M/S G N Silks Vs Sri G Shankarappa

THIS CIVIL MISC. PETITION IS FILED UNDER SEC.11(5) OF THE ARBITRATION AND CONCILIATION ACT 1996, READ WITH RULE 2 OF SCHEME FOR APPOINTMENT OF ARBITRATOR BY KARNATAKA HIGH COURT, PRAYING THAT THE HON’BLE CHIEF JUSTICE BE PLEASE TO EXERCISE THE POWER UNDER SECTION 11(5) OF THE ARBITRATION AND CONCILIATION ACT OF 1996 AND APPOINT AS ARBITRATOR SRI. VEERANNA G. TIGADI OR ANY RETIRED DISTRICT AND SESSIONS JUDGE, AS THE ARBITRATOR OR ANY OTHER PERSON THAT THIS HON’BLE COURT DEEMS FIT TO APPOINT AS SOLE ARBITRATOR AND DIRECT THE ARBOTRATOR, TO ADJUDICATED THE DISPUTE THAT HAS ARISEN BETWEEN THE PETITIONERS AND THE RESPONDENT AS CLAUSE 16 IN THE PARTNERSHIP DEED DATED 24.07.2009, THE ANNEXURE-B TO THIS PETITION AND PASS SUCH OTHER ORDERS THAT THIS HON’BLE COURT DEEMS FIT.

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THIS PETITION, COMING ON FOR ADMISSION, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE ASHOK S.KINAGI

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ORAL ORDER

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This Civil Miscellaneous Petition is filed under section

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11(6) of the Arbitration and Conciliation Act, 1996, for the appointment of an Arbitrator to resolve the dispute that arises between the petitioners and respondent as per the provisions of the Arbitration and Conciliation Act, 1996.

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Brief facts, leading rise to the filing of this

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petition are as follows:

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It is the case of the petitioners that, the petitioners and the respondent are the partners of M/s. G. N. Silks, and the same was registered on 10.09.2009. Apart from the above partners, petitioner No.2's father, Sri. G.Narayanappa, who was a partner, died intestate on 15.07.2020. In view of the death of G. Narayanappa, all the other surviving partners succeeded in his interest in equal terms. That is to say, what was 1/4^th share or 25% share now enlarges to 1/3^rd share or 33.33%, which was brought to the respondent's notice, and he accepted the same. The said firm was a partnership at will, and the capital of the partnership firm was ₹10,00,000/-(Rupees Ten Lakhs only). The said firm commenced with effect from 31.07.2009. The said firm held a bank account, and all financial transactions were done through the said bank account. The details of the bank are within the respondents’ knowledge. Each of the partners is entitled to

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an equal share in all the profits and losses of the partnership firm. A bank account bearing current account No.0694102000002639 was opened at IDBI Bank, Yelahanka New town branch, Bengaluru, with a closing balance of ₹1,70,82,453.23/- (Rupees One Crore Seventy Lakhs Eighty Two Thousand Four Hundred and Fifty Three and Twenty Three paise only).

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The partnership firm has become defunct and is not operating. The petitioners submit that the amount in deposit in the bank account could not be withdrawn or kept in the fixed deposit in view of the differences between the respondent and petitioner Nos.2 and 3. Since the firm is no longer running the amount lying in the bank account, requires to be divided equally amongst all the partners. All three surviving partners of the firm are not joining together to operate the bank account; hence, the bank has recorded the objections raised by each partner and has frozen the account. Even before the account was frozen, the respondent had withdrawn the amount illegally

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without the consent of the other partners, and without their knowledge of the respondent's needs, and the petitioners have complained on this behalf in the bank. Thus, it can be seen that the issue is to be resolved at the earliest since, in view of the freezing of the account, the amount has not been transferred to a fixed deposit facility despite the requests made by the petitioners, citing that all the three surviving partners should make a joint request.

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Clause 19 of the deed of partnership provides for resolving the dispute between the petitioners and respondent, and the same is to be determined by the sole Arbitrator, to be appointed by the respondent. The Arbitration shall be as per the provisions of the Arbitration and Conciliation Act, 1996. The petitioners called upon the respondent to suggest a competent Arbitrator. If the petitioners were happy with the choice of the Arbitrator, the matter could be resolved, and the resolution could be made as soon as possible. The petitioners submit that,

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they simultaneously propose the name of Sri Veeranna G Tigadi, the retired District And Session Judge, Karnataka, currently practicing in Bengaluru, as the sole Arbitrator to resolve the dispute between the parties. Suppose the respondent was not inclined to accept the nomination of Sri. Veeranna G Tigadi, to conduct the arbitration proceedings, please to inform the Arbitrator of the respondent's choice.

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The petitioners submit that, on this behalf, they

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had issued a legal notice dated 25.06.2024 addressed to the respondent calling upon the respondent to get an arbitrator appointed, resolving the long pending issues. It was further, brought out in the legal notice that, on failure to reply to the legal notice, the petitioners would understand that the respondent is happy with the Arbitrator suggested by the petitioners. The petitioners submit that, the petitioners had called upon the respondent to either appear before the bank or co-operate to withdraw the amount kept in the account of the firm in

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the ratio of 1/3^rd in the name of each of the partners, and that the respondent being one of the partners would be entitled to 33.33% of the entire amount with interest. If the respondent felt that specific issues are required to be ignored, a request for the appointment of an Arbitrator was made, and further informing the petitioners of the same was called for. The said legal notice dated 25.06.2024 was duly served on the respondent. Instead of complying with the terms of the legal notice, the respondent had issued a reply dated 27.07.2024 through her counsel, taking up several untenable and incorrect stands, and thereby expressing that, the issue would not be resolved without an Arbitrator being appointed.

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The petitioners submit that, even after issuing

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the reply notice, the petitioners had taken the assistance of mediators, who are on good terms with the parties. An effort was made to settle the matter. However, the same did not materialize in view of illegal and unethical demands made by the respondent, thereby signaling, that

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the situation cannot be settled outside the court. Hence, as a last resort, the petitioners have filed the instant petition for the appointment of an arbitrator.

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The respondent appeared through the counsel, and did not file the statement of objections.

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Heard the arguments of the learned counsel for the petitioners, and the learned counsel for the respondent.

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Learned counsel for the petitioners submitted that the petitioners and respondent have formed a partnership firm, and a dispute has arisen between the petitioners and respondent. He submits that in the deed of partnership, the arbitration clause states that, if there were to be any dispute among the partners during the continuance of the partnership, then, the same shall be referred to Arbitration. The petitioners issued an arbitration notice, proposing the name of

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Sri Veeranna G Tigadi, retired District and Session Judge,

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as Arbitrator to resolve the dispute between the petitioners and respondent, and the respondent replied to the Arbitration notice on untenable grounds. He submits that, admittedly, there is an arbitration clause; the petitioners meet out a ground to refer the dispute to the Arbitrator. Hence, prays to allow the petition.

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Learned counsel for the respondent submits no objection to allow the petition.

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Considered the submissions of the learned

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counsel for the parties, and perused the records.

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The point, that arises for my consideration is as follows:

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‘Whether the petitioners make out a ground to refer the dispute to the Arbitrator in terms of clause 16 of the partnership deed dated 24.07.2009?’

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It is not disputed that the petitioners and respondent formed a partnership firm. The said

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partnership firm was registered on 10.9.2009. Apart from

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the partners, petitioner No.2's father, Sri. Narayanappa was also a partner. He died intestate on 15.7.2020, leaving behind petitioner No.2. In view of the death of G Narayanappa, 1/4^th shares were enlarged to 1/3^rd share, which was brought to the respondent's notice. The respondent did not come forward to settle the differences between the petitioners and the respondent. The said partnership firm has now become defunct. I have perused the deed of partnership dated 24.07.2009, which provides an Arbitration clause, which reads as follows:

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"16. If there were to be any disputes among the partners during the continuance of the partnership or thereafter, the same shall be referred to the Arbitration. The decision of the Arbitrators shall be binding on all partners. The provisions of the Indian Arbitration Act shall be applicable for all such arbitration proceedings, and all the disputes shall be settled within the jurisdiction of Bengaluru city."

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From the bare reading of clause 16 of the partnership deed, the presence of arbitration clause can be seen. The petitioners issued an Arbitration notice dated

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25.6.2024 proposing the name of Sri Veeranna G Tigadi, retired District and Sessions Judge, as an Arbitrator. The respondent replied to the arbitration notice vide reply notice dated 27.07.2024, stating that the respondent disagreed with the proposal submitted by the petitioners.

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Admittedly, there is an arbitration clause in the partnership deed, and a dispute has arisen between the petitioners and the respondent. In view of the Arbitration clause, the petitioners have made out a grounds to refer the dispute to the Arbitrator. In view of the above discussion, I answer the point for consideration in the affirmative.

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Accordingly, I proceed to pass the following:

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ORDER

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i. The Civil Miscellaneous Petition is allowed.

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ii. Sri. Veerana G Tigadi, learned retired District and Sessions Judge is appointed as the sole Arbitrator to resolve the dispute between the petitioners and

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respondent as per the provisions of the Arbitration and Conciliation Act, 1996.

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iii. The office is directed to send a copy of this order to the learned Arbitrator, and the Arbitration And Conciliation Centre, Bengaluru.

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Sd/(ASHOK S.KINAGI) JUDGE

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SKS

M/S G N Silks v. Sri G Shankarappa

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M/S G N Silks v. Sri G Shankarappa

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