Mahesh Kantilal Shah and others vs Shishir Chhotelal Shah and others

S. Radhakrishnan, J.—Heard the learned Counsel for the petitioners and respondents. Perused the Petition, impugned award, other exhibits, affidavit in reply on behalf of respondents 1 to 5.

This petition challenges the Award dated 15th January, 1998 passed by the learned Umpire. The brief facts are as under.

The petitioners and respondents were partners carrying on business in the name and style of M/s National Leather Cloth Manufacturing Company in pursuance of a Partnership Deed dated 7th November, 1983. The main business of the partnership firm was manufacturing and selling of leather cloths. In the said partnership firm 36% shares were held by the petitioners and the balance of 64% shares were held by the respondents. In the said partnership deed, clause 8 provides for that in the event of dissolution of the said partnership firm the 3rd, 4th, 8th, 13th 14th and 15th part of the partnership firm alone shall be entitled to the tenancy rights in the said premises as well as the good-will of the said partnership firm. Clause 21 of the said partnership deed also provides for that any partner is entitled to retire any time by giving three months advance notice to the other partners. Clause 24 provides for arbitration.

The respondent Nos. I to 5 had given a notice of dissolution dated 14th May, 1990 dissolving the said partnership firm w.e.f. 16-5-1988.

In view of the differences between the parties, the parties had filed an arbitration Suit being Arbitration Suit No. 3468 of 1988. Ultimately on 17th April. 1989 the said Arbitration Suit came to be compromised and the parties had filed certain consent terms wherein it was resolved that all the disputes and differences between the partners should be referred to Arbitration of Shri P. M. Amin and Shri D. J. Thakkar. The said consent terms also provided that the said Arbitrators should file the Award within four months from the date of entering upon the reference. It appears that both the Arbitrators mentioned hereinabove viz. Shri P. M. Amin and Shri D. J. Thakkar had appointed an Umpire. It is alleged that due to non-co-operation of the respondent Nos. 1 to 6 the learned Arbitrators could not complete the hearing within the prescribed time as well as the extended period from time to time. Ultimately the respondent Nos. 1 to 6 applied for extension of time but this Court had declined to grant. Under these circumstances the learned Umpire proceeded to hear the parties to resolve the disputes by way of an Arbitration. The learned Umpire had thereafter, after hearing all the parties passed the impugned Award on 15th January, 1998.

The main challenge to the Award passed by the learned Umpire by the petitioners is that the learned Umpire had failed to comply with the provisions of sections 44 and 48 of the Indian Partnership Act and in view of this the impugned Award is bad-in-law. According to the petitioners the said section 48 of the Indian Partnership Act, 1932 is mandatory and therefore the learned Umpire was required to make an account of assets and liabilities of the partnership firm and thereafter ascertain the shares of each of the partners in accordance with the said Deed of Partnership. According to the petitioners the learned Umpire could not have decided the issues as no accounts were finalised since assets and liabilities were not determined and as such no shares could also be determined without ascertaining, assets and liabilities as contemplated u/s 48 of the Indian Partnership Act.

The learned Counsel for the petitioners also submits that as the learned Umpire had failed to follow the provisions of section 48 of the Indian Partnership Act, the learned Umpire had failed to decide the issues specifically referred to the Umpire.

The learned Counsel for the petitioners also submits that the Award directing payment of Rs. 88,80,000/- is vague and uncertain and the same is bad-in-law.

The petitioners also challenge the Award on the ground that the learned Umpire had awarded 9% interest from 24-6-1989 and also enhanced interest at the rate of 12% p.a. from the date of impugned award until payment.

Therefore, the contention of the learned Counsel for the petitioners is that the learned Umpire had misconducted himself by not complying with the mandatory provisions u/s 48 of the Indian Partnership Act, 1932 as well as by not deciding the specific issues raised and referred to him: viz. the firm''s assets and liabilities of the parties and then decide the shares of partners as contemplated u/s 48 of the Indian Partnership Act, 1932. The challenge is also that the lump sum award of Rs. 88.80 lacs without any rational basis and is vague, uncertain and contrary to law.

The learned Counsel for the petitioners to substantiate the main ground of challenge viz. the mandatory obligation of the learned Umpire to follow the provision of section 48 of the Indian Partnership Act, 1932 relied upon a judgment of this Court in Sherbanubai vs. Hosseinbhoy reported in AIR 1948 Bombay 292. In the said case it is mentioned that if the learned Arbitrator were not to follow the provisions of section 48 of the Indian Partnership Act, 1932 it amounted to a legal misconduct and hence the Award was liable to be set aside. In the said case there was also an issue that the learned Arbitrator had awarded certain amounts by way of ex gratia payments which was the main challenge in the said case. Incidentally in the said case the issue of non-compliance of section 48 of the Indian Partnership Act was also taken up. In the said case the Court had observed that as the assets and liabilities were not determined by the learned Arbitrator and he had failed to comply with the provisions of section 48 of the Indian Partnership Act, thereby it amounted to a legal misconduct and u/s 30(a) of the Arbitration Act, 1940.

The learned Counsel for the petitioner also relied on a similar judgment in Chandrabhan vs. Birdichand reported in 1983 (1) Mh.L.J. 1043. In that case also this Court has taken a view that an Arbitrator has to comply with the provisions of section 48 of the Indian Partnership Act. This Court has also observed that the arbitrator cannot make any award, in breach of section 48 of the Partnership Act unless all parties have consented to any other method of disposal.

The learned Counsel for the petitioners also relied on the judgment of the Supreme Court in Union of India (UOI) Vs. Jain Associates and Another, . The learned Counsel for the petitioners had pointed out that in the said judgment the Supreme Court had observed that the Umpire had committed a misconduct by non application of mind to the claims and counter claims. The contention of the learned Counsel for the petitioner is that as observed by the Supreme Court in that case, the learned Arbitrator this case had failed to consider the material documents and thereby had misconducted himself in the said proceedings.

The learned Counsel for the petitioner also relied on another judgment of the Supreme Court in Asandas Mitharam Narsinghani and Others Vs. Tekchand Mitharam Sevakramani and Others, to show that the provisions of section 48 of the Indian Partnership Act, 1932 are mandatory.

The learned Counsel appearing for respondents strongly contended that though the provisions of section 48 of the Indian Partnership Act, 1932 are mandatory and in the instant case the same was not required to be followed in the sense that the parties had mutually agreed before the learned Arbitrators in the sense that the petitioners by their submissions before the learned Arbitrators in para (ee) have stated as under :-

"These respondents submit that as per the partnership and the said writing, the claimants were entitled to the payment of the amount arrived at on the valuation of the assets as mentioned therein and nothing more. These respondents say and submit that these respondents were at all times willing to pay and even now are willing to pay the amount due and payable to the claimants as per the valuation arrived at pursuant to the said partnership and the said writing." Similarly in para 20 of the said submissions made before the learned Arbitrator the present petitioners have stated as under:-

" The respondents submit that they are ready and willing to pay to the claimants 20% of their share in the post 1971 assets, after deducting the liabilities there from "

Even in para 21 the petitioners have stated that " ��. appropriate directions be given by the learned Arbitrators by ascertaining the amounts, if any, payable to the claimants, having regard to what is stated herein "

It is also an admitted position that the petitioners herein have after the said dissolution of the said partnership on 14th May 1988 have formed their new partnership firm by a Deed of Partnership dated 14th June, 1988.

Under these circumstances the learned Counsel for the respondents submits that they had mutually agreed that the petitioners herein were to form a new partnership firm and also they had mutually agreed and in view thereof, the present petitioners had agreed before the learned Umpire as well as the Arbitrators that the Arbitrators/Umpire to determine the amount payable by the petitioners to the said respondents 1 to 5. According to the learned Counsel for the respondent Nos. 1 to 5 in the instant case the learned Umpire was never even called upon to decide the assets and liabilities but they only called upon the learned Umpire to determine the amount which the petitioners were liable to pay for their leaving the partnership firm inasmuch as it is an admitted position the petitioners herein have already formed a new partnership firm separately. Therefore, the learned Counsel submitted that in the present case, there was no need to follow section 48 of Indian Partnership Act, as parties had otherwise agreed.

The learned Counsel for the respondent Nos. 1 to 5 had relied on a judgment of this Court in Union of India vs. Great Eastern Shipping Co. Ltd., reported in 1989 Mh L.J. 964. In the said judgment this Court has taken a view that even though the claim made before the learned Arbitrator may be several yet the learned Arbitrator is entitled to make a lump sum Award and this Court has also observed that once having made the award, it is not possible for a Court to probe into the mind of the Arbitrators as to how they have arrived at that figure.

The learned Counsel for the respondent Nos. 1 to 5 has also relied on a judgment in Rashtriya Chemicals and Fertilizers Limited Vs. Mohindersingh and Co. and Another, . In the said judgment delivered by a Division Bench of this Court it is categorically held that it was open to the Arbitrator to award a lump sum award even without disclosing as to how he had arrived at the said amount.

On similar lines even the Delhi High Court in Kali Charan vs. Delhi Municipality reported in AIR 1981 Del 301 has held that it is not open to the Court to speculate or to probe the mental process with which the arbitrator has reached the conclusion when it is not disclosed in the award.

In the said judgment the Delhi High Court has followed the observations of the Supreme Court in N. Chellappan Vs. Secretary, Kerala State Electricity Board and Another, , which read as under :

''''In the award, the umpire has referred to the claims under this head and the arguments of the Board for disallowing the claim and then awarded the amount without expressly adverting to or deciding the question of limitation. From the findings of the umpire under this head it is not seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record."

The learned Counsel for the respondent Nos. 1 to 5 has also relied on the judgment of the Supreme Court in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, . In this case the Supreme Court has also very categorically held that the arbitrator could give a lump sum award. He was not bound to give a separate award for each claim. Thereafter, the learned Counsel for respondents 1 to 5 also relied on a judgment in U.P. State Electricity Board Vs. Vijai Pictures, . In the said case Allahabad High Court has held that as the Award is not invalid merely because by a process of inference and argument it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion. The learned Counsel for the respondent Nos. 1 to 5 also relied on a judgment in State of Orissa and Others Vs. Lall Brothers, . In the said judgment the Supreme Court has again reiterated that an unreasoned award is no ground to set aside the award. A lump sum award, is not bad in law as such. In the light of the above cases cited by the learned Counsel for respondent Nos. 1 to 5 there is no error whatsoever on the part of the learned Umpire in awarding a sum of Rs. 88.80 lacs by way of lump sum in favour of respondent Nos. 1 to 5 to leave the said partnership being the amount payable to them.

The learned Counsel for the respondent Nos. 1 to 5 very strongly contended that throughout before the learned Arbitrators as well as the learned Umpire the main contesting parties viz. the petitioners herein had categorically agreed and submitted in their written submissions that the learned Arbitrators/Umpire shall only determine the amount payable by them to the respondent Nos. 1 to 5 and that they are ready and willing to pay the same. In fact the said petitioners herein had never desired before the learned Arbitrators or Umpire that the learned Umpire should determine the assets and liabilities and thereafter only determine the amount payable by the petitioners. Repeatedly at various stages as mentioned hereinabove the petitioners had contended that they are ready and willing to pay the amount as determined by the learned Arbitrators/Umpire. Therefore, the learned Counsel for the respondent Nos. 1 to 5 submit that even though, section 48 of the Indian Partnership Act, 1932 is mandatory the same is not applicable in the instant case as the parties have agreed before the learned Arbitrator only to determine the amount and not the assets and liabilities etc. The learned Counsel for the respondents 1 to 5 submits that this is a fraudulent defence taken up to challenge the award.

The learned Counsel for the petitioners main argument is that the learned Umpire had failed to comply with the provisions of section 48 of the Indian Partnership Act, 1932 is to be seen from the conduct as well as the submissions made to the learned Arbitrators/Umpire. As pointed out hereinabove the petitioners herein had categorically agreed that the learned Umpire should only determine the amount and there is no question of determining the assets and liabilities and then apportion the shares etc. In view of the very categorical written submissions of the petitioners before the learned Umpire as rightly pointed out by the learned Counsel for the respondent Nos. 1 to 5 this defence appears to be an afterthought and a fraudulent one in the sense before the learned Arbitrators/Umpire they have taken a plea that only the amount is to be determined and as such there is no question of determining any share as well as the assets and liabilities of the firm. Under the aforesaid facts and circumstances, I do not agree with the submissions of the learned Counsel for the petitioners that the learned Umpire had failed to comply with the mandatory provisions of section 48 of the Indian Partnership Act, 1932. The plea of the parties before the learned Arbitrators/Umpire is only for determination of amount and that plea for determination of assets and liabilities as well as the aforesaid ground cannot be construed as a ground for misconduct on the part of the learned Arbitrator. Even section 48 of the Indian Partnership Act, 1932 very categorically provides that the same was mandatory, but the parties can agree otherwise. In the instant case in view of the categorical submissions parties are agreeable that only the amount could be determined, there is no question of determining any assets and liabilities.

The second major ground of attack is that the learned Arbitrator has awarded Rs. 88.80 lacs without any basis or reasoning. As pointed out by the learned Counsel for the respondents 1 to 5 in various judgments, the learned Arbitrator is fully entitled to award a lump sum and this award being an unreasoned award there is no question of the learned Arbitrator giving details as to on what basis the amount of Rs. 88.80 lacs was arrived at. The parties in fact have agreed before the learned Arbitrators/Umpire that they do not wish to have reasons in the said award and now they cannot turn against the learned Umpire for not giving reasons. As has been held by our Court as well as by the Supreme Court that the learned Umpire is entitled to award a lump sum and by not giving reasons does not amount to any misconduct on the part of the learned Umpire.

The challenge with regard to the award of 9% interest from 24-6-1989, nothing can be faulted, as it is a reasonable rate of interest Regarding the enhanced rate of interest 12% p.a. from the date of award till date, the reason apparently appears to be that the learned Umpire has given time to the petitioners to pay the aforesaid amount of Rs. 88.80 lacs by installments of Rs. 20 lacs each on or before 15th February, 1998, Rs. 20 lacs on or before 15th May, 1998, Rs. 20 lacs on or before 15th August, 1998 and the balance amount on or before 15th December, 1998. Obviously in view of the above facility of installments granted to the petitioners the learned Arbitrator has awarded interest at the enhanced rate of 12% p.a. from the date of award and there is nothing wrong in the aforesaid order and there is no question of misconduct on the part of the learned Umpire.

In the original award dated 15-1-1998 direction for payment of Rs. 88.80 lacs as well as interest is against all the respondents who were directed to pay to the claimants. It appears that now the parties had approached the learned Umpire and sought a clarification and the learned Umpire by his order dated 20th June, 1999 has stated that certain clerical mistake has crept in the said award and made it clear that the word respondents should be substituted by the words respondent Nos. 1 to 6 at all the places in the award. The Award stands accordingly modified by the learned Umpire. That is to say respondent Nos. 1 to 6 in the said Award have been directed to pay Rs. 88.80 lacs and not all the respondents.

Under the aforesaid facts and circumstances I do not find any substance in the learned Counsel for the petitioners arguments and I do not find misconduct on the part of the learned Umpire in view of the reasons stated hereinabove. Hence the Petition stands dismissed. However, with no order as to costs.

The learned Counsel for the petitioners prays for stay of the decree. The learned Counsel for respondent Nos. 1 to 5 opposes the same. I do not find any ground for grant of stay, application for stay is rejected.