http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 18  

PETITIONER: JIVARAJBHAI UJAMSHI SHETH AND OTHERS

       Vs.

RESPONDENT: CHINTAMANRAO BALAJI AND OTHERS

DATE OF JUDGMENT: 19/11/1963

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SARKAR, A.K. HIDAYATULLAH, M.

CITATION:  1965 AIR  214            1964 SCR  (5) 480  CITATOR INFO :  D          1984 SC1072  (30)  R          1988 SC2018  (30)  RF         1989 SC 606  (7)  R          1989 SC 890  (18,30)  R          1990 SC1426  (17)  D          1991 SC 945  (6)  F          1992 SC 232  (23,29)

ACT: Arbitration-Partnership Agreement-Arbitration clause-Formula of valuation on dissolution-Arbitrator appointed by deed  of reference-Validity  of  award  questioned-Grounds  on  which award  can be set aside-Error  apparent on the face  of  the records Arbitrator exceeding jurisdiction-Validity of Award- Severability  Indian Arbitration Act, 1940 (X of  1940),  s. 30.

HEADNOTE: The   appellants   and  the  respondents  entered   into   a partnership  in the business of manufacturing bidis.   Under the agreement a partner was entitled to retire after  giving notice of six months to all partners.  It contained a clause for  reference of disputes between the partners relating  to the business or dissolution of the firm to arbitration.   It also  contained a clause providing how four items  including goodwill  should  be  valued.   According  to  this   clause goodwill  was equal to five years net profits for debts  due to the firm were to be taken not at their book value but  at 85% of that value, stocks of raw materials were to be valued at book value and immovable properties were to be valued  at their purchase price or, their book value.  About two  years later the appellants desired to retire from the  partnership and a deed ,of reference was executed and a sole  arbitrator was  appointed.  This provided that the  remaining  partners shall continue the firm and they shall make full payment  to the retiring partners of such amounts in such manner and  on such conditions as shall be decided upon by the  arbitrator. The  arbitrator gave the award.  He fixed the value  of  the goodwill of the firm at Rs.32 lakhs including in that amount the  "depreciation  and appreciation of the  property,  dead stock and dues to be recovered." The award was filed in  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 18  

Court under s. 14(2) of the Indian Arbitration Act, 1940. 481 The respondents applied for an order setting aside the award on   diverse  grounds,  two  out  of  which   survived   for consideration in the present appeal.  The first was that the arbitrator  in making this award exceeded  his  jurisdiction because in fixing Rs. 32 lakhs as the value of the devisable assets of the firm he included therein the depreciation  and appreciation  of the property dead stock  and  outstandings; secondly that the arbitrator was guilty of misconduct.   The trial  court upheld these and certain other  objections  and set aside the award.  The High Court confirmed the  decision of  the  trial  court  insofar as  it  related  to  the  two contentions.  The present appeal is on a certificate granted by the High Court. Held:(i)  An award made by an arbitrator is conclusive as  a judgment  between the parties and the court is  entitled  to set  aside  an  award if  the  arbitrator  has  misconducted himself  in the proceeding or when the award has  been  made after  the  issue of an order by the Court  superseding  the arbitration  or  after arbitration proceedings  have  become invalid under s. 35 of the Arbitration Act or where an award has  been improperly procured or is otherwise invalid  under s. 30 of the Act.  An award may be set aside by the Court on the  ground of error on the face of the award, but an  award is not invalid merely because by a process of inference  and argument  it  may be demonstrated that  the  arbitrator  has committed some mistake in arriving at his conclusion. Champser  Bhara and Company  v. Jivrai Balloo  Spinning  and Weaving  Company Ltd., L.R. 50 I.A. 324 and  Cruikshank  and others  v.  Sutherland and others, (1923) 92 L.J.  Ch.  136, distinguished. (ii)It  is  not  open to the Court to  speculate,  where  no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusions. (iii)In  the  present  case  the  arbitrator  had   included depreciation and appreciation of certain assets in the value of  the  goodwill  which he was incompetent  to  include  by virtue  of the limits placed upon his authority by the  deed of  reference.  This was not a case in which the  arbitrator has  committed  an  error of fact or  law  in  reaching  his conclusions   on  the  disputed  questions   submitted   for adjudication.   It was a case of assumption of  jurisdiction not  possessed  by him and that rendered the  award  to  the extent to which it was beyond the arbitrators’ jurisdiction, invalid.   It  is,  however, impossible to  sever  from  the valuation   made  by  the  arbitrator  the  value   of   the depreciation  and appreciation included by  the  arbitrator. The award must therefore fail in its entirety. Per Hidayatullah, J.-(i) If the parties set limits to action by  the  arbitrator, then the arbitrator had to  follow  the limits  set for him and the court can find that he  exceeded his jurisdiction on proof of such excess. (ii)In  the present case the arbitrator in working  out  net profits  for  four years took into account  depreciation  of immovable 1/SCI/64-31 482 property.  For this reason he must be held to have  exceeded his  jurisdiction  and it is not a question  of  his  having merely interpreted the partnership agreement for himself  as to which the Civil Court could have had no say, unless there was an error of law on the face of the award.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 18  

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 717 of 1963. Appeal from the judgment and order dated April 30, 1962,  of the  Madhya Pradesh High Court at Jabalpur in Misc.   Appeal No. 75 of 1961. S.T. Desai and LN.  Shroff, for the appellants. G.S.  Pathak and Remeshwar Nath, for respondents Nos.  1  to 3. A. V. Viswanatha Sastri and Remeshwar Nath, for  respondents nos. 4 and 5. November  19,  1963.  The Judgment of A.K. Sarkar  and  J.C. Shah, JJ. was delivered by Shah, J. M.  Hidayatullah,     J. delivered a separate Opinion. SHAH,  J.---Vrajlal  Manilal & Company,  a  firm  consisting originally  of  four  partners  (1)  Manilal  Anandji,   (2) Jivrajbhai  Ujamshi Sheth, (3) Punjabhai S. Patel,  and  (4) Chintamanrao, has been doing business of manufacturing bidis at  Sagar  and Delhi since 1944.  From time  to  time  fresh partnership  deeds were executed readjusting the  shares  of the partners admitting new partners and adjusting the shares of  the partners.  In 1954 Manilal Anandji retired from  the firm and on January 27,1955, Punjabhai S.   Patel died. On  February  16,  1956, a fresh  deed  of  partnership  was executed.  The firm then consisted of eight  partners-Jivraj and  his two sons being entitled in the aggregate  to  annas -/4/3 share in a rupee in the profits, Chintamanrao and  his two  sons to annas -/7/6 share in a rupee, and the two  sons of  Punjabhai S. Patel to the remaining annas  -/4/3  share. By paragraph-7 the books of account were to be maintained by the managing partner, the financial year of the firm 483 being from Diwali to Diwali, and profits and losses were  to be  ascertained at the close of the year and a copy  of  the balance-sheet  with  profits and loss statement  was  to  be supplied to each partner, and if no objection regarding  the accounts  was raised within four months from the end of  the year, the’ accounts were to be deemed conclusive and binding unless vitiated by fraud.  By paragraph-12 it was stipulated that a partner desiring to retire from the partnership  may, unless   the  other  partners  agreed  to’  his   retirement otherwise,  do so after giving six months notice to all  the partners in writing terminable at the’ end of the year i.e., the  Diwali  immediately following the date of  the  notice. Paragraph-13 provided:               "In  case  of retirement of  any  partner  the               valua-,  tion of the Firm will be made on  the               following,  basis for the purpose of  settling               the account of the retiring partner:-               "(a)  Goodwill of the Firm:-That is, right  to               use the trade marks, trade labels and the name               of the Firm.               In  making the valuation of the above the  net               profits  of the last five years will be  taken               as the value of the Goodwill of the Firm.               (b)   Outstandings, Udhari (Recoveries) :-That               is, loans and debts        outstanding against               persons other than partner will be  calculated               at 85 % of the book value of the Firm.               (c)   Stock   of   Raw   Materials:-That   is,               tobacco, bidis, bidi leaves, labels and  other               moveable  property will be valued at the  book               value  of these in the books of the  Firm  and               all,  such  stock and moveables,  thus  valued

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 18  

             shall be given to the remaining partners.               (d)   Immoveable Property:-Such as  buildings,               godowns, gardens, lands etc. will be valued at               the parchase price or their book value in  the               books of the Firm as the case may be, and  all               these   shall  be  given  to   the   remaining               partners." 484 Paragraph-16 incorporated a clause for reference of disputes between the partners relating to the business or dissolution of the firm to arbitration. In  April 1958 Jivraj and his two sons -appellants  in  this appeal desired to retire from the partnership, and a deed of reference was executed on April 16, 1958, appointing Ambalal Ashabhai,  Becharbhai  Somabhai  and  Chaturbhuj  Jasani  as arbitrators  to decide the dispute.  It was recited  in  the deed  of  reference that since Jivraj and his two  sons  had expressed a desire to retire and the remaining five partners had agreed to take over the entire business of the firm,  it was  "necessary to effect the final account of the  retiring partners with regard to the matters mentioned below, as  far possible,  according  to and taking into  consideration  the terms and conditions of the Partnership Agreement.               1.    Goodwill of Trade Mark.               2.    Property.               3.    Credits (Udhari)               4.    Dead-stock.               5.    Stock-in-trade i.e. the raw material, or               the finished goods invested in the business.               6.    Other   matters  connected  with   these               transactions.               7.    Profit and Loss Account.               8.    The Receipt ond Payments account of  the               amounts of the partners. By  Paragraph  6  it was provided that  the  firm  shall  be continued by the remaining five partners and that those five partners  shall make full payment to the  retiring  partners Jivraj and his two sons of such amounts, in such manner, and on  such  conditions,  as  shall  be  decided  upon  by  the arbitrators.  Paragraph 7 set out the powers exercisable  by the  arbitrators in the matter of calling for production  of account  books and documents and other information from  the parties. The  deed  of reference was subsequently modified,  and  the parties agreed that the reference be 485 " carried out by the sole arbitrator Shri Jasani".  Pursuant to   this  modified  agreement,  Jasani  entered  upon   the reference,  and made his award on January 9, 1959.   By  his award he fixed the value of the goodwill of the entire  firm at  Rs. 32 lakhs including in that amount the  "depreciation and appreciation of the property, dead-stock and dues to  be recovered".  He also fixed the profits for the broken period of  Samvat year 2014 from the commencement of the year  till April  19,  1958  at Rs. 2,80,000 and  after  adjusting  the personal accounts of the three retiring partners awarded  to Jivraj  Rs.  3,46,223.58 nP. to Amritlal son of  Jivraj  Rs. 4,04,519.99  nP.  and  to  Bhagwandas  son  of  Jivraj   Rs. 3,86,019.14  nP,  and directed that the ownership  over  the assets    of   the   firm   i.e.    property-moveable    and immoveable,--Trade  mark, labels, stock-in-trade,  long-term leases  and contracts etc. shall remain with  the  remaining partners,  subject  to  the liabilities  of  the  firm,  the retiring partners not being responsible for the  liabilities of  the  firm, nor having any interest in the  firm  or  its

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 18  

business.   This  award  was  filed  in  the  Court  of  the Additional  District  Judge, Sagar, under s.  14(2)  of  the Indian Arbitration Act, 1940. Chintamanrao and his sons then applied for an order  setting aside  the award on diverse grounds.  In this appeal by  the retiring partners, two heads of objections only survive  for determination  and  we propose to refer only  to  those  two heads, viz:               (1)   That the arbitrator in making his  award               travelled outside. his jurisdiction  delimited               by  the  agreement  of reference  in  that  in               fixing  Rs. 32 lakhs as the value of  the  di-               visible assets of the firm he included therein               the  depreciation  and  appreciation  of   the               property,  dead-stock and outstandings,  which               he  was by the terms of the  reference  incom-               petent to include.               (2)   That the arbitrator was guilty of  legal               misconduct  in  that he had in the  course  of               arbitration proceedings admitted in his record               486               a statement of account prepared by Jivraj  and               his  sons without the knowledge of  the  other               partners   and   without   giving   them    an               opportunity to make their submissions               thereto. The  retiring partners resisted the petition to  set   aside the award and submitted that they were entitled to have  the assets  of the firm in which they had a share, fixed  at  an amount  much  in  excess  of  Rs.  32  lakhs  and  that  the arbitrator  had not overstepped his jurisdiction  in  fixing the  value  of the goodwill at Rs. 32 lakhs,  and  that  the statement  of  account  referred to by  the  applicants  was prepared  under the directions of the arbitrator and in  his presence and it was admitted in the record of the arbitrator -to the knowledge of the remaining partners who had assented thereto. The  Trial Court upheld these and certain other  objections, and  set  aside  the award.  The High  Court  confirmed  the decision  of the Trial Court, insofar as it related  to  the two objections hereinbefore set out. The question which we propose to consider first is:  whether in  making  the valuation of the firm" for  determining  the share  to  be  paid  to  the  retiring  partners,  did   the arbitrator  overstep the limits of his authority  under  the agreement of reference?  It may be recalled that by cl. 6 of the  arbitration  agreement the remaining  partners  had  to "make  full payment to the retiring partners of such  amount as  may be decided" by the arbitrator.  But  in  determining the  amounts  to be awarded to the  retiring  partners,  the authority  of  the arbitrator was restricted.   He  had,  in determining  the  amounts due to the retiring  partners,  to take "final accounts with regard to the matters" set out  in cl.  4,  "as far as possible, according to and  taking  into consideration  the terms and conditions of  the  Partnership agreement".    By   this  direction  the  clauses   of   the partnership agreement were incorporated in the agreement  of reference.   The  "final account" of the  retiring  partners with regard to the eight matters 487 specified  in  cl. 4 was undoubtedly to be made, as  far  as possible,  according  to and taking into  consideration  the terms  and  conditions of the  partnership  agreement.   The language used in the deed of reference is of compulsion, not of,  option:  it means that if there be in  the  partnership

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 18  

agreement  any  term  or condition,  which  deals  with  any particular matter of which an account was to be taken  under cl. 4 of the -agreement of reference, it has to be  strictly followed.   Use of the expression "as far as  possible"  did not confer any discretion upon the arbitrator to ignore  the terms  and  conditions  of the  partnership  agreement.   In paragraph-13   of  the  partnership  agreement,  in   making "valuation  of  the  firm"  for  the  purpose  of   settling accounts, the value of the goodwill, the outstandings, stock of raw material and moveable and immoveable property had  to be taken as directed therein.  In the matter of valuation of the goodwill of the firm, therefore, no discretion was  left to  the arbitrator:the value of the goodwill had to  be  the aggregate  ofthe net profits of the last five years.   Debts due to the     firm from persons other than partners had  to be  "calculated at 85 % of the book value of the firm".   In respect  of  the stock of raw materials and  other  moveable property the "book value in the books of the firm" had to be accepted  by  the arbitrator and in the case  of  immoveable property  such  as buildings, godowns, gardens,  lands  etc. "the book value in the books of the firm" was to be accepted and  if  none  such  was available  the  purchase  price  as mentioned  in  the books was to be accepted.  In  all  these matters  the  arbitrator  had by cl. 4  of  the  arbitration agreement to make the final account of the retiring partners according  to  and taking into consideration the  terms  and conditions of the partnership agreement and had no option. It  is necessary to remember that the partnership  agreement does  not  grant  to  a retiring  partner  a  share  in  the aggregate of the four items mentioned in cls. (a), (b),  (c) &   (d)  of  paragraph-13  i.e.,  goodwill  of   the   firm, outstandings, stock of raw materials including 488 moveable and immoveable property.  The partnership agreement merely  provides that the "valuation of the firm"  shall  be made  as  set out therein for the purpose  of  settling  the account  of  the  retiring partners  i.e.,  in  ascertaining the.amount  due  to the retiring partners valuation  of  the assets  in cls. (a) to (d) of paragraph-13 shall be made  in the  manner set out therein.  The arbitrator  was  therefore bound  to adopt the valuation prescribed by the  partnership agreement, but that is not to say that the retiring  partner was entitled to a share equal to the aggregate of the values of  the four items mentioned in paragraph-13.  It is  neces- sary  to  emphasize  this matter because on  behalf  of  the retiring  partners  a  considerable  argument  was  advanced before  us  on the assumption that they were entitled  to  a share equal to the aggregate of the values of the four items of  property mentioned in paragraph- 1 3 of the  partnership agreement,  and that by the method of valuation  adopted  by the  arbitrator they were awarded much less than  what  they were   under   the  partnership   agreement   entitled   to. Paragraph-13  merely prescribes the valuation in respect  of four  out  of  the  items which  had  to  be  considered  in ascertaining  the "valuation of the firm".  The  phraseology used  in paragraph-13 in the opening part of  the  paragraph makes  it clear beyond all doubt that the valuation  of  the firm  had to be made on the basis specified for the  purpose of  settling  the  account of  the  retiring  partner.   The specific  items in paragraph-13 do not prescribe any  method of  valuation of the debts and liabilities of the firm,  but the  debts  and liabilities must be taken  into  account  in assessing  the value of the share of the retiring  partners. The  arbitrator had to make a valuation of the firm i.e.  of all the assets of the firm and of the debts due by the  firm

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 18  

and  thereafter  to  settle  the  account  of  the  retiring partners. We  may now turn to the award made by the  arbitrator.   The dispute  between  the parties has to be resolved on  a  true interpretation of the following clause:               "I assess the value of the goodwill at Rs.  32               lakhs.               489               This  amount  includes  the  depreciation  and               appreciation  of the property, dead-stock  and               dues to be recovered." (We have taken this as the correct rendering into English of the  original  award which is in Hindi.  It is  accepted  by both the parties before us as a true rendering.) The  arbitrator has, as he has observed in his award,  taken only  the value of the goodwill, in determining the  amounts to  be  allotted  to  the retiring  partners,  and  has  not expressly  referred  to  the valuation of  the  three  other items,  viz.,  the  outstandings,  the  stock-in-trade   and moveables   and   the  immoveable  property   mentioned   in paragraph-13 of the partnership agreement.  Counsel for  the retiring  partners  urged  that on  the  admission  made  by Chintamanrao,  the  value  of the  goodwill  alone  was  Rs. 21,70,650/10/and if the value of the immoveables,  stock-in- trade etc. and outstandings be added thereto, the  aggregate would  considerably exceed Rs. 32 lakhs.  But this  argument is  founded on the fallacious assumption that the debts  and liabilities  of the firm have to be ignored  in  determining the  shares  of  the retiring  partners.   Counsel  for  the respondent  submitted  that in substance  the  goodwill  had alone  to  be  valued by the arbitrator  for  the  property, moveable and immoveable, stockin-trade and the  outstandings of the firm were approximately equal to the aggregate of the debts and obligations of the firm.  Reliance in this  behalf was placed upon a balance-sheet Ext.  A-13 of the assets and liabilities  of the firm, showing the financial position  of the  firm  on April 16,1958, and the value of  the  tangible assets,  such  as the stock of raw-materials,  moveable  and immoveable  property  and  outstandings,  according  to  the balance-sheet,  was  approximately equal to  the  debts  and liabilities of the firm. But  it  is  not  necessary for us  to  decide  whether  the submission  of the respondents is correct.   The  arbitrator has  in his award stated that Rs. 32 lakhs is the  value  of the goodwill alone, and for some reason not disclosed by him he has not valued the other 490 assets.   He has also not disclosed in his award how he  has arrived  at  the  valuation of Rs.  32  lakhs.   One  thing, however,  stands  out  prominently in  the  award,  that  in assessing  the  value of the goodwill, he has  included  the depreciation  and appreciation of the  property,  dead-stock and the outstandings.  The arbitrator could undoubtedly make a  lump-sum valuation of the firm in the award made by  him. He  was  not obliged in the absence of a direction  in  that behalf  to  set  out  in his  award  the  valuation  of  the different  components which aggregated to the lumpsum.   The arbitrator had to "value the firm", and in doing so to abide by  the specific directions, but he was not obliged  to  set out  in the award separate valuations of all or any  of  the items  mentioned in para 4 of the deed of reference,  or  in paragraph-13  of the partnership agreement, nor to  set  out the extent of the debts and obligations assessed by him. What  then is the effect of the inclusion by the  arbitrator in  the valuation of Rs. 32 lakhs, of the  depreciation  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 18  

appreciation  of  the  property, deadstock and  dues  to  be recovered?  Diverse arguments were submitted by counsel  for the appellants in support of the plea that the inclusion  of what is called the depreciation and appreciation in  respect of  the  various items does not amount to  overstepping  the limits of the jurisdiction of the arbitrator.  It may be re- iterated  that  the powers of the arbitrator  were,  by  the terms of cl. 4 of the deed of reference, clearly restricted. He was "to take final account of the retiring partners  with regard to the matters mentioned therein, as far as possible, according  to  and taking into consideration the  terms  and conditions  of the partnership agreement".   Restriction  on the  power of the ‘rbitrator in valuing the property,  dead- stock and outstandings was explicit.  He could not therefore adopt any valuation different from the valuation  prescribed by  paragraph-13  of  the partnership  agreement.   But  the arbitrator  has,  as he has himself stated, in  valuing  the goodwill  at Rs. 32 lakhs included in that amount the  value of the depreciation and appreciation of the property,  dead- stock and dues to be recovered. 491 Counsel  for  the  appellant  submitted  that  reduction  of outstandings of the firm by 15 % in respect of the dues from persons  other than the partners was a mode of  ascertaining the depreciation in respect of that item provided by cl. (b) of  paragraph-13  of  the  partnership  agreement,  and  the arbitrator  in taking into consideration  that  depreciation has  not  acted  outside  his  jurisdiction.   It  would  be difficult to regard the method of valuation as prescribed in respect  of  the outstandings as  "including  depreciation". Even assuming that the reduction of the outstandings of  the firm  from  persons  other  than the partners  by  15  %  as directed  in  cl.  (b) of paragraph-13  of  the  partnership agreement  be  regarded  as  depreciation  of  the   assets, inclusion of depreciation and appreciation in respect of the other  assets was not permitted by the deed of  partnership. In valuing the moveable property including the stock of  raw materials,  the  arbitrator could not  adopt  any  valuation other  than that mentioned in cl. (c) of paragraph -1  3  of the  partnership agreement, namely, the book value as  given in  the books of the firm.  Similarly, in the  valuation  of immoveables such as buildings, godowns, gardens, lands etc., he had to accept the book value as mentioned in the books of account of the firm and if no book value was available  the. purchase price as mentioned in the books was to be accepted. The  arbitrator  had  no power to  make  any  adjustment  in respect   of  those  items  by  including  depreciation   or appreciation in their value. The  principle  of Cruikshank and others v.  Sutherland  and others(1)  on which reliance was placed by counsel  for  the retiring  partners, has, in our judgment no  application  to this case, because in that case though there was an  article of  the partnership providing that the share of  a  deceased partner   in  the  assets  of  the  partnership  should   be ascertained  by reference to the annual account made  up  on April  30  next after the death, the  articles  were  wholly silent as to the (1)  [1923] 92 L.J. Ch. 136 492 principle  to  be adopted in preparing a  full  and  general account  of the property.  There was no usage or  course  of dealings between the partners from which an inference  could be  drawn that on the death of a partner his share shall  be paid out on the footing of book value.  The executors of the deceased  partner claimed that his share be  determined  "at

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 18  

the  fair value of the firm".  At p. 138 it was observed  by Lord Wrenbury.               "Even  if  there  were a  usage  to  state  an               account  for one purpose in one way,  that  is               not a usage to state it for another purpose in               the  same way.  There is a passage in  Blisset               v. Daniel (10 Hare, at p. 515) which is useful               reading in this connection.  An account stated               for one purpose is not necessarily stated  for               another  purpose.  The fact is, that  in  this               partnership  an account has never been  stated               with a view to fitting the case of a  retiring               partner,  or a deceased partner, or  a  senior               partner who is going to exercise an option  of               taking over all the assets.  The partners have               never had any such event in view in making the               account which they have made.  There has never               been an account prepared which was intended to               meet  all the various contingencies of  events               such as these. In  the case before us there is no dispute that the duty  of the  arbitrator was to make "valuation of the firm"  subject to paragraph-13 of the partnership agreement and it may even be  granted  that in arriving at that valuation he  was  not bound  by  paragraph-7, but on this question we  express  no opinion.   But  the  values as mentioned  in  the  different clauses  had  to be accepted in making  up  the  partnership account   in  respect  of  the  four  matters   specifically enumerated.   The principle of Cruikshank’s case(1) did  not apply, because the partnership agreement in this case itself provides that the book value in the books of the firm  shall be accepted. (1)  [1923] 92 L.J. Ch. 136. 493 The  expression  "book  value" in the context  in  which  it occurs in the partnership agreement means, the value entered in  the  books of account.  Adoption of the  book  value  is therefore   obligatory  and  there  is  no  scope.  of   any adjustment in the value in the light of any depreciation  or appreciation  of the property, outstandings,  stock-in-trade or  dead-stock, apart from what may actually be included  in the  book value, in the books.  It is the book  value  alone which has to be taken.  If the depreciation or  appreciation has been taken into account by the partners in assessing the book  value,  that was evidently part of the book  value  as entered in the books of account.  If there was no book value entered in respect of any immoveable property, the  decisive value was to be the purchase price. It  was  then  urged  that it  was  for  the  arbitrator  to adjudicate   upon  the  true  meaning  of  the   partnership agreement  and  to give effect thereto, and if in  making  a "valuation  of  the  firm"  he  was  of  the  opinion   that depreciation and appreciation in respect of certain items of assets  should be included for the purpose of making up  the account  of the partners, the Court had no  jurisdiction  to set  aside  the award on that account,  merely  because  the Court  took a different view as to the true meaning  of  the arbitration agreement.  But if the partnership agreement was incorporated  in  the deed of reference, the limits  of  the jurisdiction  of  the arbitrator must be determined  by  the Court  and not by the arbitrator.  By assuming that  he  was entitled  to include, beside the value of the four items  as mentioned   in   paragraph-13,  some  amount   by   way   of appreciation  in  the value of those items,  the  arbitrator purported to set at naught the specific directions given  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 18  

that behalf An  award made by an arbitrator is conclusive as a  judgment between  the parties and the Court is entitled to set  aside an  award if the arbitrator has misconducted himself in  the proceedings or when the award has been made after the  issue of  an  order by the Court superseding  the  arbitration  or after 494 arbitration  proceedings have become invalid under  s.35  of the  Arbitration Act or where an award has  been  improperly procured  or is otherwise invalid: s.30 of  the  Arbitration Act.   An award may be set aside by the Court on the  ground of  error  on  the face of the award, but an  award  is  not invalid  merely  because  by  a  process  of  inference  and argument it may be demonstrated that the arbitrator has com- mitted  some  mistake  in arriving at  his  conclusion.   As observed  in  Chempsey Bhara and Company  v.  Jivraj  Balloo Spinning and Weaving Company Ltd.(" at p. 331:               "An  error  in law on the face  of  the  award               means, in their Lordships’ view, that you  can               find  in  the  award or  a  document  actually               incorporated  thereto, as for instance a  note               appended   by  the  "arbitrator  stating   the               reasons   for   his   judgment,   some   legal               proposition  which is the basis of  the  award               and  which you can then say is erroneous.   It               does  not  mean  that if.  in  a  narrative  a               reference  is  made  to a  contention  of  one               party,  that  opens the door to  seeing  first               what that contention is, and then going to the               contract  on which the parties’ rights  depend               to see if that contention is sound." The  Court  in dealing with an application to set  aside  an award has not to consider whether the view of the arbitrator on the evidence is justified.  The arbitrator’s adjudication is generally considered binding between the parties, for  he is  a tribunal selected by the parties and the power of  the Court to set aside the award is restricted to cases set  out in  s. 30.  It is not open to the Court to speculate,  where no reasons are given by the arbitrator, as to what  impelled the arbitrator to arrive at his conclusion.  On the  assump- tion that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot  proceed to  determine whether the conclusion is right or wrong.   It is  not  open to the Court to attempt to  probe  the  mental process  by which the arbitrator has reached his  conclusion where it (1)  L.R. 50 I.A. 324. 495 is  not  disclosed  by  the terms of  his  award.   But  the arbitrator  has in the present case expressly stated in  his award that in arriving at his valuation, he has included the depreciation and appreciation of the property,  outstandings and  dead-stock,  and  in  so  doing  in  our  judgment  the arbitrator  has travelled outside his jurisdiction  and  the award  is  on  that account liable to  be  set  aside.   The question  is not. one of interpretation of  paragraph-13  of the partnership agreement but of ascertaining the limits  of his jurisdiction.  The primary duty of the arbitrator  under the  deed  of  reference  in  which  was  incorporated   the partnership  agreement, was to value the net assets  of  the firm and to award to the retiring partners a share  therein. In making the "valuation of the firm". his jurisdiction  was restricted  in  the manner provided by paragraph-13  of  the partnership agreement.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 18  

It  was  next urged that the  depreciation  or  appreciation which  had been entered in the assessment of the book  value were  "other  matters  connected  with"  the  "transactions" mentioned  in the deed of reference.  But  manifestly  those other matters were apart from the valuation of the goodwill, property, outstandings and the dead-stock. It  was then urged that when the arbitrator stated  that  he had included depreciation and appreciation of certain assets in  the value of the goodwill in the award, he merely  meant that such depreciation and appreciation was included as  was in  the  circumstances  permissible.   But  that  would   be ignoring  the express recital in the award.  In  fact  under the  scheme  of  valuation  envisaged  by  the   partnership agreement and therefore the deed of reference, there was  no scope  for including in the valuation, appreciation  of  the assets.  Again to argue, as was sought to be done, that even though  the  arbitrator stated that he had included  in  the amount  of Rs. 32 lakhs "the depreciation and  appreciation" of  the property, dead-stock and dues, there being no  power to  include appreciation, appreciation in the  property  and the 496 dead-stock could not have been included amounts to  reaching a conclusion from an assumed premise of which the conclusion was a component. It  was  also  urged that the  expression  depreciation  and appreciation had no such meaning as decrease or increase  in the   market   value  of  the  property,   ,dead-stock   and outstandings, and the clause merely meant that in fixing the valuation such depreciation or appreciation as had gone into the assessment of the book value of the different items  was taken  into consideration.  But the arbitrator has not  said that he merely took into consideration the depreciation  and appreciation which went into the book value assigned by  the partners to the assets in the account: he has clearly stated that  he had included the depreciation and  appreciation  in those assets in the valuation of the goodwill. Finally it was urged that the recital about the inclusion of depreciation  or  appreciation  was a  mere  surplusage  and should be discarded.  But it would be difficult to regard  a statement made by the arbitrator relating to what he says he had  included  in the valuation of the goodwill, as  a  mere surplusage,  especially having regard to the orders made  by him  insisting upon the production of  documentary  evidence and  certain books of account from Chintamanrao.  It may  be pointed out that by cl. 7 of the deed of reference very wide powers  were conferred upon the arbitrator to call upon  the disputing  parties  to produce the accounts etc.  which  the arbitrator  desired  and  to produce  any  other  papers  or documents which the arbitrator would like to inspect, and to reply to any enquiry verbal or written of any sort or in any connection  and  in  any form the  arbitrator  wanted.   The orders passed by the arbitrator in exercise of these  powers tend  to  indicate  that in his view  he  was  competent  to ascertain  and  include  in the valuation of  the  firm  the depreciation  and  appreciation on the various  items  which were  taken into account in arriving at the  valuation.   By order   dated  September  16,  1958,  the  arbitrator   gave direction, amongst 497 others,  to Chintamanrao to file a statement of houses  etc. of  immoveable property, valuation of the same as  shown  in the  books of account, i.e. figures regarding it, and  "also the  approximate value statement as it existed" at the  date of demand according to the estimate of Chintamanrao.  In the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 18  

note  to  the  order, it was stated  that  Chintamanrao  had produced  certain  papers  but  they  were  incomplete,  and therefore  he was ordered to bring copies of the  incomplete papers and also those papers which were not sent by him.  On October  10, 1958, Chintamanrao produced a statement of  the net  profits  of  the  five  years  preceding  the  date  of dissolution-which  he called the price of  the  goodwill-for Samvat years 2009 to 2013.  The aggregate of the net profits was   Rs.  21,70,650/10/which  he  called  "price   of   the goodwill".    He   then  submitted  a   statement   of   the outstandings  of  the  different shops  aggregating  to  Rs. 9,16,366/-  and the value of the goods purchased, and  other property, and submitted that the total value of the goodwill of  the firm by taking into account the profits of the  firm for the last five years "as per the statement filed was  Rs. 21,70,650/10/3   and  deducting  therefrom  15  %   of   the outstandings  of the firm considered as  irrecoverable,  the balance was Rs. 20,33,295/12/9" and that this was the amount from  which the shares of the retiring partners were  to  be computed.  On December 2, 1958, an application was filed  by Chintamanrao inviting the attention of the arbitrator to the agreement  of  reference  and to the terms of  the  deed  of partnership, especially paragraphs 7 and 13, and  submitting that  the book values of items (2) to (5) in paragraph-4  of the  agreement  of reference were already in  the  books  of account  and could be easily found without any  detailed  or elaborate  examination  of  the books  of  account,  it  was unnecessary  to  enter upon any detailed inspection  of  the various entries.  On this application an order was passed on December  5, 1958, by the arbitrator that the inspection  of the  books of account do start on December 21, 1958, in  his presence at Sagar in the office of Messrs Virajlal  Mannilal and Company and that Chintamanrao do 1 SCI/64-32 498 make arrangements for giving inspection of all the books  of account.   On  December 22, 1958,  another  application  was submitted by Chintamanrao stating that it was not  necessary to produce certain registers and manufacturing accounts  and that the orders in that behalf were beyond the  jurisdiction of  the  arbitrator and that he was unable  to  produce  the ,documents  demanded.  It was submitted by that  application that the kind of inspection claimed and granted amounted  to re-opening  of  the accounts for the last five  years  which were closed with the consent and to the knowledge of all the partners  and which could not in law be re-opened.   On  De- cember 23, 1958, an application was made by Amrat Lal son of Jivraj  (one of the retiring partners) submitting  that  the arbitrator had to value the goodwill and this had to be done by ascertaining the value of the profits of the five  years, and  for  that  purpose  the  arbitrator  was  entitled   to ascertain  yearly profits by scrutinising the account  books and   finding  out  the  yearly  net  profits.    On   these applications  on  December 25, 1958 the  arbitrator  gave  a direction that Chintamanrao do produce the papers  mentioned in item No. 2 in the order dated September 16, 1958, namely, the  gross and net profits of the last five years, and  that he  do  produce the other papers which were  ordered  to  be produced by the order dated September 16, 1958.   Thereafter on  January  9, 1959, the arbitrator made  his  award.   The insistence  of the arbitrator upon production of  the  gross and net profits of the last five years indicate that it  was the  opinion of the arbitrator that he was entitled to  take into  consideration  not only the book value of  the  assets given   in  the  partnership  books  of  account   but   the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 18  

depreciation and appreciation of those assets.  The specific use of the expression by the arbitrator that he had included the  depreciation  and  appreciation  of  various  items  of property  and  the procedure followed by him  including  the orders therefore clearly establish that the expression  used by him was not a mere surplusage. 499 It  is  clear  that  the  arbitrator  has  included  in  his valuation some amount which he was incompetent, by virtue of the  limits  placed  upon  his  authority  by  the  deed  of reference,  to  include.  This is not a case  in  which  the arbitrator  has  committed a mere error of fact  or  law  in reaching  his conclusion on the disputed question  submitted for  his  adjudication.   It  is a  case  of  assumption  of jurisdiction  not  possessed by him, and  that  renders  the award, to the extent to which it is beyond the  arbitrator’s jurisdiction, invalid.  It is, however, impossible to  sever from  the valuation made by the arbitrator the value of  the depreciation  and appreciation included by  the  arbitrator. The award must, therefore, fail in its entirety. In  this view of the case, we do not think it  necessary  to consider  whether the plea raised by the remaining  partners that the award is vitiated on the ground that the arbitrator accepted from the retiring partners documents prepared  from the  books of account without giving an opportunity  to  the remaining  partners to explain those documents.  It was  the case of Chintamanrao that these documents were prepared  and handed  over to the arbitrator without giving any notice  to him.   It  was the case of the retiring  partners  that  the documents  consisted  merely of extracts of entries  in  the books  of  account, and that in any event  Chintamanrao  had assented to those documents being included in the record  of the  arbitrator.  For the reasons set out by us  in  dealing with  the first plea for setting aside the award,  and  that plea having succeeded, we do not think it necessary to enter upon the respective contentions of the parties on the second ground. We accordingly hold that the award was properly set aside by the Courts below. Counsel for the retiring partners submitted that on the view taken by us, the award should be remitted to the  arbitrator under  s. 16 of the Arbitration Act, 1940.  No such  request was, however, made by them in the Trial Court or in the High Court, and we will not be justified in the circumstances  of the case in 500 acceding  to that request.  We may observe that we have  not heard  counsel on the question whether in the  circumstances of  the  case and on the conclusion recorded,  we  have  the power under s. 16 to remit the award to the arbitrator.  The retiring  partners  have  also not asked for  an  order  for supersession of the arbitration agreement in exercise of the powers  of  the  Court under s.  19.   We  have,  therefore, refrained from considering that question also. The appeal fails and is dismissed with costs in one set. HIDAYATULLAH,  J.-This appeal arises out of  an  arbitration award which was set aside by the Additional District  Judge, Sagar on the objection of the respondents.  The judgment  of the Additional District Judge was confirmed on appeal by the High  Court  and  the present appeal has  been  filed  on  a certificate granted by the High Court under Art. 133  (1)(c) of  the  Constitution.   The  arbitration  was  without  the intervention  of the Court.  Previously it proceeded  before three   arbitrators  but  the  authority  of  two   of   the arbitrators  was revoked by the Additional  District  Judge,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 18  

Sagar,  at  the  agreed  request  of  the  parties  to   the reference.   It  then  proceeded before  one  Chaturbhuj  V. Jasani who gave his award on January 9, 1959. The  arbitration proceedings were necessary because  of  the retirement  of  the appellants from a firm  called  Virajlal Mannilal  &  Co.  which  at that  time  consisted  of  eight partners  in  three  groups.  These groups  were  the  three appellants  (Jivraj  and his two sons) owning  -/4/3  share, respondents Nos. 1-3 (Chintamanrao and his two sons)  owning -/7/6  share  and  the two remaining  respondents,  who  are brothers, owning the balance.  By agreement this  retirement was to take place on April 15, 1958.  In revoking the  award the  High  Court, in concurrence with the court  below,  has upheld  two objections-(a) that the arbitrator exceeded  his jurisdiction  and  (b) that he was guilty of  misconduct  in receiving some evidence behind the back of Chintamanrao. 501 The firm of which the several parties here were partners had a written deed of partnership executed on February 16, 1956. This  deed replaced earlier deeds to which reference is  not necessary.  The partnership kept its accounts from Diwali to Diwali  and  every  year it drew up a balance  sheet  and  a profit  and  loss account, copies of  which  documents  were given  to  all the partners.  The accounts  so  stated  were subject  to  objection  but  if none  was  made,  they  were conclusive  and  binding  on the  partners.   All  this  was provided in the deed of partnership which also provided  for the retirement of partners and its 13th paragraph laid  down special terms as follows:               "In  case  of retirement of  any  partner  the               valuation  of  the Firm will be  made  on  the               following  basis for the purpose  of  settling               the account of the retiring partner:-               (a)   Goodwill of the Firm: That is, right  to               use the trade marks, trade labels and the name               of the Firm.               In making the valuation of the above, the  net               profits  of the last five years will be  taken               as the value of the Goodwill of the Firm.               (b)  Outstandings, Udhari  (Recoveries):  That               is,   loans  and  debts  outstanding   against               persons other than partner will be  calculated               at 85 % of the book value of the Firm.               (c)   Stock   of  Raw  Materials:   That   is,               tobacco, bidis, bidi leaves, labels and  other               moveable  property will be valued at the  book               value  of these in the books of the  Firm  and               all  such  stocks and moveables,  thus  valued               shall be given to the following partners.               (d)   Immovable   Property:          Such   as               buildings,  godowns, gardens, lands etc.  will               be valued at the purchase price or their  book               value in the books of the firm as the case may               be,  and all these shall be given to  the  re-               maining partners." 502 As  a result of an arrangement reached aliunde by which  the businesses  of these partners, which were in different  firm names  and  various places, were to be divided  between  the appellants on the one hand and the respondents on the other, the parties desired an arbitration to separate the shares of the  appellants as partners retiring from the firm  Virajlal Mannilal  & Co. A deed of reference was executed by them  on April 16, 1958.  After the usual recitals, it provided  that a final account of the partners should be taken with  regard

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 18  

to eight matters- as far as possible according to and taking into   consideration  the  terms  and  conditions   of   the partnership agreement." The eight matters were:               1.    Goodwill of Trade Mark.               2.    Property.               3.    Credits (Udhari).               4.    Dead Stock.               5.    Stock-in-trade i.e., the raw material or               the finished goods invested in the business.               6.    Other   matters  connected  with   these               transactions.               7.    Profit and Loss Account.               8.    The Receipt and Payments account of  the               amounts of the partners. It was further provided that the firm Virajlal Mannilal  was to  continue with the respondents after the  appellants  had retired  therefrom  and the appellants were to be.  paid  an amount  to  be determined by the arbitrator and  in  such  a manner and on such conditions as he might direct. The  arbitrator  having  filed  the  award  in  Court,   the respondents  filed  objections, only two  of  which  noticed above  succeeded  and  the award was  set  aside.   I  shall therefore proceed straight to those objections of which only the  first was fully argued before us.  In making his  award the arbitrator gave the appellants a -14/3 share from a lump amount  of RS. 32 lacs which he described as  "goodwill"  of the  firm, adjusting, in the respective shares of the  three appellants in that sum, all amounts standing to their credit                             503 or  debit, as the case may be, in the account books  of  the firm.   He also assessed the "goodwill" for the period  from Diwali   to  the  date  of  retirement  and  made   suitable additions.  His real decision is contained in three or  four lines  in the award which of course contains  other  matters and  his  exact  words  in Hindi have  given  rise  to  some difference   because  they  have  been  translated  in   two different  ways  on  the  record  of  the  case.   The   two translations are-               (1)   The  value of the goodwill of the  whole               firm  1  assess at  Rs.  32,000,00,--  (Rupees               thirtytwo  lacs).  In this sum property,  dead               stock  and  depreciation and  appreciation  of               Udhari are also included;               (2)   The  value of the goodwill of the  whole               firm  1  assess  at  Rs.  32,000,00/-  (Rupees               thirtytwo lacs).  In this sum the depreciation               and  appreciation of property, dead stock  and               Udhari is also included." The  second translation is probably more accurate  than  the first,  but to my mind it is not a matter of mere words  but of what the arbitrator has done.  The award is in Hindi  and the  two  words  "appreciation" and  "depreciation"  are  in English.   They  might  well have been  used  to  still  all controversy about issues which the parties had raised before him  relating  to these matters.  The arbitrator  might,  in other  words, have used these words loosely without  meaning anything  except to show that he had looked into  everything which  the parties desired him to see.  The dispute is  thus whether  the arbitrator exceeded his jurisdiction by  adding back depreciation amounts to the book value and/or  allowing for appreciation of property which was successfully  claimed by the respondents in the High Court and the Court below  to be not open to him? In this appeal it was contended on behalf of the  appellants that  the  deed  of  partnership as well  as  the  order  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 18  

reference  left the arbitrator a free hand and even  if  the arbitrator  wrongly interpreted the deed of partnership  and did add back the depreciation and/or 504 appreciation,  no  question  of  jurisdiction  could  arise. Reliance  is  placed upon the observations of  the  Judicial Committee  in the well-known case of Chamsey Bhara & Co.  v. Jivraj Balloo Spg. & Wvg.  Co.(1) where it was observed:               "An  error  in law on the face  of  the  award               means, in their Lordships’ view, that you  can               find  in  the  award or  a  document  actually               incorporated thereto, as for instance, a  note               appended by the arbitrator stating the reasons               for his judgment, some legal proposition which               is  the basis of the award and which  you  can               then say is erroneous.  It does not mean  that               if  in  a narrative a reference is made  to  a               contention of one party that opens the door to               seeing first what that contention is, and then               going  to the contract on which  the  parties’               rights  depend  to see if that  contention  is               sound.   Here  it is impossible to  say,  from               what  is shown on the face of the award,  what               mistake  the arbitrators made.  The  only  way               that  the  learned  judges  have  arrived   at               finding  what  the mistake was is  by  saying;               "inasmuch  as the arbitrators awarded  so-and-               so, and inasmuch as the letter shows that  the               buyer rejected the cotton, the arbitrators can               only  have arrived at that result  by  totally               misinterpreting  Rule  52".   But  they   were               entitled  to give their own interpretation  to               Rule  52 or any other Article, and  the  award               will  stand  unless, on the face of  it,  they               have  tied  themselves .down to  some  special               legal  proposition which then, when  examined,               appears to be unsound." Mr.   Desai   contends  that  the  arbitrator   might   have interpreted  the  partnership deed wrongly but  that  was  a matter  within his jurisdiction and the error, if  any,  not being  one of law on the face of the award, the Civil  Court had  no  authority or jurisdiction to set aside  the  award. The  other  side contends, as has so far been  held  in  the case,  that the reference, read with the  partnership  deed, created an area of (1)  I.L.R. 47 Bom. 578 at 586. 505 jurisdiction which the arbitrator has outstepped.  The first point  is  therefore to decide what were the limits  of  the arbitrator’s  action as disclosed by the reference  and  the deed of partnership and then to see what the arbitrator  has actually done and not what be may have stated loosely in his award.   This  is  the  only way  in  which  the  excess  of jurisdiction can be found If the interpretation of the  deed of  partnership lies with the arbitrator, then there  is  no question  of sitting in appeal over his  interpretation,  in view of the passage quoted above from Champsey’s case but if the parties set limits to action by the arbitrator, then the arbitrator  had  to follow the limits set for him,  and  the court  can  find that he has exceeded  his  jurisdiction  on proof of such action. The arbitrator derived his authority from the reference  and we  must  turn  to its terms in  the  first  instance.   The material  portion has been quoted and it shows that in  view of the retirement of Jivraj and his sons, parties considered

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 18  

it  necessary "to effect the final account of  the  retiring partners with regard to the matters mentioned below as.’ far possible  according  to and taking  into  consideration  the terms and conditions of the partnership agreement" and  then followed  the eight items.  The words underlined are in  the recitals  but  they  do  show that  the  parties  desired  a division  in  accordance with the terms of  the  partnership agreement.   The words "as far possible" show some  latitude in  one  sense,  but  the force of  those  words  is  to  be discovered with the aid of the other words "according to and taking to consideration etc." which lay down that the  terms of  the  partnership agreement must  prevail  over  personal opinion.   The partners appointed the arbitrators to  decide the eight matters and to enable them to give their  decision undertook by cl. 7 of the reference to furnish all accounts, documents  and  information  which  the  arbitrators   might require of them. Now  the deed of partnership which was to prevail as far  as its terms were applicable provided that to settle the  final account of the retiring partners 506 four  items of assets should be valued in a particular  way. These  directions  were  contained in cl.’ 13  of  the  deed already  set out earlier.  Thus goodwill was equal  to  five years’  net profits; debts due to the firm were to be  taken not at their book value but at 85 % of that value; stocks of raw materials were to be valued at book value; and immovable properties  at  purchase price or their book  value  in  the books of the firm as the case may be.  The goodwill took  no account  of anything but the net profits.   Admittedly,  the net profits of the preceding five years were Rs.  21,70,650/ 10/-.   This  set at rest sub-clause (a) of cl.  13  of  the partnership  agreement.   Admittedly also  the  outstandings (Udhari) came to Rs. 9,16,366/- at their book value and  15% thereof came to Rs. 137,354/13/6.  The net Udhari  therefore was  Rs.  7,79,011/2/6.   Differences really  arose  in  the matter   of  valuation  of  raw  materials   and   immovable properties  and in this connection. the appellants asked  to see  an  account of gross profits for the  past  five  years which  the  arbitrator  ordered  Chintamanrao  to   produce. According to the appellants the value of properties given by Chintamanrao was the written down value and the right figure according to the agreement was not Rs. 6,24,369/- as  stated by Chintamanrao but Rs. 16,57,000/-.  In reply  Chintamanrao stated  that it was not the practice of the firm to  prepare an account of gross profits but he added that gross  profits could be calculated from the account books by the other side or  by  the  arbitrator and he offered the  services  of  an accountant to prepare such an account.  The documents  which the  arbitrator is said to have received behind the back  of Chintamanrao (though not some of the other respondents)  are the  abstracts  which show the gross profits  and  what  was excluded to reach the net profits.  The net profits in these accounts and the net profits given by Chintamanrao agree.  I do  not  refer to the dispute about the  production  of  the documents since that part of the case was not argued  before us,  but these accounts prime facie do show that in  working out  net  profits  for  the  five  years,  depreciation   of immovable property and goods was taken 507 into  account.  The same depreciation appears to  have  been taken  into account in the balance sheet while  valuing  the assets against the liabilities.  In other words depreciation of  immovable properties and goods over the five  years  for which  the  goodwill was to be calculated appeared  to  have

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 18  

been taken twice over. I  would have persuaded myself to go into this  matter  more deeply  but  for the fact that such  depreciation  does  not altogether account for the difference between 21 lacs and 32 lacs.   The  balance sheets show a very  slender  difference between  the assets and liabilities over the five years  and it may be taken that the value of Udhari, raw materials  and immovable properties is offset by the liabilities.   Nothing remains except a very petty sum as profit to be carried over for  addition to the goodwill.  The duplicated  depreciation does  not in fact account for the increase from Rs. 21  lacs to  Rs.  32 lacs.  The conclusion is  therefore  inescapable that  the  arbitrator meant what he said when  he  spoke  of including appreciation and depreciation in the valuation  of the properties etc.  For this reason he must be held to have exceeded  his jurisdiction and it is not a question  of  his having  merely  interpreted the  partnership  agreement  for himself as to which the Civil Court on authority could  have had no say, unless there was an error of law on the face  of the award. Reliance  is placed upon the case of Cruickshank and  others v.  Suiherland -and others’-" that if accounts in  the  past were  not  prepared  to meet  the  contingency  of  retiring partners,  the  accounts  must be recast  for  this  special purpose and the arbitrator must necessarily have freedom  to value  property  in  his own way and not  by  accepting  old accounts  already made by the partners.  The intention  here was that the arbitrator should prepare the final accounts as the   partners   would  themselves  have  done   under   the partnership agreement, and the arbitrator had to follow  cl. 13 of the partnership agreement which was binding on (1)  [1923] 92 L. J. Ch. 136. 508 the   partners  and  therefore  on  him.   The   partnership agreement  did not speak of market value or fair value.   It stated that the purchase price or the book value as the case may  be alone could be taken into account.  This meant  that the  book  value where available and the purchase  price  in other  cases only were to enter in the calculations.   There was  thus no option to go to fair value or market  price  at all. I  do  not think that we should  supersede  the  arbitration agreement under s.19. No circumstance was made out for  such a  course.  I would have directed a remit to the  arbitrator under s. 16 of the Arbitration Act 1940 but my brethren take a different view of the matter and I leave the matter there. The  contention of the appellants on the question of  juris- diction decided against them must fail and I agree that  the appeal should be dismissed with costs. Appeal dismissed.