Erach F. D. Mehta Vs. Minoo F. D.
Mehta  INSC 181 (9 September 1970)
09/09/1970 SHAH, J.C.
CITATION: 1971 AIR 1653 1971 SCR (2) 99
Arbitration Partnership-Clause in deed of
partnership for reference of disputes to Arbitration-One of the partners
setting up agreement that partnership be dissolved-If dispute regarding
existence of such agreement one touching Partnership Agreement.
A partnership deed entered into between the
appellant and the respondent contained a clause for reference "of all
disputes and questions whatsoever which may arise during partnership or
afterwards between the partners touching the partnership agreement including
division of assets, debts or liabilities", to arbitration. When disputes
arose, the respondent claimed that the partners had reached an oral agreement
stipulating that the appellant was to retire from the partnership and was to
assign and transfer to the respondent his rights, title and interest in the
partnership business. The appellant denied the two agreements set Lip by the
respondent. Subsequently, the dispute was referred to arbitration. The
appellant submitted to arbitration without prejudice to his stand that the
arbitrators had no jurisdiction to go into the question of the alleged
agreement Set up by the respondent. The arbitrators were unable to make an
award within the period prescribed by the Arbitration Act. The appellant then
submitted an application to the High Court under s. 33 of the Arbitration Act
contending that the agreement set tip by the respondent gave rise to new rights
and obligations between the parties and to a dispute relating to these rights
and obligations created by the new agreement the arbitration clause of the
partnership agreement bad no application. The High Court rejected the
contention. Dismissing the appeal,
HELD : The clause "all disputes and
questions whatsoever which may arise during the partnership or afterwards
between the partners touching the partnership agreement including division of
assets, debts and liabilities" clearly covers a dispute whether the
parties agreed that the partnership be dissolved. The agreement set up by the
respondent while maintaining the covenants of the partnership agreement seeks
to dissolve the partnership and to settle the rights and obligations of the
partners arising out of the dissolution of the partnership. A dispute whether
the partnership was dissolved by mutual agreement was clearly a dispute between
the parties touching the partnership agreement. [102 F-G]
CIVIL APPELLATE JURISDICTION: Civil Appeals
No. 2535 of 1969.
Appeal by special leave from the judgment
dated August 28, September 1, 1969 of the Bombay High Court in Award Petition
No. 41 of 1969.
S. T. Desai, S. P. Bharucha, P. C. Bhartari,
for the appellant.
M. C. Chagla, F. S. Nariman, P. R. Nariman,
P. R. Mridid and I. N. Shroff, for the respondent.
100 The Judgment of the Court was delivered
by Shah, J. This appeal with special leave is filed against the judgment of a
single Judge of the High Court of Bombay dismissing a petition under s. 33 of
the Indian Arbitration Act, 1940.
On December 22, 1966, the appellant and the
respondent, who are brothers, entered into an agreement to carry on in
partnership three businesses (1) Messrs F. D. Mehta & Company; (2) The
Great Western Stores; and (3) Dr. Writer's Chocolates and Canning Company. The
relevant terms of the deed of partnership were as follows :
"1. The agreement has come into effect
from the 2nd day of November 1966.
3. The duration of the partnership shall be
7. The net profits of the partnership after
payment of all the outgoings incidental to the partnership business shall
belong to the partners in equal shares and they shall likewise bear all losses
including loss of capital.
15.All disputes and questions whatsoever
which shall either during the partnership or afterwards arise between the
partners or between one of them and the personal representatives of the other
or between their respective personal representatives touching these presents or
the interpretation of this deed or the construction of the application thereof
or any clause or thing herein contained or any account valuation or division of
assets debts or liabilites to be made hereunder or as to any act deed or
commission of either partner or as to any act which ought to be done by the
partners in dispute or as to any other matter in any way relating to the
partnership business or the affairs and transactions thereof or the rights,
duties or liabilities of either partner under these presents shall be referred
to two Arbitrators one to be appointed by each party to the difference in
accordance with and subject to the provisions of the Indian Arbitration Act, or
any statutory modification thereof for the time being in force." Disputes
arose between the two partners. The respondent claimed that on January 17, 1968
the partners reached an oral agreement stipulating that the appellant shall
retire from the partnership and shall assign and transfer to the respondent his
right, title-and interest in the partnership business against payment of the
price fixed by Mr. Jal Desai, a Chartered Accountant. The appellant denied the
agreement set up by the respondent. On June 101 13, 1968 the respondent
addressed a letter to the appellant setting out the terms of the oral agreement
dated January 17, 1968 and intimated that "having regard to the attitude
adopted by" the appellant "there was no alternative left but to have
a legal arbitration", and that Mr. K. M. Diwanji Solicitor of the High
Court of Bombay was nominated an arbitrator by the respondent, and the
appellant was called upon to nominate his arbitrator "so that the disputes
and differences between the parties may be resolved" by the partnership
deed. This request was repeated in a letter dated June 14, 1968. By his reply
dated June 26, 1968 the appellant denied the agreement and without prejudice to
his contention nominated Mr. J. B. Maneckji as arbitrator. He simultaneously
intimated that if the arbitrators seek to arbitrate on "the issue of the
alleged agreement of" the appellant "to go out of the firm", he
"would contend that they had no power to do so".
The arbitrators were unable to make an award
within the period prescribed by the Arbitration Act. There was a reference to
Mr. Mehta an Advocate of the High Court of Bombay as umpire to adjudicate the
dispute. The appellant then submitted an application to the High Court of
Bombay under s. 33 of the Arbitration Act praying (a) for a declaration that
there was no existing arbitration agreement in regard to the dispute in
petition as to whether or not the agreement was entered into between the
parties on January 17, 1968 as stated in the statement of claim filed by the
respondent before the arbitrators on October 8, 1969;
(b) for a declaration that even if the deed
of partnership contained an arbitration agreement the dispute before the umpire
"fell outside the scope of the arbitration clause";
(c) for a declaration that the arbitration
agreement, if any, relating to the said dispute was invalid; and (d) for a
declaration that the umpire had no jurisdiction to enter upon an adjudication
of the said dispute between the parties.
The petition was heard by Kantawala, J.
Before the learned Judge four contentions were raised in support of the
petition (1) that the agreement dated January 17, 1968 as alleged by the
respondent gave rise to new rights and obligations between the parties, and to
a dispute relating to those rights and obligations created by the new agreement
cl. 15 of the partnership agreement had no application;
(2) that the claim made by the respondent
relating to the agreement dated January 17, 1968 was not a claim which arose
out of the deed of partnership;
102 (3) that the dispute related to an
agreement complete independent of the deed of partnership and consequently it
fell outside the ambit of the arbitration clause contained in cl. 15 of the
deed of partnership; and (4) that in any event the umpire could not grant
specific performance of the agreement.
The learned Judge rejected all the
contentions and dismissed the petition. With special leave, the; appellant has
appealed to this Court.
There were only two partners who agreed to
carry on the business in partnership. Under the agreement dated January 17,
1968 set up by the respondent, the appellant had agreed "to go out of the
partnership" and to accept in consideration thereof the value of his share
as determined by the named valuer. It was in substance an agreement for
dissolution of the partnership and for payment to the appellant value of his
share in the partnership assets.
There is no dispute that an agreement of
partnership at will may by mutual agreement be dissolved and the rights and
obligations of the parties settled under the terms thereof.
The clause "all disputes and questions
whatsoever which may arise ,during the partnership or afterwards between the
partners touching the partnership agreement including division of assets, debts
or liabilites" clearly covered a dispute whether the parties agreed that
the partnership be dissolved.
We are not concerned at this stage to
determine whether the agreement set up by the respondent was in fact reached
between the partners on January 17, 1968 : that is a matter to be decided by
the arbitrators. A dispute whether the partnership was dissolved by mutual
agreement was clearly a dispute between the parties touching the partnership
agreement. We are unable to agree with counsel for the appellant that the
agreement set up by the respondent did not stipulate dissolution of the
partnership. It is the case of the respondent which he had set up in the correspondence,,
that it was agreed between him and the appellant that the latter was to retire
from the partnership. When the partnership consisted of only two partners and
one partner agreed to retire, there can be no doubt that the agreement that one
of the partners will retire amounts to dissolution of the partnership.
The argument that the agreement dated January
17, 1968 supersedes the partnership agreement dated December 22, 1966,
including the arbitration clause is, in our _judgment, futile. The agreement
set up by the respondent while maintaining its covenants seeks to dissolve the
partnership and to settle the rights and 103 obligations of the partners
arising out of the dissolution of the partnership.
It was not urged that the arbitrator was
incompetent to direct that the appellant shall carry out the terms of the
agreement to which he was a party. But counsel for the appellant contended that
the agreement set up by the respondent extinguished the authority of the
arbitrators because it provided for a subsidiary agreement to refer to
arbitration the dispute to the valuer relating to the value of the share
payable to the appellant. The agreement set up by the respondent provides that
the appellant will retire from the partnership upon payment of a price to be
fixed by the valuer. But it is not the case of the respondent that the valuer had
the authority of an arbitrator. We need not express any opinion on the question
whether in a dispute which is agreed by the parties to be submitted to
arbitration, reference to arbitration cannot be made merely because subsequent
to the arbitration agreement the parties have agreed that a part of the dispute
shall be referred to or decided by some person other than the arbitrator.
Whether or not the arbitrators are bound by
that subsequent agreement, and the arbitration qua such an arrangement could be
deemed superseded, is not a matter which we are concerned to decide at this
stage. Primarily the dispute between the parties is as to the truth of 'the
agreement set up by the respondent relating to the dissolution of the
partnership and the dispute with regard to that agreement raised by the
appellant can, in our judgment, be referred to the arbitrators under cl. 15 of
the partnership agreement.
No argument has been advanced before us on
the last plea raised before the High Court. We are not called upon to decide
the extent of the power of the arbitrators under an arbitration agreement that
question does not strictly arise in a petition under s. 33 of the Arbitration
The appeal therefore fails and is dismissed
Y.P. Appeal dismissed.