2009 (10) TMI 534 - SC - Companies Law

Whether the case falls within the jurisdiction of the arbitrator? Whether the procedural requirements under section 8(2) of the Act had been complied with to the satisfaction of the court? Whether the arbitrator was competent to deal with the dispute raised by the parties? Held that - Appeal dismissed. Since the original deed was not filed within the requirement of section 8(2) of the Act it must be held that the mandatory requirement under the Act had not been complied with. Accordingly even if we accept the factum of a dispute relating to the retirement of the appellant under the original deed dated 7 April 2003 still the court would not be empowered to refer the matter to an arbitrator due to the non-compliance of the provisions mentioned under section 8(2) of the Act.

Issues Involved:
1. Appointment of an arbitrator.
2. Jurisdiction of the arbitrator.
3. Compliance with procedural requirements under Section 8(2) of the Arbitration Act, 1996.
4. Allegations of fraud and misappropriation of funds.

Issue-wise Detailed Analysis:

1. Appointment of an Arbitrator:
The appellant requested the appointment of an arbitrator to resolve disputes arising from a partnership agreement. The trial court denied this request, and the High Court upheld the decision. The appellant argued that the dispute regarding his retirement from the partnership and the reconstitution of the firm fell within the arbitration clause of the original partnership deed dated April 7, 2003. The respondents contended that the partnership deed had ceased to exist after the appellant's retirement and that the dispute did not fall within the arbitration clause.

2. Jurisdiction of the Arbitrator:
The primary issue was whether the dispute fell within the jurisdiction of the arbitrator. The appellant claimed that the dispute related to his retirement and the settlement of his dues, which were within the ambit of the arbitration clause. The respondents argued that the allegations of fraud and misappropriation required detailed evidence and should be tried in court. The court agreed with the respondents, stating that the allegations of fraud and serious malpractices necessitated a trial in a civil court, which was more competent to handle such matters.

3. Compliance with Procedural Requirements under Section 8(2) of the Arbitration Act, 1996:
The appellant failed to comply with the mandatory requirement of filing the original partnership deed under Section 8(2) of the Act. The court noted that the appellant had only filed a Xerox copy of the original partnership deed and not the original document itself. This non-compliance prevented the court from referring the matter to arbitration, even if a dispute existed.

4. Allegations of Fraud and Misappropriation of Funds:
The appellant made serious allegations against the respondents, including manipulation of accounts and misappropriation of funds. The court held that such serious allegations required detailed evidence and could not be properly addressed by an arbitrator. The court cited previous judgments, including Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak and Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., to support its decision that matters involving serious allegations of fraud should be tried in a civil court.

Conclusion:
The Supreme Court dismissed the appeal, upholding the decisions of the lower courts. The court directed the trial court to dispose of the suit within six months and allowed the parties to present evidence to support their claims. The court emphasized that serious allegations of fraud and misappropriation required a detailed examination of evidence, which was beyond the scope of arbitration.

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