CASE NO.:

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Appeal (civil) 1526 of 2007
PETITIONER:
Ravi Prakash Goel
RESPONDENT:
Chandra Prakash Goel & Anr
DATE OF JUDGMENT: 21/03/2007
BENCH:
Dr. AR. Lakshmanan & Altamas Kabir
JUDGMENT:
J U D G M E N T
(Arising Out of SLP (C) NO. 6723 OF 2006)
Dr. AR. Lakshmanan, J.
Leave granted.
The above appeal is directed against the final
judgment and order dated 10.02.2006 passed by the
Chief Justice of the High Court of Judicature at
Allahabad in Arbitration Application No. 7 of 2005
dismissing the application moved by the appellant under
Section 11 of the Arbitration and Conciliation Act, 1996
for appointment of arbitrator.
BACKGROUND FACTS:
Respondent Nos. 1 and 2 - Chandra Prakash Goel and
Rakesh Aggarwal along with Dulari Devi, mother of the
appellant - Ravi Prakash Goel and Pushplata were
carrying on business of sale and purchase of sanitary
goods in the name and style of M/s Kumar and Company
under the Partnership Deed dated 09.08.1983.
Pushplata retired from partnership w.e.f. 31.03.1992.
Thereafter, other partners carried on the business and a
new partnership deed was executed on 01.04.1992.
Clause 5 of the same provided that the net profits of
the partnership business as per accounts maintained
after deduction of all necessary expenses shall be divided
and distributed amongst the partners at the close of each
accounting year in the following ratio:
1) Sri Chandra Prakash Goel, Respondent No.1- 31%
2) Sri Rakesh Kumar, Respondent No.2- 34%
3) Smt. Dulari Devi, Petitioner's Mother- 35%
Clause 13 of the Partnership Deed refers to
arbitration clause. It reads as under:-
"That all the disputes touching the affairs of the
partnership firm shall be referred to arbitrator in
accordance to the provisions of the Indian Arbitration
Act and the award of such Arbitrator shall be final and
binding on the parties."
When the respondents did not render accounts of
the partnership firm to the appellant's mother despite
repeated verbal requests, she on 05.06.2004 sent a
notice to the respondents raising dispute regarding
accounts of the partnership firm and informed them that
on account of her illness she has authorized her son,
Ravi Prakash Goel, the appellant herein to look into the
accounts of the partnership business on her behalf and
requested them to explain the accounts to her son on any
working day between 05.06.2004 to 16.06.2004, but they
did not respond.
The appellant visited the office of the firm but the
respondents refused to permit him to have access to the
accounts of the firm. On 05.09.2004, Smt. Dulari Devi
the mother of the appellant executed her last will in
favour of the appellant to her only son bequeathing her
estate in appellant's name including the instant
partnership business. Dulari Devi expired on 06.10.2004
leaving her last will dated 05.09.2004 which was
registered after publication in the daily newspaper and
also after due notice to all the other legal heirs of the
deceased who categorically stated that they have no
objection and accepted due execution of the will before
the Sub-registrar, Dehradun.
On 15.12.2004, the appellant sent notice to the
respondents to the effect that his mother had sent notice
to them regarding dispute in relation to the accounts by
partnership firm and despite her request, accounts were
not shown to her authorized agent, namely, her son,
hence as per the terms of the partnership deed, the
disputes are to be decided by arbitration. He suggested
the name of Shri P.C. Agrawal, a retired District Judge
and further informed that if they are not agreeable, they
may suggest the name of their own Arbitrator.
When no reply of the notice dated 15.12.2004 was
received, the appellant filed application under Section 11
of the Arbitration and Conciliation Act, 1996 before the
Hon'ble Chief Justice, Allahabad High Court under the
scheme called the appointment of Arbitrators by the
Chief Justice of Allahabad High Court, 1996, vide High
Court of Judicature at Allahabad Notification No.
11448/Rules dated 18.05.1996 published in the U.P.
Gazette Pt 1-KA dated 16.11.1996.
The learned Chief Justice of the High Court on
10.02.2006 has dismissed the appellant's application
concluding that the applicant has no presently
establishable binding arbitration agreement with the
respondents. The order passed by the Hon'ble Chief
Justice reads as under: -
"Hon'ble Ajoy Nath Ray, C.J.
This is an application for an Arbitrator by the son of
one of the deceased partners of the Firm.
The partnership deed is annexed. The lady died on
6.10.2004. If an arbitration has been commenced by
the lady during her lifetime, it might have been
continued by the son who is applicant before this
court, by obtaining substitution. However, the
arbitration is being attempted to be commenced now.
Whether the heirs of a deceased partner or parties, are
to be deemed as parties, to an arbitration agreement
contained in a partnership deed, is a question of
intention and construction in every different cases.
The deed annexed does not show that any of the
parties mentioned was to be construed by contract as
including his/her heir, successor or assignee. That
usual clause is absent. Furthermore the son claims as
legatee of a will not yet probated. It is well known that
Courts of law cannot look into unprobated wills. In
these circumstances I am of the opinion that the
applicant has no presently establishable binding
arbitration agreement with the respondent.
The application is, therefore, dismissed. A suit might
be filed.
Sd/-
Ajoy Nath Ray, C.J
10.2.2006"
As stated earlier, the present appeal has been filed
against the above judgment.
We heard Mr. Rakesh Dwivedi, learned senior
counsel for the appellant and Mr. Chandra Shekhar,
learned counsel for the respondents.
Mr. Rakesh Dwivedi, learned senior counsel for the
appellant submitted that that High Court overlooking the
provisions of Section 46 read with Section 48 of the
Partnership Act and Section 40 of the Arbitration Act,
has erred in dismissing the application under Section 11
of the Arbitration Act as in law arbitration could be
commenced by the heirs of the deceased partners and
since right to sue survives on the appellant as sole son
and legal representative of the deceased partner is
entitled to invoke clause 13 of the arbitration contained
in the Arbitration Agreement. According to him, the view
taken by the learned Chief Justice is wholly contrary to
the earlier decision of a Single Judge of the same High
Court in Sundar Lal Haveliwala vs. Smt. Bhagwati
Devi reported in AIR 1967 Allahabad 400 as such the
Chief Justice ought to have referred the matter to a larger
Bench. He would further submit that the views
expressed in the impugned order is contrary to the
principles laid down by this Court in the case of
Premlata & Anr. Vs. Ishwar Dass Chamanlal and
Ors., AIR 1955 SC 714.
Mr. Chandra Shekhar, learned counsel appearing
for the respondent submitted that the partnership deed
which is unique in its character cannot be ignored as the
arbitration clause is contained therein and the disputes
referable for arbitration are the disputes touching upon
the affairs of the partnership firm and that the
partnership deed while describing three parties confined
the extent of the respective partners to their respective
individual person alone, namely, not extending the same
nomenclature to the legal heirs, representatives, assigns
or even legatees etc. This fact, according to the learned
counsel for the appellant, is evident from annexure-P1 to
the petition and have also been noted by the High Court
of Allahabad while passing the impugned order in the
following words:
"The deed enclosed does not show that any of the
parties mentioned was to be construed by contract as
including his/her heir, successor and assignee. The
usual clause is absent."
Mr. Chandra Shekhar further submitted that the
Partnership Act and the Arbitration and Conciliation Act,
1996 are characterized by "party autonomy" and
accordingly are founded upon the contract giving pre-
eminence to the will of the parties and even the
interference of the Court has been curtailed to the
minimum possible level. It is the contention of the
learned counsel that the rights of the legatee under the
Partnership Act are regulated and conditioned by Section
29 of the Indian Partnership Act and on the said strength
he is only entitled to receive the share of the assets of the
firm to which the testator, his predecessor was entitled.
It is further submitted that the answering respondents
have never denied the rendition of the deceased partner's
account to her share as per the deed and that the
respondents have always been ready and willing to pay
her share if so ordered by the Court.
Mr. Chandra Shekhar further submitted that no
dispute have ever arisen during the lifetime of Dulari
Devi and she was the tax payer, all the accounts were
conducted in her presence and with her consent during
her lifetime and that no dispute was ever even alluded
during her lifetime. Accordingly, the appellant as a
legatee on her behalf can continue the claiming for
resolution of the disputes which arose during her
lifetime. No certificate of service, not even the receipt of
registration have ever been filed. In view of the fact Mr.
Chandra Shekhar submitted that it is clear that the
appellant by no stretch of imagination can claim to be the
party to the Agreement of Arbitration contained in the
partnership deed. According to Mr. Chandra Shekhar
the will of the parties is pre-eminent and the same is to
be given effect to by all means and, therefore, the
appellant cannot be said to be a party to the Arbitration
Agreement and accordingly, cannot avail mode of
alternative resolution of disputes by way of arbitration as
claimed. The learned counsel has also made submission
under Section 29 of the Partnership Act. According to
him, that the right of the appellant as legatee/legal
representative of Dulari Devi are conditioned by Section
29 of the Partnership Act and in case if Section 40 of the
Arbitration and Conciliation Act is read along with
Section 29 of the Partnership Act, it becomes clear that
the appellant's right of account is confined to rendition of
accounts as permitted by Section 29 of the Partnership
Act. So far as the appellant's right to claim arbitration is
concerned, the same cannot be taken benefit of
particularly in view of the unusual character of the
partnership deed where the definition of party
deliberately excludes legal heirs, legal representatives
and legatees. According to him, it is also relevant to
mention that the commencement of arbitration
proceedings is the judicially recognized and statutorily
defined concept as is evident from Section 21 of the
Arbitration and Conciliation Act and if the proceedings
had commenced, the right of the legal heir would remain
to carry on the same further but in the instant case, the
proceedings have not commenced during the lifetime of
Smt. Dulari Devi. In view of the submissions made
above, learned counsel for the respondent submitted that
the petition deserves to be dismissed as the appellant is
not a party to the arbitration agreement.
On the above pleadings, the following questions of
law emerge for our consideration.
a) Where right to sue for rendition of accounts
survives on the legal legal representative of a
deceased partner, are the legal representatives not
entitled to invoke arbitration clause contained in
the Partnership Deed?
b) Whether the arbitration can be commenced by the
heirs after the death of partner especially where the
dispute had arisen already during the life time of
the partner?
c) Whether in view of section 46 read with section 48
of the Indian Partnership Act as well as section 40
of the Arbitration Act, 1999, the petitioner is
entitled to claim appointment of arbitrator under
the arbitration clause of the Partnership Deed and
the Hon'ble Chief Justice of the Allahabad High
Court has erred in overlooking these provisions?
Before we proceed further, it is useful to reproduce
Section 40 of the Arbitration Act and Sections 46, 47 and
48 of the Indian Partnership Act.
"40. Arbitration agreement not to be discharged by
death of party thereto.- (1) An arbitration agreement
shall not be discharged by the death of any party
thereto either as respects the deceased or as respects
any other party, but shall in such event be enforceable
by or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be
terminated by the death of any party by whom he was
appointed.
(3) Nothing in this section shall affect the operation of
any law by virtue of which any right of action is
extinguished by the death of a person."
"46. Right of partners to have business wound up
after dissolution. On the dissolution of a firm every
partner or his representative is entitled, as against all
the other partners or their representatives, to have the
property of the firm applied in payment of the debts
and liabilities of the firm, and to have the surplus
distributed among the partners or their
representatives according to their rights.
47. Continuing authority of partners for purposes
of winding up.- After the dissolution of a firm the
authority of each partner to bind the firm, and the
other mutual rights and obligations of the partners,
continue notwithstanding the dissolution, so far as
may be necessary to wind up the affairs of the firm
and to complete transactions begun but unfinished at
the time of the dissolution, but not otherwise:
Provided that the firm is in no case bound by the
acts of a partner who has been adjudicated insolvent;
but this proviso does not affect the liability of any
person who has after the adjudication represented
himself or knowingly permitted himself to be
represented as a partner of the insolvent.
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;
(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."
It is clear from Section 40 of the Arbitration Act that
an arbitration agreement is not discharged by the death
of any party thereto and on such death it is enforceable
by or against the legal representatives of the deceased,
nor is the authority of the arbitrator revoked by the death
of the party appointing him, subject to the operation of
any law by virtue of which the death of a person
extinguishes the right of action of that person.
Section 2(1)(g) defines "legal representative" which
reads thus:
"Legal Representative" means a person who in law
represents the estate of a deceased person, and
includes any person who intermeddles with the estate
of the deceased person , and, where a party acts in a
representative character, the person on whom the
estate develops on the death of the party so acting."
The definition of 'legal representative' became
necessary because such representatives are bound by
and also entitled to enforce an arbitration agreement.
Section 40 clearly says that an arbitration agreement is
not discharged by the death of a party. The agreement
remains enforceable by or against the legal
representatives of the deceased. In our opinion, a person
who has the right to represent the estate of deceased
person occupies the status of a legal person. Section 35
of the 1996 Act which imparts the touch of finality to an
arbitral award says that the award shall have binding
effect on the "parties and persons claiming under them".
Persons claiming under the rights of a deceased person
are the personal representative of the deceased party and
they have the right to enforce the award and are also
bound by it. The arbitration agreement is enforceable by
or against the legal representative of a deceased party
provided the right to sue in respect of the cause of action
survives.
We have already extracted Sections 46, 47 & 48 of
the Partnership Act. Section 46 provides two things,
namely, 1) first is to realize the assets of the business
and then to apply the same for discharge of liabilities and
finally to distribute the surplus, if any, among the
partners. All that Section 46 empowers is that every
partner shall claim that this is to be done for ultimate
distribution of the surplus to the partners according to
their shares. A suit to enforce the latter right relating to
the distribution of surplus is generally called a suit for an
account which means account taken up accordingly.
This right to a partner to file a suit for account is not
affected by the fact that the retiring partner has already
inspected the accounts of the firm. Section 46 is,
however, merely declaratory of the rights of the partners
or their legal representatives in the surplus and does not
set out the mode of calculating the surplus. The share of
a partner upon the winding up of a dissolved firm, is only
in the residue which is left after the liabilities mentioned
in the various clauses of Section 48 have been paid out.
Payment of capital and advances to partners is not out of
the residue. The amount paid as capital investment to a
partner will have to be deducted in order to find the value
of the residue, because the value of a partner's share is
only his proportion of the residue.
"Right of Representative of a Partner:
The right of a representative of a partner is really a
claim against the surplus assets on realisation-
whether the surplus consists entirely of the proceeds
of realisation or whether they include some specific
items of property, which existed on the death of the
partner. The proper remedy of a partner in the
circumstances is to have accounts taken to ascertain
his share and if the right to sue for accounts is barred
by limitation, the partner cannot sue any partner in
possession of the assets for a share therein, and the
limitation will be governed by Art.5 of the Limitation
Act." On the dissolution of the firm, the arbitration clause
does not come to an end and so if a dispute had arisen
during the lifetime of the deceased partner, his legal
representatives would be entitled to take proceedings
under Section 20 of the Arbitration Act, 1940.
When a partner dies and the partnership comes to
an end it is not only right but also the duty of the
surviving partner to realize the assets for the purpose of
winding up of the partnership affairs including the
payment of the partnership debts. However, it is true
that in a general sense the executors or administrators of
the deceased partner may be said to have a lien upon the
partnership assets in respect of his interest in the
partnership and taking the partnership account.
Section 47: It is clear that the commencement of
the dissolution does not at once terminate the authority
of the partners. Such authority continues at least for 2
purposes, namely, 1) so far as necessary to wind up the
affairs of the firm; and 2) to complete the transaction
begun but had not yet been completed.
Section 48: It lays down two fundamental
propositions which are in line of the provisions of Section
46 of the Partnership Act, namely, 1) as to the payment
of the losses; and 2) as to the application of the assets. It
is to be noted that the provisions of Section 48 are the
culmination of the provisions of Section 46 of the
Partnership Act. Therefore, both the sections have to be
harmoniously read together and interpreted.
We are of the opinion that in view of the provisions
of Section 46 read with Section 48 of the Indian
Partnership Act as well as Section 40 of the Arbitration
and Conciliation Act, 1996, the application for
appointment of an arbitrator under the arbitration clause
of the partnership deed was liable to be allowed and the
learned Chief Justice has erred in overlooking the said
provisions. While right to sue for rendition of accounts of
partnership firm survives on the legal representative of a
deceased partner, he is also entitled to invoke the
arbitration clause contained in the partnership deed. In
the instant case, the appellant being the only son of his
deceased mother, undisputedly a partner in the
partnership firm with the respondents especially where
the dispute concerning the partnership affairs had arisen
already during her life time. The view taken in the
impugned order with the appellant has no presently
establishable binding arbitration agreement with the
respondent is erroneous in law and facts. The impugned
order is also bad in law in the teeth of the law laid down
by this Court in Smt. Premlata & Anr. Vs. M/s Ishwar
Dass Chamanlal & Ors. AIR 1955 SC 714. This apart,
the appointment of arbitrator could not be rejected on the
ground of non-production of the will executed by the
mother when no family member is disputing the will and
the appellant's claim vis-`-vis the partnership firm, even
otherwise also the appellant is the legal heir of the
deceased partner being her only son. In our view, non-
probate of will is not a germane factor to be considered at
the time of appointment of arbitrator under Section 11 of
the Arbitration Act. In our opinion, the partnership deed
clearly recites that all the disputes touching the affairs of
the partnership firm were referable to arbitrator and it
cannot be gainsaid that the dispute regarding accounts
of the partnership firm is a dispute touching the affairs of
the firm. As already stated, it was not legally essential to
specifically make a mention that the partners included
their legal heirs, representatives, assigns or legatees etc.
and the arbitration clause could be invoked by the
appellant as the legatee as well as the legal heir/legal
representative of the deceased Dulari Devi particularly
where the dispute had arisen during her life time. The
appellant's claim in the instant case is based on the will
as well as being a legal heir of the deceased Dulari Devi.
The appellant, in our opinion, possessed a legal and
enforceable right to invoke arbitration clause and moved
application under Section 11 of the Arbitration Act before
the High Court for appointment of arbitrator. The word
"party" as used in the partnership deed does not exclude
inclusion of legal heirs, legal representatives etc. as being
canvassed by the respondents. Thus, in our opinion, in
view of the provisions of Sections 40 and 46 of the
Partnership Act read with Section 40 of the Arbitration
Act, the appellant has a legal right to commence
arbitration by moving an application under Section 11 of
the Arbitration Act in the High Court as in our view, the
right to sue survives on him as legal representatives of
the deceased Dulari Devi and he is entitled to invoke
clause 13 of the partnership deed. Moreover, the dispute
referable to arbitration had already arisen during the life
time of Dulari Devi which is also well settled that where a
dispute is referable to arbitration, the parties cannot be
compelled to take recourse to in the civil courts.
In view of the aforesaid facts, the civil appeal filed
by the appellant stands allowed. However, there will be
no order as to costs.
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