ABDUL KADIR SHAMSUDDIN BUBERE versus MADHAV PRABHAKAR OAK

702 SUPREME OOURT REPORTS (1962]

ABD"C'L KADIR SHA!lfSUDDIN BUBERE v.

MADHAV PRABHAKAR OAK

IK. N. WANCHOO, K. C. DAS GUPTA and J. c. SHAH, JJ.)

Arbitrction-All pmon8 intemled in the .ubject matter of di8pule Mt made parti-.-lf diapule could be referred to arbitration-Aaking for accounts-ff amounts lo a/legation of fraud-Arbitration Act, 1940 (X of 1940), 8. 20.

An agre<ment with regard to forest was entered into between the appellant and 0 and the respondents. Apart from 0 and another person was also interested in the said forest. The said agreement mentioned other earller agree· ments enterer! into with regard to the said forest. The cperative part of the agreement wa~ in lhesc terms:-

Should there be dispute between the partie• in connection "·ith this aQ'.reemcnt or in connection with the a~reements dated 22.10.19~8 and 5.5. 1952 or regard• ;ng Khan Bahadur Divakar's money or the Jungle cut· tin~ or export or in any other way, the same should be got decided in accordance with the current law by appointing arbitrators and through them."

Disputes arose between the appellant and respondents O and A. T!-e respondents filed an application under s. 20 of the Arbitration Act for reliers including accounts and appoint· rr.en t of receiver. '

The application was opposed by the appellant on the ~rounds inter alia that as one of the person who had an interest in the forest \\•as not party to the application, there could be no reference to the arbitration, as the whole dispute, as to the forest would not be before the arbitrator and furthrr, as there were allegations of fraud that was ground· for not referring the d~spute to arbitration.

/leld, that 'where parties entered into an arbitration agreement, knowing fully well that there was another person "·ho v..·as interested, but leaving him out, then the court should send the parties to the forum chosen by them, even if the other pt-rson \'.'ho r.iight be interestcr.I, and \vho~e share was not in dispute, could not be made party before the arbit-rator.

Where tli. share of person, not party before the arbitrator, was not in dispute, there could not be any bar to referrinll the dispute to arbitration on the ground that the whole dispute was not before the arbitrator. The arbitrator would decide the dispute between the parties before hil"I •nd

3 S.C.R. SUPREME COURT REPORTS

give an award leaving out the share of the person who was not party before him.

Held, further, that when serious alle1<atiom of fraud were made against party and the party w'io was charged with fraud desird that the m'tter should be tried in open court, t11at w0uld be sufficient cause for the court not to Qrder an arbitration agreement to be filed and not to make rCference. But it was not every a1legation imputing some kind of dishonesty particularly in matter' of accounts alleging that they were not correct or certain items were exaQgerated or allegations tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accnunts that would amount to such serious allegations of fraud as would impel court to refuse to order the arbitration agreement to be.filed and refuse to make reference and to take the matter out of the forum which the parties themselves had chosen.

In the presen ~ case, it cannot be said that the reference desired was piecemeal and split up the cause of action. The dispute raised was covered by the arbitration clause, and there was no such serious allegation of fraud as would be sufficient for the co·1rt ti) say that ther.~ was sufricient cause for not referring the dhpute to arbitration. Obiter. The pleadings in Mufassil courts could not be considered too strictly. ·

Russel v. Russel, [1880j I+ Ch. D. 471, discussed.

Charle• Osention and company v . .John•fon, r1942] A. C. 130, Maharajah Sir Maniwlra Ohnndra Nandu v. H. V. Low&: no., Ltd. A.I.R. 1924 Cal. 796, Narsingh Prasad BoobM v. Dhanrai Mills, l.L.R. (1942) 21 Pat. 544, Union of India v. Firm Vishvadha Ghee Vyopar Mandal, I. L. R. (19S3) 1 All. 423, Sudhangsu Bhattacharjee v. Ruplekha Pictures, LR. 1954 Cal. 281 a~d Manif1:a v. '!!he Railwau Pa.sengers Assur-ance Go. (1881) 44 L. T. 552, referred to. ·

CrVIL APPELLATE JURISDICTION: Civil Appeal No. 30.3 of 1958 .

. Appei>l from the judgment and decree. dated April 14/15,1955 of the Bombay Hi"h 0 Court in Appeal from Order No. 28 of 1955.

S. B. Sukhthankar, S. N. Andley, Rameshwar

Nath and P. L. Vohra, for the o:tppAllant.

A. V. Viswanatha Sa.stri and Ganpat Rai, for the respondents. -

Abdul Kadir Shamsuddin Bubert v. hfadhav Prabhakar Oak

1961 Abdul Kadir SJumuuddiri Bubtre v. /1.-fadhav Prabhakar Oak

1Yant""'1 J.

1961. September 20. The Judgment of the Court was delivered by

WANCIIOO, J.-This is an appeal on a. certificate

granted by the Bombay High Court. An applica-tion was rlled under s. 20 of the Arbitration Aot, No. X of Hl40. (hereinafter referred to as the Act) by the two respondents against tho appellant praying that tho arbitration agreement dated February 27, l!l53 may be filed in court, arbitration be made accordingly, and thereafter decree in terms of the award made by the arbitrator be p•ssed.

The circ11msta.nccs in which the application

was made were these. There is forest in village Done, which belonged to three persons, namely, Madhav Prabhakar Oak, respondent No. l, (herein-after rcferr0d to as Oak), Ilabaji Chandrarao Rane, uncle of thn second respondent (hcreinaft<?r referred to as Baba.Ji), Gajanan Babaji Rane (hereinafter calh·d Gajanan). Ok11 had six annas share in tho forest, Bahiji eight annas share and Gajanan two ann3s sharu. It may be mentioned that Gajanan's sharo' was purchased by the appellant in November l!J44. On October 22, 1948, partnership agree-ment was arrived at between Babaji, Oak and the app(·llnnt for cutting tho forest. The value of tho forest for the three owners was fixed at Rs. 60,000/-which was to be divided amongst them according to their shares. Tho work of cutting was to be dono by the appellant who oppears to be an experienced forest contractor. Any income over and above tho cxpcncliture incurred in the cutting and the V[l]uo of the forest wns to be divided equally amongst the three partners; if there was any loss that was also to be borne equally by them. It appears, however, that nothing was done in pursuance of this agreement, apparl'ntly bec:auso suit had boon filed by two persons with whom there was an earlier aq~eement of 1939 about the cutting of this very forest. It appears also tha.t in March l!l5l Gajana.n and the appellant e:.teou~ a.nother

3 S.C.R. SUPREME COURT REPORTS

document in which the price of Gajanan's share to be paid by tho appellant was raised. In_May 1951 Babaji died. Consequently in May 19o2 another agreement was executed between the appellant and the heirs of Babaji, nam9ly, Anant Yeshwant Rane respondent No. 2 (hereinafter referred to as Anant), Ambikabai, widow of Babaji, Gajanan and his mother Devubai and Oak. This agreement referred to the earlier agreement of 1948 and was obviously necessitated on account of the death of Babaji. It confirmed that agreement and stated that it was drawn up because of the necessity of Anant, Ambikabai and Devubai being made parties to the settlement in the agreement of 1948. The consi-deration of Rs. 60,000/- was divided between the owners, and Rs 51,000/- was to go to Oak, Anant and Ambikabai and the rest represented the price for which the appellant had purchased the share of Gajanan and his mother Devubai. Nothing seems to have been done in pursuance of this agreement either. In October 1952, another al(ree-ment was entered into between the appellant, the two respondents and one Khan Bahadur Divkar by which the cutting of the forest was assigned to Divkar for sum of Rs. 1,00,000/-. This amount was to be divided between the appellant and the respondents; Anant was to get Rs. 44,800/-, Oak Rs. 35, 700/- and the appellant Rs. 19,500/-. Divkar was unable to carry out his part of this agreement. Eventually on February 27, 1953, an agreement was entered into between the appellant and the two respondents as Divkar had not carried out his agreement. It was agreed between the pa.rties that the dispute with Divkar be got decided and the forest be cut in accordance with the agreements of October 22, 1948 and May 5, 1952. The operative part of this agreement also contained term for arbitration in cl. 6( 4), which is in these terms :-

"Should there be dispute between the parties in connection with this agree-ment or in connection with the agreements

Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak Wanchoo J,

1901 Abdul K•iir Samnddin Bub1r1 v. Maih4v Prabhakar Oak W.whH J.

[1962 )

dated 22.10.1948 and 5.5.1952 or regarding Khan Bahadur Divka.r's money or tho junglo - ~ cutting or export or in any other way, the same should be got docided in accordance with the current law by appointing arbitrators and through them."

It appears that thereafter the forest was cut by the appellant ; but disputes appear to have arisen betwoen the parties to tho last agreement of "' 1953; consequently respondents Nos. l and 2 filed tho application under s. 20 of the Act in August 1954.

The case put forward by the respondents in the application was that the appellant, though ho carried on tho work of cutting the forest, did not carry out the terms of the agreement of 1953 and " showed the statements of accounts intermittently to the respondents. It was all<.'god that the accounts were not mado up to date, and inspite of tho respondents' demand that the accounts should ho ma.de up to date, the appellant did not do so. The respondents also demanded that the goods remain-ing to be sold should be disposed of with the consent of all; but this was also not agreed to by ,· the appellant. The statement of accounts shown to the respondent was not complete and correct.. The whole stock of goods was not to be found in the statement of accounts and the debit items -~ seemed to have been exaggerated and were not correct; and consequently it was not possible to carry on tho business of partnership with the _ appellant and it was necessary to dissolve the partnership and take accounts of the partnership. It was also said that the appointment of receiver had become necessary in order to protect the interest of the resp on dents and that an injunction should be granted restraining tho appellant from removing the stock in balance so as to avoicl misappropriation theroof pending the appointmen'6- ... of a. receiver. The respondents prayed that tbl agreement of February 1953 for referring the

3 S.C.R.

dispute in connection with the agreements dated

October 22, 1948 and February 27, 1953 between them and the appellant should be filed in court and necessary directions made by the court.'

The application was opposed by the appellant. The agreement of February 27, 1953 was admitted by the appellant; but it was contenrled that no reference should be made to the arbitrator and number of grounds were urged in that <'onnection. It i1 not necessary for purposes of this appeal to refer to all the grounds in reply to the application of the respondents. We shall only refer to those grounds which have been urged before us and they are as below :-

(1) Ambikabai, widow of Babaji, admit-tedly had share in the forest and as she was not party to the application there could be no reference to arbitration as the whole dispute as to the forest would not be before the arbitrators.

(2) The respondents only desired in

their application that the disputes arising out of the agreements of October 22, 1948 and February 27, 1953 be referred to arbitration but did not include the agreement of May 5, 1952, and therefore no reference should be made as it would be piecemeal reference resulting in splitting up the cause of action.

(3) The dispute sought to be referred was not covered by the arbitration clause.

(4) The respondents had made allega-tions of fraud against the appellant in their application and that was also ground for not referring the dispute to arbitration.

It may be mentioned that the respondents later applied for the appointment of receiver, and that application was allowed. Eventually, however, the trial court dismissed the application under s.20 on two main grounds, namely, (i) that all the

AbdulKadir Shamsuddi• Buber1 v. M atlhav Prablzalcar Oak Wanchoo J.

AU&J KoJir Shams11.dd1n Buttrt v. AfatlMv Prabhakar Oak Wanch,.].

partieR who were ncceRsary in the matter of account· ing were not parties to the application under s. 20, · • and (ii) tl)at there were allegations of fraud against the appellant and therefore this was not fit case to be referred to arbitration.

This was followed by an appeal to the High Court by the present respondenta. The High Court held that even though Ambikahai had share in the forest and was not party to the application " under a. 20 her interest was sufficiently represented bv Anant and therefore it could not be said that afl the parties interested in accountinir would not he before the arbitrator. On the question of fraud, . the High Court took the vil•W that the allegations made in this case were not allegations of franc] at all and in any case were not suc:h allegations of ,, fraud as would make it incumb,•nt on the court to exereiae its discretion in favour of the appellant and refuse to refer tho dispute to arbitration. An argument was also raised before the High Court that the appellant was challenging the vory exis. tance of partnership between the partil'R and this question could not be referred to arbitration. The High Court, however, repelled this contention and held that the existonr.e of the arbitration agreemP-nt ' was never challenged by the appellant. It there. fore allowed the appeal and ordered that the arbitration agreement be filed in court and conso. quent proceedings be taken thereafter. As tho judgment was of revcr~al, the amount im·o!Hd was more than Rs. 20,000/· and the order was final order, the High Court grantt>d certificate; and '-that is how the matter has come up before us. Learned coun8el for the appellant has urged four points before us, which we have already indicated earlier. We propose to deal with t!IC'se po;nt8 one by one.

Re.\l). It is urged that Ambikabai admittedly...._

bas share in this forest and as she iR no party to~ .. thP. application under s. 20 no reference should be ;narle, ae the entiro dispute arising out of the

3 S.C.R.

agreements of October 22, 1948 and May 5, 1952 would not be before the arbitrator. This argument found favour with the trial court but the High Court repelled it holding that Ambikabai's interest was sufficiently represented in arbitration proceed-Y ings by Anant. If that is so, there could be no objection on this ground to the filing of the arbitra-tion agreement ; but even if that is not so, we are of opinion that that is no ground in the circumstances of this case for not referring the dispute to arbitration in accordance with the arbitration clause in the agreement of February 27, 1953. Babaji had brother Yeshwant and Anant is his son. It is not disputed that Babaji was holding eight annas share in the forest on behalf of the joint family consisting of himself and his nephew Anant, and his personal share in it was half, i.e., four annas. On his death his personal share would go to his widow Ambikabai while Anant would have the remaining half. Anant sppears to be the eldest mn,le member of the family now alive. Therefore, .'-in sense the High Court was right in holding that Anant would represent . the entire interest of the joint family which consisted of eight annas share in this forest. But even if this was not so because at one stage at any rate Ambikabai was <tlso party to the agreement of May 5, 1952, we can see no reason why the dispute as between the appellant .,> and the respondents should not be referred to arbitration. The share of Ambikabai as we have already stated above is not in dispute. Ambikabai was not party to the agreement of February 27, 1953, though she was party to the agreement dated May 5, 1952. The appellant was also party to the earlier agreement of May 1952 and knew that Ambikabai had share in this forest. Even -w so, he entered into the agreement of February 27, 1953, with the two respondents a.nd agreed to the disputes between him and the respondents being referred to arbitration. We fail to see how he can now say that the disputes between him and the

1961 Abdul Kadir Shamsuddin Bubere v. ~ Madhav Prabhakcr Oak Wanchoo .1.

1961 Ablhd Kadir Shamsvddin Bubert v. M adluw Pra>halm Oalc Wane/wo J.

710 SUPitEME COURT REPORTS

respondents should not be referred to arbitration because Ambikabai was not party to the agree-ment of February 1953. The reason why Ambikabai did not join in the application under s.20 was that she was not party to the agreement of February 1953 and could not therefore apply under s. 20; but that is no reason why the dispute between the appelll\nt and the two respondents should not be referred to arbitration, particularly when there is no dispute as to the share of Ambikabai in this forest. All th11t would happen would be that the arbitrator would decide the dispute between the appellant and the respondents and give an award leaving out the share of .Ambikabai, the extent of which is not in dispute. The matter might have been different if the share of Ambikabai was in dispute; but as the share of Ambikabai and it~ extent are not in dispute, the arbitrator can go into accounts and give an award with respect to the parties before him, leaving out the four annas share of Ambikabai. We see no reason why where parties entered into an arbitration agreement of this nature knowing fully well that there was another person who was interested but leaving her out, the court should not send the parties to the forum chosen by them, even if the other person who might be interested and whoso share is not in dispute c&nnot be made party before the arbitrator. We are therefore of opinion that oven if Anant may not be able to represent the interest of Ambikabai in tho arbitration proceedings that will follow in this case, that is no reason for not giving effect to the arbitration clause in the agreement of February 27, 1~53 as between the parties to that agreement. The contention therefore of the appellant on this point must fail.

Re.(2). It is true that in the application under

s. 20 the respondents have· asked for tho agreement of February 27, 1953 to be filed in court and the dispute in connection with that agreemont and tho ttgreement of October 22, Hl48 to be referred tu

I '~ [• ]

arbitration, and have not specifically asked for reference of the agreement of May 5, 1952, even though it was included in the agreement of February 1953. But as already indicated, the agreement of May[1952 is merely in confirmation of the agreement of 1948 and when the arbitrator goes into the dispute between the parties he will necessarily have to refer to the agreement of May 1952, so far as it is relevant. The agreement of May 1952 had to be entered into because of the death of Babaji. It is merely supplementary to the main agreement which is of October 22, 1948. In the circum-stances when the dispute is referred to the arbitrator under the agreement of February 1953 with respect to the agreement of October 1948, the arbitrator will be entitled to look into the con-firmatory agreement of 1952, for the main agree-ment was that of October 1948. We agree with the view of the trial court in this connection that the pleadings in muffasil courts cannot be con-sidered too strictly; even thB' trial court was prepared in case the matter should be referred to arbitrator to ask the arbitrator to consider also the agreement of May 1952. The agreement of . May 1952 would have to be considered by any arbitrator who is going into the dispute arising out of the agreement of October 1948. In the circumstances we are of opinion that it cannot be said that the reference desired in this case is piece-meal and split up the case of action. The conten-tion of the appellant on this score must also fail.

Abdul Kadir Shamsudtiin Bublre v. M atihav Prabhakar Oak

Re. (3). The oontention under this head is that the dispute flought to be referred was not covered by the arbitration clause. We have al-ready set out the arbitration clause and as we read it we find it is of very wide import. It provides for reference to arbitration of all disputes arising out of agreements of October 22, 1948, May 5,1952 and February 27, 1953. It also provides for refer-ence of an· diaputes arising out of the jungle

Abdul Iradr Shamsuddin Bubert

V, lfodhatJ Prabha!.ar Oak w '"'"'"" J.

cutting or export or in any othor way. In view of this wide language of the arbitration clause it cannot be possibly said that the dispute which has been raised in the present case is outside the terms of tho arbitration clause. Reliance in this connec· tion was however placed on the opening words of cl. 6 of thB agreement of February 1953, which Ray that tho agreement was arrived at "without prejudice to the cont<.mts of the letter sent by tho first party (namely, the appellant) to the second and third parties (namely, the respondents) on the date 7th of February, 1953, and without the first party (namely, tho appellant) withdrawing the said letter". This lotter contained cortain contentions of the appellant based on the agree-ments between the parties. Those words do not in our opinion in any way cut down the wide amp· litude of the arbitration clausr; at the best they can only mean that the appellant was free to raise the contentions which ho had ruised in this letter for the decision of tho arbitrator. Nor do these words confine the agreement of February 1953 only to the dispute arising out of the agree· ment with .Divka.r as contended for on behalf of the appellant. Wo arc theroforo of opinion that the dispute raised in this case is covered by tl1e arbitration ola.use, and the contention of the a.ppol-lant in this behalf must also fail.

\Ve now turn to tho question of

Re. (4). \Ve now turn to tho question of fraud. Tho contention on behalf of the appell.a.nt in this connection is that sorious allegations of fraud ha Vtl been made against him and therefore thi~ is not a. case which should be referred to arbi-tratiou. Sub-section ( 4) of s. 20 lays down that where no sufficient cause is shown, the court she.II order tho agreement to be filed and make an order of reference to tho arbitrator. It is therefore open to 11. court under this sub-section, where sufficient ca.use is shown not to order the agreement to be filed and not to make reference to the arbitrator. Tho words of this sub-section li:ave wide <liwrc· tion in the court to consider whether an order fur

3 S.C.R. SUPREME COURT REPORTS

filing the agreement should be made and refer-ence made accordingly. It is neither necessary nor desirable to lay down in general terms what would be sufficient cause which would entitle court to refuse to order the agreement to be filed and thus refuse to make an order of reference. The court will have to decide on the facts of each case whether sufficient cause has been made out for not ordering the agreement to be filed and not making the order of reference.

Learned counsel for the appellant, however, contends that serious allegation of fraud has been generally held by courts to be sufficient ground for not ordering the agreement to be filed and not making the reference. He relies in this connection on the leading case of Russel v.,Russel ('). That was case of partnership between two bruthers con-taining an arbitration clause. One of the brothers gave notice to the other for dissolving the partner· ship. The other brother thereupon brought an action alleging various charges of fraud and claim-ing that the notice should be declared void and no announcement of the dissolution of partnership should be allowed. Thereupon the brother who was charged with fraud moved that. the matter be referred to arbitration under the arbitration clause. That was resisted and the court held that "in case where fraud is charged, the court will in general refuse to send the dispute to arbitration if the party charged with the fraud desires public inquiry. But where the,. objection to arbitration is by the party charging the fraud, the court will not necessarily accede to it, and will never do so unless prima facie case of fraud is proved."

This case certainly lays down that where alle-gations of fraud are made, the party against whom such allegations are made may successfully resi11t the reference to arbitration.

(1) [1880] 14 Ch.D. 471.

1961 AbdutKadir ShamJudilin Bubert v. Madhav Prabhalcar Oak w ... choo J.

.Htfol Kadi• Sham.Jut/Jin Bllbtrt

v. A!aJ/iQD P1ahhakar Oak

The principle of this case was followed in

Charles Osenton and Company v. Johnston('). In tha.t case firm of estate agents and surveyors re· 11istcd the reference to an official referee under s. 89 of the J utlicature Act of l!l25. The decision of an official referee could not be called in question by appeal or otherwise except on point of law as provided by s. 1 of the Administration of Justice Act, 1932. Tho firm therefore contended that as their professional reput1.tion was involved tho matter should not be referred to tho official referee and tho House of Lords held that as the professional reputation of the appellants was involved, that qu~stion should not be left to the final decision without appeal of an official referee but should be tried before the normal tribunal of a. High Court with jury.

The principle of these cases has also been

followed in India. with reference to cases coming under SB. 20 a.nd 34 of the Act. (See, .Maharaja Sir Mahindra Chandra Nandy v. H. V. Low"' Co., Ltd. ('), Xarsingh Pr"8ad Boobna v. Dhanraj Mills('), Union of India v. Firm Vishvadha Ghee Vyopar Mandal ('), Sudhangsu Bhattachar;'ee v. Ruplekha Picture$(').

There is no doubt that where serious allega-

tions of fraud are ma.de against party and the party who is charged with fraud desires that the matter should be tried in open court, that would be sufficient cause for the court not to order an arbi-tration agreement to le filed and not to make the reference. But it is not every allegation imputing some kind of dishono~ty, particularly in matters of accounts, which would bo enough to dispost> court to take tho matter out of the forum which the par-ties themsolvee have chosen. This to our mind is clear even from the decision in Russel's case(•). In that case there were allegations of constructive and

(2) A. J. R. 1924 Cal. 796.

(I) [1942] A. C.130.

(3) I. L. R .(1942) 21Patna544. (4) l.L. R' (1953) I All. 423,

(l) A.l.R.1954. cal. 281.

(6) l1880] 14 Cb. D. 471.

3 S.C.R. SUPREME COURT REPORTS

&ctual fraud by one brother against the other and it was in those circumstances that the court made the observations to which we have referred above. Even so, the learned master of the :Rolls also obser-ved in the course of the judgment at p. 476 as follows:-

"Why should it be necessarily beyond the purview of this contract to refer to an arbitra-tor questions of account, evert when those que&tions do involve misconduct amounting even to dishonesty on the party of some part-ner ? I do not see it. I do not say that in many cases which I will come to in the second branch of the case before the Court, the Court may not, in the exercise of its dis-cretion, refuse to interfere; but it does not appear to me to follow of necessity that this clause was not intended to apply to all ques-tions, even including questions either imputing moral dishonesty or moral misconduct to one or other of the parties."

We are clearly of opinion that merely because some allegations have been made that accounts are not correct or that certain itema are exaggerated and 10 on that is not enough to ind11.ce the court to refuse to make reference to arbitration. It is only in cases of allegations of fraud of serious nature that the court will refu1e ·as decided in Russel' 8 ca.~e ([1]) to order an arbitretion agreement to be filed and will not make reference. We may in this connection refer to Minifie v. The Railway Passengers Assurance Company ('). There the ques-tion was whether certain proceedinas sb.ould be stay-ed; and it was b.eld that notwithstanding the fact that the issue and the evidence in support of it might bear upon the conduct of certain persons and of those who attended him and so might invol-ve question similar to that of fraud or no fraud, that was no ground for refusing stay. It is (I) [1880] 1•-ch. D. 471. (2) (1881)44 L.T. 552.

1961 .Abdul Kadir Shamsuddin Bubere1 •• Madhav Prabhakar Oak Wanclio1 J.

AidtJ Kadfr Sha1111uddin Bubtre v. Afatihav Prahhak4r Oak · Wanchoo ].

ilG SUPREME COUH,T REPORTS

only when serious allegations of fraud are made which it is desirable should be tried in open court that court would bo justified in refusing to order the arbitration agreement to be filed and in refusing to make reference.

I.et us therefore turn to the allegations in this

case to see :\·hat their nature is. Those allegations arc that (i) the accounts were not made up to date, and even on demand by the respondents, tho appel-lant did not bring thorn up to date; (ii) tho state-ments of aceoun•s which were shown by the appel-I:mt w<"re not complete and did not appear to be correct; and (iii) the w holo stock of goods was not to be found therein and the debit items appeared to be exaggerated and incorr<>ct. Thrse were tho only a.llegat1nns with respect to the accounta in the application and they do not in our opinion amount to serious allegations of fraud against the appellant which won Id necessitate that 'there should be trial in open court. Such allegation as to the correctness or ot.hcrwise of <>ntries in tho acco-unts arc often made in accounts suits; but they in our opinion are not such serious allegations of fraud as to induce court to order that tho arbitration agreement should not be filed and no reference should be made. Besides these allegations /18 to accounts tho respondents also said that an injunc-tion should be granted restraining the appellant from removing the stock so as to avoid misappro-priation thereof pending the appointment of re-('Civer. That was not an actual allegation of mis-appropriatien; it merely said that the respondents were afraid that there might be misappropriation in future unless an injunction was issued and re-ceiver appointed. :Further in the .affidavit in support of the application for appointmcnt of re-ceiver after referring to their own conclusions from the state of accounts, tho respondents said that they had not received the true and complete account of the felling of tho jungle, ready goods, the goods 11old and tho goods in balance from the appellant.

They also said that they suspected that on their conclusions from the accounts supplied to them, there might be misappropriation of the goods and of money. They further alleged that in the accounts shown to them, the sale of charcoal was shown at rate much lower than the prevailing market rate and under these circumstances the respondents ap-prehended that if the work of the sale of goods re-mained in the hands of the appellant, the real price of the goods would not be realised. There is no allegation, however, that in actual fact the appellant had made secret profits by selling goods at higher price and showing lower price in the acc:mnt. The respondents pointed to the entries in the account which showed the lower rate of the sale price in support of their apprehension tha.t if the work of sale of goods remained in the hand of the appellant the real price would not in future be realised. perusal therefore of the application under s. 20 and the affidavit filed in support of the application for appointment of receiver does not disclose any serious allegations of fraud against the appellant. What it discloses is that the respondents were not satisfied with the accounts submitted to them and were suspicious that they did not disclose the true and complete state of affairs. Such allegations, as we have already remarked are often made in account suits and if they were to be sufficient grouml for not referring an account suit to arbitration on the ground of fraud, hardly any arbitration agreement in matter in which accounting would be necessary could be referred to arbitration. That is why we em-phasise that even in the leading case of Russel, ([1]) the learned Master of the Rolls was at pains to point out that it could not necessarily be ~aid in case of accounts that no reference to arbitration should be made, even though questions relating to accounts which might involve misconduct amounting even to dishonesty on the part of some partner might arise in the arbitra.tion proceedings and even cases where moral dishonesty or moral misconduct is attributed to one party or the other might be (I} [1880] 14 Ch. D. -i71.

Abdul Kadir Shammddin Bubert v. Matlhav Prabha~ar O;k Wanciw<> J.

Abdul Kadir Sliamswidfo Bohm

V. M adhat. Prabhakar Oak lVancl.Oo J.

&pttmbtr 20.

referred to arbitration. It seems to us that every allegation tending suggest or imply moral dishonesty or moral misconduct in tho matter of keeping ac-counts would not amount to Ruch serious allet'ation of fraud as would impel court to refuse to order the arbitration agreement to be filed and refuse to make reforence. Looking to the allegations which have made in this case we aro of opinion that there are no such serious allegations of fraud in this case P.S would ho sufficient for the court to say that thcro is sufficient causo for not referring tho dispute to arbitration. This contention of the appellant must also therefore fail.

The appeal therefore fails and is here by dis-m isscd with cost a.

Appeal dismissed.

:IIOOL CHAND SHARMA

STATE OF UTTAR PRADESH

(B. P. SINHA, C.J., P. B. GAJENDRAOADKAR and RAGHUBAR DAYAJ,, JJ.)

Municipal Board-.Mnnber-lncurring of di~qualificaliot>­lf an<l when btcomea inr.ornpeltnt to •xercise Id.• right-U.P. Municipalitie.• Act, 1916 (U.P. II of 1916;, 88.13 D(8), 87A, sub-•.2.

The appellant was the Pre•ident of Municipal Commi-ttee. \\.'ritten notice of the intt'ntion to move motion of no · confidence in the President signed by nine memhcrs of the Board \vas delivered to the District ~fagistrate under s. 87-A .ub-s. (2) of the U.P. Municipalities Act, 1916. The District Magistrate duly convened meeting of the Board, .but b~~ore the date of the meeting the appellant moved writ pelltton in the High Court and questioned the validity of the notice. The writ petition \vas dismissed in limine inter alia as being premature. The Meeting of the Board was held on the due date and all the members present, voted for the motion of no confidence and the Munsif of the area who had presided de· clared the motion to have been carried. The appellant by hi• .econd writ petition be(orc the High Court desired that the