Judgment:
ORDER
R. Banumathi, J.
1. These Civil Revision Petitions arise out of the order dated 11.12.2003 passed by the Principal Subordinate Judge, Mayiladuthurai in I.A. No. 15 of 2003 and LA. No. 135 of 2003 in O.S. No. 205 of 2002, allowing the Petitions filed under Section 8 of the Arbitration and Conciliation Act, 1996, directing the Parties to settle the dispute by Arbitration and dismissing the Suit in O.S. No. 205 of 2002. The Plaintiffs are the Revision Petitioners.
2. The Plaintiffs are Father and Son. Case of the Plaintiffs is that Second Plaintiff-Ravichandran and Defendants 2 and 3 were doing Partnership Business under the name and style of 'G.S. Garments International' dealing in leather products. The Partnership Agreement was entered into on 9.9.1990 and amended on 27.12.1990. Second Partnership Agreement was entered into between the Second Plaintiff and the Defendants on 27.6.1996. After two years, the Partnership Business was closed and the Partners have entered into a Compromise Agreement on 8.12.1998. Under the Compromise, the Partnership Business was dissolved. The Accounts were settled as per the terms of the Compromise, for outstanding liability, the Defendant is to pay 55% and the Second Plaintiff is to pay 45%.
3. Loans are obtained for running the business by mortgaging the First Plaintiff's property to Indian Bank, Ethiraj Salai, Chennai. Indian Bank has obtained an Award before the Debts Recovery Tribunal-I, Chennai. The amount payable to the Bank was Rs. 39,11,000. As per the Compromise, the Defendant's share was Rs. 21,51,050. The amount Invested by the Defendants was Rs. 7,91,000. Towards the balance amount, the Defendants have paid only Rs. 10,00,000. Deducting the amount invested by the Defendants and the amount paid by the Defendants, the balance amount of Rs. 3,60,050 remained unpaid. Since the First Plaintiff's property was mortgaged and the Defendants have committed default in paying the amount, the First Plaintiff was forced to pay the balance amount in order to avoid bank's claim of lesser rate of interest. Hence, the First Plaintiff paid the amount of Rs. 3,60,050 together with interest calculated at Rs. 47,485. Thus, the Defendants are bound to pay Rs. 4,07,535. The Plaintiffs have issued Notice on 30.08.2002, calling upon the Defendants to pay the amount. Since the Defendants have not responded nor paid the amount, the Plaintiffs have filed the Suit for recovery of Rs. 4,07,535 and subsequent interest till the date of payment.
4. Even before filing of the Written Statement, the Defendants 1 and 2 have filed LA. No. 15 of 2003 and Third Defendant has filed LA. No. 135 of 2003 in O.S. No. 205 of 2002 under Section 8 of the Arbitration and Conciliation Act, 1996. Both the Applications are on the common averments. The Defendants have filed the Applications mainly on the basis of Clause 19 of the Agreement, according to which, any dispute or difference of opinion that may arise between partners with regard to the Partnership Agreement is to be referred to Arbitrator by common Agreement of the Partners. Invoking Clause 19, the Defendants have filed the Applications for referring the matter to the Arbitrator and that the Suit is not maintainable and the Suit is to be dismissed.
5. Resisting the Application, the Respondents/Plaintiffs have filed the Counter Statement contending that the prior Partnership Deeds are being superseded by the Compromise Deed dated 8.12.1998. The arrangement was signed by the First Defendant representing himself and Vasantha and Umayal Muthu-his Brother's Wife. Similarly, the First Plaintiff has signed for himself and on behalf of the Second Plaintiff. Thus, the Partnership Deed dated 27.6.1996 which has been superseded cannot now be relied upon. Pursuant to the Compromise Agreement, the Defendants have paid only Rs. 10,00,000 and not paid the balance amount and the proper remedy for the Defendants is only to seek stay of the proceedings and cannot pray for dismissal of the Suit. It is further contended that the Defendants have taken number, of adjournments for filing the Written Statement and the case has been adjourned to 27.1.2003. On 22.01.2003, the Application has been filed under Section 8 of the Arbitration and Conciliation Act. Having participated in the Suit Proceedings and having obtained time for filing Written Statement, the Defendants would not have any right to seek for dismissal of the Suit/staying of the Suit.
6. In response to the Counter Statement, the Defendants have filed rejoinder Statement.
7. Upon consideration of the contentions of both parties, referring to Clause 19 of the Partnership Agreement, the learned Principal Subordinate Judge has allowed both the Applications and dismissed the Suit in O.S. No. 205 of 2002. Referring to Clause 19 of the Partnership Agreement-Ex. P-1 (Ex. R-2), learned Subordinate Judge found that all the differences and disputes relating to the Partnership Business is to be settled only by referring the matter to the Arbitration and the Decision of the Arbitrator shall be final and binding on all the Partners of the Firm. Learned Subordinate Judge negatived the contention of the Plaintiffs that Ex. P-1 (Ex. R-2) has been superseded by Ex. R-3-Compromise Agreement. To exercise the discretion in referring the matter to the Arbitration, learned Subordinate Judge has referred to the decision Primary Co-operative Land Development Bank Ltd. v. State of Karnataka, 2000 (3) CTC 74 : 1987 LAB I.C. 1226 : .
8. Assailing the Impugned Orders and dismissal of the Suit, learned Counsel for the Revision Petitioners/Plaintiffs has submitted that Arbitration Clause in the Partnership Deed Ex. P-1 (Ex. R-2) cannot be invoked since the business has already been closed and the parties have arrived at compromise in settling the accounts. Submitting that the money due to be paid to the Bank was not paid by the Defendants and when the Plaintiffs have paid the amount, they are entitled to claim the amount as per the Compromise Agreement and Ex. R-3. It is further contended that when that being so, the Trial Court erred in falling back upon the Partnership Deed to refer the matter to the Arbitration and thereby non-suit the Plaintiff. It is further submitted that the Trial Court has not properly appreciated default of the Defendants in complying with the terms of the Compromise.
9. Learned Counsel for the Revision Petitioners has further contended that when the dispute in the Suit is not the subject matter of the Deed of Partnership, which is no longer subsisting, it is submitted that the lower Court erred in finding that the dispute is covered by Clause 19 of the Agreement.
10. Countering the arguments, learned Counsel for the Respondents has submitted-that Ex. R.3-Compromise Agreement cannot be considered as a New Agreement to exclude Clause 19 of the Agreement. Drawing the attention of the Court to the Plaint averments, learned Counsel has submitted that if Compromise is the primary document for Plaintiffs' claim, there was no necessity to refer the prior Partnership Deed. Contending that the issue involved is a very simple issue and the Arbitrator could easily go into the matter, learned Counsel for the Respondent has submitted that in the light of Clause 19 of the Partnership Deed, the Trial Court has rightly referred the matter for Arbitration. Contending that Ex. R.3-Compromise has the superseding effect of earlier Partnership Deed, learned Counsel for the Respondent has further submitted that Ex. R-3-Agreement of Compromise is only between the two parties out of the seven Partners and that the same cannot have the binding effect on all the partners dissolving the earlier Partnership. Placing reliance upon the decision The Union of India v. Kishorilal Gupta and Brothers, : [1960]1SCR493 , learned Counsel for the Respondents has also submitted that though the dispute arises subsequently, the Arbitration Clause in the Partnership Deed still survives.
11. The main point that arises for consideration is whether the Impugned Order referring the matter to Arbitration and dismissing the Suit in O.S. No. 205 of 2002 suffers from serious infirmity warranting interference ?
12. The claim of Rs. 4,07,535 is made only on the basis of Ex. R-3-Compromise Agreement. In the Compromise Agreement, the parties have clearly stated that the Partnership Business running at loss has been closed and that they have entered into the Compromise Agreement. In Ex. R-3-Compromise Agreement, the First Part refers to the First Defendant and the Second Part refers to the First Plaintiff, who is the Father of the Second Plaintiff. As per the terms of Compromise, the Defendants are to pay 55% of the liability and the Plaintiffs are to pay 45% of the liability. Relevant recitals in Ex. R.3 reads as follows:
13. Stipulation has also been made to pay the Amount by the parties as noted below:
14. While agreeing for the Compromise, the parties have firstly agreed that the Partnership Business is closed, which is made clear in the following recitals of the Compromise Agreement:
15. By careful consideration of Ex. R.S-Compromise Agreement, three aspects emerge viz.,
i. That the business has been closed and the Agreement of Partnership has come to an end;
ii. The Deed of Partnership (reconstituted on 27.06.1996) has been superseded by the Compromise Agreement;
iii. The amount payable to the bank - 55% by the Defendants and 45% by the Plaintiffs is pursuant to the terms of Compromise Agreement.
The contentious points are to be considered only in the light of the above aspects.
16. As stipulated, the Defendants have to pay 55% of the amount out of the total amount of Rs. 39,11,000. But, the Defendants are said to have paid only Rs. 10,00,000, balance amount was not paid. The Plaintiffs' claim of Rs. 4,07,535 arise as under:
Total amount payable to the Bank: Rs. 39,1 1,000Plaintiffs' share: Rs. 14,36,000 Defendants' Share: Rs. 21,51,050Amount invested by the Defendants: Rs. 7,91,000 Amount paid by the Defendants: Rs. 10,00,000 Rs. 17,91,000Balance Rs. 3,60,050Default Interest payable by the Defendants Rs. 47,485Total Amount Rs. 4,07,535
17. The matter could be referred to Arbitration only when the dispute is 'the subject of an Arbitration Agreement'. It is not informed that the action is something related to the subject matter of Arbitration which arises subsequently. Section 8 of the Act authorises the Judicial Authority to refer the parties to Arbitration. Before which an action in a matter which is subject of the Arbitration Agreement is pending on an Application made to it by a party. If the action brought before the Court is not in a matter which is the 'subject' of an Arbitration Agreement', the Court could go into the question as to whether the matter is the 'subject of an Arbitration Agreement'. The Court has to consider the question whether the subject matter of the Suit is the same as 'the subject matter of the Arbitration Agreement'. The determination of this question would involve the consideration of the contents of the Plaint and also to the Arbitration Agreement and the recitals in the Arbitration Agreement and the subject matter of the dispute. Referring to Partnership Deed (Ex. P-1), the learned Subordinate Judge has found that the Plaintiffs claim of Rs. 4,07,535 is the subject matter of the Arbitration Agreement. The main question that arises for consideration is whether the Plaintiffs claim of Rs. 4,07,535 is the subject matter of Clause 19 under the Partnership Deed.
18. In the Plaint, the amount due is claimed as clearance of the amount due to the Indian Bank. The First Plaintiff is said to have created mortgage over his immovable property by depositing his Title Deeds relating to his House. To obtain the interest rebate, the Plaintiffs are said to have paid the amount. As noted earlier, the suit claim is based only upon the Compromise arrived at between the parties. The compromise was arrived when the Partnership was dissolved and the business was closed. The recitals in the Agreement of Compromise prima facie clearly shows that the earlier Partnership Deeds have been superseded. When the Partnership Agreement is no longer subsisting, the Arbitration clause thereon also no longer subsisting between the parties. When the claim is based on the Compromise Agreement and the terms of Compromise, the parties cannot fall back upon the Partnership Deeds in requesting the Court to refer the dispute to Arbitration.
19. Ex. R-3-Compromise Agreement had been entered into by Rama chidambaram-First Party and Rajendran-Second Party relating to G.S. Garments. Contending that all the Partners of the Partnership business are not made the parties in the Agreement of Compromise and that only two Partners have signed in the Compromise, learned Counsel for the Respondents has submitted that the Trial Court has rightly found that the Agreement of Compromise is not in supersession of the earlier Partnership Deeds. Submitting that only two partners have signed in the Compromise Agreement and the alleged Compromise dated 8.12.1998 is not binding on all the Partners, learned Counsel for the Respondents has contended that the Compromise Agreement cannot be held to have binding effect on all the Partners. Secondly even in the recitals of terms of Compromise Agreement, it is made clear that the 'First Party' refers to other partners 'C.T. Vasantha, Umayal Muthu and Rama chidambaram'. Similarly, it is stated that the 'Second Party' relates to Plaintiffs 'Ravichandran and Rajendran'. In paragraph 5 of the Compromise Agreement, it is made clear that the First Party and Second Party refer to all the Partners. The contention that the Compromise Agreement is not between all the partners does not merit acceptance.
20. By perusal of Ex. R-3-Agreement of Compromise, it is seen that the Compromise was arrived on 8.12.1998; but the Agreement is said to have been written in the non-judicial Stamp Paper on 17.2.1999. The reason for reducing the terms of Compromise into Writing on 17.2.1999 in the Stamp Paper, the parties have stated
21. Drawing attention of the Court to the above recitals, learned Counsel for the Respondents has submitted that the above recitals would show that the Agreement was hastily written and the Agreement of Compromise could have no binding effect, much less in suppression of the earlier Partnership Deeds. The merits of this contention could be gone into only in the light of the evidence and oral and documentary evidence to be adduced by the parties. It would be too pre-mature to express the opinion on the above recitals. Suffice it to point that that there are prima facie materials showing that the Deed of Compromise was acted upon. However, during the Trial, it is open to the Defendants to put forth their contention regarding the genuineness or otherwise of Compromise Agreement.
22. Contending that the Arbitration clause in the Partnership Deed would continue to govern the subsequent dispute between the parties, learned Counsel for the Respondents has relied upon the decision The Union of India v. Kishorilal Gupta and Brothers, : [1960]1SCR493 , wherein the Supreme Court has held that whether there is frustration or repudiation of the Contract, the Arbitration Clause would cover the same. The Supreme Court has held:
'An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it. If an arbitration clause is couched in widest terms, the dispute, 'whether there is frustration or repudiation of the contract, will be covered by it. It is not because the arbitration clause survives, but because, though such repudiation ends the liability of the parties to perform the contract, it does not put an end to their liability to pay damages for any breach of the Contract'.
In the factual background that the Contract was found to be still in existence for certain purposes, the Supreme Court has made the above observation. In the same decision, the Supreme Court has also held that whether the Contract wholly superseded or not by a new Contract between the parties, such dispute would fall outside the Arbitration Clause. The Supreme Court has held that if the New Contract supersedes the earlier Contract, the Arbitration Clause falls with it. As discussed earlier, the earlier Partnership Deed is held to be superseded by the Agreement of Compromise.
23. The Court below has not properly appreciated the fact that the claim is based only on the Compromise, which is not the subject of the Arbitration Agreement. The Arbitration Agreement is only referred to in the Deed of Partnership, which has been superseded by the Agreement of Compromise. Learned Subordinate Judge erred in referring the matter to Arbitration and dismissing the Suit. Since the subject matter of the Suit is founded upon the Agreement of Compromise, the Impugned Order cannot be sustained. In that view of the matter, the Impugned Order is liable to be set aside and this Civil Revision Petition is to be allowed.
24. For the foregoing reasons, these Civil Revision Petitions are allowed and the order dated 11.12.2003 passed by the Principal Subordinate Judge, Mayiladuthurai in LA. No. 15 of 2003 and LA. No. 135 of 2003 in O.S. No. 205 of 2002 is set aside. Learned Principal Subordinate Judge, Mayiladuthurai is directed to restore the Suit in O.S. No. 205 of 2002 on file. The Respondents/Defendants are directed to file their Written Statement in O.S. No. 205 of 2002 within a period of Six weeks from the date of receipt of copy of this Order in the Court below. In the circumstances of the case, there is no order as to costs.