Bangalore District Court
Smt.Hema Raju vs ) Smt.M.N.Padmavathi on 28 August, 2020
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 28th day of August, 2020
PRESENT: Sri.Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:92/2012
PLAINTIFF/ SMT.HEMA RAJU,
PETITIONER W/o.Sri.K.P.Govinda Raju,
Aged about 51 years,
R/at D-15, Rajmahal Guttahalli,
2nd Main road, Venkatarangapuram,
Bengaluru -560 003.
[By Pleader M/s.Pragati Law Chambers]
/Vs/
DEFENDANTS/ 1) SMT.M.N.PADMAVATHI,
RESPONDENTS S/o.Sri.Narayana Raju,
Aged about 52 years,
R/at No.5, 2nd Main Road,
Lakshmipuram,
Bengaluru -560 019.
[By Pleader Sri.G.Balakrishna Shastry]
2) SRI.N.S.SANGOLLI,
District Judge (Retd.),
No.197, 2nd Floor,
Above Ratnakar Bank,
5th Main, 6th Cross, Gandhinagar,
Bengaluru -560 009.
[Arbitrator]
AS.92/2012
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J U D G M E NT
This suit is filed by Plaintiff [Respondent in
the arbitral proceedings] under Section 34 of the
Arbitration and Conciliation Act, 1996, for setting
aside the arbitral award dated 17.09.2012 passed
in favour of Defendant No.1 [Claimant in the arbitral
proceedings], by sole Arbitrator/Defendant No.2 in
Arbitration Matter bearing CMP.No.36/2011.
2) In brief, Plaintiff's case is that, Plaintiff and
Defendant No.1 constituted a Partnership Firm by
name "M/s. Sri Lakshmi Industries" vide Partnership
Deed dated 20.03.1997 and an industrial shed was
allotted in the name of Partnership Firm by
Karnataka State Small Industries Development
Corporation [KSSIDC] vide Sale Deed dated
29.09.1997.
3) It is stated that, said Partnership Firm came
to be dissolved between Plaintiff and Defendant
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No.1, vide 'Dissolution Deed' dated 02.12.1997 and
all the properties of Partnership Firm stood
transferred to Plaintiff.
4) It is stated that, General Power of Attorney
[GPA] got executed by Defendant No.1 was
cancelled by her vide legal notice dated
22.03.2009. She also issued arbitration notice
dated 06.06.2009 seeking appointment of
Arbitrator. In CMP filed by Defendant No.1, the
Hon'ble High Court appointed 2 nd Defendant as sole
Arbitrator for adjudication of the dispute and
impugned award came to be passed.
5) Being aggrieved by the award, Plaintiff has
challenged the same on the following grounds :
(1) Learned Arbitrator failed to note
that Arbitration Agreement referred to the
'Arbitration Act, 1940' and as such,
proceedings under the 'Arbitration and
Conciliation Act, 1996' could not be
entertained.
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(2) Learned Arbitrator failed to note that
arbitration clause in Partnership Deed could
not be applicable in the instant case.
(3) Learned Arbitrator failed to note that
dissolution of the registered Partnership
Firm can only be done by a Civil Court
under Section 44 of the Partnership Act,
1932. Arbitration Clause does not empower
the Arbitrator to dissolve the Partnership
Firm.
(4) No notice was issued for dissolution
of Partnership Firm, hence, arbitral award
deals with a dispute not contemplated by
the parties.
(5) Learned Arbitrator ought to have
held that, Claim of 1 st Respondent is
barred by law of limitation. Article 5 of the
Limitation Act, 1963 has not been
considered by learned Arbitrator. Learned
Arbitrator has committed patent illegality
in not considering the issue of limitation.
(6) 1st Respondent sought for relief
without seeking declaration that
Dissolution Deed is not binding on her.
Without looking into the said aspect of the
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matter, learned Arbitrator erroneously
passed the award.
(7) Learned Arbitrator's finding as to
Dissolution Deed is fabricated, is a
complicated question of fact, which
cannot be looked into by learned
Arbitrator.
(8) Learned Arbitrator failed to note
that Partnership Deed stood dissolved by
Dissolution Deed and by the act of
Registrar of Firms. Learned Arbitrator has
erroneously overruled the endorsement
issued by the Registrar of Firms without
being disclosing the dissolution of
Partnership Firm.
For all these reasons, prays for setting aside the
award.
6) 1st Defendant marked her appearance
through her Counsel. But, she has not chosen to file
statement of objection.
7) Heard learned Counsels for Plaintiff and
Defendant No.1. Perused the records.
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8) Point that arises for consideration is that :
" Whether Plaintiff has made out
any of the grounds as
enumerated in Section 34 of
the Arbitration and Conciliation
Act, 1996 to set aside the
award? "
9) My answer to above point is in the
affirmative; for the following :
REASONS
10) This suit came to be filed by Plaintiff for
setting aside the arbitral award passed by the sole
Arbitrator, whereby, learned Arbitrator was pleased
to pass an award in favour of 1st Defendant by
allowing the claim petition filed by 1st Defendant.
Award passed by learned Arbitrator is as follows :
" The partnership formed on 02.03.1997 as
per Ex.R4 is dissolved from the date of
filing claim petition i.e. 09.11.2011 and
the parties are entitled to share the loss
or profit of the business of the firm M/s
Laxmi Industries run in the suit shed to
be decided as per the relevant provisions
of Partnership Act 1932 applicable after
the dissolution of the partnership.
It is declared that the claimant is
entitled for 51% share in the suit shed
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No.C-35 situated in industrial estate
Bashettihalli, Doddaballapur, Bangalore
District and ask for division of it to take
her 51% share in it. Parties to bear their
own costs."
11) From the award, it has been clear that,
learned Arbitrator dissolved the Partnership Firm
with effect from 09.11.2011, the date on which
Claim Petition was filed by Defendant No.1.
12) Plaintiff's specific contention before the
learned Arbitrator is that, Partnership Firm formed
between Plaintiff and Defendant No.1 got dissolved
by Dissolution Deed dated 02.12.1997 and that
Partnership Firm was not in existence as on the
date of filing of Claim Petition. It is contended that,
despite Plaintiff's contention, 1st Defendant has not
sought for declaration as to 'Dissolution Deed dated
02.12.1997' as null and void by amending the Claim
Petition and in the absence of such prayer, learned
Arbitrator passed an award by declaring that
Partnership Firm formed on 02.03.1997 is dissolved
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from the date of filing of claim petition holding that
Dissolution Deed [Ex.R1] is a concocted document
and that Partnership Firm is still in existence.
13) From the findings of learned Arbitrator, it is
thus clear that, without there being any prayer as
to declaration of 'Dissolution Deed' as null and void,
learned Arbitrator granted the relief by holding that
Dissolution Deed is a concocted document. Under
Section 34 of the Specific Relief Act, 1963,
declaratory relief can be granted by the Court only
in its discretion. Dissolution Deed is termed as
concocted document, without there being pleadings
of 1st Defendant as contemplated under VI Rule 4 of
the Code of Civil Procedure, 1908 and that too, in
the absence of prayer for declaration. In
Radhakrishnan Vs. Maestro Engineers [(2010)
1 SCC 72], the Hon'ble Supreme Court was
pleased to hold that :
"7. .... The High Court in its impugned
judgment has rightly held that since the
case relates to allegations of fraud and
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serious malpractices on the part of the
respondents, such a situation can only be
settled in court through furtherance of
detailed evidence by either parties and such
a situation can not be properly gone into by
the Arbitrator."
14) Findings of learned Arbitrator in holding the
Dissolution Deed as concocted document are as
under :
" ........ To add to all this as can be clearly
noticed from the Stamp pages on which Ex.R1 is
written are purchased on 17.05.1997. That is
the dissolution deed is executed on 09.05.1997
and the stamp papers are purchased on
17.05.1997. This remains unexplained. Why the
date 09.05.1997 is written in it, is not clear. So
also no attempt was made to show that the
dissolution was done on 09.05.1997 and Ex.R1
was written on 17.05.1997. at page 5 also the
date with pencil is written as 09.05.1997.
According to me and according to respondent
also Ex.R1 is the main document to prove the
dissolution of "Laxmi Industries" firm. Other
documents such as Ex.R6 to R.8, Ex.R10 to R.12
receipts for having paid money to KSSIDC Ltd
and Ex.R9, R12 to R16 etc speak about the
correspondences pertaining to the business of
the firm. They are of the year 1994 and 1995.
The fact is that these are produced by RW1 who
is none else than the husband of respondent a
full sister of claimant. It is but natural that when
husband of CW1 was ill and suffering from
cancer and ultimately died of it RW1 being a
close relative, CW1 has no alternative but to rely
on RW1 and if he were managing the affairs of
the firm it must be taken only on behalf of his
wife respondent only on the basis of EXR1 which
is unreliable because of the reasons discussed
above. Thus the evidence of RW1 read ExR1, R3
and other documents proves one fact only that
EXR1 is concocted document ......."
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15) It is apparent that, learned Arbitrator, having
regard to the date of purchase of stamp papers has
come to the conclusion that, Dissolution Deed is a
concocted document. Having perused the
Dissolution Deed at Ex.R1, it is clear that, 1 st page
of Ex.R1 begins with "This deed of dissolution of
Partnership made on this day 9/5/1997 between
the partners namely-....". Date "9/5/1997" was
written by hand. Learned Arbitrator observed that,
"date is written with pencil". Coming to page-3 of
Ex.R.1, para-1 begins as follows :
"(1) The Partnership firm "Shri Lakshmi
Industries" shall be deem to have been
dissolved, to all intends and purposes with
effect from . ...."
It is to be noted that, in above para, date is
left blank as to when Ex.R1 shall come into force.
16) Similarly, in page-4 of Ex.R1, para-3 begins
as, "That the firm has ceased to be in existence
from . ..." . Here also, date is left blank as to
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when it ceases to exist. Ex.R1 is a typed document.
It has been typed on the stamp papers dated
17.05.1997 as observed by learned Arbitrator.
From Ex.R1, it is clear that, same has been drafted
without mentioning the date. Under such
circumstances, presumption would naturally arise
that, after drafting Ex.R1, in the 1st page, date has
been written by hand and in Page Nos.3 and 4, date
is left blank. However, it is to be noted that, Ex.R1
bears the signatures of both Plaintiff and Defendant
No.1 at the end of each page and in the last page
[page No.5], Defendant No.1 put her signature as
'First Party' and Plaintiff as 'Second Party' and same
was attested by two witnesses. These aspects of
the matter clearly indicate that, there exists Ex.R1.
Merely based on the date mentioned as 09.05.1997
in 1st page of Ex.R1 and having compared the same
to the date of purchase of stamp papers, learned
Arbitrator has come to the conclusion that, Ex.R1 is
a concocted document. Plaintiff's contention is that,
AS.92/2012
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Partnership Firm got dissolved on 02.12.1997.
Learned Arbitrator has held that, no such Deed is
produced. However, it is to be noted that, Plaintiff
has relied upon Ex.R1 in order to prove that
Partnership Firm got dissolved between Plaintiff and
Defendant No.1.
17) Deed of Partnership makes it clear that,
Partnership Firm is not a partnership at will. In that
circumstance, the firm may be dissolved by any
partner giving notice in writing to all other partners
of his intention to dissolve the firm as contemplated
in Section 43 of the Partnership Act, 1932.
Partnership Deed further makes it clear that, there
is no specific contract between Plaintiff and 1 st
Defendant in Partnership Deed regarding the
dissolution of the firm. Under such circumstances,
Partnership firm may be dissolved with the consent
of all the partners as provided in Section 40 of the
Partnership Act, 1932. Here, in this case, Plaintiff
AS.92/2012
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relies on Ex.R1 stating that both the parties have
mutually dissolved the Partnership Firm under
Ex.R.1. However, date of its execution is in dispute.
Ex.R5, Sale Deed 29.09.1997 makes it more specific
that, Partnership Firm was not dissolved either on
09.05.1997, the date mentioned in Dissolution
Deed or on 17.05.1997, the date mentioned in
stamp papers. Ex.R5 got executed by KSSIDC in
favour of M/s.Sree Lakshmi Industries, represented
by its Partners Smt.M.N.Padmavathi and
Smt.Hemaraju on 29.09.1997. Smt.Hemaraju
represented Smt.M.N.Padmavati as her GPA holder
in Ex.R.5. Hence, Ex.R.5 clearly goes to show that,
the Partnership Firm was not dissolved till
29.09.1997. In order to counter such anomaly, it is
necessary to have regard to the Acknowledgment
of Registration of Firm [Form C] and Memorandum
acknowledging receipt of documents [Form D],
which find place on record. Acknowledgment of
Registration of Firm makes it clear that, "M/s. Sree
AS.92/2012
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Lakshmi Industries" got registered before the
Registrar of Firms, Bangalore Rural District,
Bangalore on 05.06.1997 vide No.11/97-98. Even
though, Deed of Partnership came to be entered
into between Plaintiff and Defendant No.1 on
20.03.1997, it came to be registered on
05.06.1997. Memorandum acknowledging receipt of
documents [Form D] got issued by Registrar of
Firms on 07.06.2002 for having filed Form No.V of
Dissolution Deed. It indicates that Dissolution Deed
was filed on 07.06.2002 before the Registrar of
Firms. Moreover, endorsement made on Register of
Firms [which is on file] indicates that, Partnership
Firm registered on 05.06.1997 got dissolved.
Having considered all these aspects of the matter,
having regard to Memorandum acknowledging
receipt of documents [Form D] and Register of
Firms, it can be said that Partnership Firm got
dissolved on 07.06.2002. Section 68 of the
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Partnership Act, 1932 deals with Rules of Evidence.
It reads as follows :
"68. Rules of Evidence.
(1) Any statement, intimation or notice
recorded or noted in the Register of Firms
shall, as against any person by whom or on
whose behalf such statement, intimation or
notice was signed, be conclusive proof of
any fact therein stated.
(2) A certified copy an entry relating to a firm
in the Register of Firms may be produced in
proof of the fact of the registration of such
firm, and of the contents of any statement,
intimation or notice recorded or noted
therein."
18) A bare reading of Section 68 makes it clear
that, any statement, intimation or notice recorded
or noted in the Register of Firms shall be conclusive
proof and same may be proved by producing
certified copy of Register of Firms. In the instant
case, Plaintiff has produced both Memorandum
acknowledging receipt of documents [Form D] and
Register of Firms, which clearly indicate that,
Partnership Firm got dissolved on 07.06.2002.
Under such circumstances, it is unnecessary to rely
upon the date mentioned in Dissolution Deed. From
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the note mentioned in Register of Firms, it is
conclusively proved that, Partnership Firm formed
on 20.03.1997 and registered on 05.07.1997, got
dissolved on 07.06.2002. This vital piece of
evidence has lost the sight of learned Arbitrator.
Had the learned Arbitrator considered the Register
of Firms, he would not have held that, Partnership
Firm is still in existence and no declaratory relief
would have been granted to the effect that
Partnership Firm is dissolved from the date of filing
of Claim Petition by 1st Defendant.
19) Plaintiff contends that dissolution of
registered Partnership Firm can only be done
through Civil Court under Section 44 of the
Partnership Act, 1932 and Arbitrator has no
jurisdiction to dissolve a Partnership Firm.
20) Section 44 of the Partnership Act, 1932 deals
with Dissolution by the Court. It read thus :
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"44. Dissolution by the Court.- At the
suit of a partner, the Court may dissolve a
firm on any of the following grounds,
namely:-
(a) that a partner has become of
unsound mind, in which case the suit may
be brought as well by the next friend of
the partner who has become of unsound
mind as by any other partner;
(b) that a partner, other than the
partner suing, has become in any way
permanently incapable of performing his
duties as partner;
(c) that a partner, other than the
partner suing, is guilty of conduct which is
likely to affect prejudicially the carrying on
of the business, regard being had to the
nature of the business;
(d) that a partner, other than the
partner suing, wilfully or persistently
commits breach of agreements relating to
the management of the affairs of the firm
or the conduct of its business, or otherwise
so conducts himself in matters relating to
the business that it is not reasonably
practicable for the other partners to carry
on the business in partnership with him;
(e) that a partner, other than the
partner suing, has in any way transferred
the whole of his interest in the firm to a
third party, or has allowed his share to be
charged under the provisions of rule 40 of
Order 21 of the First Schedule to the Code
of Civil Procedure, 1908 (5 of 1908), or has
allowed it to be sold in the recovery of
arrears of land-revenue or of any dues
recoverable a arrears of land-revenue due
by the partner;
(f) that the business of the firm
cannot be carried on save at a loss; or
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(g) on any other ground which renders
it just and equitable that the firm should
be dissolved."
21) Of course, Section 44 specifically mentions
that, Court may dissolve a firm. If Partnership
Deed contains arbitration clause to resolve the
dispute through arbitration, then, it would be not
relevant to hold that, Arbitrator has no jurisdiction
to dissolve the Partnership Firm. In Yogendra N.
Thakker vs. Vinay Balse and Anr [Arbitration
Petition No.8/2018, decided on 13-06-2018],
the Hon'ble Bombay High Court was pleased to
hold that, "where the partnership agreement of a
firm provides a wide arbitration clause and states
that all disputes between partners shall be resolved
through arbitration, it also involves the question of
dissolution of a firm".
22) In the instant case, the crux of the matter is
that, whether learned Arbitrator could have
arbitrated the matter relying on the arbitration
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clause in the Partnership Deed? Admittedly, as on
the date of filing of Claim Petition by 1 st Defendant,
the Partnership Firm got dissolved, which has been
substantiated by Memorandum acknowledging
receipt of documents [Form D] and Register of
Firms. Without there being appreciation of said
documents, learned Arbitrator, having relied upon
the arbitration clause in dissolved Partnership Firm,
passed the award. No source of power can be
assumed under the Partnership Deed, which ceased
to exist on dissolution of Partnership Firm. Under
such circumstances, learned Arbitrator ought not to
have arbitrated the claim made by 1st Defendant.
However, his findings as to Dissolution Deed makes
him to rely upon arbitration clause in the
Partnership Deed.
23) Plaintiff contends that, Claim made by 1 st
Defendant is hopelessly barred by limitation. No
explanation has been forthcoming from 1 st
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Defendant, as to how the Claim Petition is
maintainable after 13 years of dissolution of the
Partnership Firm.
24) From the award, it is clear that, Plaintiff has
taken the issue of limitation before the learned
Arbitrator, however, same has not been considered
by learned Arbitrator. Section 3 of the Limitation
Act, 1963 reads as follows :
"3. Bar of Limitation.- (1) Subject to the
provisions contained in Sections 4 to 24
(inclusive), every suit instituted, appeal
preferred, and application made after the
prescribed period shall be dismissed,
although limitation has not been set up as a
defence".
25) Section 3(1) of the Limitation Act makes it
clear that, it is mandatory for the Court to dismiss
the claim made after the prescribed period of
limitation, although limitation has not been set up
as a defence. In the instant case, Plaintiff took a
specific plea regarding limitation. However, same
was not considered. Plaintiff contends that, claim
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petition is not maintainable due to lapse of 13 years
from the date of dissolution of Partnership Firm.
Admittedly, arbitration notice for appointment of
Arbitrator was issued by 1st Defendant on
06.06.2009. As provided in Section 21 of the
Arbitration and Conciliation Act, 1996, arbitral
proceedings commence on the date on which a
request for the dispute to be referred to arbitration
is received by the respondent. Section 43(2)
specifically states that, for the purpose of limitation,
an arbitration shall be deemed to have commenced
on the date referred in Section 21. In the light of
above provisions of law, it can be said that arbitral
proceedings have commenced on 06.06.2009 [it is
not known, when Plaintiff received the request for
arbitration]. At the time of initiation of arbitral
proceedings, there should be a live claim. Article 5
of the Limitation Act, 1963, mandates that, "..for an
account and a share of the profits of a dissolved
partnership, suit is required to be filed within three
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years from the date of the dissolution". It has been
established that, dissolution of Partnership has
been recorded in Register of Firms on 07.06.2002.
Had the Claim Petition of 1st Respondent been
considered to be for an account and share of the
profits of a dissolved partnership firm, Claim
Petition ought to have been filed by her within three
years from the date of dissolution. Having taken
into consideration of the date of arbitration notice,
Claim Petition has been filed after a lapse of 7 years
from the date of dissolution of firm, which has been
recorded in Register of Firms.
26) In ASSOCIATE BUILDERS VS. DELHI
DEVELOPMENT AUTHORITY, [(2015) 3 SCC 49],
the Hon'ble Supreme Court was pleased to hold
that, the fourth head of Public Policy is patent
illegality. It is held that, award passed in
contravention of substantive law of India would
amount to patent illegality. It is further held that:
AS.92/2012
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"The juristic principle of Wednesbury
reasonableness is that a decision which is
perverse or so irrational that no reasonable
person would have arrived at the same is
important and requires some degree of
explanation.
It is settled law that where :
(i) a finding is based on no
evidence, or
(ii) an Arbittral tribunal takes into
account something irrelevant
to the decision which it arrives
at; or
(iii) ignores vital evidence in arriving
at its decision, such decision
would necessarily be perverse".
It is, thus, clear that, award has been passed in
contravention of the provisions of law as laid down
in Section 68 of the Partnership Act, 1932 and
Section 34 of the Specific Relief Act, 1963. Further,
vital evidence has been ignored by learned
Arbitrator in arriving at its decision, which would
necessarily perverse the award. In that view of the
matter, award needs to be set aside; accordingly, I
answer the above point in the affirmative and
proceed to pass the following:
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ORDER
(1) Suit filed by Plaintiff under Section 34 of the Arbitration and Conciliation Act, 1996, is hereby allowed.
(2) Award dated 17.09.2012 passed by Defendant No.2 in Arbitration Matter bearing CMP No.36/2011; is hereby set aside.
(3) No order as to costs.
[Dictated to the Judgment Writer directly on computer, typed matter corrected and then pronounced by me in open court, on this the 28th day of August, 2020.] [RAMA NAIK] VI Addl.City Civil & Sessions Judge Bengaluru City.