Interim Order 12

Order Details: COPY OF ORDER
Pdf Text: CS (COMM) 5781/2024 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page 1 of 8 Patiala House Court, New Delhi
IN THE COURT OF SH. PULASTYA PRAMACHALA,
DISTRICT JUDGE (COMMERCIAL COURT)-01,
PATIALA HOUSE COURT, NEW DELHI
CS (COMM) 5781/2024
In the matter of: -
Mr. Sumit Raj Prajapati
…Plaintiff
Vs.
1. Mr. Jitendra Kumar Mehta
2. Mrs. Shashi Mehta
3. Ms. Nidhi Jaiswal
4. M/s. J.k. Mehta (HUF)
5. Mr. Raj Kumar Projapati
…Defendants
Date of pronouncement of the order : 18.08.2025
ORDER
1. Vide this order, I shall decide the application under Section 8 of
Arbitration and Conciliation Act, 1996, which was filed by
defendant no. 1.
2. Briefly stated, this suit has been filed by plaintiff against five
defendants, which includes proforma defendant no.5. As per case
set up by the plaintiff, plaintiff and defendant no.1 were
practicing Chartered Accountants. Defendants no.2 to 4 are
related to defendant no.1. In August 2021, plaintiff and defendant
no.1 entered into a verbal agreement for transfer of business and
goodwill of defendant no.1 to the plaintiff for monetary
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CS (COMM) 5781/2024 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
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consideration of Rs.45 lacs. Plaintiff and defendant no.1 had
formed a partnership firm on 01.12.2021 in the name and style of
“M/s. Jitendra Kumar & Co.”. Their afore-said oral agreement
included transfer of all business from clients of defendant no.1
and his related entities to the plaintiff. Defendant no.1 had agreed
to exit the partnership firm and not to use the firm’s name etc.
After successful completion of oral agreement, plaintiff had to
pay the consideration amount to defendant no.1. Defendant no.1
was paid Rs.55 lacs by plaintiff during the period from
03.09.2021 to 05.01.2022. The payments were made to defendant
no.1 and his related entities. With the formation of partnership
firm vide partnership deed dated 01.12.2021 executed between
defendant no.1 and plaintiff, the brand names/goodwill of
defendant no.1 i.e. “Jitendra Kumar Mehta” and “Jitendra Kumar
& Co.”, stood transferred to the partnership firm. This
partnership was at Will and could be terminated by service of
notice. Profit sharing was fixed in the ratio of 9:1 between
defendant no.1 and plaintiff. This profit-sharing ratio was
inverted after receipt of all cash flows during that financial year
and accordingly on 01.04.2022 amended partnership deed was
executed between the parties with ratio of profit as 9:1 between
plaintiff and defendant no.1. However, defendant no.1 inserted a
provision in amended partnership deed to show that he was
entitled to an extra 10% of gross receipts of the firm with effect
from 01.04.2023. In April/May 2022, defendant no.1 had
withdrawn a sum of Rs.35.40 lacs from the firm as interest free
loan, which was to be returned at the time of his exit from the
firm. On 05.11.2022, defendant no.1 forced the plaintiff and the
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CS (COMM) 5781/2024 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page 3 of 8 Patiala House Court, New Delhi
firm to vacate the office at Vasant Kunj, which belonged to
defendant no.1. On same day, defendant no.1 changed the
password of the firm’s e-mail account with Yahoo Mail account.
Defendant no.1 thereafter did not hand over the client data,
records, documents and contact details to the plaintiff despite
multiple reminders. On 24.06.2023, plaintiff implemented a
standardised password for all clients of the firm on the Income
Tax online portal. However, subsequently he received flurry of
automated e-mails on the firm’s new e-mail ID from Income Tax
Department, thereby intimating the change of login passwords in
respect of firm’s clients. Plaintiff contacted defendant no.1, but
he did not receive any concrete response regarding afore-said
change in the passwords. Subsequently, plaintiff learnt that
defendant no.1 had been carrying out dealings with his clients
through his other associates i.e. defendant no.2 to 4 and he had
been receiving the payments from the clients bypassing the afore-
said plaintiff partnership firm and the plaintiff. Plaintiff
confronted defendant no.1 with a list of 133 clients and defendant
no.1 remained in denial mode. Thereafter, defendant no.1 got the
bank account with ICICI Bank freezed, which was in the name of
firm. Plaintiff and defendant no.1 had several exchanges of
notices and communications. Defendant no.1 issued e-mail to
ICAI, thereby claiming that plaintiff had separated from the firm
and hence, this suit was filed by plaintiff.
3. In the plaint, plaintiff prayed to pass a decree of: - (i) recovery of
money directing defendants no.1 to 4 to jointly and severally pay
a sum of Rs.45,00,000/- to the plaintiff; (ii) rendition of accounts
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CS (COMM) 5781/2024 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page 4 of 8 Patiala House Court, New Delhi
directing defendant no.1 to disclose and render the true and
complete accounts of the independent chartered accountancy
practice carried on by defendant no.1 from 01.12.2021 till the
date of decree and to account for and pay the profits from the
same to the plaintiff/firm and (iii) settlement of accounts and
winding up of the partnership firm namely M/s. Jitendra Kumar
& Co. including directions to defendant no.1 to return loan of
Rs.35.40 lacs to the plaintiff and pay the share in the expenses
incurred by the firm or by the plaintiff on behalf of the firm.
Plaintiff has further prayed for an award of pre-litigation,
pendent lite and future interest @ 12% per annum on the
amounts awarded in favour of plaintiff and costs of the suit to the
plaintiff.
PLEA TAKEN IN APPLICATION U/S. 8 OF ARBITRATION
& CONCILIATION ACT
4. In the application, it is pleaded by the applicant that plaintiff in
this suit has placed significant reliance upon partnership deed
dated 01.04.2022, which was executed between plaintiff and
defendant no.1. Said deed explicitly incorporates a redressal
mechanism under Clause (20). The partnership deed executed on
01.04.2022 was preceded by a similar partnership deed executed
between the parties on 01.12.2021 between the same parties.
Present suit is not maintainable because the present dispute
emanates from the partnership deed dated 01.04.2022, which
contains arbitration clause. The only remedy available to plaintiff
was to raise claims against defendant by invoking the arbitration
clause. It is further alleged that plaintiff has impleaded other
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District Judge (Commercial Court)-01,
Page 5 of 8 Patiala House Court, New Delhi
defendants (defendants no.2 to 4) in malicious manner and solely
because of their relationship with defendant no.1.
5. In support of his contentions, ld. counsel for applicant relied
upon certain case laws, which are as under: -
1. Reliance was placed upon the case of Hindustan Petroleum
Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC
503, referring to mandatory nature of S.8 of the Act.
2. Reliance was placed upon the case of Sanjay Mehra v. Sharad
Mehra, 2023 SCC Online Del 2025; Vidya Drolia & Ors. v.
Durga Trading Corporation, (2021) 2 SCC 1; and Hitesh
Chabra & Anr. V. Sandeep Chhabra, Arb. P. 1093/2024
decided on 14.08.2022 by Hon’ble High Court of Delhi, to
submit that there is limited scope of court’s jurisdiction u/s. 8
of the Act.
3. Reliance was placed upon the case of Ajay Madhusudan Patel
v. Jyotindra S. Patel, (2025) 2 SCC 147, on the issue of non-
signatories being bound by the arbitration agreement.
4. Reliance was placed upon the case of Rashid Raza v. Sadaf
Akhtar, (2019) 8 SCC 710, to submit that simple allegations
of fraud is no ground to nullify arbitration agreement.
REPLY TO CAPTIONED APPLICATION
6. In the reply to afore-said application, plaintiff has taken plea that
though it is true that there exists an arbitration agreement
between plaintiff and defendant no.1, but same is limited in
scope. It applies only to dispute arisen between the parties thereto
in relation to the partnership firm or in regard to construction of
any clause thereof in relation to the rights, duties and obligations
of the parties thereto. The perusal of plaint makes it clear that
disputes have arisen not only in relation to afore-said partnership
deed, but majorly in relation to earlier verbal agreement between
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CS (COMM) 5781/2024 (Pulastya Pramachala)
District Judge (Commercial Court)-01,
Page 6 of 8 Patiala House Court, New Delhi
plaintiff and defendant-1. The partnership deed was merely a
consequential agreement to factualize the verbal agreement, but it
does not capture in entirety of the terms and covenants of the
verbal agreement. The partnership had come into existence much
after the parties had entered into the verbal agreement.
7. In support of his contention, ld. counsel for plaintiff relied upon
certain case laws, which are as under: -
1. Calcom Cement India Ltd. & Anr. V. Binod Kumar Bawri,
2016 SCC OnLine Gau 118.
2. Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anr.
(2003) 5 SCC 531.
8. I have heard both the ld. counsels for the parties and perused the
record.
APPRECIATION OF ARGUMENTS, LAW & FACTS
9. Before examining the merits of the application, it is necessary to
consider the language of Section 8(1) of the Arbitration and
Conciliation Act, 1996 which provides as under: -
“(1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if
a party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement
exists.”
10. The object of Section 8 is to ensure that if there exists a valid
arbitration agreement between the parties, the judicial authority
must refer the matter to arbitration. The present application under
Section 8, was filed on 01.02.2025, after service of summons on
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District Judge (Commercial Court)-01,
Page 7 of 8 Patiala House Court, New Delhi
13.01.2025.
11. In respect of requisite conditions to be looked into, while dealing
with such application, Supreme Court in
Booz Allen and
Hamilton Inc. v. SBI Home Finance Limited and ors. 2011 5
SCC 532 held as under: -
“
19. Where a suit is filed by one of the parties to an arbitration
agreement against the other parties to the arbitration agreement,
and if the defendants file an application under Section 8 stating
that the parties should be referred to arbitration, the court
(judicial authority) will have to decide:
whether there is an arbitration agreement among the parties;
(it) whether all the parties to the suit are parties to the
arbitration agreement;
whether the disputes which are the subject-matter of the suit
fall within the scope of arbitration agreement
whether the defendant had applied under Section 8 of the Act
before submitting his first statement on the substance of the
dispute; and
whether the reliefs sought in the suit are those that can be
adjudicated and granted in an arbitration.”
12. In the present case, the plaint discloses a verbal agreement
between the parties. Plaintiff has based his allegations on the
terms and conditions of that verbal agreement rather than the
terms and condition of partnership agreement. The allegations
made by him do show that partnership firm vide the alleged
partnership agreement, came into existence on the basis of prior
alleged oral agreement between the parties and plaintiff allegedly
paid Rs. 45 lacs as consideration of the same. Thus, one of the
requisite conditions to invoke S. 8 of the Act, so as to show that
subject matter of suit is entirely covered by the agreement
containing arbitration clause, is not satisfied in this case. The
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District Judge (Commercial Court)-01,
Page 8 of 8 Patiala House Court, New Delhi
case laws relied upon by the applicant do help the applicant to
get rid of afore-said condition. Applicant has pleaded that dispute
is covered by the partnership agreement, which is not a correct
plea.
13. Hence, I find that application under consideration is devoid of
any merit. Accordingly, same is rejected with cost of Rs. 5000/-
to be paid by defendant-1 to the plaintiff.
Pronounced in the (PULASTYA PRAMACHALA)
Open Court on this District Judge (Commercial Court)-01,
18th day of August, 2025 Patiala House Court, New Delhi
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