| A partnership firm by the name of
M/s.Sumera Enterprises was formed on 31/1/1987 with Shri V.K.Yadav,
his wife(Smt.Sudha Yadav-Respondent), M/s.Padmini Enterprises
Pvt.Ltd. and Smt.Kalpana Kothari(Appellant) as its partners,
besides admitting Prashant Yadav, minor son of V.K.Yadav,
for the benefits of the partnership. The partners of M/s.Sumera
Enterprises entered into an agreement on 5/10/1991 with M/s.Parasnath
Builders Pvt.Ltd. for construction of apartments and shopping
complex. Later, differences arose amongst the partners and
Smt.Sudha Yadav filed a suit on 17/10/1995 for dissolution
of the partnership and rendition of accounts. Smt.Sudha Yadav
also filed an application for the appointment of a Receiver
as also an application for injunction. M/s.Parasnath Builders
Pvt.Ltd. and Smt.Kalpana Kothari, Appellants, filed applications
under Section 34 of the Arbitration Act, 1940 (for short,”Act
of 1940”), in the trial court relying upon the Partnership
Deed dt.31/1/1987 and aforesaid construction Agreement dt.5/10/1991.
By an order dt.6/2/1996, the trial court, rejected the applications
for injunction and appointment of Receiver filed by Smt.Sudha
Yadav and also stayed the suit filed by her by allowing the
applications filed by the Appellants under Section 34 of the
Act of 1940. Smt.Sudha Yadav filed an appeal before the Rajasthan
High Court against the Order dt.6/2/1996 of the trial court.
On 27/8/1999 the Appellants moved applications before the
High Court stating that they do not press their applications
filed under Section 34 of the Act of 1940 and for their dismissal
as not pressed, since the Act of 1940 has been repealed by
the Act of 1996 and consequently the High Court allowed the
same on 7/10/1999.
The minor Prashant Yadav attained majority on 21/9/1997.
The Appellants filed an application on 26/10/1999 under Section
8(1) of the Act of 1996 with a prayer that the proceedings
before the trial court be stayed without prejudice to the
rights under Section 8(3) of the Act of 1996, till the commencement/continuation
of the arbitration proceedings and making of the arbitral
award.
A learned Single Judge of the Rajasthan High Court set aside
the orders dt.6/2/1996 of the trial court stating that it
is not permissible (for the Appellants herein) to invoke the
powers under Section 8 of the Act of 1996 to obtain the relief
of stay of further proceedings having got their applications
under Section 34 of the Act of 1940 dismissed as not pressed
and by their conduct they are estopped from filing a fresh
application.
The Supreme Court held in this case that Section 34 of the
Act of 1940 provided for filing an application to stay legal
proceedings instituted by any party to an arbitration agreement
against any other party to such agreement, in derogation of
the arbitration clause and attempts for settlement of disputes
otherwise than in accordance with the arbitration clause by
substantiating the existence of an arbitration clause and
the judicial authority concerned may stay such proceedings
on being satisfied that there is no sufficient reason as to
why the matter should not be referred to for decision in accordance
with the arbitration agreement and that the applicant seeking
for stay was at the time when proceedings commenced and still
remained ready and willing to do all things necessary for
proper conduct of arbitration. The provision under the Act
of 1940 had nothing to do with the actual reference to the
arbitration of the disputes and that was left to be taken
care of under Sections 8 and 20 of the Act of 1940. In striking
contrast to the said scheme underlying the provisions of the
Act of 1940, in the Act of 1996 there is no provision corresponding
to Section 34 of the Act of 1940 and Section 8(1) of the Act
of 1996 mandates that the judicial authority before which
an action has been brought in respect of a matter, which is
the subject-matter of an arbitration agreement, shall refer
the parties to arbitration if a party to such agreement applies
not later than when submitting his first statement. Section
8(3) of the Act of 1996 also enables arbitration proceedings
to commence or continue during the pendency of an application
under Section 8(1) of the Act of 1996 before a judicial authority
and an arbitral award to be made unhampered by such pendency.
The Supreme Court also held the fact that the applications
of the Appellants were got dismissed as not pressed in view
of repeal of the Act of 1940 cannot be a legal impediment
for having recourse to and avail of the avenues thrown open
to parties under the Act of 1996. Similarly, having regard
to the distinct purposes, scope and object of the respective
provisions of law in these two Acts, the plea of estoppel
can have no application to deprive the appellants of the legitimate
right to invoke an all-comprehensive provision of mandatory
character like Section 8 of the 1996 Act to have the matter
relating to the disputes referred to arbitration, in terms
of the arbitration agreement.
The Supreme Court also held that since only the land was
brought into the partnership assets by the husband of Smt.Sudha
Yadav with no continuation of any further funds and the constructions
were stated to have been made by the other parties or the
builders, the serious difficulties and loss which the partnership
firm and parties may be put into by freezing the day-to-day
business activities of the firm were not considered at all
by the High Court. As long as the arbitration clause exists,
having recourse to the Civil court for adjudication of disputes
envisaged to be resolved through arbitral process or getting
any orders of the nature from the Civil court for appointment
of Receiver or prohibitory orders without evincing any intention
to have recourse to arbitration in terms of the agreement,
may not arise.
The orders of the High Court as also that of trial court
were set aside and the case was remitted to the trial court
for considering the matter afresh in the light of claims and
rights of respective parties under the Act of 1996.
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