether brought in at the time of constitution of the partnership or acquired in the course of the business of the partnership, would constitute the property of the firm. All partners, including the plaintiff, are entitled to an undefined share in such property He has also a share in the factory set up at Pune. 9. Apart from the above, as noticed hereinabove, in paragraph 13 of the plaint there is a reference to the two flats being flat no. 61 and 127 located at South Park Apartment, Kalkaji, New Delhi. Similarly, in paragraph 27, which succeeds averments made in paragraph 26 (where there is a reference to the three partnership firms as well as the respective shares of parties in the said firms) a specific and pointed allegation is made that defendants have set up a factory at Pune out of the money siphoned from the business. In paragraph 28 of the plaint a reference is made to various vehicles owned by the partnership firm. In paragraph 29 a specific allegation is made with regard to funds being CS(OS) Page 8 of 11

9 siphoned by defendant no1 to the tune of Rs 1.79 crores and by defendant no. 2 to the tune of Rs lacs by showing disproportionate expenses under the head salary and marketing commission respectively. In the prayer clause apart from seeking a decree of dissolution vis-à-vis the three partnership firms and rendition of accounts, the plaintiff has specifically asked for a share in the factory set up in Pune by defendant nos. 1 and 2. During the pendency of the suit the plaintiff has also moved application (IA No /2009) under Order 6 Rule 17 of the Code of Civil Procedure, 1908 (hereinafter referred to as CPC ) to bring forth clearly what he claims are averments in regard to properties which ostensibly do not form part of the partnership business but are purchased out of the partnership business for their inclusion in the suit. Another application (IA No /2009) under Order 1 Rule 10 of CPC has also been filed by the plaintiff to implead his wife Pushpa Jain as a party to the present proceedings. I am, however, presently not concerned with these two applications filed by the plaintiff. These applications have been mentioned only to complete the narration of events so as to bring to fore the nature and the extent of the dispute between two warring groups. 10. A perusal of the averments made by the plaintiff, even though disbursed, leaves no doubt in my mind that the subject matter of the action in court has a much larger scope and consequently effect, than what is envisaged under the arbitration agreement. This is discerned not by reading the plaint literally but by reading the plaint meaningfully to ascertain as to what is the scope and extent of his grievance and the relief sought for in the plaint. In this regard the observations of the Supreme Court in the case of Begum Sabiha Sultan vs Nawab Mohd. Mansur Ali Khan & Ors. (2007) 4 SCC 343 at page being relevant are extracted hereinbelow: 10. There is no doubt that at the stage of consideration of the return of plaint under Order 7 Rule 10 of the Code, what is to be looked into is the plaint and the averments therein. At the same time, it is also necessary to read the plaint in a meaningful manner to find out the real intention behind the suit. In Moolji Jaitha & Co. vs Khandesh Spg. & Wvg. Mills Co. Ltd. the Federal Court observed that: (AIR p. 92, para 24) CS(OS) Page 9 of 11

10 The nature of the suit and its purpose have to be determined by reading the plaint as a whole. It was further observed: (AIR p. 92, para 25) The inclusion or absence of a prayer is not decisive of the true nature of the suit, nor is the order in which the prayers are arrayed in the plaint. The substance of object of the suit has to be gathered from the averments made in the plaint and on which the reliefs asked in the prayers are based. It was further observed: (AIR p. 98, para 59) It must be borne in mind that the function of a pleading is only to state material facts and it is for the court to determine the legal result of those facts and to mould the relief in accordance with that result The plaintiff, as is clear, not only seeks dissolution and rendition of accounts of the three partnership firms but also seeks a share in other properties which, according to him, has been bought out of the funds which belong to the partnership firms. In that context the plaintiff has touched upon the two flats at Kalkaji, the factory set up by the defendant nos. 1 and 2 at Pune out of the funds siphoned from the aforementioned firms, the vehicles etc. and other assets. If that be the position then this application must fail as it evidently does not fulfill the pre-requisite of Section 8 of the Arbitration Act. Moreover, relegating parties in such circumstances to arbitration would be, in my view, an exercise in futility as it would leave disputes unresolved which clearly subsist between the two warring groups. Accordingly, in my opinion, the application deserves to be dismissed. It is ordered accordingly. CS(OS) 1275/ In view of the circumstances noted above, I am of the opinion that this is a fit case in which power conferred on the court under Section 89 of the CPC ought to be exercised as there are decidely elements of settlement obtaining in the suit. 12. I have come to this conclusion; in view of the fact that while both the parties are not averse to being relegated to an arbitration, they differ on what could be referred to an arbitrator for adjudication. In this regard reference may be had to the proceeding held on While the plaintiff claims that the adjudication or settlement ought to be with CS(OS) Page 10 of 11

11 respect to the entirety of what forms part of the assets of the three partnership firms and that which is bought out of the partnership assets; the defendant nos. 1 and 2 for the reasons best known to them seek to confine it only to the assets of the aforementioned partnership firms. In these circumstances, given the purpose for which the Parliament has enacted Section 89 of CPC, it would in my view enure to the benefit of all parties if this court were to take recourse of the provisions of Section 89 of the CPC along with powers contained in Order 10 of CPC. Accordingly, it is directed that the parties shall remain present in the court on the next date of hearing, i.e, FEBRUARY 17, 2010 kk RAJIV SHAKDHER, J CS(OS) Page 11 of 11