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Sundarlal Haveliwala Vs. Smt. Bhagwati Devi and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtAllahabad High Court
Decided On
Case NumberF.A.F.O. No. 342 of 1964
Judge
Reported inAIR1967All400
ActsArbitration Act, 1940 - Sections 6, 20 and 41; Partnership Act; Code of Civil Procedure (CPC) - Order 40, Rule 1
AppellantSundarlal Haveliwala
RespondentSmt. Bhagwati Devi and ors.
Appellant AdvocateJagdish Swarup, ;Ambica Pd., ;T.N. Sapru and ;T.N. Verma, Advs.
Respondent AdvocateAmbika Pd., ;B.L. Misra and ;M.P. Mehrotra, Advs.
DispositionAppeal dismissed
Excerpt:
.....of arbitrator in case of dispute - dispute arises - death of one of partner - application by legal representatives of the deceased - held, application under section 20 maintainable as remedy open to deceased partner is also open to legal representatives of the deceased. (ii) appointment of receiver - order 40 rule 1 of code of civil procedure, 1908 and sections 20 and 41 of arbitration act, 1940 - court empowered to appoint receiver of any property whether before or after passing of decree - justice and convenience basis of appointment. ..........deceased.' in the instant case, the application under section 20 of the act has been made by the legalrepresentatives to enforce the arbitration agreement, and consequently comments may be made which would be directly applicable to such facts. the second part of sub-section (1) of section 6 makes it clear that on the death of a party to the arbitration agreement, it shall in such event be enforceable by the legal representatives of the deceased. an arbitration agreement is enforced by compelling the other party to refer the disputes to arbitration and where both the parties are agreeable to arbitration, to have the disputes decided by arbitration. in other words, the legal representatives of the deceased can take steps for arbitration in the same manner as the deceased could have prior.....
Judgment:

Mathur, J.

1. This is an appeal by Sunder Lal Haveliwala against the order dated 26-9-1964 of the Civil Judge of Dehradun, allowing the application of Smt. Bhagwati Devi and Madho Lal Haveliwala, plaintiffs, for appointment of a Receiver and appointing two senior Advocates of Dehra Dun, namely, Sri Chaman Lal Singal and Sri B.B. Saran, as Receivers of Sri Janki Sugar Mills and Co., Doiwala.

2. The material facts of the case are that on October 25, 1952, seth Sunder Lal, appellant, seth Madan Lal, husband of Smt. Bhagwati Devi and father of Madho Lal, and Seth Sarju Prasad entered into partnership to run the above sugar Mills at Doiwala. The three partners were brothers and the share of each was one-third. The partnership agreement executed by the three partners is on the record and Clause 9 thereof provided.

'That in case of any dispute amongst the partners the matter shall be referred to an arbitration and the award of the arbitrator or the arbitrators as the case may be shall he final and binding on the partners.

3. Seth Madan Lal died on April 24, 1964, and the partnership automatically stood dissolved. There was no fresh partnership; but since after the death of seth Madan Lal, the other two brothers continued to run the Sugar Mills at Doiwala except for a short period when under the interim order of the High Court Seth Sarju Prasad and Madho Lal were allowed to run the Sugar Mills. This interim order was passed after the operation of the order of the Civil Judge under appeal was stayed and the Receivers appointed by him could not function as such Madho Lal had a cause of grievance and moved the High Court for vacating the above interim order and it was then that the F. A. F. O. was, with the consent of the parties listed for hearing in place of interim matters being decided and the F. A. F. O. taken up in due course for hearing.

4. Disputes appear to have arisen during the life time of Seth Madan La], but the present application under Section 20 of the Arbitration Act (to be hereinafter called as the Act) was, however, moved by his legal representatives, namely, Smt. Bhagwati Devi and Madho Lal, about two months after his death.

5. Three points had been raised by Sri Jagdish Swamp, Advocate, appearing for Sunder Lal: firstly that the present application under Section 20 of the Act was not maintainable; secondly that in a proceeding under Section 20 no Receiver could be appointed, and thirdly, that the present was not a fit case in which the court should appoint a Receiver.

6. Munshi Ambika Prasad, Advocate appearing for Sarju Prasad, opposite-party No. 3 has raised an additional ground, namely, that in the present proceeding no Receiver could be appointed as the scope thereof was a limited one and could not justify the appointment of a Receiver.

7. Clause 9 of the partnership agreement has been reproduced above. This clause contemplates arbitration where there exists a dispute amongst the partners. Naturally the disputes must pertain to the partnership business. On account of the use of the words 'amongst the partners' it was strongly contended that arbitration was possible only for so long as the partnership was not dissolved. It was suggested that after the dissolution no partnership firm was in existence and there could not be partners of a non-existing firm. The other point urged in this connection is that partnership firm stands dissolved on the death of a partner unless there be a contract to the contrary, and in the instant case, there being no contract to the contrary the parnership firm sood dissolved on the death of Seth Madan Lal, and consequently the legal representatives of Seth Madan Lal could in no case be treated as partners and they had no remedy under Section 20 of the Act.

8. In view of Section 6 of the Act the rights of the legal representatives to make an application under Section 20 shall depend upon whether the deceased could have moved the Courts of law for the filing of the arbitration agreement and for arbitration of the disputes after the dissolution of the firm Sub-section (1) of Section 6 of the Act has been worded generally and Sub-section (2) thereof merely narrates one of the points covered by Sub-section (1). Sub-section (2) clarifies that the authority of an arbitrator shall not be revoked by the death of any party by whom he was appointed. The sub-section has been added by way of clarification and not to restriet the scope of Sub-section (1) thereof. Sub-section (1) being general must be given its ordinary meaning.

9. Sub-section (1) of Section 6 of the Act runs as below:

'An arbitration agreement shall not be discharged by the death of any party thereto, either as respects the deceased or any other party, but shall in such event be enforceable by or against the legal representative of the deceased.'

IN the instant case, the application under Section 20 of the Act has been made by the legalrepresentatives to enforce the arbitration agreement, and consequently comments may be made which would be directly applicable to such facts. The second part of Sub-section (1) of Section 6 makes it clear that on the death of a party to the arbitration agreement, it shall in such event be enforceable by the legal representatives of the deceased. An arbitration agreement is enforced by compelling the other party to refer the disputes to arbitration and where both the parties are agreeable to arbitration, to have the disputes decided by arbitration. In other words, the legal representatives of the deceased can take steps for arbitration in the same manner as the deceased could have prior to his death.

10. The same inference can be drawn from the first part of Sub-section (1) of Section 6 of the Act. What this party lays down is that an arbitration agreement shall not be discharged by the death of any party thereto, either as respects the deceased or any other party. When an arbitration agreement does not stand discharged by the death of a party thereto, it contiunes to be enforceable and can be enforced by or against the legal representatives of the deceased. In other words, Clause 9 of the partnership agreement, which amounts to an arbitration agreement, can be enforced by the legal representatives of Seth Madan Lal' in the same manner Seth Madan Lal could, during his life-time enforce it. If Seth Madan Lal could have after the dissolution of the firm, compelled the other parties to the arbitration agreement to refer the disputes to arbitration his legal representatives can also enforce the arbitration agreement in the same manner. Naturally, therefore, if Seth Madan Lal could have moved an application under Section 20 of the Act, such an application can be made by his legal representatives also.

11. The arbitration clause in the agreement in issue in Balika Devi v. Kedar Nath Puri : AIR1956All377 was worded differently: therein all the disputes concerning the partnership business were to be referred to arbitration. In the instant case, the words used are 'disputes amongst the partners', and not 'concerning partnership business'. Consequently, the above decision is not directly applicable to the instant case. However, in view of the provisions of the Partnership Act, the same rule shall he applicable to the instant case also and the word 'partners' shall include 'partners of a dissolved partnership firm.'

12. The words 'partner' and 'firm' are defined in Section 4 of the Partnership Act which lays down that

'Persons who have entered into partnership with one another are called individually partners' and collectively 'a firm.'

Consequently, for so long as the firm is in existence i.e. has not been dissolved there can be no dispute in that the partners of fee firm are partners and shall be governed by Clause 9 of the partnership agreement.

13. A perusal of Section 39 onwards of the Partnership Act makes it clear that even after dissolution the partners are called partners though they are partners of the dissolved firm. For example, Section 46 lays down that: 'On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.'Similarly the partners of the dissolved firm are referred to as partners in Sections 47 to 55 of the Partnership Act. Consequently, the word 'partner' used in Clause 9 of the partnership agreement in question must be given the same meaning and this clause shall govern partners even after the dissolution of the firm and disputes among the partners existing after the dissolution shall have to be referred to arbitration and cannot be raised in a regular suit To put it differently, if Seth Madan Lal, wanted to seek remedy after the dissolution of the partnership firm, it would have been necessary for him to take steps for arbitration and where all the parties were not agreeable to refer the disputes to arbitration, to make an application under Section 20 of the Act. Legal remedy which Seth Madan Lal could have taken recourse to can, in view of Section 6 of the Act, be adopted by his legal representatives. The present application under Section 20 of the Act was thus maintainable.

14. Section 41 of the Act lays down the procedure and powers of the Court. Clause (a) thereof provides that -

'Subject to the provisions of this Act and of rules made thereunder; the provisions of the Code of Civil Procedure. 1908, shall apply to all proceedings before the Court and to all appeals, under this Act.'

This clause is a general one, but Clause (b) is a special provision with regard to matters set out in the Second Schedule of the Act. One of the powers of the Court detailed in the Second Schedule is the power to appoint a Receiver. Consequently, the material part of Clause (b) of Section 41 of the Act is that subject to the provisions of the Act and of rules made thereunder, the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of the appointment of a Receiver as it has for the purpose of, and in relation to any proceedings before the Court. The words 'for the purpose of' have a restricted meaning but the words 'in relation to' are general and shall cover all the proceedings leading to arbitration and the making of an award by the Arbitrator. Under Section 20 of the Act the Court decides whether the arbitration agreement be or be not filed, and thereafter the matter is referred to an arbitrator for arbitration. Consequently, the proceeding taken by the Court under Section 20 of the Act though not an arbitration proceeding akin to the proceeding to be taken by the arbitrator during arbitration, is a step leading to arbitration proceeding and is consequently a proceeding related to the arbitration proceeding. The action taken by the Court under Section 20 of the Act is thus in relation to an arbitration proceeding and while entertaining such a proceeding, the Court can make an order in respect of any of' the matters set out in the Second Schedule, that is, can appoint a Receiver under Order 40 Rule 1 C. P. C. A similar view was expressed in Nagarchand Goenka v Surendra Nath, AIR 1946 Pat 70 and certain observations made in Budhu Lal v. Jagan Nath, AIR 1949 All 70 corroborate this view.

15. At this place comments may be made on the additional ground raised by Munshi Ambika Prasad, Advocate, appearing for Sarju Prasad Haveliwala, opposite-party No. 3. It is true that the award of the arbitrator shall be with regard to the winding up of the dissolved partnership firm, but it shall be necessary for the arbitrator to determine the profits accrued to the firm since after the dissolution thereof. Where one of the parties makes serious allegations as to the running of the business by the others, it shall be necessary for the arbitrator to determine the actual profits of the dissolved firm, and not the profits as shown in the accounts. In other words, whether the business had been run properly or not is a matter in issue and where the Court finds that the business was not being run properly, it can consider the appointment of a Receiver so that none of the parties may suffer a loss The appointment of the Receiver shall in any case be to the interest of the party not being in a position to participate in the management and the running of the business.

16. A Receiver appointed by the Court acts for the Court to the interest of all the parties. The appointment of the Receiver is necessary to safeguard the interest of a party who otherwise shall suffer an irreparable injury. When during the arbitration the profits upto the winding up of the dissolved partnership firm shall be gone into, the Court can consider the appointment of a Receiver so that the party not in possession may not suffer an irreparable injury.

17. A perusal of the partnership agreement makes it clear that all the three partners were working partners in the sense that the Sugar Mills was run and could be run by all the partners. After the dissolution of the firm all the partners have the same interest in the properties of the dissolved firm and have similar rights to run the partnership business, in the same manner they could prior to the dissolution; of course, after the winding up of the partnership business, the partners other than those who have purchased the property shall have no interest in the properties of the dissolved firm. Winding up proceedings have not yet commenced and consequently Seth Madan Lal and after his death, his legal representatives, would be as much interested in the proper management of the Sugar Mills as the other two partners of the dissolved firm. When the interest of all the three sets of persons is the same, the other two partners, namely. Sunder Lal Haveliwalla and Sarju Prasad Haveliwala, cannot say that being the survivingpartners of the dissolved firm, they have a substantive right to run the Sugar Mills by exclusion of the legal representatives of the third partner.

18. In case the agreement among the partners was that the business shall be run and managed by only two, and not the third, it could be said, though no final opinion is being expressed on this point, that the third partner or his legal representatives had merely an interest in the accounting, and not in the running of the, business. In such a case the appointment of a Receiver may not be possible, but as already mentioned above, in the instant case, the partnership business was being run by all the partners and they had similar interest in the management thereof. Consequently, after the dissolution of the firm, they all including the legal representatives of Seth Madan Lal, stand in the same category and to safeguard the interest of the legal representatives, the Court can appoint a Receiver even in a proceeding for the winding up of the dissolved firm.

19. In the end, it may be observed that Order 40 Rule 1 C. P. C. has been worded generally, This rule gives power to the Court to appoint a Receiver of any property, whether before or after decree, on being satisfied that justice and convenience demand the appointment of a Receiver. Justice and convenience are the basis of appointment, and not the fact that certain parties have been in possession of the property and have been running the business for a few years.

20. This leads us to the consideration of the other question whether on the facts and circumstances of the case the appointment of a Receiver was necessary. Certain observations made by the learned Civil Judge are not correct and can even be said to be erroneous but there are two factors which make it clear that the appointment of a Receiver is absolutely necessary. Such an appointment shall be to safeguard the interest of the legal representatives and also to safeguard the interest of the other partners of the dissolved firm, in case the accounts maintained by them are true and correct. Balance sheets of the Sugar Mills of the previous years were produced before the Court during the hearing of the F. A. F. O. It shall be found that during the period the Sugar Mills was under the control and management of an Authorised Controller, the annual profits ranged between three lacs and 6 lacs of rupees. At the end of Dewali 1959 each of the three partners got Rs. 97,544.69 as profits in addition to interest at 6 per cent on their investment. In the next year, the profit of each partner went up to Rs. 1,99,931.84 and at the end of Dewali 1961 the profit paid to each partner was Rs. 90,396.52. After the Sugar Mills was handed over to the partners, the profits of each partner at the end of Dewali 1962 came down to Rs. 1968.22 Thereafter the Sugar Mills has been showing a loss. Loss at the end of Dewali 1963 was about Rupees 67,000 and at the end of Dewali 1964 the loss went up to Rs. 80,000/-.

When a partnership business starts running a loss, all the more, when the loss has gone up during the management of the present appellant and opposite-party No. 3, the appointment of a Receiver becomes necessary.

21. Another factor which cannot be overlooked is that at one stage during the year 1962-63 Sunder Lal Haveliwala transferred most of his investment, it is said, in favour of his son. The son was not one of the partners of the firm, and consequently could not derive any benefit except by way of interest out of the funds recorded in his name. Under the contract each partner was to get interest on the investment and after payment of such interest profits or losses were determined. Consequently, Sunder Lal Haveliwala could not be a loser if the money had remained in his name. Even then he transferred most of the investment in favour of his son and on an objection raised by Madan Lal re-transferred the funds in his name. This will show that the interest of the Sugar Mills is not the sole guiding factor of Sunder Lal and it is necessary to safeguard the interest of the legal representatives by appointing a Receiver.

22. The third factor to which stress has rightly been laid by the learned Civil Judge is that the legal representatives, who had the same right to management as the other two partners since after the dissolution of the firm, had been deprived of the right to participate m the management. Beyond this I need not make any comment lest the parties may be handicapped during the arbitration proceeding.

23. I, therefore, agree with the learned Civil Judge that the present was a fit case in which a Receiver should have been appointed of the properties of the dissolved firm, that is, of the Sugar Mills, Doiwala.

24. The parties to the dispute are on bad terms such that they cannot work together and, consequently, neither of the parties, nor all of them, could be appointed Receivers. A Receiver to be appointed by the Court must therefore, be an independent and respectable person. The parties have failed to suggest the name of any agreed person who could be appointed a Receiver. In the circumstances, the Civil Judge rightly appointed two senior Advocates of Dehra Dun as Receivers of the property.

25. The F. A. F. O. has no force and it is hereby dismissed with costs. It shall, however, be open to the Civil Judge to appoint in place of the two Advocates the previous Authorized Controller as Receiver in case that official can be spared by the Government of India to manage Sri Janki Sugar Mills and Company, Doiwala, in addition to his ordinary duties. The Civil Judge shall also have the power to remove any Receiver and to give such directions as may be necessary for the running of the business. All the stay orders are vacated.

The record of the case shall be returnedto the court below at once.


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