JUDGMENT
Vipin Sanghi, J.
1. This arbitration application has been filed by the petitioner under Section 11 of the Arbitration & Conciliation Act, 1996 (the Act) seeking appointment of an arbitrator to refer the petitioner’s claim to arbitration.
2. It is not in dispute that the parties were running a partnership business under the name and style of M/s. Kreative Ambience vide a partnership deed dated 30-10-97. This partnership deed contained an arbitration agreement in Clauses No. 16 and 17, whereunder disputes arising between the parties were mutually agreed to be referred to one arbitrator, agreeable to both the parties.
3. It appears that disputes arose between the parties and the respondent initially issued a notice of dissolution on 27-03-2002 purporting to dissolve the partnership firm with effect from the said date. The respondent sought the settlement of accounts of the partnership firm and demanded payment of 50% share out of the proceeds and assets of the partnership firm. In para 12 of the notice, the respondent enlisted various machineries and equipments belonging to the partnership firm and desired that the value of the items be quantified and the proceeds shared equally between the partners.
4. In response, the petitioner vide a communication dated 10-04-02, while disputing various allegations made against him by the respondent, agreed that the assets and the plant and machinery should be valued. He agreed that the partnership firm be dissolved w.e.f. 27-03-02. The petitioner also proposed mutual appointment of an arbitrator to resolve the disputes amicably at the earliest. The petitioner thereafter sent three communications dated 29-04-02, 04-05-02 and 08-05-02 reminding the respondent to respond to the request for arbitration and seeking her early response. The petitioner filed the present petition on 13-10-05.
5. The respondent filed her objections/reply to the present petition. While it is not disputed that an arbitration agreement exists between the parties under Clauses 16 and 17 of the partnership deed dated 13-10-97, the only objection raised by the respondent is that the present petition is barred by limitation.
6. The petitioner filed his reply to the objections/rejoinder and contended that the cause of action lastly arose 8.12.2002 which was the last communication issued by the petitioner. The petitioner has filed, inter alia, two communications dated 24-10-02 and 23-11-2002 sent by the respondent to the petitioner, and the response of the petitioner to these communications of 7.11.2002 and 8.12.2002. It is contended that since the parties were raising claims against each other which were being disputed by the other, demanding rendition of accounts from each other and also rendering accounts to each other, and this process was going on till November 2002, it cannot be said that the cause of action lastly arose in March/April 2002. It is submitted that the petitioner could invoke the jurisdiction of this Court to appoint an arbitrator in terms of Section 11 of the Act within three years from the date on which the cause of action last arose, and if it is found that the cause of action lastly arose in December 2002, the present petition would be well within the period of limitation.
7. Learned Counsel for the petitioner, in support of her submissions, has relied on Hari Shankar Singhania and Ors. v. Gaur Hari Singhania and Ors. wherein the Hon’ble Supreme Court held, in relation to an application under Section 20 of the Arbitration Act, 1940 (The 1940 Act), that period of limitation for filing such an application is three years, and the right to file such an application accrues on the date when disputes in fact arise between the parties. The court held that where the parties are in dialogue and are corresponding to negotiate the matter, the right to apply under Section 20 of the 1940 Act accrues when the dispute in fact arises between them, i.e., when they fail to resolve that matter themselves. Where the applicant had filed the suit under Section 20 of the 1940 Act after having a series of communications with the respondent to arrive at an amicable settlement, the disputes were deemed to have arisen only after the last communication between the parties. Since the suit under Section 20 of the 1940 Act had been filed within three years of the said last communication, the Hon’ble Supreme Court held the same to be well within period of limitation of three years.
8. On the other hand, submission of learned Counsel for the respondent is that the limitation for filing the present petition arose immediately upon dissolution of the firm on 27-03-2002 or, in any event, when the first notice seeking appointment of an arbitrator was issued by the petitioner on 10-04-2002. The statutory period of 30 days for appointment of an arbitrator, by mutual consent expired on 10-05-2002, and the petitioner ought to have filed the present petition within three years from 10.05.2002. Learned Counsel for the respondent, relying on the judgment of Hon’ble the Supreme Court in SBP & Co. v. Patel Engineering Ltd. and Anr. 2005 SCC 618, submitted that there has to be a “live claim” at the time when jurisdiction of the Court to appoint an arbitrator is invoked, to enable the Court to exercise its jurisdiction under Section 11 of the Act. He submits that the Hon’ble Supreme Court in that decision has also held that the appointment of an arbitrator, where such an appointment is not justified, would cause prejudice to the opposite party in terms of unnecessary costs and expense of time and money. It is, therefore, submitted that the Court should reject the present application at the threshold rather than sending the matter before an Arbitral Tribunal. The respondent has also placed reliance on the following decisions of the Hon’ble Supreme Court, as also of this Court to buttress his argument with regard to expiry of the period of limitation for filing the application in the present case:
1. Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority (1998) 2 SCC 338;
2. Morena Mandal S.S.K. Ltd. v. New India Assurance Co. Ltd. ;
3. Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor ;
4. Utkal Commercial Corporation v. Central Coal Fields Ltd. ;
5. Mohta Alloys Steel Works v. Mohta Finance & Leasing Co. and Ors. ;
6. M/s. Pandit Munshi Ram and Associates (Pvt.) Ltd. v. Delhi Development Authority and Anr.;
7. Union of India v. Pawan Aggarwal .
9. Learned Counsel for the respondent has also submitted that the decisions cited by the petitioner in Hari Shankar Singhania (supra) is not applicable in the facts of the present case, inasmuch as, unlike in the present case, in Hari Shankar Singhania (supra) the arbitration agreement had not been invoked and negotiations were being undertaken by the parties. He submits that it was in those circumstances that the Hon’ble Supreme Court held that period of limitation would start to run from the date of the last communication.
10. The first issue that requires consideration is whether it can be said that on the date when the present arbitration application was filed by the petitioner there was a “live claim”, which could be referred to arbitration. I must go into this issue at this stage in view of the judgment of the Hon’ble Supreme Court in SBP & Co(supra), and particularly the observations made in paragraphs 32, 38 and 39 of the majority judgment.
11. The parties agreed to dissolve the partnership w.e.f 27.3.2002. The period of limitation prescribed under the Limitation Act for filing a suit relating to accounts and share in the profits of a dissolved partnership firm is three years and the starting point of limitation is the date of dissolution (Article 5 of the Schedule to the Limitation Act).
12. Section 18 of the Limitation Act, inter alia, states that before the expiration of the prescribed period for a suit in respect of any right, upon acknowledgment of liability in respect of such right made in writing and signed by the party against whom such right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. An acknowledgment may be sufficient though it omits to specify the exact nature of the right or is accompanied by refusal to perform the obligation corresponding to the right claimed by the other party.
13. Every partner of a dissolved firm, is vested with the right as against all other partners of the firm, to have the property of the firm applied in the payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners according to their rights. (Section 46 of the Indian Partnership Act). The Mode of settlement of the accounts is prescribed under Section 48 of the Partnership Act. It is these rights that a partner of a dissolved firm exercises, when he asks for rendition of accounts of the partnership business from the other partners.
14. To determine whether Section 18 of the Limitation Act applies to the present case, one has to determine, whether the respondent has acknowledged this particular right of the petitioner, i.e to seek the rendition of accounts. The acknowledgment of this right to my mind would stand established if the respondent has also asserted the same right and has in fact acted in a manner which shows his acceptance of the said right of the petitioner.
15. The correspondence exchanged between the parties between 24.10.2002 and 8.12.2002 assumes importance in the light of Section 18 of the Limitation Act. In para 12 of the communication dated 24.10.2002, the respondent stated as follows:
summarizing, you are called upon to furnish the originals/photocopies of the following Documents and the information asked for to me immediately, as all these Documents are already available with you and there is no justification for delay.
1) Bills mentioned in para 3
2) Documents mentioned in para 4
3) Original cheque book mentioned in para 5
4) Bills mentioned in para 8
5) Bills mentioned in para 9
6) Bills mentioned in para 10 and the information asked for
7) Dishonoured cheque or the information asked for in-lieu
You are called upon to furnish all the above items within a week of issue of this letter and your failure to do so will be treated as a deliberate attempt on your part to withhold information from me in total violation of the letter and spirit of the Partnership Deed, with the conclusion that you are trying to hide these from me as otherwise your misdeeds will be exposed.
Enclosures - photocopies of 25 pages of Accounts Register, as mentioned above New Delhi Anuradha. R. 24-10-2002. 16. On a complete reading of the said communication, and particularly the above extracted position, it is clear: A. that the respondent was seeking disclosure of information and accounts of the partnership business from the petitioner. The respondent had even sent its agent to the petitioner on 7.10.2002 for this purpose. B. the petitioner had made disclosures and furnished some accounts. C. the respondent itself rendered some accounts, inter alia, by giving details of cheques received by the partnership, and enclosing copies of 25 pages of the accounts. The respondent admits the existence of accounts of partnership business. D. the respondent demanded further disclosure of information and furnishing of accounts.
17. To the same effect is the communication issued by the respondent on 23.11.2002 and the two communications issued by the petitioner on 7.11.2002 and 8.12.2002. It would therefore be seen that both the parties acknowledged their respective liability in respect of the other to render accounts, in relation to the partnership business, by rendering accounts and offering to render further accounts. Both the parties also asserted their respective rights to demand the rendition of accounts from the other.
18. To my mind these communications on both sides constitute acknowledgment of liability to render accounts to the other within the meaning of Section 18 of the Partnership Act. I may refer to the decision rendered in Hukumat Sing Kundanmal v. Nenumal Rejhumal AIR 1928 Sind 45, wherein it was held that where the plaintiff in a suit for the making of accounts of a dissolved partnership relies on an acknowledgment, all that the plaintiff is required to prove is that the defendant has admitted, from time to time, the existence of the partnership accounts between the parties and his obligation to settle such accounts. It is not necessary for the acknowledgment to be operative, that he should go further and state that he was bound to pay any particular sum or such sum as may be found due by him.
19. I am therefore of the view that a fresh period of limitation started to run since there was an acknowledgment of liability and obligation on either side to render accounts of the partnership business to the other partner, when the parties exchanged communications between 24.10.2002 and 8.12.2002. The three year limitation available to the petitioner to agitate his claims for rendition and settlement of accounts of the partnership business, therefore, started to run on 24.10.2002, if not later, and the same had not expired on 13.10.2005 when the present arbitration application was filed. In my view, therefore, the petitioner had a “live claim” at the time of filing of the present arbitration application. The right to claim arbitration arose lastly in November/December 2002, when rights were lastly asserted by one party and denied by the other party. In fact Major (Retd.) Inder Singh Rekhi (supra), Steel Authority of India (supra), Pandit Munshi Ram and Associates Pvt. Ltd.(supra) support the petitioner on this aspect.
20. The argument of the respondent that since the petitioner had invoked the arbitration agreement in April, 2002 and the period of 30 days for appointment of an arbitrator by mutual consent had expired in May, 2002, the limitation for filing an application under Section 11 of the Act started to run in May, 2002 and expired some time in May, 2005 and that, therefore, the present arbitration application is barred by limitation does not appear to be correct.
21. Section 11(2) of the Act states that the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Such an agreement would, however, be subject to Sub-section (6). In the present case the agreement of the parties is to appoint the arbitrator with mutual consent. The arbitration agreement contained in the partnership deed reads as follows:
16. That during the continuance of partnership or any time after wards any dispute touching the partnership arises between the same shall be mutually decided by the partners or shall be referred to the Arbitration.
17. All disputes and question in connection with the partnership of this deed arising between the partners or legal representatives of either parties shall be referred to one Arbitrator mutually agreed by both the parties.
22. There is no specific procedure prescribed for the appointment of the Sole Arbitrator. Sub-section (5) of Section 11 states that failing an agreement referred to Sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within 30 days from the receipt of a request by one party from the other, the appointment shall be made upon the request of a party by the Chief Justice or any person or institution designated by him.
23. The purpose of requiring the parties to first make an attempt to appoint a mutually agreeable sole arbitrator within a period of 30 days is to prevent the unnecessary rush by one of the parties to the Chief Justice or the person or institution designated by him to seek appointment of an arbitrator. The object is to prevent the unnecessary burdening of the Court’s docket and also to save the unnecessary expense of time and money to the parties. This procedure provides an opportunity to the parties to mutually appoint an arbitrator. It is only upon their failure to mutually agree for appointment of a sole arbitrator within a period of 30 days that one of the parties may move the Chief Justice for appointment of a sole arbitrator.
24. In the present case, the petitioner issued the first communication to the respondent requiring the respondent to agree to appointment of an arbitrator on 10.4.2002. Thereafter, reminders were sent by the petitioner on 29.4.2002, 4.5.2002 & 8.5.2002. It appears that the respondent was not agreeable to mutually appoint an arbitrator and did not respond to the requests made by the petitioner. As aforesaid, the parties kept their communication channels open. They exchanged documents and accounts and traded accusations against each other. They asserted their rights as erstwhile partners of the partnership firm to demand the rendition of accounts by the other and even acknowledged their own obligation to render accounts to the other. It appears that the last of such communication was sent by the petitioner on 8.12.2002. In the aforesaid background, the question that arises is, whether it was necessary for the petitioner to have once again made a request to the respondent for appointment of an arbitrator after the issuance of the communication dated 8.12.2002, and before he file the present petition? Or could he have relied upon his earlier sent communications on 10.4.2002, inter alia, seeking appointment of a mutually acceptable arbitrator, and the three reminders sent thereafter in April and May, 2002, and on that basis filed the present petition? Another question that arises for consideration is whether the respondent can object to the filing of the present petition on the basis of the notice dated 10.4.2002 and the reminders sent in April/May 2002 on the ground that the petitioner had not invoked the arbitration agreement after 8.12.2002?
25. In my view, in a case like the present, where the petitioner had already made a request for appointment of the sole arbitrator with mutual consent, to which there had been no response from the respondent, it was not necessary for the petitioner to have once again undergone the formality of issuing a fresh notice seeking consent of the respondent for appointment of a mutually acceptable sole arbitrator. The respondent had made its intention (of not agreeing to mutually appoint an arbitrator ) known, by not responding to the notice dated 10.4.2002 and the subsequent reminders thereto. No useful purpose would have been served by issuance of a fresh notice to the respondent. Such a strict interpretation to Section 11(5) of the Act, in the facts of this case, would not even be in consonance with the object and purpose of the Act, which is to have expeditious disposal of disputes between the parties to the Arbitration Agreement. Strict adherence to the said provision would only entail avoidable delays.
26. One cannot also loose sight of the fact that while exercising jurisdiction under Section 11(5) of the Act, all that the Court is doing is to appoint an Arbitrator. This is done after issuance of notice to the opposite parties and hearing them and after being satisfied that an arbitration agreement exists apart from a live claim that is referable to arbitration. Nothing prevents a respondent, who is served with a notice issued by a Court under Section 11(5) of the Act, to even thereafter agree to a mutually agreeable arbitrator being appointed while the application is still pending in Court. In this case, the purpose of serving notice under Section 11(5) of the Act, namely, to give an opportunity to both the parties to concur in the appointment of a mutually acceptable arbitrator to resolve their disputes, had been achieved. However, the same had not borne any fruit. There was no necessity to once again trigger the same mechanism after the parties had exchanged correspondence between October and December 2002. In the facts of this case, the ratio of Utkal Commercial Corporation (supra) cannot be applied.
27. After all, what can be the possible grievance of a respondent, who is made to respond to a petition for seeking appointment of a sole arbitrator under Section 11(5) of the Act, when admittedly there is an arbitration agreement and a live arbitrable claim?
28. As I see, the possible objection could be that the petitioner had not served a notice requiring appointment of an arbitrator by mutual consent and that, if that procedure had been adopted there may not have been the need to move the Court. But such a defense or grievance cannot be raised by a respondent, who has already demonstrated his intention not to appoint of an arbitrator by mutual consent by ignoring the request made by the petitioner.
29. Even if it were to be assumed that the present petition could not be maintained on the basis of the notice of invocation dated 10.4.2002, and on that basis, the same is rejected, the petitioner in this case would still be entitled to the benefit of Section 14 of the Limitation Act and to seek such other remedy as may be available to him in law. It cannot be said that the petitioner has not been prosecuting the present petition in good faith. The time spent in prosecution of this petition from 13.10.2005 till the time it is rejected as premature, (on account of a notice under Section 11(5) not being served after 8.12.2002) would have to be excluded in computing the period of limitation for filing any other proceeding in relation to the same matter in issue/for the same relief. Since his claim was live on 13.10.2005, the petitioner may be able to file a civil suit on the same matter (i.e for rendition of accounts) or, he may be able to, yet again, serve a notice seeking appointment of an arbitrator by mutual consent and thereafter, if necessary, file an application under Section 11(5) of the Act. Since it would be open to him to claim the benefit of Section 14(1) and 14(2) of the Limitation Act and it would also be open to him to file a fresh application under Section 11(5) of the Act, to my mind it makes no sense in rejecting the present application which is pending since October, 2005 on the ground that the petition is barred by limitation. Consequently, Morena Mandal S.S.K. Ltd (supra) cannot be applied in the facts of this case. Mohta Alloys Steel Works (supra) was a case relating to objections under Section 33 of the Arbitration Act, 1940, and has no application to the present case. Similarly Pawan Aggarwal (supra) has no application to the facts of this case, since the claim of the petitioner has been held to be live in this case.
30. There is yet another alternative route which leads to some conclusion. Section 21 of the Act states that unless otherwise agreed by the parties (there is no agreement of the parties on this aspect), the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Consequently, when the petitioner issued the notice dated 10.4.2002 raising the dispute regarding rendition of accounts of the partnership business, the arbitral proceedings commenced as soon as the communication dated 10.4.2002 was received by the respondent. It is not the respondent’s case that he did not receive the communication dated 10.4.2002 sent by the petitioner and since it was sent by registered post (as appears from the postal receipt filed on record along with the said communication), it can be safely presumed that the communication was received by the respondent within a matter of few days. Consequently, the arbitral proceedings stood commenced sometime in middle of April, 2002. The application under Section 11(5) of the Act is an application or a petition in relation to arbitral proceedings which have commenced with the issuance of a request for the reference of disputes to arbitration (Section 2(b) of the Limitation Act). Since Limitation Act, 1963 specifically applies to arbitrations, Section 5 of the Limitation Act would also apply to an application/petition under Section 11(5) of the Limitation Act. Any application (other than under the provisions of Order 21 of CPC) may be admitted after the prescribed period, if the applicant satisfies the Court that he had sufficient cause for not preferring or making the application within such period. In my view, therefore, Section 5 of the Limitation Act would apply to, and be available to the petitioner filing an application/petition under Section 11(5) of the Act.
31. In the present case the notice invoking the arbitration was sent by the petitioner on 10.4.2002. It can be assumed that it was received by the respondent within a matter of few days and the cause of action for filing an application under Section 11(5) of the Act for the first time arose in favor of the petitioner around 15th May, 2002. Assuming that there is any delay, it would be between the period around 15-5-2002 to 13-10-2002, which means the delay of about five months.
32. Considering the facts that the parties were till as late as December, 2002 exchanging documents and furnishing and demanding accounts from each other, I am of the view that the petitioner has made out sufficient cause for not making the application within three years of the middle of May, 2002. Both the parties were communicating the each other, exchanging information and documents, and they were respecting the right of the other to demand the rendition of accounts and were, in their own way, complying with the request of the other to render accounts. The petitioner could, therefore, have legitimately hoped and waited for the disputes to get resolved without in fact having to move for arbitration. The petitioner cannot be faulted for not having filed the arbitration application earlier.
33. In my view, the reliance placed by the petitioner on the decision of the Hon’ble Supreme Court in Hari Shankar Singhania and Ors. (supra) is well placed. In the present case, though the petitioner had invoked the arbitration agreement at the time of dissolution of the partnership firm, negotiations did continue between the parties till December 2002. There was acknowledgment of liability to render accounts on both sides. In October 2005 when the petition was filed, the claim was very much alive.
34. For the reasons aforesaid, I allow the present application and appoint Mr. K. C. Lohia, retired District Judge, Delhi as the sole arbitrator to adjudicate upon the claims and counter-claims of the parties. The fee of the sole arbitrator is fixed at Rs. 50,000/- apart from out of pocket expenses, to be shared between the parties equally.
35. The petitioner is directed to file its statement of claim before the sole arbitrator by 15-04-07. The respondent would file its reply and counter-claim, if any, by 15-05-07. The petitioner may file its rejoinder and reply to the counter-claim by 16-06-07. The parties should also file their respective original documents along with their pleadings and conduct the admission/denial of documents by exchange of correspondence by 23-06-07. The parties are directed to appear before the arbitrator on 02-07-07 at 4 P.M. in his office. The learned Arbitrator should try and conclude the arbitration within six months of 02-07-2007. A copy of this order may be sent to the learned Arbitrator.