Bangalore District Court
Kenny Ramanand vs Rehan Talat Khan on 23 October, 2024
KABC010085982012
Govt.of Karnataka TITLE SHEET FOR JUDGMENT IN SUITS
Form No.9(Civil)
Title Sheet for
Judgment in suits
(R.P.91)
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 23rd day of October 2024
PRESENT: Sri. S. NATARAJ, B.A.L., LL.B.,
(Name of the Presiding Judge)
A.S.NO.43/2012
PLAINTIFFS 1. MR. KENNY RAMANAND,
S/o Mr. G. Ramanand
aged about 40 years,
residing at 01, Ground Floor,
"Cescent Classic Apartment"
No.105, Wheeler Road,
Cooke Town,
Bangalore - 560 005.
Partner, M/s Gambaz Foods
International.
2. MR. BALASUBRAMANIAM V.,
S/o Mr. P. Venkatachalam,
Aged about 39 years,
residing at No.10,
2nd Cross,
2
A.S. No. 43/2012
Vivekananda Nagar,
Pndicherry 605 005.
Partner, M/s Gambaz Foods
International.
[By Sri Ajesh Kumar S., Advocate]
/Vs/
DEFENDANTS 1. MR. REHAN TALAT KHAN,
S/o Mr. Farhat Khan,
Aged about 38 years,
residing at No.70/5,
4th Main Road,
Jayamahal Extension,
Bangalore - 560 046.
Partner, M/s Gambaz Foods
International.
2. MR. N.S. SANGOLLI,
Retd. District Judge,
No.415/2, 'F' Block,
Sahakaranagar,
Bangalore - 560 092.
[For D-1 by Sri M.S. Raghavendra
Prasad,Advocate]
[D-2 : Arbitrator]
Date of Institution of the suit : 09-04-2012
Nature of the Suit : Arbitration
Date of commencement of recording
of evidence : ---
Date on which the Judgment was
pronounced : 23-10-2024
3
A.S. No. 43/2012
Year/s Month/s Day/s
Total Duration : 12 06 14
(S. NATARAJ)
VI ADDL.CITY CIVIL & SESSIONS JUDGE
BENGALURU CITY.
JUDGMENT
This suit has been filed under Sec.34 of the Arbitration and Conciliation Act, 1996 to set aside the arbitration award dated 10-01-2012 passed in Arbitration case No.292/2009 before the sole Arbitrator Sri late N.S. Sangolli.
2. The brief facts of the case leading to filing of this application are as under :
2(a). The 1st respondent Mr. Rehan Talat Khan has filed Arbitration case No.292/2009 before the sole Arbitrator Sri N.S. Sangolli under Sec.23 of the Arbitration and Conciliation Act r/w Sec.44(g) of the 4 A.S. No. 43/2012 Indian Partnership Act, 1932. alleging that he is a reputed business man accumulated a lot of goodwill in Bangalore and other major Indian cities. The petitioner was on the look out for good business opportunities. The 1st respondent (1st petitioner herein) is the friend, who had introduced the 2 nd respondent (2nd petitioner herein) and represented that the 2nd respondent has rich experience in prawn farming and can supply best quality of prawns at very good affordable prices in the field of prawn farming. The respondents requested the petitioner to start the business of opening restaurants dealing in prawns and requested the petitioner to support the proposed business both in financially and materially.
2(b). As per the mutual understanding the plaintiffs and 1st defendant herein have entered into a partnership deed dated 26-08-2008 in the name & style of M/s Gambaz Foods International having its registered office at No.52, 1st floor, Gover Road, Cox 5 A.S. No. 43/2012 Town, Bangalore by investing initial capital of Rs.25,000/- each. The business was start off as a small entity and thereafter, the intention was to expand the same all over the country by establishing franchisees. The intial capital of Rs.25,000/- each was not enough to start outlets and requested the petitioner i.e., 1st defendant herein to lend financial assistance to the firm. The petitioner lent a sum of Rs.13,76,804.60 as a loan to the firm. It shall be paid back with interest at 12% p.a., and three outlets were started. The petitioner has lent several office equipments and named outlets to be 'Prawnto'.
Three outlets were opened, for which the finance was brought in by the petitioner. After few months, the petitioner realized that the respondents i.e., plaintiffs herein were duping the unsuspecting customers by collecting money for the items purchased, but raising invoices for lesser value. The sales were strong at the outlets, the books of accounts showed decining sales because of siphoning off of the money collected by 6 A.S. No. 43/2012 the respondents. The respondents were managed by the day today affairs of the business and cheated the petitioner of his hard earned money.
2(c). The respondents requested the petitioner to go slow on expansion. The petitioner had also paid Rs.1,00,000/- to Franchise India in respect of locating and opening of new franchisees. The respondents represented to the petitioner that they have collaboration/association with National Fisheries Development Board (NFDB) and started using phrases on the menu and hoardings that Prawnto has been approved and is in collaboration with NFDB. But, in reality was not so. The officials from NFDB has visited the outlets and pointed out to the respondents to stop using phrases as it is illegal.
The respondents continued to use phrases in spite of warnings. The 2nd respondent represented to the Print media that he was the Director of Operations of Prawnto and even introduced stating that Prawnto is 7 A.S. No. 43/2012 a prawn farmers initiative in collaboration with NFDB.
2(d). The petitioner has requested the respondents to apply for registration of Trademark of the name Prawnto. But, one Kamlesh in whose name it was registered, who is the friend of 2 nd respondent has suggested the name in spite of knowing well that Mr. Kamlesh was the Trademark owner of the said name.
The fraud committed by the respondents came to Kamlesh knowledge and he had informed the respondents that his company owns Trademark. The respondents had not informed the same to the petitioner. The petitioner met Kamlesh in Mumbai and he did not agree to sell the Trademark. The respondents continued to use the said name and requested the respondents to change their illegal ways of running business of the firm.8
A.S. No. 43/2012 2(e). The petitioner has lent an amount of Rs.13,76,804.60 to the firm, which ought to be returned with interest at the rate of 12% p.a. The respondents have taken complete advantage of the petitioner both in financially and materially. The petitioner had sought for actual books of accounts, bank statements, income tax particulars. The respondents have sent to the petitioner Excel Sheet extracts stating that they are profit and loss account statement, balance sheet etc., and admitted that the petitioner is entitled to Rs.13,76,804.60. The respondents have committed breach of trust. They have not intended to run a fair and legal business.
The petitioner had issued several letters regarding said issue and issued a legal notice on 16-10-2009 calling upon the respondents to stop the illegal unfair and untenable activities in running of firm. They have issued reply denying the contentions.9
A.S. No. 43/2012 2(f). The petitioner in the legal notice had invoked Arbitration Clause No.15 of Partnership deed dated 26-08-2008 and nominated and appointed Mr. K.J. Kamath, Advocate as the sole Arbitrator to resolve the dispute. The respondents rejected the Arbitrator appointed by the petitioner. The respondents have proposed their own Arbitrator in the said reply. The respondents have closed down the business of the firm and left the vendors unpaid and made a false allegation that they made security deposit of Rs.1,00,000/- paid to the owner of the premises and Kiosk was taken away by the petitioner. The petitioner has not taken the said deposit amount of Rs.1 lakh.
2(g). The respondents had not concurred with the appointment of the Sole Arbitrator made by the petitioner. The petitioner had filedCivil Miscellaneous Petition in CMP No.292/2009 before the Hon'ble High Court of Karnataka for 10 A.S. No. 43/2012 appointment of Sole Arbitration to settle the dispute between the petitioner and respondents with reference to Partnership deed dated 26-08-2008 in the name & style of M/s Gambaz Food International.
The Hon'ble High Court on 12-01-2010 constituted Arbitral Tribunal. As such, filed a petition before the Arbitral Tribunal for dissolution of partnership firm, settlement of accounts of dissolved partnership and realization of property and dues from the dissolved partnership to them, with following prayers :
(i) Award to the petitioner an admitted amount of Rs.13,76,804.60/- (Rupees Thirteen Lakhs Seventy Six Thousand Eight Hundred Four and Paisa Sixty Only) with interest at 12% p.a., from the date it fell due by directing the respondents to pay the said amount ;
(ii) Directing the respondents to settle and render accurate accounts of the unregistered Partnership Firm M/s. Gambaz Foods International from 26.08.2008 till the date of dissolution of the said Partnership Firm by this Hon'ble Tribunal ;
(iii) Dissolving the unregistered Partnership Firm in the name and style of M/s. Gambaz Foods International, created by virtue of a Partnership Deed dated 26.08.2008 in Bangalore;11
A.S. No. 43/2012
(iv) Award to the petitioner on the Dissolution of the Partnership Firm M/s. Gambaz Foods International, his share in the Capital, Assets, equipment, Goodwill and Profits relating to the said Partnership Firm, from the date of the Partnership till the date of dissolution of the said Partnership Firm by this Hon'ble Tribunal.
(v) Directing the respondents jointly and severally to pay to the petitioner a sum of Rs.25,00,000/- (Rupees Twenty Five Lakhs only) as damages fro the loss of business, loss of reputation, loss of income etc., to the omissions and commissions as stated herein above ;
(vi) Award costs of the proceeding and grant such other and further relief as this Hon'ble Tribunal may deem fit, in the circumstances of this case and in the interests of justice and equity.
3. The respondents therein (the petitioners herein) have appeared before the Arbitrary Tribunal and filed objections denying the allegations of respondents and they admits the partnership firm dated 26-08-2008. The petitioner therein except to contribute some money as per the terms of the Partnership deed he had not contributed anything to develop business of the firm, on the contrary tried to destroy. Further 12 A.S. No. 43/2012 contented that it was mutual agreement that claimant invested capital of Rs.13,76,804.60. If the petitioner had lent money to the firm it was to be as per Clause 7 of the Partnership deed and that there is no agreement between petitioner and partnership firm in that regard. The petitioner had not lent Rs.13,76,804.60 as a loan. All the investment made by the petitioner were as per the terms of the Partnership deed towards his capital account of the firm.
3(a). In the beginning firm opened three retail outlets, invested approximately Rs.1,00,000/- and all the amounts were paid by the firm. They have contributed Rs.1,82,162/-. The petitioner was unable to devote his full time to the business of the firm, it was agreed that the respondents would work on full time basis and became of their experience they would be paid Rs.1,40,000/- and Rs.70,000/- from August 2008 as monthly salary. It was to be capitalized as 13 A.S. No. 43/2012 contribution of capital. They worked for 13 months and have received no salary. The firm has not purchased any office equipment. The respondents further contended that the petitioner started to put obstacles in the business and in day to day affairs of the firm. As a result, the products were not available for sale and customers stopped to come. As such, the firm was not able to pay rents.
3(b). The petitioner has offered Rs.50 lakhs to the respondents and asked them to sell their shares to him. The respondents did not agree. All the income of the firm was credited to the bank account of the firm. As per the terms of the contract, the partners have to act upon. The petitioner had access to all the records of the firm. The question of submitting the documents to him does not arise. Due to obstacles put by the petitioner in day to day business the debt of the firm is accumulated to Rs.6,50,000/-. It is the obligation of the petitioner to pay it, who has 14 A.S. No. 43/2012 breached the trust kept by the respondents in him and committed fraud.
3(c). The respondents have not made any representation to the National Fisheries Development Board beyond what has been stated in the Partnership deed. The decisions with regard to business and operations of the firm could not be taken without the consent of the petitioner. They are not responsible for contents of articles published in the media. It was mutually agreed that respondent No.1 would be designated as head of organization and respondent No.2 as head of operations for the purpose of convenience of the business of the firm. The duty upon petitioner to apply for trademark 'Prawnto'. He has not done it. The respondents created the trademark out of their own imagination to use it for the development of business of the firm. They were not knowing that it was being used by the third parties. The respondents have not taken any 15 A.S. No. 43/2012 responsibility to the exclusion of the petitioner. The respondent No.2 created the products sold by the firm and he is the owner of the intellectual property. 3(d). The respondents have never borrowed any money from the petitioner. All the investments made by the claimant are mentioned in the balance sheet of the firm. The petitioner can claim any sums only after dissolution of the firm. The petitioner has knowledge of financial status of the firm. Reply has been given to the petitioner. Due to instructions of the petitioner business was stopped and respondents incurred loss of Rs.1 crore unless he makes good the loss he cannot be permitted to retire from the firm and amounts comes to Rs.6,50,000/-. The three outlets were closed because of the forced instructions from the petitioner.
3(e). The respondents have no objection for dissolution of the firm and for settlement of accounts 16 A.S. No. 43/2012 and realization of dues from them. They have suffered a loss of Rs.1 crore and the firm is due of Rs.6,50,000/- to the third party suppliers and prayed to dismiss the claim and direct the petitioner to pay Rs.1 crore towards loss of opportunity and Rs.6,50,000/- due to third party and to dissolve the partnership firm and to declare that the respondents are owners of 'Prawnto' and for injunction restraining the petitioner from using the trademark.
4. The petitioner therein had filed a re-joinder to the objections of the respondents denying the facts contended by the respondents and made clarifications.
5. On the basis of the above said pleadings, the Arbitral Tribunal has framed following 16 issues :
(1) Whether there was partnership between claimant and respondent and a partnership Deed was executed on 26.08.2008 and as per that they commitment the business in dealing is prawns in the name and style of 17 A.S. No. 43/2012 M/s Gambaz Foods International and invested Rs.25,000/- in the said business ?
(2) Whether the claimant proves that he lent Rs.13,76,805.60 to the respondent for investing in the business for the reasons stated at para 6 of the claim petition ?
(3) Whether the respondents showed the sales figures at the bear minimum by committing fraud and when questioned issued notice to the petitioner ?
(4) Whether the respondents have cheated the claimant and caused wrongful loss to him and committed breach of trust ?
(5) Whether the complainant proves that the respondents are running the business and day to day affairs of the firm by adopting unfair methods and practices violating the laws and rules concerned as contended by the claimant ?
(6) Whether the respondents prove that the idea of developing the business of the firm is entirely of their intellectual property and claimant has nothing to do with it ?
(7) Whether the respondents prove that the claimant has invested a sum of Rs.13,76,804.60 paise towards his capital account of the firm and that it was as per the terms of the Firm ?
(8) Whether the respondents were to work on a full time basis and that R1 was to be paid Rs.1,40,000/- and R2 Rs.70,000/-
respectively per month as a salary which was to be capitalized as their contribution 18 A.S. No. 43/2012 of capital and that way they would have contributed Rs.27,30,000/- ?
(9) Whether the respondents prove that because of the obstacles caused by the claimant customers stop coming ?
(10) Whether the respondents prove that claimant started pressurizing them to sell their shares and offered Rs.50,00,000/- and when they refused claimant tried to destroy the business of the firm ?
(11) Whether the respondents prove that it was the claimant to mobilize a sum of Rs. Two crores as capital of the firm to develop the business of the firm and he failed ? (12) Whether all decisions with regard to the operations of the firm and what was to be printed on the menu card are all taken by all the partners and net by respondents alone ?
(13) Whether the respondents prove that they have applied for trade mark "Prawanto" and it was within their power when claimant failed to apply which was his responsibility ?
(14) Whether the respondents are entitled for the counter claim as prayed ? If so what claim as prayed ?
(15) To what reliefs parties are entitled to ? (16) What award ?
19
A.S. No. 43/2012
6. On behalf of the respondents CW.1 was examined. Exs.C-1 to C-10 documents were marked. The respondents were remained absent. They have not chosen to cross-examine CW.1. The plaintiff No.1 has also filed affidavit before this Court as PW.1. The cross-examination of PW.1 was not allowed by the Court as per orders on I.A.No.2 and 3.
7. After hearing arguments the Arbitrator has passed impugned award dated 10-01-2012, wherein "it is directed the firm M/s Gambaz Foods International or its partners R-1 -Kenny Ramanand and R-2 Balasubramiam V., to pay to the claimants Rs.13,76,804.60 with interest @ 12% p.a., from the date of claim. That the parties to Ex.C-1 take steps to get dissolve the partnership firm M/s Gambaz Foods International and settle the amounts including the articles, machines, computers etc., as detailed in the balance sheet and produce all Exs.C-8, 9 and 10."
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A.S. No. 43/2012
8. The petitioners herein to set aside the arbitral award filed the present suit on following grounds :
(a) The Arbitrator has passed an exparte award without giving due notice to the plaintiffs.
(b) The exparte award has been passed without incorporating the defence and counter claim of the plaintiffs, the plaintiffs have not received any notice from the Arbitral Tribunal. They have been prejudiced by not being intimated before the proceedings.
(c) The impugned award is in violation of principle of natural justice liable to be set aside and failed to consider the defence and counter claim of the plaintiffs.
(d) The plaintiffs counter claim before the Arbitrator has not considered by the Arbitrator and accepted the claim of defendant No.1 without considering the contentions raised by the plaintiffs in their counter claim.
(e) The plaintiffs have not issued any notice from the Arbitral Tribunal and they were under impression 21 A.S. No. 43/2012 that arbitral proceedings have been abandoned by the 1st defendant.
(f) Under Sec.34(2)(a)(iii) of the Arbitration Act application can be made to set aside the arbitral award if proper notice of arbitral notice was not given to the party or unable to present his case. The plaintiffs are not given proper notice of arbitral proceedings.
(g) The Arbitrator erred in holding the 1 st defendant has lent a sum of Rs.13,76,804.60 for being used by the firm without considering the balance sheet of the firm that defendant No.1has made investment towards capital account of the firm. The Arbitrator failed to consider that there is no agreement between the firm and 1st defendant regarding lending amount or offered an interest at 12% p.a., on the amount, the conclusion drawn by the Arbitrator is contrary to documentary evidence on record.
(h) The plaintiffs and 1 st defendant were the equal partners of the firm. The Arbitrator ought to have held that all partners equally accountable and liable for the profit and loss of business of the firm.22
A.S. No. 43/2012
(i) The Arbitrator could not have held the plaintiffs were liable to pay to the 1st defendant or invested by him in the firm.
(j) The Arbitrator unable to consider that it was mutually agreed between the parties that the 1 st defendant was unable to devote his full time to the business of the firm, the plaintiffs worked on full time basis and entitle to salary to the tune of Rs.2,10,000/- p.m., which would be capitalized eventually as their contribution towards capital and for more than 13 months the plaintiffs have not received salaries. The contribution of the plaintiffs to come to about Rs.27,30,000/-.
On the above said grounds prayed to set aside the arbitral award.
9. The 1st defendant has filed written statement to the petition. The application does not come within the purview of Sec.34 of the Arbitration and Conciliation Act. The plaintiffs have filed their written statement and have attended several hearings. The claim of the plaintiff that award was exparte is misconceived. The allegations in the 23 A.S. No. 43/2012 petition averments are denied. They contended that on 24-06-2011 the 1st defendant was present before the Tribunal and requested for time and undertook to intimate the next date to the plaintiffs counsel and adjourned for evidence on 13-07-2011. The date was intimated to the over phone to the plaintiffs counsel. On 13-07-2011 the 1st defendant was present. The plaintiffs counsel requested for time through phone and adjourned for evidence to 27-07-2011. The date was known to the plaintiffs and on their request through phone the date was given. The 1 st defendant has led evidence. The sufficient opportunity was granted by the Tribunal to the plaintiffs to cross- examine defendant No.1. The plaintiffs and their counsels failed to appear and cross-examine. Thereafter, cross-examination was taken as nil and posted for arguments. Ultimately, after hearing arguments of 1st defendant posted for passing of an award and on 10-01-2012 award was passed partly allowing the claim of the 1st defendant. 24
A.S. No. 43/2012 9(a). The Arbitrator has framed issue No.14 based on the counter claim made by the plaintiffs and after considering the material has held in the Negative. Notice was sent to the plaintiffs through registered post to the plaintiffs. They were received duly and thereafter Tribunal proceeded with the dispute. The Tribunal based on all evidence on record has rightly held issues No.1, 2 and 7 in affirmatively that the plaintiffs are liable to pay Rs.13,76,804.60 to the defendant as he had lent the said amount as loan and not as capital investment. The claim of the plaintiffs that the plaintiffs and 1 st defendant are partners are equally entitled for profit and loss of the firm cannot be acceptable, lending of amount is different from the capital investment. The finding of the Arbitral Tribunal in answering issue No.8 in negative that the Partnership Deed does not authorise salaries to the plaintiffs and there is no oral and documentary evidence and the claim of the 25 A.S. No. 43/2012 plaintiffs Rs.2,10,000/- p.m., as salary would be entitled and it will come to Rs.27,30,000/- for 13 months as investment is different question and prayed for dismissal of the petition.
10. After considering the submissions of both counsels, I have gone through the petition, the objections, the award passed by the Sole Arbitrator and exhibits as well as evidence let in before the Arbitrator, the following points would arise for my consideration :
(1) Whether the plaintiffs made out grounds under Sec.34 of the Arbitration and Conciliation Act to set aside the award passed by the Sole Arbitrator dated 10-01-2012 ?
(2) What order ?
11. My findings on the above points are as follows :
Point No.1 : In the Negative.
Point No.2 : As per final order, for the following:
REASONS 26 A.S. No. 43/2012
12. POINT NO.1: The learned counsel for the plaintiffs submitted that the plaintiffs and the defendant had agreed to do business with respect to wholesale and retail of certain fast foods and entered in to Partnership Deed dated 26-08-2008. Due to dispute arising among the partners of the firm the Arbitral Tribunal came to be constituted. The loan claimed to have been given by the defendant was investment and cannot be considered to be a loan. That the partnership firm was not made a party to the Arbitral proceedings. The dispute was not arbitral. The Arbitrator could not have passed an order for dissolution of the partnership firm. The defendant/respondent has not produced documents to show how the amount was brought into the firm or any documents to support his averment that it was a loan. There is no separate agreement entered into between the plaintiffs and defendant, no personal bank records, no income tax record discloses the said fact as a loan. The amounts and money came into 27 A.S. No. 43/2012 partnership firm is reflected in the books of accounts of the firm. At Ex.C-8, 9 and 10 the balance sheet/books of accounts of the partnership firm mentioned as capital account of defendant is INR 13 lakhs, whereas unsecured loan in the very same books of accounts of the firm do not reflect the amount claimed by the defendants.
12(a). It is further argued as per Ex.C-5 the defendant agreed that it was an investment. At Ex.C-11 the notice issued by the respondent to seek for arbitration, he has stated that he has lent the amount only to the firm and not to the plaintiffs. The Arbitral Tribunal has not considered the financial records/books of accounts of the firm. When firm being as a party to the arbitration proceedings, the observation of Arbitrator in the ward is not sustainable. The Arbitrator has answered the issue only because there is no rebuttal evidence of the plaintiffs. However, there is no discharge of burden 28 A.S. No. 43/2012 by the plaintiffs to show that he had not lent a loan. The Arbitral Tribunal ignoring the vital evidence is ground to set aside the award as it is against the public policy, it is patently illegal under Sec.34 of the Act.
12(b). The counsel further submitted that Clause-12 of Partnership Deed provides for the manner in which the firm is to be dissolved. As per the pleadings of the respondent that he wanted to retire from the partnership firm. In the notice issued by the respondent, no procedure has been followed under the Partnership Deed. The Arbitrator power is only in few cases, whether the power is confirmed and can be dissolved partnership firm depends upon the arbitral clause. There is no such reference in the arbitral award to order for dissolution of partnership firm.
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A.S. No. 43/2012 12(c). The counsel further submitted that the plaintiffs were not informed by the respondent on the next dates of hearing or issued any notice by RPAD. The non-appearance of plaintiffs the Arbitrator has to verify the pleadings and evidence on record placed before it to pass order. The issues answered and most of them are against the plaintiffs due to non- rebuttal evidence. Under Order VIII rule 10 CPC casts a duty on the Arbitrator to verify the pleadings and facts regardless of what other side has stated or does not stated. The counsel submitted that award passed by the Arbitrator against the principles of natural justice, material evidence has been ignored, which amounts to patent illegality and perverse and liable to be set aside under Sec.34 of the Arbitration and Conciliation Act.
13. The counsel for the defendant in his arguments submitted that as per Clause-7 of the Partnership Deed dated 26-08-2008 at Ex.C-1 which provides for 30 A.S. No. 43/2012 borrowings from time to time for the purpose of business of the firm from any person, firm companies or banks. The word any person would mean and include the 1st defendant as well. There is no specific bar in the Clause-7 of the Partnership Deed that the partner of the firm cannot lend money to the firm. As per Clause-5 of the Partnership Deed each partner had contributed Rs.25,000/- as capital of the firm and firm required more funds to set up mini- eateries/security deposits. The 1st defendant has lent financial assistance to the plaintiffs to open 3 out- lets initially. The 1st defendant has lent totally a sum of Rs.13,76,804.60, which is mentioned in Ex.C-11 legal notice and also in the claim petition as well as in the affidavit evidence.
13(a). The counsel further submitted that plaintiffs have not cross-examined defendant No.1. The Arbitrator while dealing with issues No.1, 2 and 7 in the impugned order held that the 1st defendant has 31 A.S. No. 43/2012 lent the amount to the firm as loan and not to use it as capital investment. The defendant counsel also referred Ex.C-4 e-mail dated 01-09-2009, wherein the plaintiffs have admitted the 1 st defendant has lent amount. The plaintiffs have not denied that the 1 st defendant has lent Rs.13 lakhs in their subsequent e-mail. There is no specific denial by the plaintiffs. 13(b). The counsel further submits that the partnership firm unlike a company or a trust does not form a separate judicial entity or a person, it is compendium of persons and there is no mandate that the partnership firm should be made as a party in the arbitral proceedings. The contentions of the plaintiffs that the Arbitrator has no power to pass an order for dissolution of partnership firm. In the award there is no order for dissolution of partnership firm only the direction has been issued to take steps to note the firm M/s Gambaz Foods International to be dissolved and settle the accounts. 32
A.S. No. 43/2012 13(c). The counsel further submitted that the plaintiffs were not regular in attending before the Tribunal and they have abandoned the proceedings. The order dated 14-10-2011 would show the plaintiffs were absent even though the notice was served. Subsequently, the Arbitrator adjourned the proceedings for couple of occasions. The plaintiffs not chosen to appear. The 1st defendant continued the proceedings, adduced evidence and produced documents, the Arbitrator has passed an award partly allowing the claim petition. There is no pleadings or issue regarding Public Policy of India. The judgments relied by the plaintiffs are not applicable to the facts and circumstances of the case and prayed for dismissal of the petition.
14. After considering the submissions of both sides, I have gone through the material on record, the admitted facts are that it is not in dispute that the 33 A.S. No. 43/2012 plaintiffs and defendant have entered into deed of partnership on 26-08-2008 as per Ex.C-1. The name and style of partnership firm is M/s Gambaz Foods International. Clause 5 of the Partnership Deed reads as follows :
"5. Capital : That the capital of the partnership shall be Rs.75,000/- (Rupees Seventy Five Thousand only). Each partner shall contribute a sum of Rs.25,000/- (Rupees Twenty Five Thousand only) towards the capital of the firm. If at any time hereafter any further capital shall be required for the purpose of the partnership the same shall, unless otherwise agreed be contributed by the partners."
14(a). Clause-7 of the Partnership Deed reads thus:
"7. Borrowings: The partners of the firm may after mutually deciding between themselves borrow from time to time such money as may be required for the purpose of business of the firm from any persons, firms, companies or banks".34
A.S. No. 43/2012 14(b). As per Clause-5 of the Partnership Deed the capital of the partnership was Rs.75,000/-, each partner shall contribute a sum of Rs.25,000/- towards capital of the firm. There is also stipulation that if at any time any further capital shall be required for the purpose of partnership, the same shall be contributed by the partners. Therefore, there is further scope for contribution by the partners to the partnership firm towards capital. 14(c). Clause-7 authorizes the partners of the firm after mutual decision borrow from time to time such money as may be required for the business of the firm from any persons, firms, companies or banks. The word "any person" employee therein does not restrict or prohibit the partners of the partnership firm to advance a loan to the partnership firm. 14(d). Clause-12 of the Partnership Deed regarding dissolution of partnership firm reads as follows : 35
A.S. No. 43/2012 " 12. Dissolution and Reconstitution: The Partnership may be determined by any partner by giving to the other partners not less than three months notice in writing and on the expiration of such notice the partnership shall determine accordingly.
On dissolution of the partnership, a full and general account shall be taken of all money, debts and assets that are belonging or due to the partnership including capital, such account shall be made up within reasonable time and the amount payable to each partner shall be paid to him.
Provided that the death, retirement, insolvency or incapacity, of any partner shall not dissolve the partnership.
Further provided that upon dissolution of the partnership for any other reason, whatsoever, the remaining partners, if any, shall be entitled to reconstitute the partnership with the same or different name with the surviving partners and / or by taking new partner/partners as may be required to run the same business under the partnership.
36
A.S. No. 43/2012 Provided further that upon the retirement of any of the partners, and if there is only one person remaining, such person shall be entitled to carry out the business of the firm as a propreitory concern and the retiring partner shall not have any objection to the same."
14(e). Clause-15 regarding dispute resolution which reads as follows :
"15. Dispute Resolution: If during the continuance of the said partnership or at any time afterwards any difference shall arise between the partners and/or the heirs, the executors or administrators of the other or them in regard to the construction of any of the articles herein contained or to any division, act or thing relating to the said partnership, the same shall be forthwith referred to a sole Arbitrator. Every such reference to arbitration shall be as provided under the provisions of the Arbitration and Conciliation Act, 1996 and such arbitration shall be held at Bangalore".
37
A.S. No. 43/2012 14(f). After entering into Partnership Deed admittedly initially plaintiffs and defendants contributed a sum of Rs.25,000/- each towards capital investment to the firm. In the course of business it appears three eatery shops were established. Thereafter, due to dispute among the partners, the business was stopped. There was exchange of e-mail correspondence between the plaintiffs and defendants. Ex.C-4 is one such e-mail by the plaintiffs on 01-09-2009 addressed to the defendant assuring that the defendant money will be returned much earlier than his expectations within 12 months. Ex.C-4 is the another e-mail correspondences addressed to plaintiffs by the defendant with Ex.C-6 and 7 attachments to the e- mail. In para (d) it reads as follows :
"d. ...... the same shall be received as loan by the Firm for which interest shall be paid as mutually agreed upon between the Partners."38
A.S. No. 43/2012 14(g). As per the above said e-mail correspondence more than once the plaintiffs have stated about the loan provided by the defendant to the firm. Ex.C-7 is the letter by the defendant on 23-09-2009 to the plaintiffs in response to 19-09-2009 e-mail directing the plaintiffs to return Rs.13 lakhs with interest at 12% p.a., loan amount and to resolve the other issues after receipt of loan amount. Thus, the defendant since beginning has claimed that he has lent Rs.13 lakhs loan to the firm. Ex.C-8 is the balance sheet in the capital account head the defendant name is shown towards Rs.13,76,804. Ex.C-10 is the balance sheet from 01-04-2009 to 30-09-2009, wherein against defendant's name under capital head Rs.13,76,804.60 is mentioned. Admittedly, under loans (liability head) unsecured loans mentioned Nil. Ex.C-11 the notice dated 16- 10-2009 issued by the defendant to the plaintiffs under Sec.11 of the Arbitration and Conciliation Act by invoking Clause-15 of the Partnership Deed for 39 A.S. No. 43/2012 appointment of Arbitrator to resolve the disputes and called upon the plaintiffs to concur the appointment/nomination of K.G. Kamath, Advocate as Arbitrator. The said notice has been replied by the plaintiffs at Ex.P-12 on 23-10-2009 disagreeing that the name suggested by the defendant and they suggested their own name for appointment of Arbitrator Justice K. Shivashankar Bhat or Sri C.K. Balakrishna, Prl. District Judge, retired. 14(h). Based on the notice issued by the defendant for initiation of arbitration proceedings the plaintiffs have not concurred for appointment of Arbitrator as suggested by the defendant. Therefore, the defendant has filed CMP No.292/2009 before Hon'ble High Court of Karnataka under Sec.11 of the Arbitration and Conciliation Act, 1996. After appearance of the plaintiffs herein in CMP, the Hon'ble High Court allowed the petition by order dated 12-01-2010 and appointed Sri N.S. Sangolli, 40 A.S. No. 43/2012 retired District Judge as a Sole Arbitrator to resolve the dispute between the partners of the firm. 14(i). Para 2 of the order of the Hon'ble High Court reads as follows :
" I have perused the partnership deed. Clause 15 of the partnership deed discloses that any dispute inter se between the parties is required to be resolved pursuant to appointing a sole arbitrator. Having regard to the fact that a dispute has arisen and is required to be resolved by the sole arbitrator."
14(j). As per the above said order the arbitration proceedings were commenced. There is no specific reference made by the Hon'ble High Court. As per Clause 15 of the Partnership Deed any dispute inter se between the parties is required to be resolved by appointing sole arbitrator. Having arisen the dispute the sole Arbitrator was appointed.
41
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15. The learned counsel for the plaintiffs has mainly contended in the grounds of the petition that reasonable opportunity is not granted to the plaintiffs to participate in the aribtral proceedings, there is violation of natural justice. It is further contended that the Arbitral Tribunal has not considered the claim, objection with counter claim and most of the issues are answered for the reason that the plaintiffs have not given rebuttal evidence. It is also their specific contention that the Tribunal has not considered the fact that there is clause in the Partnership Deed for dissolution of Partnership Deed or Arbitral Tribunal. It is also contended that the parties by mutual understanding has agreed that the plaintiffs, who have involved in the day to day affairs of the firm and entitled Rs.2,10,000/- salary per month for 13 months around Rs.27 lakhs is their contribution towards capital of the firm, which is not considered by the Arbitrator. It is also their contention that since Arbitral Tribunal has not 42 A.S. No. 43/2012 considered the contentions of the plaintiffs and ignored material aspects and wrongly come to the conclusion holding that the defendant No.1 has lent loan to the firm and not as investment. According to plaintiff there is patent illegality and perverse in the order which required to be set aside the arbitral award.
16. Before appreciating the contentions of both sides, it is necessary to refer scope of Sec.34 of the Arbitration and Conciliation Act. It is well settled that while considering the petition under Sec.34 of the Arbitration and Conciliation Act the standard of scrutiny of award can be done only on the grounds envisaged under Sec.34 of the Arbitration Act. Re-appreciation of evidence is not permissible, unless it is made out with a view taken by the Arbitrator is based on patent illegality or on interpretation of facts and terms of the contract, which are absolutely perverse. The Court while considering the petition 43 A.S. No. 43/2012 under Sec.34 of the Arbitration and Conciliation Act does not sit in appeal over arbitral award and can only interfere on merits on the limited grounds as provided under Sec.34(2)(a) and (b)(ii). It is also well settled, the award should be in compliance with judicial precedence adopted judicial approach and in compliance of principles of natural justice. 16(a). The Hon'ble Apex Court in judgment relied by the plaintiffs reported in (2022) 2 SCC 275 State of Chhattisgarh and another vs. Sal Udyog Private Limited, wherein it is held that:
" ....patent illegality goes to very root of the matter and deserves interference....."
16(b). In the judgment reported in (2019) 9 SCC 462 Canara Nidhi Limited vs. M. Shashikala and others, wherein it is held that :
" .... permission to file affidavit by way of evidence and cross-examination of witnesses, is grantable only when absolutely necessary, in exceptional cases, and not as a matter of course."44
A.S. No. 43/2012 16(c). In respect of similar circumstances, the Hon'ble Supreme Court in M/s Alpine Housing Development Corporation Pvt. Ltd., vs. Ashok S. Dhariwal and others in Civil Appeal No.73/2023. 16(d). (2015) 3 SCC 49 Associate Builders vs. Delhi Development Authority, wherein it is held that :
" It is only when arbitral award is in conflict with public policy of India as per Sec.34(2)(b)(ii), the interference is permissible only when findings of arbitrator are arbitrary, capricious or perverse or when conscience of court is shocked and when illegality is not trivial but goes to root of the matter...."
16(e). With the above said settled decisions of Hon'ble Apex Court that the patent illegality would constitute contravention of substantive law of India, contravention of Arbitration and Conciliation Act and contravention of terms of the contract.
17. As per the judgment relied by the defendant No.1 counsel in First Appeal No.322 of 2010 Hon'ble High Court of Gujarat in case of Oil & Natural Gas 45 A.S. No. 43/2012 Corporation Ltd., vs. David Parkar Construction Ltd., dated 12-06-2024, wherein it has observed that :
" But, the interference by Courts in an arbitral award will not entail review on the merits of the dispute and has to be limited only to situations where it is found that the findings of the Arbitrator are arbitrary, perverse, shocking the conscience of the Court and where the illegality goes to the root of the matter. In the present case, we find that the view taken by the learned Arbitrator was a plausible view and in terms of the contract entered into between the parties. It is well-settled that the awards which contain reasons, when interpreting the contractual terms, are not to be interfered with lightly. Re- appreciation of evidence is not permissible."
18. The Arbitrator in the impugned award has formulated as many as 16 issues. In the light of above said facts and circumstances and in view of the above said settled principles the following points would arise for consideration :
(1) Whether the defendant No.1 has lent loan to the firm or made as investment to the firm ?
(2) Whether the non-impleading of partnership firm in the claim petition before the Tribunal the dispute per se is not arbitral ?
(3) Whether there is no proper service of notice to the plaintiffs before the arbitral 46 A.S. No. 43/2012 proceedings so as to plaintiffs unable to present their case ?
(4) Whether by mutual understanding the plaintiffs are entitled to a salary of Rs.2,10,000/- p.m., for 13 months salary around Rs.27,00,000/- is devoted towards firm investment ?
(5) Whether the Arbitrator has dissolved the firm in contrary to the terms of the Partnership Deed ?
19. (1) Whether the defendant No.1 has lent loan to the firm or made as investment to the firm: Ex.C-1 Deed of Partnership dated 26-08-2008 para 7 authorized the partners after mutually decided between themselves borrow the amount from time to time as required for the purpose of business of the firm from any person. Any person includes even the partners. Therefore, there is clear provision to borrow the loan from the partner or any other persons or firm as per the Partnership Deed. 19(a). Ex.C-6 - e-mail attachment letter sent by the plaintiffs herein have clearly mentioned in Clause-(a) 47 A.S. No. 43/2012 that in the event of any further sums or capital are to be invested are brought into firm, same shall be received as a loan by the firm, for which interest shall be paid as mutually agreed upon between the parties. The authenticity of this e-mail letter is not disputed by the plaintiffs either in the subsequent e-mails or re-joinder/reply notice to the defendant notice. Therefore, in corresponding to Clause 7 of the Partnership Deed the plaintiffs themselves explicitly admitted that the amount received as a loan, which shall be paid with interest as agreed between the partners. In para 3 of the same letter attached to Ex.C-6 once again confirmed, it reads as follows :
" While we do admit that you have brought in additional sums of money as loan to the firm, we do not accept that this has given you any superior rights to either run the firm or do any actions which bring the firm under ruin."
19(b). Above said contents of e-mail are once again reiterated that the amount lent by the defendant is a 48 A.S. No. 43/2012 loan and it carries interest. If there was no loan or repayable with interest and there was no mutual understanding between the parties, there was no necessity or occasion for the plaintiffs in their letter at Ex.C-6 through e-mail stated about the loan brought by the defendant to the firm. In para 8 of the same letter at Ex.C-6 that, "the loans provided by you is the liability of the firm ...." This statement further confirm the loan provided by the defendant to the firm and not as an investment to the firm. The defendant at Ex.C-6 has addressed a letter regarding misappropriation of firm's name and funds and sought for return of loan amount of Rs.13 lakhs with interest at 12% p.a. It is no doubt true that in Ex.C- 8, C-10 the balance sheet of the partnership firm in the capital account head under liabilities against the name of the defendant Rs.13,76,804.60 is mentioned and in loans (liability head) unsecured loans stated Nil. The non-mentioning of unsecured loan column 49 A.S. No. 43/2012 as Nil does not take away the admissions of the plaintiffs in Ex.C-6 - e-mail letter. 19(c). The admissions of the plaintiffs in a letter through e-mail at Ex.C-6 prevails other exhibits C-8 and C-10 balance sheet. The plaintiffs in their subsequent e-mail correspondences and reply to the defendant notice has not given any explanation for what reasons/circumstances in Ex.C-6 e-mail letter have admitted about the loan provided by the defendant to the firm and repayable with interest. In the absence of such explanation, there is explicit admission on the part of plaintiffs that the defendant has got the amount as a loan to the firm, which would be repayable with interest as mutually agreed by the parties. Therefore, there is no substance in the contentions of the plaintiffs that the amount brought by the defendant is not the loan and it is only an investment. The Sole Arbitrator in the award while discussing issues NO.1, 2 and 7 referred the 50 A.S. No. 43/2012 evidence of CW.1, Ex.C-1 - Partnership Deed. Ex.C-11 and 12 notices and Ex.C-4 is the e-mail sent by the plaintiffs to the claimant by extracting the following averment in the e-mail sent by the plaintiffs at Ex.C-4 as follows:
" Given today's scenario with cash flow we feel that we can pay you back the money starting the 1st week of December in monthly installments."
19(d). Therefore, it cannot be said that Arbitrator has ignored material documents and evidence on record while answering issues No.1, 2 and 7 and rightly come to conclusion that the amount brought by the defendant to the firm is the loan not the investment and same is to be repayable with interest.
20. (2) Whether the non-impleading of partnership firm in the claim petition before the Tribunal the dispute per se is not arbitral ? : It is consistant stand taken by the plaintiffs in their counter 51 A.S. No. 43/2012 objections filed before the Sole Arbitrator contending that the initiation of arbitral proceedings without making the partnership firm i.e., M/s Gambaz Foods International, the award is vitiated and there is no dispute per se is arbitral. Admittedly, the partnership firm is not made as a party to claim statement before the arbitration proceedings in arbitration case No.292/2009. Admittedly, the plaintiffs and defendants are the partners of M/s Gambaz Foods International.
20(a). The counsel for the defendant submitted that the partnership firm is not necessary party before the arbitration proceedings. In support of his arguments relied upon the judgments of Hon'ble Apex Court in (2009) 5 SCC 608 V. Subramaniam vs. Rajesh Raghavendra Rao, in para 11 of the judgment the Hon'ble Apex Court has held that :
"11. It may be mentioned that a partnership firm, unlike a company registered under the Indian Companies Act, is not a distinct legal entity, and is only a compendium of its 52 A.S. No. 43/2012 partners. Even the registration of a firm does not mean that it becomes a distinct legal entity like a company. Hence the partners of a firm are co-owners of the property of the firm, unlike shareholders in a company who are not co- owners of the property of the company."
20(b). In another decision in (2003) 3 SCC 229 N. Khadervali Saheb (Dead) by L.Rs., and another vs. N. Gudu Sahib (Dead) and others, wherein at para No.3 it is held that :
"3. .......A partnership firm is not an independent legal entity, the partners are the real owners of the assets of the partnership firm. Actually the firm name is only a compendious name given to the partnership for sake of convenience. The assets of the partnership belong to and are owned by the partners of the firm...."
20(c). If that view of the matter, non-impleadment of partnership firm in the claim statement before Arbitral Tribunal does not vitiate the award passed by the Sole Arbitrator and in fact the dispute is arbitral in the absence of partnership firm as a party. The partnership firm unlike a company or a trust does not form a distinct judicial entity or a person, it is a compendium of persons and there is no mandate 53 A.S. No. 43/2012 that the partnership firm are to be made as a party. Therefore, the submissions of the plaintiffs that without impleading partnership firm is liable to be interfered in setting aside the award passed by the Arbitrator is not sustainable and accordingly there is no need to implead partnership firm as a party before the Arbitral Tribunal.
21. (3) Whether there is no proper service of notice to the plaintiffs before the arbitral proceedings so as to plaintiffs unable to present their case ? : It is the main grounds in the petition filed by the plaintiffs that there is no proper service of notice by the Arbitral Tribunal. The plaintiffs were not informed by the respondent on the next date of hearing nor was issued any notice by RPAD as per the proceedings before the Arbitral Tribunal. Regardless of appearance of plaintiffs the Arbitrator has to verify the pleadings and documents placed before it. The defendant on the other hand, has contended that the 54 A.S. No. 43/2012 opportunity has been given to the plaintiffs. The information was given through phone, they did not appear. The notice was issued to them. They did not appear before the Tribunal nor participated and abandoned the proceedings. The false plea is taken only to bring the petition under the purview of Sec.34(2)(a)(iii). As per Sec.34(2)(a)(iii) of Arbitration and Conciliation Act, the party making the application was not given proper notice of the appointment of an Arbitrator or the arbitral proceedings or otherwise unable to present his case is one of the grounds to set aside the arbitral award. 21(a). In the present case, it is not in dispute that the plaintiffs were given proper notice for appointment of an Arbitrator at Ex.C-7. The plaintiffs have issued a reply not concurring the names suggested by the defendants as Arbitrator and they suggested their own names as Arbitrator and thereafter, the defendant has filed CMP 55 A.S. No. 43/2012 No.292/2009, in which the plaintiffs represented through their Advocate C.N. Srinivasa. Therefore, 1 st part of Sec.34(2)(a)(iii) has been duly complied regarding notice of appointment of Arbitrator. In so far as second part of the Section it is for the plaintiffs to show that they were not given proper notice in the arbitral proceedings and they were unable to present their case.
21(b). The Tribunal Court order sheet has been produced. The authenticity and sanctity of order sheet has not been disputed and moreover it cannot be disputed also. As per the order sheet maintained by the Arbitral Tribunal disclose that on first hearing date itself on 18-02-2010 the counsels for plaintiffs and defendant were present. Again on 16-04-2010 both counsels were present and signed their signatures. On 22-06-2010 the counsel for the plaintiffs was also present. On 22-07-2010 both side counsels were present, requested for filing rejoinder. 56
A.S. No. 43/2012 Again on 03-08-2010 both counsels were present, adjourned for rejoinder. On 16-08-2010, 27-08-2010, 08-09-2010, 15-09-2010, 22-09-2010 both side counsels were present before the Arbitral Tribunal. Again on 18-11-2010, 02-12-2010, 03-12-2010, 06-01-2011, 20-01-2011, 04-02-2011 both side counsels were present. On 10-02-2011 the defendant counsel was present. The plaintiffs counsel was absent and it was intimated. On 15-02-2011 the claimant therein and his counsel was present. The respondent therein and their counsels are absent and adjourned for conciliation. On 30-03-2011 again counsel for plaintiffs and defendant were present. On 07-06-2011, 24-06- 2011, 13-07-2011 the plaintiffs counsel were absent. There is specifically observed in the order sheet that the date is made known to the counsel. On 13-07-2011 the claimant counsel present. The counsel for the respondent i.e., plaintiffs counsel 57 A.S. No. 43/2012 Srinivas requested for time and adjourned for evidence to 27-07-2011.
21(c). It is further recorded that the date is made known to the counsel for the respondent and given at his request on phone. Thus, as on 13-07-2011, counsel for the plaintiffs were made known the proceedings and as such all the arbitral proceedings and thereafter on 24-11-2011 the claimant was partly examined all marked documents and adjourned for cross-examination as there was absent on behalf of the respondent. On 02-12-2011 the claimant counsel present, the respondent and counsel absent and posted for arguments and thereafter, on 08-12-2011, 21-12-2011 plaintiffs side no representation and posted for passing of award and ultimately on 10-01-2012 award was passed. Copy of the award supplied to the Advocate. The sequence of events stated herein above would clearly show that the proceedings as such was made known 58 A.S. No. 43/2012 to the plaintiffs counsel. After commencement of evidence of the defendants counsel, the plaintiffs have no representation before the Arbitral Tribunal. Once the plaintiffs represented before the Arbitral Tribunal through counsel, it is their duty to ensure their presence before the Tribunal and to go on with the matter from the stage where it has been fixed. The order sheet of the Tribunal clearly establishes the plaintiffs and their counsel were aware of proceedings, in fact, the plaintiffs and their counsel has not participated in the proceedings. Due to their own fault they have not participated even once, the notice was also issued to the plaintiffs on 14-10- 2011. The plaintiffs themselves have not participated before the Trial Court. Now they cannot turn around and say that no notice was notified to them by the Tribunal to participate in the proceedings. There is no basis for the contention of the plaintiffs. The contentions taken by the plaintiffs are contrary to the order sheet maintained by the Tribunal. 59
A.S. No. 43/2012 21(d). The learned counsel for the plaintiffs has relied upon judgment 2017 SCC OnLine Madras 30659 K. Balakrishnan vs. S. Dhanasekar. The facts of the case that, the written statement was not filed by the defendant and principles were laid down observing that under Order VIII rule 10 CPC the Court has to be more cautious while exercising such power where the defendants fails to file written statement. The Court must be satisfied that there is no fact which need to be proved in respect of deemed admission by the defendant and Court must give reasons for passing such judgment. However, in the present case, the written statement/objections were filed by the plaintiffs before the Tribunal, but, subsequently, they did not participate. It is their fault and they cannot be blamed no notice was given. Thus, the plaintiffs have failed to prove that they were unable to present their case before the arbitral proceedings. Even otherwise before this Court PW.1 60 A.S. No. 43/2012
- plaintiff No.1 filed affidavit in chief-examination and no documents are filed apart from the documents which are already marked before the Tribunal. Therefore, the order passed by the Arbitral Tribunal is based on the material on record and no grounds to set aside the award passed under Sec.34(2)(a)(iii).
22. (4) Whether by mutual understanding the plaintiffs are entitled to a salary of Rs.2,10,000/- p.m., for 13 months salary around Rs.27,00,000/- is devoted towards firm investment ? : The defendants in their counter claim objections have contended that the Arbitrator has not considered the fact that the plaintiffs worked on full time basis and entitled to salary of Rs.2,10,000/- per month, which would eventually contribution towards capital, which would come to Rs.27,30,000/- for 13 months. The Tribunal in the impugned award has framed issue No.8 by referring Ex.C-1 - Partnership Deed. It observed that 61 A.S. No. 43/2012 contention of the plaintiffs is contrary and inconsistent with the spirit of forming partnership firm from doing business. The Tribunal also referred Clause 10 and 11 of the Partnership Deed about the obligation of the partner and how the partners should conduct themselves in starting promoting and developing prawn farming business. The Tribunal by considering Ex.C-8, 9 and 10 negatived the contention. The Partnership Deed does not stipulate payment of salary to the partners. Even to show that there was a mutual understanding between the partners to pay salary to the plaintiffs, there is no such piece of paper. At least there should have been some reference in the e-mail correspondences. The Tribunal while answering issue No.8 has observed as follows :
"..... that they were to work in the firm as full time basis on a monthly salary of Rs.1,40,000=00 for R1 and Rs.70,000=00 to R2 claimant denies that contention of the respondents in his rejoinder and in his 62 A.S. No. 43/2012 evidence. Here I must go to Ex.C1 the partnership deed. If one peruses EXC1 it is clear that this contention of the respondents is quite contrary and in consistent with the spirit of forming the partnership firm for doing business is prawn forming as C.10 and 11 speak about the obligations of the partners and stipulation as to how the partners should conduct themselves in starting promoting and developing prawn farming business and the entrusts of balance sheets would not in any way help them as EXC-8, C9 and C10 mention the names of claimant and respondents as partners. So the contention of the respondents.
That they were certified for monthly payment treating them as full time partners (workers). If this could be accepted it amounts that an individual could be accepted an employer and employee forming a single being. Such conception is ununderstable at least for me. Thus for the reasons stated above that amount which ought to have been paid would be capitalized etc., sinks into insignificance and so their 63 A.S. No. 43/2012 contention that they would have been contributed Rs.27,30,000/- becomes unacceptable and imaginary."
22(a). In the absence of any express provision in the Partnership Deed to pay salaries to the partners, then the question of payment of salaries does not arise. Moreover, it is against to the spirit and object of the partnership firm. Therefore, there is no basis for the plaintiffs to claim salary of Rs.27,30,000/- which would be contribution to the firm.
23. (5) Whether the Arbitrator has dissolved the firm in contrary to the terms of the Partnership Deed ? : It is also specific ground in the petition to set aside the award on the ground that firm could not have been dissolved. The counsel has submitted that the dissolution of firm is beyond the power of Arbitrator and it is to be exercised power only in exceptional cases by referring the contract. In this regard the learned counsel relied upon the judgments 64 A.S. No. 43/2012 (2000) 4 SCC 368 V.H. Patel & Company and others vs. Hirubhai Himabhai Patel and others and 2018 SCC OnLine Bombay 1200 Yogendra N. Thakkar vs. Vinay Balse, wherein it is held that, power of Arbitrator will primarily depend upon the arbitration clause and reference made by the Court to it. 23(a). It is further held that the Arbitrator has jurisdiction to dissolve the partnership firm also under Sec.44(g) of Partnership Act 1932. In the present case, first of all the Arbitrator in the award has not dissolved the partnership firm. On the other hand, directed the parties to as per Ex.C-1 take steps to get dissolved the partnership firm M/s Gambaz Foods International and settled the amount including the articles, machines, computers etc., as detailed in the balance sheet produced at Ex.C-8, C-9 and C-10. On perusal of the order of Arbitrator no order has been passed for dissolution of partnership firm. It is only suggesting the partners to take steps to dissolve 65 A.S. No. 43/2012 the firm and not passed any order of dissolving the firm. As per the order passed by the Hon'ble High Court of Karnataka in CMP No.292/2009 all matters in dispute have been referred to arbitration. The Arbitrator can dissolve the firm. However, the Arbitrator has not dissolved the firm. The very contention of the plaintiffs that the dissolution of firm by the Arbitrator cannot be acceptable. 23(b). The other contentions raised by the plaintiffs before the Tribunal regarding obstructions caused by the defendant, so the customers stopped coming has been dealt with by the Tribunal on issue No.9 and observed that there is no evidence on behalf of both parties on this aspect. The defendant claiming the accounts or asking to get trade mark registered or tried to get already registered trade mark "Prawnto" to get of transferred, it cannot be construed that he was causing obstruction. Therefore, it was observed that there is no proof to hold that there was 66 A.S. No. 43/2012 obstruction caused by the defendant. So also, there is no material that the defendant pressurized the plaintiffs to sell their shares and offered Rs.50,000/- and plaintiffs are refused and defendant tried to destroy the business of the firm. The e-mail correspondences would show the plaintiffs and defendants have grievance against each other. The contention taken by the plaintiffs are also considered by the Tribunal with regard to counter claim at issue No.14 for entitlement of counter claim by the plaintiffs of Rs.1,06,50,000/- to pay to the third party suppliers in order to support the claim, no material placed, if not before the Tribunal before this Court while giving evidence through plaintiff No.1 as PW.1, the supporting documents could have been produced to prove the counter claim contentions. In the absence of any such documents got it marked, merely taking contentions in the objections with counter claim by itself would not prove their contentions and entitle for counter claim amount. 67
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24. On perusal of the oral evidence of PW.1 and documents on record, the defendant has lent Rs.13,76,804.60 as a loan and plaintiffs were agreed to paid the same with interest at 12% p.a. The plaintiffs are failed to prove that they are entitled to a sum of Rs.2,10,000/- p.m., as a salary and 13 months salary would be contributed towards capital of the firm is not accepted. Not impleadment of partnership firm does not initiate the award. The sufficient opportunity was granted to the plaintiffs to present their case and participate before the Tribunal, but due to fault of the plaintiffs themselves abandoned the proceedings. The award conscious reasons, considered the objections statement and counter claim of the plaintiffs referred the documents and interpreted Ex.C-1 the partnership firm, there is no illegality or far as finding by the Tribunal. The Tribunal has considered all the material on record by appreciating the same passed an award. No grounds 68 A.S. No. 43/2012 are made out by the plaintiffs to set aside the award under Sec.34(2)(a) and (b) of the Arbitration and Conciliation Act and accordingly answered the point No.1 in the Negative.
25. POINT NO.2: Hence, the following :
ORDER The application under Sec.34 of the Arbitration and Conciliation Act, 1996 to set aside the order dated 10-01-2012 passed in Arbitration case No.292/2009 filed by the petitioner is dismissed.
(Dictated to the Stenographer Grade-I, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open court, on this the 23rd day of October 2024) (S. NATARAJ) VI Addl.City Civil & Sessions Judge Bengaluru City 69 A.S. No. 43/2012 70 A.S. No. 43/2012