- (1.) The petitioners seek reference of the disputes relating to a partnership firm to arbitration. THE petitioners say that the respondents have siphoned off funds by causing interest-free loans to be made available from the till of the partnership firm to the near relatives of the respondents. THE petitioners claim that upon the petitioners' refusal to approve the accounts prepared by the respondents, the partnership accounts have been unilaterally prepared and filed by the respondents.
(2.) The respondents do not dispute the existence of the arbitration clause contained in the partnership deed. THE respondents say that they have instituted a suit in the City Civil Court complaining of the illegal acts and conduct of the petitioners herein. THE respondents submit that upon an application under section 8 of the Arbitration and Conciliation Act, 1996 being allowed in respect of the suit, being TS No.2962 of 2007, such judgment of December 10, 2008 has been challenged in proceedings under Article 227 of the Constitution and certain interim orders have been passed therein. THE respondents refer to the recent judgment of the Supreme Court (N. Radhakrishnan vs. Maestro Engineers and Ors., 2010 1 SCC 72) where it has been held that if a matter involves substantial questions relating to facts which would entail detailed material evidence (both documentary and oral) and where serious allegations pertaining to fraud and malpractice have been raised, then the matter ought to be tried in a Court rather than before an arbitrator. THE facts as noticed by the Supreme Court in that case related to the alleged retirement of one of the partners from the firm following a discussion between the partners. THE Supreme Court held that the disputes between the parties were covered by the arbitration agreement but relied on judgments [Abdul Kadir Samsuddin Bubere vs. Madhav Prabhakar Oak, 1962 AIR(SC) 406) and (Haryana Telecom Limited vs. Sterlite Industries(I) Limited, 1999 5 SCC 688] and a judgment of the Madras High Court to hold that where serious charges alleging malpractice in account books and manipulation of finances of a partnership firm have been made, such matter "cannot be properly dealt with by the arbitrator." In the present case, the disputes raised by the petitioner have been enumerated at paragraph 29 of the petition though such form of pleading has gone out of fashion these days after the 1996 Act has come into effect. The disputes which have been mentioned are as to whether the respondents have siphoned off monies, assets and properties of the said firm; and, the sums and/or assets and properties to which the petitioners would be entitled subsequent to the dissolution of the firm. The arbitration agreement which has been quoted at paragraph 28 of the petition, is of the widest import. There is, however, no agreed procedure for reference of the disputes to one or more arbitrators. The petitioners requested the respondents for a reference by a letter dated September 16, 2009. The same two disputes which have been set out at paragraph 29 of the petition had been indicated in such letter of request. The petitioners nominated an arbitrator and called upon the respondents to nominate an arbitrator. The respondents did not reply to the notice of September 16, 2009 despite due receipt thereof.
(3.) The petitioners refer to the Abdul Kadir case where notwithstanding the earlier observations that where serious allegations of fraud and malpractice had been levelled the person against whom such allegations had been made would prefer a trial in open Court, the Supreme Court found, as a matter of fact, that the allegations in that case were not of such serious nature that would warrant the refusal of a reference. THE Court observed, inter alia, as follows: ".........even though questions relating to accounts which might involve misconduct amounting even to dishonesty on the part of some partner might arise in the arbitration proceedings and even cases where moral dishonesty or moral misconduct is attributed to one party or the other might be referred to arbitration. It seems to us that every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a Court to refuse to order the arbitration agreement to be filed and refuse to make a reference......." In the Haryana Telecom Ltd. matter referred to in N. Radhakrishnan, the Supreme Court considered a creditor's petition for winding up of a company under sections 433, 434 and 439 of the Companies Act, 1956. As is well known, the prayer in a creditor's winding up petition is for a direction that the company be wound up. It was in such context that the Supreme Court held that notwithstanding section 8 of the 1996 Act, the provision thereof postulated that what can be referred to arbitration was only a dispute or a matter which the Arbitral Tribunal was competent or empowered to decide. Implicit in such expression was the Arbitral Tribunal would not be competent or empowered to take up a question as to whether the company was liable to be wound up.;