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CASE NO.: Appeal (civil)  1526 of 2007

PETITIONER: Ravi Prakash Goel

RESPONDENT: Chandra Prakash Goel & Anr

DATE OF JUDGMENT: 21/03/2007

BENCH: Dr. AR. Lakshmanan &  Altamas Kabir

JUDGMENT: J U D G M E N T (Arising Out of SLP (C) NO. 6723 OF 2006)

Dr. AR. Lakshmanan, J.

Leave granted. The above appeal is directed against the final  judgment and order dated 10.02.2006 passed by the  Chief Justice of the High Court of Judicature at  Allahabad in Arbitration Application No. 7 of 2005  dismissing the application moved by the appellant under  Section 11 of the Arbitration and Conciliation Act, 1996  for appointment of arbitrator.    

BACKGROUND FACTS: Respondent Nos. 1 and 2 - Chandra Prakash Goel and  Rakesh Aggarwal along with Dulari Devi, mother of the  appellant - Ravi Prakash Goel and Pushplata were  carrying on business of sale and purchase of sanitary  goods in the name and style of M/s Kumar and Company  under the Partnership Deed dated 09.08.1983.   Pushplata retired from partnership w.e.f. 31.03.1992.   Thereafter, other partners carried on the business and a  new partnership deed was executed on 01.04.1992.  Clause 5 of the same provided that the net profits of  the partnership business as per accounts maintained  after deduction of all necessary expenses shall be divided  and distributed amongst the partners at the close of each  accounting year in the following ratio:

1)      Sri Chandra Prakash Goel, Respondent No.1- 31% 2)      Sri Rakesh Kumar, Respondent No.2- 34% 3)      Smt. Dulari Devi, Petitioner’s Mother- 35%

Clause 13 of the Partnership Deed refers to  arbitration clause. It reads as under:- "That all the disputes touching the affairs of the  partnership firm shall be referred to arbitrator in  accordance to the provisions of the Indian Arbitration  Act and the award of such Arbitrator shall be final and  binding on the parties."

When the respondents did not render accounts of  the partnership firm to the appellant’s mother despite  repeated verbal requests, she on 05.06.2004 sent a  notice to the respondents raising dispute regarding  accounts of the partnership firm and informed them that  on account of her illness she has authorized her son,

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Ravi Prakash Goel, the appellant herein to look into the  accounts of the partnership business on her behalf and  requested them to explain the accounts to her son on any  working day between 05.06.2004 to 16.06.2004, but they  did not respond.  The appellant visited the office of the firm but the  respondents refused to permit him to have access to the  accounts of the firm.  On 05.09.2004, Smt. Dulari Devi  the mother of the appellant executed her last will in  favour of the appellant to her only son bequeathing her  estate in appellant’s name including the instant  partnership business.  Dulari Devi expired on 06.10.2004  leaving her last will dated 05.09.2004 which was  registered after publication in the daily newspaper and  also after due notice to all the other legal heirs of the  deceased who categorically stated that they have no  objection and accepted due execution of the will before  the Sub-registrar, Dehradun.   On 15.12.2004, the appellant sent notice to the  respondents to the effect that his mother had sent notice  to them regarding dispute in relation to the accounts by  partnership firm and despite her request, accounts were  not shown to her authorized agent, namely, her son,  hence as per the terms of the partnership deed, the  disputes are to be decided by arbitration.  He suggested  the name of Shri P.C. Agrawal, a retired District Judge  and further informed that if they are not agreeable, they  may suggest the name of their own Arbitrator.  When no reply of the notice dated 15.12.2004 was  received, the appellant filed application under Section 11  of the Arbitration and Conciliation Act, 1996 before the  Hon’ble Chief Justice, Allahabad High Court under the  scheme called the appointment of Arbitrators by the  Chief Justice of Allahabad High Court, 1996, vide High  Court of Judicature at Allahabad Notification No.  11448/Rules dated 18.05.1996 published in the U.P.  Gazette Pt 1-KA dated 16.11.1996.  The learned Chief Justice of the High Court on  10.02.2006 has dismissed the appellant’s application  concluding that the applicant has no presently  establishable binding arbitration agreement with the  respondents.  The order passed by the Hon’ble Chief  Justice reads as under: - "Hon’ble Ajoy Nath Ray, C.J.          This is an application for an Arbitrator by the son of  one of the deceased partners of the Firm.

The partnership deed is annexed. The lady died on  6.10.2004. If an arbitration has been commenced by  the lady during her lifetime, it might have been  continued by the son who is applicant before this  court, by obtaining substitution. However, the  arbitration is being attempted to be commenced now.  Whether the heirs of a deceased partner or parties, are  to be deemed as parties, to an arbitration agreement  contained in a partnership deed, is a question of  intention and construction in every different cases.  The deed annexed does not show that any of the  parties mentioned was to be construed by contract as  including his/her heir, successor or assignee. That  usual clause is absent. Furthermore the son claims as  legatee of a will not yet probated. It is well known that  Courts of law cannot look into unprobated wills. In  these circumstances I am of the opinion that the

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applicant has no presently establishable binding  arbitration agreement with the respondent.

The application is, therefore, dismissed. A suit might  be filed.

Sd/- Ajoy Nath Ray, C.J  10.2.2006"

As stated earlier, the present appeal has been filed  against the above judgment.  We heard Mr. Rakesh Dwivedi, learned senior  counsel for the appellant and Mr. Chandra Shekhar,  learned counsel for the respondents.  Mr. Rakesh Dwivedi, learned senior counsel for the  appellant submitted that that High Court overlooking the  provisions of Section 46 read with Section 48 of the  Partnership Act and Section 40 of the Arbitration Act,  has erred in dismissing the application under Section 11  of the Arbitration Act as in law arbitration could be  commenced by the heirs of the deceased partners and  since right to sue survives on the appellant as sole son  and legal representative of the deceased partner is  entitled to invoke clause 13 of the arbitration contained  in the Arbitration Agreement. According to him, the view  taken by the learned Chief Justice is wholly contrary to  the earlier decision of a Single Judge of the same High  Court in Sundar Lal Haveliwala vs. Smt. Bhagwati  Devi reported in AIR 1967 Allahabad 400 as such the  Chief Justice ought to have referred the matter to a larger  Bench.  He would further submit that the views  expressed in the impugned order is contrary to the  principles laid down by this Court in the case of  Premlata & Anr. Vs. Ishwar Dass Chamanlal and  Ors., AIR 1955 SC 714.  Mr. Chandra Shekhar, learned counsel appearing  for the respondent submitted that the partnership deed  which is unique in its character cannot be ignored as the  arbitration clause is contained therein and the disputes  referable for arbitration are the disputes touching upon  the affairs of the partnership firm and that the  partnership deed while describing three parties confined  the extent of the respective partners to their respective  individual person alone, namely, not extending the same  nomenclature to the legal heirs, representatives, assigns  or even legatees etc.  This fact, according to the learned  counsel for the appellant, is evident from annexure-P1 to  the petition and have also been noted by the High Court  of Allahabad while passing the impugned order in the  following words:  "The deed enclosed does not show that any of the  parties mentioned was to be construed by contract as  including his/her heir, successor and assignee. The  usual clause is absent."

Mr. Chandra Shekhar further submitted that the  Partnership Act and the Arbitration and Conciliation Act,  1996 are characterized by "party autonomy" and  accordingly are founded upon the contract giving pre- eminence to the will of the parties and even the  interference of the Court has been curtailed to the  minimum possible level.  It is the contention of the  learned counsel that the rights of the legatee under the  Partnership Act are regulated and conditioned by Section

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29 of the Indian Partnership Act and on the said strength  he is only entitled to receive the share of the assets of the  firm to which the testator, his predecessor was entitled.   It is further submitted that the answering respondents  have never denied the rendition of the deceased partner’s  account to her share as per the deed and that the  respondents have always been ready and willing to pay  her share if so ordered by the Court.  Mr. Chandra Shekhar further submitted that no  dispute have ever arisen during the lifetime of Dulari  Devi and she was the tax payer, all the accounts were  conducted in her presence and with her consent during  her lifetime and that no dispute was ever even alluded  during her lifetime.  Accordingly, the appellant as a  legatee on her behalf can continue the claiming for  resolution of the disputes which arose during her  lifetime.  No certificate of service, not even the receipt of  registration have ever been filed.  In view of the fact Mr.  Chandra Shekhar submitted that it is clear that the  appellant by no stretch of imagination can claim to be the  party to the Agreement of Arbitration contained in the  partnership deed.  According to Mr. Chandra Shekhar  the will of the parties is pre-eminent and the same is to  be given effect to by all means and, therefore, the  appellant cannot be said to be a party to the Arbitration  Agreement and accordingly, cannot avail mode of  alternative resolution of disputes by way of arbitration as  claimed.  The learned counsel has also made submission  under Section 29 of the Partnership Act.  According to  him, that the right of the appellant as legatee/legal  representative of Dulari Devi are conditioned by Section  29 of the Partnership Act and in case if Section 40 of the  Arbitration and Conciliation Act is read along with  Section 29 of the Partnership Act, it becomes clear that  the appellant’s right of account is confined to rendition of  accounts as permitted by Section 29 of the Partnership  Act.  So far as the appellant’s right to claim arbitration is  concerned, the same cannot be taken benefit of  particularly in view of the unusual character of the  partnership deed where the definition of party  deliberately excludes legal heirs, legal representatives  and legatees.  According to him, it is also relevant to  mention that the commencement of arbitration  proceedings is the judicially recognized and statutorily  defined concept as is evident from Section 21 of the  Arbitration and Conciliation Act and if the proceedings  had commenced, the right of the legal heir would remain  to carry on the same further but in the instant case, the  proceedings have not commenced during the lifetime of  Smt. Dulari Devi.  In view of the submissions made  above, learned counsel for the respondent submitted that  the petition deserves to be dismissed as the appellant is  not a party to the arbitration agreement.  On the above pleadings, the following questions of  law emerge for our consideration.  a)      Where right to sue for rendition of accounts  survives on the legal legal representative of a  deceased partner, are the legal representatives not  entitled to invoke arbitration clause contained in  the Partnership Deed? b)      Whether the arbitration can be commenced by the  heirs after the death of partner especially where the  dispute had arisen already during the life time of  the partner? c)      Whether in view of section 46 read with section 48

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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. \026 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-

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(i)     in paying the  debts of the firm to third  parties; (ii)    in paying to each partner rateably what is  due to him from the firm for advances as  distinguished from capital;

(iii)   in paying to each partner rateably what is  due to him on account of capital; and

(iv)    the residue, if any, shall be divided among  the partners in the proportions in which  they were entitled to share profits."

It is clear from Section 40 of the Arbitration Act that  an arbitration agreement is not discharged by the death  of any party thereto and on such death it is enforceable  by or against the legal representatives of the deceased,  nor is the authority of the arbitrator revoked by the death  of the party appointing him, subject to the operation of  any law by virtue of which the death of a person  extinguishes the right of action of that person.  Section 2(1)(g) defines "legal representative" which  reads thus: "Legal Representative" means a person who in law  represents the estate of a deceased person, and  includes any person who intermeddles with the estate  of the deceased person , and, where a party acts in a  representative character, the person on whom the  estate develops on the death of the party so acting."

The definition of ’legal representative’ became  necessary because such representatives are bound by  and also entitled to enforce an arbitration agreement.   Section 40 clearly says that an arbitration agreement is  not discharged by the death of a party.  The agreement  remains enforceable by or against the legal  representatives of the deceased.  In our opinion, a person  who has the right to represent the estate of deceased  person occupies the status of a legal person.  Section 35  of the 1996 Act which imparts the touch of finality to an  arbitral award says that the award shall have binding  effect on the "parties and persons claiming under them".   Persons claiming under the rights of a deceased person  are the personal representative of the deceased party and  they have the right to enforce the award and are also  bound by it.  The arbitration agreement is enforceable by  or against the legal representative of a deceased party  provided the right to sue in respect of the cause of action  survives.  We have already extracted Sections 46, 47 & 48 of  the Partnership Act.  Section 46 provides two things,  namely, 1) first is to realize the assets of the business  and then to apply the same for discharge of liabilities and  finally to distribute the surplus, if any, among the  partners.  All that Section 46 empowers is that every  partner shall claim that this is to be done for ultimate  distribution of the surplus to the partners according to  their shares.  A suit to enforce the latter right relating to  the distribution of surplus is generally called a suit for an  account which means account taken up accordingly.   This right to a partner to file a suit for account is not  affected by the fact that the retiring partner has already  inspected the accounts of the firm.  Section 46 is,  however, merely declaratory of the rights of the partners  or their legal representatives in the surplus and does not

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set out the mode of calculating the surplus.  The share of  a partner upon the winding up of a dissolved firm, is only  in the residue which is left after the liabilities mentioned  in the various clauses of Section 48 have been paid out.   Payment of capital and advances to partners is not out of  the residue.  The amount paid as capital investment to a  partner will have to be deducted in order to find the value  of the residue, because the value of a partner’s share is  only his proportion of the residue.  "Right of Representative of a Partner:

The right of a representative of a partner is really a  claim against the surplus assets on realisation-  whether the surplus consists entirely of the proceeds  of realisation or whether they include some specific  items of property, which existed on the death of the  partner. The proper remedy of a partner in the  circumstances is to have accounts taken to ascertain  his share and if the right to sue for accounts is barred  by limitation, the partner cannot sue any partner in  possession of the assets for a share therein, and the  limitation will be governed by Art.5 of the Limitation  Act."   

On the dissolution of the firm, the arbitration clause  does not come to an end and so if a dispute had arisen  during the lifetime of the deceased partner, his legal  representatives would be entitled to take proceedings  under Section 20 of the Arbitration Act, 1940.  When a partner dies and the partnership comes to  an end it is not only right but also the duty of the  surviving partner to realize the assets for the purpose of  winding up of the partnership affairs including the  payment of the partnership debts.  However, it is true  that in a general sense the executors or administrators of  the deceased partner may be said to have a lien upon the  partnership assets in respect of his interest in the  partnership and taking the partnership account.  Section 47:     It is clear that the commencement of  the dissolution does not at once terminate the authority  of the partners.  Such authority continues at least for 2  purposes, namely, 1) so far as necessary to wind up the  affairs of the firm; and 2) to complete the transaction  begun but had not yet been completed.  Section 48:     It lays down two fundamental  propositions which are in line of the provisions of Section  46 of the Partnership Act, namely, 1) as to the payment  of the losses; and 2) as to the application of the assets.  It  is to be noted that the provisions of Section 48 are the  culmination of the provisions of Section 46 of the  Partnership Act.  Therefore, both the sections have to be  harmoniously read together and interpreted.  We are of the opinion that in view of the provisions  of Section 46 read with Section 48 of the Indian  Partnership Act as well as Section 40 of the Arbitration  and Conciliation Act, 1996, the application for  appointment of an arbitrator under the arbitration clause  of the partnership deed was liable to be allowed and the  learned Chief Justice has erred in overlooking the said  provisions.  While right to sue for rendition of accounts of  partnership firm survives on the legal representative of a  deceased partner, he is also entitled to invoke the  arbitration clause contained in the partnership deed.  In  the instant case, the appellant being the only son of his  deceased mother, undisputedly a partner in the

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partnership firm with the respondents especially where  the dispute concerning the partnership affairs had arisen  already during her life time.  The view taken in the  impugned order with the appellant has no presently  establishable binding arbitration agreement with the  respondent is erroneous in law and facts.  The impugned  order is also bad in law in the teeth of the law laid down  by this Court in Smt. Premlata & Anr. Vs. M/s Ishwar  Dass Chamanlal & Ors. AIR 1955 SC 714.  This apart,  the appointment of arbitrator could not be rejected on the  ground of non-production of the will executed by the  mother when no family member is disputing the will and  the appellant’s claim vis-‘-vis the partnership firm, even  otherwise also the appellant is the legal heir of the  deceased partner being her only son.  In our view, non- probate of will is not a germane factor to be considered at  the time of appointment of arbitrator under Section 11 of  the Arbitration Act.  In our opinion, the partnership deed  clearly recites that all the disputes touching the affairs of  the partnership firm were referable to arbitrator and it  cannot be gainsaid that the dispute regarding accounts  of the partnership firm is a dispute touching the affairs of  the firm.  As already stated, it was not legally essential to  specifically make a mention that the partners included  their legal heirs, representatives, assigns or legatees etc.  and the arbitration clause could be invoked by the  appellant as the legatee as well as the legal heir/legal  representative of the deceased Dulari Devi particularly  where the dispute had arisen during her life time.  The  appellant’s claim in the instant case is based on the will  as well as being a legal heir of the deceased Dulari Devi.   The appellant, in our opinion, possessed a legal and  enforceable right to invoke arbitration clause and moved  application under Section 11 of the Arbitration Act before  the High Court for appointment of arbitrator.  The word  "party" as used in the partnership deed does not exclude  inclusion of legal heirs, legal representatives etc. as being  canvassed by the respondents.  Thus, in our opinion, in  view of the provisions of Sections 40 and 46 of the  Partnership Act read with Section 40 of the Arbitration  Act, the appellant has a legal right to commence  arbitration by moving an application under Section 11 of  the Arbitration Act in the High Court as in our view, the  right to sue survives on him as legal representatives of  the deceased Dulari Devi and he is entitled to invoke  clause 13 of the partnership deed.  Moreover, the dispute  referable to arbitration had already arisen during the life  time of Dulari Devi which is also well settled that where a  dispute is referable to arbitration, the parties cannot be  compelled to take recourse to in the civil courts.  In view of the aforesaid facts, the civil appeal filed  by the appellant stands allowed.  However, there will be  no order as to costs.