Ravi Prakash Goel Vs. Chandra Prakash Goel & Anr  Insc 316 (21
Dr. AR. Lakshmanan & Altamas Kabir
(Arising Out of SLP (C) NO. 6723 OF 2006) Dr. AR. Lakshmanan, J.
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.
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
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
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
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
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
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
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 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
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
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
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
The definition of 'legal representative' became necessary because such
representatives are bound by and also entitled to enforce an arbitration
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
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
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
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 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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