Bangalore District Court
M/S Mac-Precitec India Private Limited vs Rekha S on 22 September, 2025
1
Com.A.P.38/2025
KABC170010052025
IN THE COURT OF LXXXII ADDL.CITY CIVIL &
SESSIONS JUDGE, COMMERCIAL COURT,
BENGALURU (CCH-83)
PRESENT: SRI. VIDYADHAR SHIRAHATTI, LL.M.,
LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,
BENGALURU.
Com.A.P.No.38/2025
Dated on this 22nd Day of September 2025
Petitioner 1. Mac- Percitec India, A Registered
Partnership Firm, Situated at No. B
291(a) 7th Main, Peenya 2nd Stage,
Peenya Industrial Area, Bengaluru -
560058, Represented by its
Partners Respondent No. 2 to 6.
2. H S Shivakumar, S/o Subbaiah,
Aged about 57 years, Residing at
No. E454 8th Block,
Vishweshwaralah Layout Near
Kempegowda Circle
Muddalahanapalya, Viswaneedam
Bangalore-560091.
3. Geetha C Gowrishankar, w/o
Gowrishankar, Aged about 46 years
2
Com.A.P.38/2025
Residing at No. 18, Gangamma
Garden Malgala Main Road,
Nagarbhavi 2nd Stage
Vishwandeedam Post, Bangalore
560091.
4. Sudhir B Nagaleekar, s/o
Basavaraja Basappa Aged about 48
years Residing at No. 40, Avyuktha,
3rd Main Kahadhi Layout,
Kathriguppe Main Road Near
Ganesh Temple, Vivekananda Nagar
Banashankari 3rd Stage, Bangalore
5600085.
5. Ramachandra N, S/o
Narayanappa Nagaraju, Aged about
44 years Residing at No. 79, 12th
Cross Bovipaalya, Mahalakshipuram
Bangalore-560086.
6. Rohini G Kulkarni, W/o Gururaj,
Aged about 45 years Residing at
No. 3, 1st Floor, Prajwal Mini
apartment 6th Cross, Near Vask
Havnoor Extension, Nagasandra
Bangalore 560073.
(By Sri. H.B. Chandraskehar -
Advocate)
//versus//
3
Com.A.P.38/2025
Respondent 1. Rekha S, W/o Late Shri
Lakshmipathi, aged about 47
years.
2. Vedanth L, S/o Late Shri
Lakshmipathi, Aged about 4 years,
Minor.
3. Vedith L, S/o Late Shri
Lakshmipathi, Aged about 4 years,
Minor.
All are residing at No.5/3, 24 th
Cross, Jayanagar, 6th Block, BSK 3rd
Stage, Bengaluru - 560 007.
(The Claimant/Respondent No.2
and 3 are represented by Natural
Guardian Smt. Rekha S).
(Respondent No.1 to 3
represented by Rakesh Bhat -
- Advocate)
Date of Institution of the
14.03.2025
suit
Nature of the suit (suit on
pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date on which judgment
22.09.2025
was pronounced
4
Com.A.P.38/2025
Total Duration Year/s Month/s Day/s
00 06 08
(VIDYADHAR SHIRAHATTI),
LXXXII Addl.City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
1. Introduction 1.1 The petitioners Filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996 seeking setting aside the award dated 28.01.2025 passed in Arbitration claim petition No. 649 of 2023 passed by the learned Arbitral tribunal consisting of Sri. Justice H.G. Ramesh Retd, judge, Hon'ble High court of Karnataka. The respondend no. 4 herein.
1.2. In the course of this judgment, for sake of convenience, the parties are referred as per their rank before the Learned Arbitral Tribunal.
2 Facts of the case in nutshell:-
2.1. The claimants had filed the suit before the 5 Com.A.P.38/2025 Arbitral Tribunal seeking for subsequent share of deceased Sri Lakshmipathy's properties since his death till the date of settlement in Petitioner no. 1 firm has also for other consequential reliefs. The respondents had requested the Arbitration Tribunal for determination of the late Sri Lakshmipathy's share in respondent no. 1 the partnership firm Mac Presitec India and had asked for respondents to be held liable for paying the share to the claimants. Claimant no. 1, the widow of Sri Lakshmipathy, who passed away on 13.05.2021 due to the COVID-19 pandemic contended that her late husband was a partner in the firm from 29.10.2013 until his death, holding a 12% capital share. Claimants nos. 2 and 3 are the minor sons of claimant no. 1.
Essentially The claimant sought for the deceased's share in the firm including any properties accrued after his death until the settlement date as per Section 37 of the Indian Partnership Act, 1937. The claimants had determined the share of Sri Lakshmipathy on 31.05.2021 in the respondent no. 1 partnership firm at ₹ 45,13,794 and sent a cheque dated 20.05.2022 for the said amount to the claimants towards full and final settlement of the share. However, the Claimants were 6 Com.A.P.38/2025 not satisfied with the amount and filed a suit before the Arbitration Tribunal for subsequent profits and share along with cost of the arbitral proceedings.
2.2. The Tribunal was constituted by order dated 10.10.2023 passed by the Hon'ble High Court of Karnataka in CMP No. 628 of 2023 and Sri Justice H.G. Ramesh, retired Judge, Hon'ble High Court of Karnataka was appointed as the sole arbitrator to adjudicate the matter.
2.3. Upon service of notice from the Arbitral tribunal, the respondents appeared through their counsels and filed their dedicated and specific statement of objections. The respondents denied averments made by the claimants herein and contended that the settlement is made as per partnership agreement. As per the provisions of clause 19A and 19B of the partnership deed gives a clarity on the issue which was sought to be adjudicated. In fact the respondents also contended that the claimants have lost their right to claim as every claim made by them has already been settled. A specific defence was taken that the provisions of the 7 Com.A.P.38/2025 Partnership Act in terms of the clauses made in the partnership deed read together then the claim made by the claimants holds no water and the same is liable to be dismissed.
2.4. On the basis of the available materials and pleadings, the learned arbitrator framed the issues. To prove the same, the parties have led in both oral and documentary evidence. The claimant got examined as PW1 and marked 17 documents as Exhibits P1 to P17. In the respondent's side, the respondent no. 4 was examined as RW 1 and relied 24 documents marked as Exhibit R 1 to 24. During the course of argument The claimant filed an application seeking the permission of the Arbitrator to lead the evidence on the point of goodwill and also valuation of the immovable property. In fact, the said application came to be allowed and same was challenged by the respondents before the Hon'ble High Court of Karnataka in WP No. 29557 of 2024. The said petition was disposed by the Hon'ble High Court by issuing the Directions to the Arbitrator to consider the point of goodwill as a preliminary issue. In compliance to the direction of the Hon'ble High Court, the respondents had filed application under Section 16 8 Com.A.P.38/2025 of Arbitration and Conciliation Act and the said application was dismissed by the learned Arbitrator. The learned Arbitrator allowed the claimants to lead the evidence on point of goodwill and on valuation report. Accordingly, the claimants examined two witnesses as PW2 and PW3. After hearing the arguments on both side, the learned Arbitrator had allowed the claim petition and passed the impugned award On dated 28.01.2025.
2.5. Being aggrieved by the award passed in SC No. 649 of 2023, on dated 28.01.2025, the respondent before the Arbitration Tribunal prepared this petition.
2.6. The Respondent has challenged above said award on following grounds:
3. GROUNDS 3.1. The Hon'ble High Court in CMP No. 268 of 2023 has specifically directed the Tribunal to decide the arbitrality in the presence of the payment being made by the petitioners herein has neither raised the issue nor answered on the arbitrality. When the question of arbitrality of dispute was left open at the time of 9 Com.A.P.38/2025 considering the arbitrality, Petition under Section 11 of the Arbitration and Conciliation Act, 1996. The learned Arbitrator has failed to decide and not answering the issue on the arbitral dispute.
3.2. The execution of the partnership deal marked as Exhibit P3 has also not been disputed by the claimants nor have they challenged any of its clauses. Once the clauses of Exhibit P3 have been admitted they become binding on all parties. However, the claimants without raising any challenge to the validity or enforceability of the said clauses are attempting to interpret them in a manner that suit their interest. Such an approach is impermissible in law, as it amounts to probating and reprobating at the same time, which is legally unsustainable. When there is no challenge to the settlement of the partnership deed or its clauses, the rights and duties of the partners are not challenged. It must be determined in accordance with the provisions of Section 11 of the Indian Partnership Act. Late Lakshmipathy at the undisputed point in time had agreed to the terms of partnership and became a partner of the respondent no. 1 firm. The claimants now 10 Com.A.P.38/2025 seek to interpret the process selectively which is impermissible.
3.3. The respondents have placed reliance on the books of accounts to establish that the sum of ₹ 45,13,764 has been determined in accordance with the law. The provisions of Sections 14, 15 and 37 of the Indian Partnership Act are relevant in this context. Section 14 defines the property of the firm which includes property, stock and goodwill of the business. It specifically states that unless a contrary intention is evident, property acquired with the firm's funds shall be deemed to belong to the firm. The claimants are seeking a share in the immovable property belongs to the firm, which cannot be granted as the said property was acquired for the benefit of the firm and not for individual partners.
3.4. Clause 19A and 19B of Exhibit P3 is very clear about constituting the legal heirs of the deceased partner and also how the settlement shall be made. This set establishes that the partners had agreed to settle claims strictly as per the terms of the agreement and no partnership or legal heir can claim any 11 Com.A.P.38/2025 additional rights beyond what is stipulated in Exhibit P3. In spite of the admissions aspects, the learned Arbitrator has wrongly looked into this and thereby committed serious error in awarding the claim.
3.5. Section 15 of the Indian Partnership Act mandates that the firm's property shall be held and used exclusively for business purposes subject to any contract between the partners. It is evident that no partners has an exclusive right to over an partnership asset as long as the firm is in existence. The right to claim a share in the property arises only upon the dissolution of the firm. The Hon'ble High Court of Andhra Pradesh in Peddavandla Narayanamma v. Peddasani Venkata Reddy and Ors AIR 2007 ANDHRA PRADESH 137 has categorically held that no partner can claim any portion of the partnership property as his own until resolution occurs and liabilities are settled. Until then all the partners have a right. Collective interest in the entire property of the firm.
3.6. Thus, Section 14 cannot be read in isolation, but must be interpreted in conjunction with Section 15 to ascertain the true meaning of partnership property 12 Com.A.P.38/2025 rights.
Section 37 of the Indian Partnership Act provides that in the absence of a contrary contract, the outgoing partner or the representative of the deceased partner are entitled to their share of the property since they ceased to be a partner or interest at the rate of 6 percent per annum on the Share in the firm's property. However, they are not entitled to any additional profits unless otherwise agreed in. Section 37 is not applicable to award future interest. Nowhere in the Partnership Act which deals are defined awarding of future interest. The petitioners herein have notified the facts with regard to the entitlement of the deceased Lakshmi Pathy's profits and loss from the capital accounts. Invoking Section 37 by the claimant and awarding the future profits and interests is without jurisdiction and against the law. The amount awarded by the Arbitrator as mentioned in Para No. 17 is without basis and awarding future interests and prospects by the Learned Arbitrator is an imaginary and has no legal legs to stand.
3.7. The learned Arbitrator has not framed the proper issues for consideration on goodwill. The Arbitral 13 Com.A.P.38/2025 Tribunal erred regarding the statutory mandate of Section 37 and Section 48 of the Indian Partners Act, 1932. The Tribunal failed to account for the deceased partners share in the net assets including goodwill, which is a direct contravention of settled legal principles. Such an omission renders the award contrary to the fundamental policy of Indian law.
3.8. The Tribunal overlooked key financial documents and expert evidence while determining the valuation of the deceased partner's share. The failure to consider the fair market value of assets, goodwill valuation and the insurance policy amounts to patent illegality under Sections 34 to A of the Arbitration and Constellation Act, 1996.
3.9. Failure to the The Arbitral Criminal has not substantiated its conclusions with a reasone discussion of the valuation of goodwill partnership assets or the basis of determining the deceased partner's share. The absence of the logical reasoning violates Section 31(3) of the Arbitration and Constitution Act with mandates reasoned order awards.
14Com.A.P.38/2025 3.10. In the award, the Tribunal contradicted itself by stating that the respondents failed to prove their valuation methodology while simultaneously accepting their determination of ₹ ₹ 45,13,764 as final. Such inconsistencies demonstrate non application of mind and render the award susceptible to challenge.
3.11. The learned Arbitrator Has erroneously interpretation of partnership deed and legal provisions. At paragraph nos. 16 while answering Issue Nos. 2, 4 and 5 at point nos. 5 though was recorded the submission has failed to answer for what purpose the admitted clause of the partnership deal cannot be considered. Non consideration of this material defence has resulted in the miscarriage of justice.
3.12. The Arbitrator has acted beyond the scope of his reference by making determinations inconsistent with statutory provisions and legal precedents. Such an excess of jurisdiction makes the award liable for being set aside.
15Com.A.P.38/2025 3.13. By failing to correctly apply statutory provisions and the disregarding well established legal precedents, the Award is in direct conflict with the public policy of India as envisaged under Section 34(2) of the Arbitration and Conciliation Act, 1996. viewed from any angle the award of the Arbitral Tribunal is in conflict with the public policy of India erroneously and patently illegal and the same is liable to be settled.
4. Objections of the Respondents/Claimant.
4.1. The Respondents have filed objection stating that, the petition is not maintainable either in law or on facts. The petition is filed only with an intention to delay the payment of amounts due to the Respondent No.1. The grounds urged in the petition does not come within any of the grounds provided under Section 34(2) of the Arbitration and Conciliation Act, 1996. The Judgment of the Hon'ble High Court and Hon'ble Supreme Court held that the scope of challenge of arbitral award is very limited and the petitioner has to prove that the award is bad due to one of the grounds mentioned in Section 34 of the Arbitration and Conciliation Act 1996. The claim of the Respondent has rightly appreciated all the oral 16 Com.A.P.38/2025 and documentary evidence produced by the petitioners and Respondents. The grounds urged by the Petitioner without understanding of the basic principles of law and the conduct of the petitioner in casting aspersions on the learned arbitrator should be deprecated and exemplary costs should be imposed on the petitioner. The decision of law is well settled as per under Section 34 of Arbitration and Conciliation Act as per the Judgment of Hon'ble Supreme Court in MMTC Limited vs. Vedanta Limited reported in (2019) 4 SCC 163, K.Sugumar vs. Hindustan Petroleum Corporation Limited reported in (2020) 12 SCC 539, and in Dyna Technologies (P) Limited vs. Crompton Greaves Limited (2019) 20 SCC 1. In ParsaKente Collieries Limited vs. Rajasthan Rajya Vidyut Utpadan Nigam Limited (2019) 7 SCC 236 held that the adverting to the previous decisions of the Hon'ble Supreme Court, it has been observed that an arbitral tribunal must decide in accordance with the terms of the contract, but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on this ground.
17Com.A.P.38/2025 4.2. Further, in the petition grounds are vague and mainly on the promise that the learned arbitrator has erred in properly appreciating the evidence and has not interpreted the partnership deed properly. None of the grounds urged in the petition refers to the grounds mentioned in Section 34 of the Arbitration and Conciliation Act, 1996. Therefore, the contention raised by the petitioner is not accepted. Hence, he prayed to dismiss the petition.
5. Thereafter I have heard the arguments of both sides and perused the records of the case.
6. The points that arise for my consideration is as follows. :-
1. Whether Commercial Arbitration Petition No. 38 of 2025 Deserves to be allowed and the Impugned Arbitral Award is liable to be set aside for granting all the reliefs sought for by the claimant?
2. What Order?
7. My findings on the above Points are as under:
18Com.A.P.38/2025
1. Point No.1 :- In the Negative.
2. Point No.2:- As per the final Order for the following reasons.
REASONS
8. Point No.1 :- The petitioner herein the case as per the order of this petition under Section 34 of Arbitration and Conciliation Act, 1996 seeking set aside the arbitral award dated 28.05.2025 passed in the arbitrator in claim petition of the Respondent No.2 in A.C. No. 649/2023 passed by the arbitral tribunal, wherein taken a contention that, the award is not answering the issue on the arbitral dispute and binding effects of partnership deed. It is also taken a contention that, the firm property and books of accounts as per ExR.24 as determination in accordance with law for a sum of Rs.45,13,764/- as per Section 14,15 and 37 of Indian Partnership Act as applicable in the present case. The ground of constitution of partnership property Section 15 of Indian Partnership Act, 1932, the determination of share of the deceased partner section 37 and not framing of issues point for consideration on good will are not properly considered 19 Com.A.P.38/2025 and the award is contrary to the fundamental of Indian law. Patent illegality on the face of award without providing reasonable findings having consideration and in consistency. Erroneous, interpretation of partnership deed and legal provisions. Therefore, the award is contrary to public policy. Hence, he prayed to set aside the petition.
9. Before going to the discuss about the grounds of the petition and relied the Judgment of Hon'ble Supreme Court had held in scope of under Section 3 of Arbitration and Conciliation Act. Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (NHAI) (2019) 15 SCC 131, a two-judge bench of Hon'ble Apex Court rules that interference based on public policy violations under Section 34(2)(b)(ii) is limited to the fundamental policy of Indian Law. The court cannot interfere merely because the arbitrator lacked a "Judicial Approach". The fundamental principle of justice was stated to be violated due to a unilateral change or addition to the contract by the arbitral tribunal.
20Com.A.P.38/2025
10. In Project Director, National Highways No. 45 E and 220 National Highways Authority of India vs. M. Hakeem and Another reported in (2021) 9 SCC 1, a two judge bench of Hon'ble supreme Court held that Section 34 allows arbitral awards to be set aside only on the limited grounds specified in sub-sections (2) and (3). When a right is limited, its enforce ability is conterminous with its limited nature, i.e., it can only be enforced in line with those limitations. As a result, the award can either be set aside or remanded to the arbitral tribunal.
11. In Gayatri Balasamy vs. M/s ISG Novasoft Technologies Limited in Civil Appeal No. .... of 2025 arising out of SLP (C) No. 15336- 15337/2021 wherein Hon'ble Supreme Court has observed in para- 16 as thus:
The court also noted that Section 34 is modelled on the UNCITRAL model Law on international commercial arbitration, 1985, which does not allow courts to modify awards, Unlike the broader powers available under the 1940 Act, the court's powers under 1996 Act are narrower. The court cited previous Judgments of this court and carious High Courts, emphasizing that allowing modification under Section 34 21 Com.A.P.38/2025 would go against the legal framework, as only the legislature has the power to change the law. Any expansion of Section 34's powers to include modification would a legislative amendments.
12. By relying the above Judgments, as per the contention raised by the petitioner along with objection on the respondent with, there pleadings and relied judgments. It is contention of the petitioner and Respondent that, the arbitral tribunal has not framed proper issues, value of assets and good will. The ground raised by the petitioner on main issue about a goodwill and settlement of the dispute on goodwill in partnership firm. The rights and liabilities has been decide as per partnership deed marked as Ex.P.3 and registered on dated 08.08.2020 reconstituted partnership firm of Respondent -1 firm and 01.04.2017 Ex.P.4 submitted that in the event of death of a partner, his Lrs are not entitled for any share in the partnership assets including goodwill of the business.
13. Ex.P.3 clause 16 deals about the goodwill which reads as thus:
"16.The goodwill of the partnership firm, all other right, titles and interest shall belong to 22 Com.A.P.38/2025 the partnership firm only."
14. Therefore, the petitioner has stated that, the goodwill is a property of partnership firm. However, the respondent has also contended that, if the partnership firm is continued goodwill will be the firms property. However, in the present case the partnership firm is not dissolving.
15. Both the counsels has relied clause 19 of the Ex.P.3 which reads as thus:
" 19(A). Upon death or retirement of any partner, the partnership firm shall not be dissolved in the event of death, it will be open to the surviving partners whether to admit the legal heir has partner or settled outstanding amount with his account.
19(B). In the event of retirement or death or insolvency as the case may be, accounts of the partnership firm shall be made up and profits or losses shall be ascertained up to the date of retirement or death or insolvency as the case may be and the amount due to the retiring or the deceased partner or to the insolvent partner shall be ascertained and payable to the retiring partner or legal heir/s of the insolvent partner as the case may be. In case any amount is found due from the partner, the same shall be forthwith paid in accordance with 23 Com.A.P.38/2025 the provision of law."
16. By looking to the above condition it is clearly reveals that, if the partnership is dissolved the above said method of calculation and conditions are applied. Even, the other partners have to be settled outstanding amount with his account. During the continuance of partnership firm then difference relating to the partnership firm and its profit have to be considered. As per clause 21 of Ex.P.3 reads as thus:
21. During the continuance of the partnership or at any time thereafter, any dispute or difference relating to the partnership or it's business, which may arise between the partners or their respective heirs, the same shall be decided in accordance with the provisions of the Indian Arbitration and Reconciliation Act, 1996 a amended from time to time. The award of the arbitrator shall be final and binding on the partners and their legal representatives."
17. Looking to the terms and conditions mentioned in the Ex.P.3 the provisions of Indian Partnership Act, 1932 are relevant to determine the rights and liabilities of the parties herein.
24Com.A.P.38/2025
18. The petitioner contention that, as legal representative of respondent were not entitled to a share in the value of good will of the firm because the good will of a firm may be taken into account only when there is a dissolution of firm and in any event. At this stage it is better to extract provisions of Partnership Act, 1932.
Section 14 - The property of the firm- Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm Section 37 - Rights of outgoing partner in certain cases to share subsequent profits - Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and 25 Com.A.P.38/2025 the outgoing partner or his estate, then in the absence of a contract to the contrary, the outgoing partner or his estate in entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six percent per annum on the amount of his share in the property of the firm:
Provided that whereby contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partners of this estate, as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this Section.
Section 48 - Mode of settlement of accounts between partners - In settling the accounts of a firm after dissolution the following rules shall, subject to agreement by the partners, be observed:-
a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;26
Com.A.P.38/2025
b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and other:-
(I) In paying the debts of the firm to third parties;
(ii) in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;
(iii) in paying to each partner ratably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.
19. In the light of extract of the above provisions and examine the 2 clauses of the Section 19 of Indian Partnership Act, 1932 they do not indicate denial of any share in the partnership assets including the Goodwill to any partner or the legal heirs of a deceased partner. The two clauses do not exclude any property of the firm from being applied to a deceased partner's share. Hence, the contention to the contrary is erroneous. Consequently, Section 48 of the Indian Partnership Act, 1932 requires to be applied to 27 Com.A.P.38/2025 determine the share of the deceased partner - Sri. Lakshmipathi.
20. Goodwill of the business of respondent No.1 firm is valued at Rs. 1,10,81,855/- as on 31.03.2021 as per the valuation report dated 20.09.2024 at Ex.P.16 submitted by Sri. Raja N., Chartered accountant. The report is not looking to be erroneous by examining their Chartered Accountant. No contra evidence is adduced by the Petitioner to reject the valuation. In this light of observation I relied Judgments as.
21. The petitioner has taken a contention that, goodwill may be taken into account when only there is a general dissolution of the firm and not when the representatives of a partner claim is share in the firm. Hence, claimant relied the Judgment of the Hon'ble Apex Court, Khushal Khemgar Shah and others v/s Mrs.Khorshed Banu Dadiba Boatwalla and another, 1970 (1) SCC 415, wherein it is held in para No. 4 as under:
4. Clause 8 of the deed of partnership reads as follows:"This partnership shall not be dissolved or determined by the death of any of the parties hereto but the same shall be continued 28 Com.A.P.38/2025 as between the surviving partners on the same terms and conditions but with such shares as shall then be determined."
Mr. Nariman says that goodwill is nothing but the right to the name, the place of business and the reputation of the firm, and when all these components of the right by express agreement between the partners devolve upon the surviving partners, it follows that the share of the deceased partner in the goodwill of the firm devolves upon the surviving partners and not upon his legal representatives. The goodwill of a business is however an intangible asset being the whole advantage of the reputation and connections formed with the customers together with the circumstances which make the connection durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and other features. An agreement between the partners that the name, the place of business and the reputation of the firm are to be utilised by the surviving partners will not necessarily warrant an inference that it was intended that the heirs of the deceased partner will not be entitled to a share in the goodwill.
22. The learned counsel for the respondent has also relied the same judgment and relied para No. 6 of the Khushal Khemgar Shah and others (supra), para 29 Com.A.P.38/2025 no. 6 reads as thus:
6. We are unable to agree with Mr. Nariman that in interpreting a deed of partnership, business whereof it is stipulated shall be continued by the surviving partners after the death of a partner, the Court will not award to the legal representatives of the deceased partner a share in the goodwill in the absence of an express stipulation to the contrary. The goodwill of a firm is an asset. In interpreting the deed of partnership, the Court will insist upon some indication that the right to a share in the assets is, by virtue of the agreement, that the surviving partners are entitled to carry on the business on the death of the partner, to be extinguished. In the absence of a provision expressly made of clearly implied, the normal rule that the share of a partner in the assets devolves upon his legal representatives will apply to the goodwill as well as to other assets.
23. The assets of the partnership firm is an individual asset of the firm even the goodwill also the assets of the firm. The Hon'ble Apex Court observed in Controller of Estate duty v/s Mrudula Nareshchandra, 198 (SUPP) SCC 357, wherein para No. 30 held as thus:
A partner's interest in running partnership is not specific and is not confined to any specific 30 Com.A.P.38/2025 item of partnership property but that does not mean that the partner has no interest in any individual asset of the firm. His interest obviously extends to each and every item of firm's asset. See the observations in the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 Supreme Court 1300 : (1966) 3 SCR 400. So the goodwill of the firm was an asset in which dying partner had a share. It passed from the death of the dying partner and the beneficiary of such passing would be one who by virtue of the partnership agreement would be entitled to the value of that asset.
24. It is also observed by the Hon'ble Apex court about the goodwill of the firm was one of the properties are asset of the firm, wherein it is para No. 39 held as thus:
"...The goodwill of a firm was one of the properties or assets of a firm. Merely because it was an intangible asset, it did not stand on a different footing from the tangible assets of the firm, but in making up the final accounts it had to be taken together with the other assets of the firm in arriving at the value of the total assets and for deducting therefrom the liabilities as provided by law and in paying to the partners their share in the balance so arrived at. Where a partnership was dissolved by the death of a partner, his share in the firm passed on his death to his legal 31 Com.A.P.38/2025 representatives. Where a partnership was not dissolved on the death of a partner but the surviving partners became entitled to continue the partnership business, the deceased partner's share passed to his surviving partners subject to their making payment to the legal representatives of the deceased partner of the amount of the value of his share in accordance with the provisions of the deed of partnership. A partner did not have a defined share in the goodwill of the firm and the estate duty authorities could not regard it as a separate property by itself apart from the other assets and liabilities of the firm and include its value in the estate of a deceased partner under section
5. The Bombay High Court could not agree with the view of the Gujarat High Court under appeal."
25. The question of share of deceased partner or his legal representative when surviving partner continuer with their firm as explained by the Hon'ble Delhi High Court by invoking Section 7 of the Indian Partnership act. In Bhagwan Dass Khanna Jewells vs. Bhagwan Das Khanna Jewellers Private Limited and Others, reported in 2012 SCC OnLine Del 6129, wherein para No. 30 held as thus:
30. Now, then the question remains what shall happen to share of the deceased partner or his legal representative when the surviving partners continue with their business in the firm. Section 32 Com.A.P.38/2025 37 of the Act provides for such an eventuality and in this respect recognizes the right of outgoing partner or the deceased partner or his legal representative. Section 37 reads as under:"Right of outgoing partner in certain cases to share subsequent profits. Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm:
Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section."33
Com.A.P.38/2025
26. The sale of goodwill after dissolution of firm is enumerated in Section 55 of the Indian Partnership Act, 1932. The Hon'ble Delhi High Court ellobare discuss about Section 37 for settling the accounts of the firm, goodwill shall be included in assets and may be sold either separately or along with other property of the firm. It is held in para No. 36 as thus:
It is noteworthy to mention that what the outgoing partner or his estate is entitle to is the share of the profits or interest as laid down under Section 37 of the Act and while arriving at the said figure of the profits and settling the accounts if need be, the valuation of the goodwill shall be also be considered. Therefore, what the outgoing partner is entitled to is the monetary value of the profits and it may include goodwill if the share on the property is computed. This would not in any circumstances mean that the in the absence of the settlement of the accounts, the goodwill or the portion of the same shall be deemed to be sold to the legal representative of the deceased partner of firm. The consequence of the same is that the estate of the deceased partner or legal representative is only entitled into monetary value of the profits and goodwill and not any right over the use of the name of the firm.
27. The Hon'ble Delhi high court also relied the 34 Com.A.P.38/2025 Judgment of the Hon'ble Supreme in the case of Khushal Kemkar as held a goodwill is an asset shall be taken into consideration when the firm is dissolved by the death of the partner para No. 40 of Bhagwan Dass Khanna Jewells (supra) reads as thus:
40. The observations of the Supreme Court in the case of Kushal Khemkar (supra) are noteworthy and there is no quarrel to the said proposition. It is true that the goodwill cannot be said to be put aside at the time when the firm is dissolved even by the death of the partner. The said circumstance cannot be treated differently from any other event by virtue of which the dissolution of the firm occurs. The proprietary right of the partner in the asset of the firm cannot be overlooked even in case of dissolution by the death of the partner. The combined effect of the said observations of the Supreme Court in Khushal Kemkar (supra) is that the goodwill as an asset shall be taken into consideration when the firm is dissolved by the death of the partner.
28. In the present case, the petitioner/respondent before the arbitration tribunal cannot claim about the share in the assets and liabilities after dissolution of the firm. However, the mode of the transfer of goodwill have explained in Delhi High Court in many cases.. the 35 Com.A.P.38/2025 goodwill is also assets of the firm to be considered of the legal heirs of the deceased partner. In para Nos. 42 and 43 of Bhagwan Dass Khanna Jewells (supra) reads as thus:
42. This proposition has been clarified by the Supreme Court time and again that the share of the partner at the time of dissolution is nothing but a monetary value of sum of profits of his share in the partnership property. The Supreme Court time and again in this respect relied upon the often quoted passage from Lindley on Partnership (12ed at page 375) which reads as under:
.....and which on "What is meant by the share of a partner is his proportion of the partnership assets after they have been realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share his, bankruptcy passes to his trustee (Emphasis Supplied).
43. The aforenoted excerpt from Lindley on Partnership was approved by Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishtappa, 1966 SCR (3) 400 wherein Hon'ble Apex court after approving Lindley on partnership observed thus:
36Com.A.P.38/2025 "The Interest of a partner in partnership assets comprising of movable as well as immovable property should be treated only as movable property. His right during the insistence of the partnership is to get his share of the profits from time to time, as may be agreed upon among the partners, and his right after the dissolution of the partnership, or with his retirement from, the partnership, is only to receive the money value of his share in the net partnership assets as on the date of dissolution or retirement, after a deduction of Liabilities and prior charges." (Emphasis Supplied) The goodwill of the firm is an asset in which the dying partner has a share. It passes on the death of the dying partner and the beneficiary of such passing would be one who by virtue of the partnership agreement would be entitled to the value of that asset.
29. The goodwill of the firm is an asset in which the dying partner as a share. It passes on the death of the dying partner and the beneficiary of such passing would be one who by virtue of partnership agreement would be entitled to value of asset.
30. The valuation of asset during the substance of the partnership would be immaterial and could even the notional, the position at the time of dissolution is 37 Com.A.P.38/2025 totally different. The ratio lead down by the Hon'ble supreme Court of India in ALA Firm v/s Commissioner of Income Tax, Madras, reported MANU/SC/0576/991, wherein para No. 35 to 37 held as thus:
35. We, however, find substance in the second consideration that prevailed with the High Court. The decision in Muhammad Hussain Sahib v. Abdul Gaffoor Sahib MANU/TN/0316/1950: [1950] 1 M.L.J. 81 correctly sets out the mode of taking accounts regarding the assets of a firm. While the valuation of assets during the subsistence of the partnership would be immaterial and could even be notional, the position at the point of dissolution is totally different:
But the situation is totally different when the firm is dissolved or when a partner retires. The settlement of his account must be not on a notional basis but on a real basis, that is every asset of the partnership should be converted into money and the account of each partner settled on that basis.... The assets have to be valued, of course, on the basis of the market value on the date of the dissolution...
36. This applies equally well to assets which constitute stock-in-trade. There can be no manner of doubt that, in taking accounts for purposes of dissolution, the firm and the partners, being commercial man, would value the assets only on a real basis and not at cost 38 Com.A.P.38/2025 or at their other value appearing in the books.
A short passage from Pickles on Accountancy (Third Edn), p. 650 will make this clear:
In the event of the accounts being drawn up to the date of death or retirement, no departure from the normal procedure arises, but it will be necessary to see that every revaluation required by the terms of the partnership agreement is made, it has been laid down judicially that, in the absence of contrary agreement, all assets and liabilities must be taken at a "fair value," not merely a "book value" basis, thus involving recording entries for both appreciation and depreciation of assets and liabilities. This rule is applicable, notwithstanding the omission of a particular item from the books, e.g. investments, goodwill (Cruikshank v. Sutherland), Obviously, the net effect of the revaluation will be a profit or loss divisible in the agreed profit-or loss-sharing ratios.
37. The real rights of the partners cannot be mutually adjusted on any other basis. This is what happened in Ramachari. Indeed, this is exactly what the partners in this case have done and, having done so, it is untenable for them to contend that the valuation should be on some other basis. Once this principle is applied and the stock-in-trade is valued at market price, the surplus, if any, has to get reflected as the profits of the firm and has to be charged to tax. The view taken by the High Court has held the field for about thirty years 39 Com.A.P.38/2025 now and we see no reason to disagree even if a different view were possible. For these reasons, we agree with the answer given by the High Court to the second question as well.
31. The question arose before the Bombay High court in share in the appreciation in the value of the shares added to the original cost of the sale for the purpose of competition of capital gains arising on the sale of those shares have been explained in Commissioner of Income Tax, Bombay City-III v/s Patel Brothers, reported in MANU/MH/0093/1982, wherein para No. 33 and 34 held as thus:
33. The real question on which the decision of the present reference must turn is what is the effect of the death of the deceased partner or what is the effect of the retirement of a partner. That must necessarily require the determination of the nature of the right of a partner in the partnership. We have already reproduced earlier observations from Lindley on Partnership as approved by the Supreme Court in Narayanappa's case, MANU/SC/0281/1966:
[1966]3SCR400 It is clear from the decision in Narayanappa's case that during the subsistence of the partnership, no partner can deal with any portion of the property as his own and his right is to obtain such profits as falls to his share from time to time. His further right upon the 40 Com.A.P.38/2025 dissolution of the partnership is to a share in the assets of the firm determined in accordance with the provisions of s. 48 of the Partnership Act. Section 48 of the Partnership Act provides as follows:
"In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:
(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.
(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
(i) in paying the debts of the firm to third parties;
(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."
"34... In the case of a retiring partner or an outgoing partner or even in the case of death of a partner, all that the outgoing or the retiring 41 Com.A.P.38/2025 partner or estate of the deceased partner would be entitled to, as pointed out by Lindley, is the proportion of the partnership assets after having been realised and converted into money and all the debts and liabilities of the partnership are paid and discharged. This alone is the content of the right of a retired partner or estate of the deceased partner. What, therefore, happens either on retirement or death of a partner is that his share in the partnership is given back to him and normally by well-accepted commercial methods of valuation the value of his share is quantified in terms of money."
32. The Hon'ble Punjab and Hariyana High Court in Vinod Krishnan Khanna and ors v/s Krishan Khanna and ors, reported in MANU/PH/0686/2019, has held about the partnership is a Joint effort of tow or more persons who decide to come together for doing their business which includes every trade occupation and profession.
33. The value of the assets and liabilities of Respondent No.1 firm as on the date of Sri. Lakshmipathi's death as on 13.05.2021 are on the basis of (i) land valuation report at Ex.P.15, (ii) 42 Com.A.P.38/2025 Goodwill valuation report at Ex.P.16, (iii) fire insurance policy dated 06.10.2020 at Ex.P.14 issued by the Oriental Insurance Company Limited relating to building, plant and machinery, etc., of respondent No.1 firm for the period from 10.10.2020 to 09.10.2021 (total sum insured is Rs. 12,15,00,000/-) and (iv) the balance sheet as on 31.05.2021 at Ex.R.24.
34. On keeping in mind the scope of Section 34 (2) of Arbitration and Conciliation Act, 1996 and the Judgments relied by the both the parties and Judgments of the Hon'ble Apex court for adjudicating the Section 34 of Arbitration and Conciliation Act, 1996, I am of the considered view that the arbitration tribunal has not passed the award beyond jurisdiction, there is no patent illegality and not against the public policy in India. As such this court having already recorded the finding that the award not suffers from patent illegality, to set aside the Arbitral award. Accordingly, answering for consideration in the Negative.
35. Point No.2 : -Therefore, I proceed to pass the following Order.
43Com.A.P.38/2025 ORDER The Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 is hereby dismissed.
The office is directed to send the copy of this Judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on computer, verified and then pronounced by me in open Court on this the 22nd day of September, 2025).
(VIDYADHAR SHIRAHATTI), LXXXII Addl.City Civil & Sessions Judge, Bengaluru.