Delhi High Court
S.K. Seigell vs Rakesh Seigell And Anr. on 18 February, 1986
Equivalent citations: 1986(2)ARBLR129(DELHI), 30(1986)DLT152
Author: D.P. Wadhwa
Bench: D.P. Wadhwa
JUDGMENT D.P. Wadhwa, J.
(1) This is a petition Shd under S. 41 read with Second Schedule of the Arbitration Act. There are two respondents. The petitioner and the respondents constituted a partnership firm in the name and style of 'S. K. Sei2.ell & Company' by deed of partnership dated 1-6-1981. The partnership was at will. The relevant clause 11 of the partnership deed is as under :- "The partnership shall be at Will and any partner can retire from the partnership after giving three months notice in writing to the other partners of his/her intention -to do so. During the three month period, the accounts will be made up and the account will be settled as per mutual agreement."
(2) It is stated that respondent No. 2 retired from the partnership after giving a notice on 17-6-1985 under clause 11 as aforementioned. There, thus, remained two partners, i.e. the petitioner and respondent No. 1. On 10-8-1985 the petitioner also gave a notice to respondent No. 1 retiring from the partnership firm. it is not disputed that on retirement of the petitioner the partnership stood dissolved as at that. time there were only two partners. Then, clause 17 of the partnership deed contains the arbitration agreement between the parties and is as under:- "That all disputes and questions in connection with this partnership arising between the partners or their legal representatives and whether during or after the partnership shall be referred to the Arbitration of the Arbitrator(s) one to be appointed by each party under the provisions of the Indian Arbitration Act, 1940 and the statutory modifications thereof for the time being in force."
(3) Disputes and differences having arisen, the petitioner invoked the arbitration clause. It is stated that ail the parties have appointed their respective arbitrators. While by letter dated 13-9-1985 the petitioner appointed Mr. K. G. Mittal, Chartered Accountant, as his arbitrator, respondent No. 1 by his letter dated 26-9-1985 appointed Mr. R. K. Tulwar Advocate, as his arbitrator, and respondent No. 2 by her letter dated 9-9-1985 appointed Mr. Prem Bhushan Kapoor, Chartered Accountant, as her arbitrator.
(4) The petitioner has made allegations that respondent No. 1 is using the property of the partnership including its goodwill for his own benefit to the exclusion of the petitioner and this he is doing in contravention of the provisions of the partnership deed and the law. The petitioner says that respondent No. 1 has no authority to use the assets and goodwill of the partnership firm and that he should be stopped from doing so until the affairs of the partnership are completely wound up. Further prayer of the. petitioner is that a receiver be appointed to take possession of all the assets and books of account of the partnership firm till the disposal of the arbitration proceedings.
(5) On the request of the petitioner, I appointed a local commissioner who made inventory of the assets of the partnership and submitted his report.
(6) It is not disputed that under the partnership it is respondent No. 1 who is the accounting party. Serious allegations A have been made against him that he is creating false and fictitious liabilities to deprive the petitioner of his share in the assets of the partnership.
(7) This application has been opposed by respondent No. 1. The first and foremost objection is that the present application under S. 41 of the Arbitration Act (for short the Act') is not maintainable and secondly that respondent No. 1 has, under the terms of the partnership, right to carry on the business. Allegations of misconduct against respondent No. 1 have been denied.
(8) I need not go into the allegations of misconduct against respondent No. 1 inasmuch as if a firm is dissolved then under S. 53 of the Partnership Act a partner is entitled to restrain any other partner from carrying on a similar business in the firm name or from using any of the properties of the firm for his own benefit until the affairs of the firm have been completely would up. Nothing has been shown if there is any term to the contrary in the partnership deed. However. Mr. Rawal said, with reference to clause 11 and 12 of the partnership deed, that respondent No. 1 could carry on the business. I may reproduce clause 12 which is as under:- 'THEdeath to any partner or retirement or parting off, during the continuance of the partnership shall not ipso-facto operate as a dissolution of the firm and the legal heirs of the deceased or retiring partner shall be entitled to the amount only standing to .the credit of the deceased (Retiring partner). Legal heirs shall not have any right in the goodwill of the firm."
(9) These clauses, to my mind, would apply only in a case where out of the three partners, one retires. If there are only two partners then on the retirement of one of the. partners. the firm stands dissolved and consequences on the dissolution of the firm follow.
(10) As noted above. the main argument of Mr. Rawal was that provisions of S. 41 of the Act were inapplicable. He said that these provisions could be invoked only if arbitration proceedings were pending and in the present case. he said, only the arbitrators had been appointed and the arbitrators had not entered into the reference. Thus, Mr. Rawal said the court could not exercise powers under the Second Schedule to the Act. S. 41 of the Act is as under :-- "4.1Subject to the provisions of this Act and of rules made there under (a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act and (b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power to making orders in respect of any of the matters set out in the Second Schedule as It has for the purpose of, and in relation to. any proceedings before the Court: Provided that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters."
Mr. Rawal referred to a decision of the Supreme Court in Hari Shanker Lal v. Shambhu Nath . In this case. one of the objections to the award was that it was not given within the time fixed by law. Reference was made to Rule 3 of the First Schedule to the Act which is as under :- "3.The arbitrators shall make their award within four months after entering on the reference or after having called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow."
The question was could a notice to act be given only when an arbitrator was net acting, i.e. he refused or neglected to discharge his duty. The court said that every notice could not give a fresh period unless in fact the arbitrators refused or neglected to act before such notice was given. The legal position was formulated as under:- "(a) A notice to act may be given before or after the arbitrators entered upon the reference, (b) If notice to act is given before they entered upon the reference, the. four months would be computed from the date they entered upon the reference. (c) If a party gives notice to act within 4 months after the arbitrators entered upon, the reference, the arbitrators can make an award within 4 months from the date of such notice. And (d) in that event, after the expiry of the said 4 months the arbitrators become functus officio, unless the period is extended by court under S. 28 of the Act; such period may also be extended by the court, though the award has been factually made."
The Supreme Court held that notice, in the case before it. was given long after the expiry of four months from the date when the arbitrators entered on the reference and, therefore, they could no longer act pursuant to the notice calling upon them to. act and that the proper course was to apply to the court for extension of time under S. 28 of the Act. It was thus held that the award was made after the expiry of the period of limitation. Mr. Rawal, therefore, said that on the analogy of this decision of the Supreme Court, this court had no jurisdiction under S. 41 of the Act inasmuch as there were no arbitration proceedings as the arbitrators had yet to enter upon the reference. Supplementing his argument, Mr. Rawat also referred to a decision of the Orissa Hish Court in Maitrel Shukia v. Rashik; Lal Rathor (I.L.R. 1975 Cuttack Series 216) (2) wherein it was held that power under S. 41 of the Act could not be exercised when the arbitration -proceedings had become infractions by efflux of time Reliance in this judgment was placed on the aforesaid judgment of the Supreme Court and it was' held that after the expiry of the period of four months the arbitrator became functus officio unless the period was extended by court under S. 28 of the Act.
(11) I may at this stage note two decisions of the Supreme Court in Union of India v. Raman Iron Foundry and M/s. H. M. K. Ansari & Co. v. Union of India . These decisions do not appear to me of much relevance to the controversy involved in the proceedings before me. However, I may note that in Raman Iron. Foundry's case. the court said. with reference to the provisions of S. 41(b) read with Second Schedule, that a court has power to issue interim injunction but such interim injunction could only be for the purpose of and in relation to arbitration proceedings. In fact, this is what S. 41(b) says. In M/s. H.M.K. Ansari & Co.'s case, the court said that clause (a) of S. 41 made only the procedural rules of the Civil Procedure Code applicable to the proceedings in court under the Arbitration Act and that the clause did not authorise the court to pass an order of injunction. The power was conferred by clause (b) of S. 41 and that the source of power, therefore, could not be traced to clause (a).
(12) I may note that sub-section (3) of S. 37 of the Act says that for the purposes of the section (S. 37) and of the limitation, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto, a notice requiring the appointment of an arbitrator.
(13) It is not disputed that either in a proceeding under S. 20 falling in Chap. .Ill or a proceeding under Stalling in Chap. Ii of the Act, the court has power to make orders under S. 41 of the Act provided however the orders are "for the purpose of. and in relation to, arbitration proceedings". Mr. Rawal wants me to read in these words "for the purpose of, and in relation to. arbitration proceedings" that arbitration proceedings should be pending for the court to exercise powers under S. 41 of the Act. But, then how could it be said that when proceedings under S. 8 or S. 20 of the Act are pending in court, it necessarily means that arbitration proceedings are also pending? A party may instead of proceeding under Chap. Ii proceed under Chap. Ill of the Act. S. 8 of the Act, which falls in Chap. Ii, says that where an arbitration agreement provides .that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments, then any party may serve the other parties with a written notice to concur in the appointment or appointments. If the appointment is not made within fifteen clear days after the service of the notice, the court may, on the application of the party who gave the notice. appoint an arbitrator. Now. it would be strange argument that if a party files a proceeding in court under S. 8 of the Act, the court has jurisdiction to pass orders under S. 41 of the Act but if the parties concur in the appointments or make appointments of the arbitrators under She arbitration agreement, the court has no power under S. 41 of the Act. The authorities referred to by Mr. Rawal both of the Supreme Court and of the Orissa. High Court have no relevance to the case before me. S. 41 of the Act does not merely apply in the case of pending arbitration proceedings but orders under this section can be passed "for the purpose of' and "in relation to" arbitration proceedings. The arbitration proceedings need not be pending and may be impending. The Supreme Court does not say that after the arbitrators had become functus officio all orders made earlier under S. 41 of the Act automatically came to an end: If I accept the argument now advanced before me, what will happen in a case where the court in exercise of powers under S. 28 of the Act extends the time for making the award which power can be exercised even after the time for making the award had expired? This argument will, therefore, lead to anomalous results. In the present case, the arbitrators have been appointed. The authority of an appointed arbitrator cannot be revoked except with the leave of the court (S. 5) and an arbitration agreement does not come to an end by the death of any party thereto and even the authority of an arbitrator does not stand revoked by the death of any party by whom he was appointed (S. 6). If the arbitrators so appointed do not act. the parties are not without remedy. It is not that the court cannot pass orders under S. 41 of the Act till the arbitrators act, and in the meanwhile allow the properties to fritter away to the prejudice of the party complaining. I would, therefore, reject the argument of Mr. Rawal.
(14) Once a partnership dissolved, a partner can restrain the other partner from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up. Though the reply of respondent No. 1 is full of superfluous and unnecessary pleas the fact remains it is not denied that respondent No. 1 is using the goodwill. property and the assets of the partnership. It is said that he has a right to do so under the terms of the partnership. I have gone through the various clauses of the partnership deed. There is no such right with respondent No. 1. He is. thus, to be restrained from using the properties of the partnership. It is not clear to me if there arc any pending; orders which are necessary to be executed by the partnership. If that be so, the business of the partnership can be carried on to that extent. I am also of the opinion that it is just and convenient that a receiver be appointed in the present case. Earlier, I had appointed Mr. Rajiv Patta, Advocate, as local commissioner had he prepared an inventory of the books of account and of the machinery and stock of the partnership lying at the premises of the partnership. Mr. Rajiv thitta will now be receiver to take charge of the assets of the partnership including the books of accounts. He will permit the business to be carried on to the extent that pending orders are executed. All payments received by respondent No. I in respect of the affairs of the partnership shall be deposited by him in the account of partnership. Respondent No. I will bs allowed to withdrew such expenses as may be necessary from this account and as right be permitted by the receiver. The receiver will submit his report within one month from today. He will be paid a sum of Rs, 3,0001- as his' fee in the first instance which shall be payable by the petitioner and respondent No. I as per their share ratio in the partnership. The fee will be exclusive of all the other expenes.
(15) This petition, therefore, stands allowed. The petitioner will be entitled to costs. Counsel's fee Rs. 500.00 .