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PETITIONER: M/S V.H.  PATEL & COMPANY & ORS.

       Vs.

RESPONDENT: HIRUBHAI HIMABHAI PATEL & ORS.

DATE OF JUDGMENT:       18/04/2000

BENCH: S.R.Babu, S.N.Phukan

JUDGMENT:

     RAJENDRA BABU, J.  :

     A  partnership  firm, M/s V.H.  Patel &  Company,  was constituted  consisting  of four brothers, namely,  Jamnadas Himabhai  Patel,  Vallabhbhai   Himabhai  Patel,  Gordhandas Himabhai  Patel  and  Hirubhai Himabhai Patel, all  sons  of Dineshbhai  Hirubhai  Patel.   On   the  death  of  Jamnadas Himabhai  Patel  the  partnership   was  reconstituted  with Gordhandas  Himabhai  Patel,   Vallabhbhai  Himabhai  Patel, Hirubhai Himabhai Patel, Parmanand Jamnadas Patel and, Jatin Parmanand  Patel  and  Akashya   Parmanand  Patel,  sons  of Parmanand  Jamnadas Patel.  The said firm is engaged in  the business  of manufacture, storage and sales of marketing  of different  variety  of tobacco, tobacco preparations,  zarda and  allied products.  It has three registered trade  marks, (i)  Surya  Chhap Zarda, (ii) Surya Chhap Tobacco and  (iii) Pan  Chhap 12 Number Zarda.  Disputes having arisen relating to  the  business of the partnership firm, an ‘Agreement  of Mutual  Understanding’ was executed by stating that all  the said  trade  marks owned by the firm were to cease to be  of one  ownership  but  had  to be owned by  all  the  partners thereof.   Respondent No.  1 and other partners were to  use the  said  trade  marks separately only in  the  territories allotted  to  them thereunder as per agreement with each  of the partners having a percentage in the share of profits and losses  under  the then existing deed of  partnership  dated April  21, 1986.  On August 1, 1987 a Deed of Retirement was executed  by  all  the partners of the  firm  providing  for retirement  of  respondent  No.   1 as  partner  thereof  on certain  terms and conditions.  On July 28, 1989 a suit  was filed  by respondent No.  1 in Civil Suit No.  186/89 in the court of the Civil Judge, Senior Division, Chalisgaon, for a declaration  that  the retirement deed dated August 1,  1987 was  ineffective, inoperative, unenforceable, null and  void and  that  he continued to be the partner of the  firm.   On September 14, 1989 another suit was filed by the petitioners in  the  District  Court, Chalisgaon, under  the  Trade  and Merchandise   Marks  Act,  1958   for   injunction   against respondent  No.  1 Hirubhai Himabhai Patel and his two  sons Praveen  Hirubhai Patel and Dinesh Hirubhai Patel and  their partnership  firm not to use and exploit the aforesaid three trade  marks under the name of M/s H.H.  Patel & Company and for other incidental reliefs.  On the basis of the pleadings raised,  the District Judge, Chalisgaon, passed an order  of injunction against respondent No.  1 Hirubhai Himabhai Patel

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and  others  restraining them from using and exploiting  the three  trade marks.  Against the said order of injunction an appeal was preferred in the High Court which was allowed and injunction   granted  by  the   trial  court  was   vacated. Thereafter,  a Special Leave Petition No.  11533 of 1990 was preferred  before  this Court against the order of the  High Court.   This  Court  passed an order on February  15,  1991 disposing  of  the  matter  in the following  terms  :-  "On 16.1.1991  when this petition came up for hearing before us, we  had suggested to the parties that having regard to their close relationship and the nature of the dispute it would be desirable  to explore the possibility of settlement or  have the  dispute resolved through arbitration.  The parties have now arrived at a consent order which is signed and presented by  the  learned  advocates  for   the  Petitioner  and  the Respondents,  which  we  take on record.  According  to  the consent  terms the parties have agreed to have their dispute resolved through sole arbitration of Mr.  Justice D.M.  Rege (Retd.)  of  Bombay  High Court.  We direct an order  to  be drawn  up  in  terms of consent terms.   The  Special  Leave Petition  will  stand  disposed of in terms of  the  consent terms."

     The  crucial  part  of  the   Consent  Terms  is  also extracted  hereunder  which  is  contained in  para  No.   2 thereof :- "Both the parties agree that disputes relating to the rights and obligations of the parties arising out of the agreement  dated 3.7.1987 and retirement deed dated 1.8.1987 and  to  the  user  of  the  trade  marks  in  question  and determination  of the rights of respondent No.1 as a partner of  the Petitioner firm as per the pleadings of the  parties in  suit No.  5 of 1989 and No.  186 of 1989 pending in  the court  of District Judge, Jalgaon and in the court of Senior Division  Judge, Chalisgaon respectively be referred to  the sole  arbitrator  of Shri D.M.  Rege, Retired  Judge  Bombay High  Court.   The  arbitrator will file the  award  in  the Bombay  High Court in accordance with the provisions of  the Arbitration Act."

     Thus  the disputes between the parties which arose  in the  suit stood referred to sole arbitration of Justice D.M. Rege.   Claims were preferred before the sole arbitrator  by all  parties.   The arbitrator made an award on January  25, 1999.   He declared that the writing/agreement dated July 3, 1987  and  retirement deed dated August 1, 1987 is  invalid, void, ineffective and not binding on the parties and created no  rights  or obligations between the parties thereto.   He further  declared  that  respondent No.  1 had  not  retired under  the aforesaid deed but continued as a partner of  the firm  M/s  V.H.  Patel and Company from and after August  1, 1987.   This  relief was, however, to operate in  favour  of respondent  No.   1  only  on  his  paying  an  sum  of  Rs. 5,17,927.17  to  the firm and it was also declared that  the three  registered trade marks continued to be the assets  of the  firm  M/s  V.H.  Patel & Company and  M/s  H.H.Patel  & Company or its partners including Hirubhai Himabhai Patel or any  other  person has no right, title and interest  in  the said  trade marks and they were permanently restrained  from using  and/or exploiting in the course of trade or otherwise any  of  the three registered trade marks in any  territory. The  arbitrator  did not entertain the counter claim of  the respondents  seeking  for dissolution of the firm  M/s  V.H. Patel  & Company on the ground that it was beyond the  scope

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of reference.  On February 15, 1999 the partners of M/s V.H. Patel  & Company assigned the three trade marks in favour of V.H.   Patel  Tobacco  Private Limited,  a  private  limited company owned by close relatives of the partners of M/s V.H. Patel  & Company for Rs.  65 lakhs.  The award was filed  in the  Bombay  High  Court.   Respondent   No.   1  filed   an arbitration  petition challenging the said award and  prayed for  setting aside the findings of the arbitrator on certain issues.   The petitioners also filed an arbitration petition under  Section  18 of the Arbitration Act, 1940 for  interim relief  of injunction and, another arbitration petition  was filed  by  respondent No.  1 for partial decree in terms  of the  accepted part of the award, namely, in terms of (b) and (c)  of  the operative part of the order and for status  quo ante  as on January 25, 1989 by setting aside the assignment deed  dated February 18, 1999.  The learned Single Judge  of the High Court confirmed the award of the sole arbitrator so far as the declaration that the agreement dated July 3, 1987 and   the  retirement  deed  dated   August  1,   1987   are ineffective,  unenforceable and not binding on the  parties. The  learned Single Judge set aside the finding on issue No. 17,  that  is,  whether the arbitrator has  jurisdiction  to entertain   the  counter  claim  by  which   counter   claim respondent  No.  1 had sought for dissolution of the firm of M/s V.H.  Patel & Company and remitted the issue back to the arbitrator  for  de  novo   consideration  and  decision  in accordance with law.  The learned Single Judge directed that till  the  arbitrator  makes a fresh award,  arrangement  in relation  to  the  business as was in  existence  while  the proceedings  were  pending  before   the  arbitrator  should continue  to  operate for a period of four weeks  after  the award  was made.  It was also made clear that the assignment of  trade marks shall have no effect and the private limited company to whom the trade marks have been assigned shall not be  entitled to do the business on the basis of those  trade marks.   This order of the learned Single Judge of the  High Court that is in challenge before us.

     The  learned  counsel  for the petitioners  Shri  T.R. Andhyarujina  and  Shri  Vinod A Bobde, the  learned  senior advocates,  submitted that the principal question is whether the  arbitrator was competent to entertain the counter claim filed  by respondent No.  1 for dissolution of the firm  M/s V.H.   Patel  &  Company and falls within the scope  of  the terms  of reference made by this Court on February 15, 1991; that   the  counter  claim  made   by  the  respondent   for dissolution  of  the  firm  was  not  within  the  terms  of reference  either expressly or impliedly and the parties did not  refer  the  disputes  relating  to  the  firm  to   the arbitrator;   that  on the contrary, para 2 of  the  Consent Terms,  which is extracted above, referred to the arbitrator specific  disputes relating to the rights and obligations of the  parties, (i) arising out of the agreement dated July 3, 1987,  (ii)  retirement deed dated August 1, 1987, (iii)  to the  user  of the trade marks in question, and (iv)  to  the determination  of  the  rights  of respondent No.   1  as  a partner  of the firm as per the pleadings of the parties  in the pending suits;  that the pleadings of the parties in the suits  did  not  include  any   claim  by  any  partner  for dissolution  of  the firm M/s V.H.  Patel &  Company;   that there  is  no  scope  for raising a new plea by  way  of  an amendment  as  to  dissolution of the firm;  and,  that  the arbitrator is bound strictly by the terms of the arbitration and  cannot  travel beyond it.  In this regard, reliance  is placed  on  the  decision  of this Court  in  Orissa  Mining

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Corporation  Ltd.  v.  M/s Prannath Vishwanath Rawlley,  AIR 1977 SC 2014.  Much stress is also laid on the fact that the parties  have  not  referred all disputes  between  them  or relating  to or arising under the partnership for  reference to  the  arbitrator  so  as to bring within  it  any  future disputes  which could arise between the parties.  Therefore, it  is submitted that the view of the High Court that "it is open  to the respondent to claim a decree for dissolution of the  firm in exercise of his rights as a partner of the firm which  he  could have made by amending his pleadings in  the civil  suit  which was capable of being made" is  incorrect. It  is  pointed out that reliance placed on the decision  in Indian  Oil  Corporation Ltd.  v.  Amritsar Gas Service  and Ors,  1991  (1) SCC 533, is wrong.  It is submitted that  in that  case  there  was  scope  for  fresh  pleading  as  the reference  to arbitrator was made by the court in an  appeal arising  out of refusal to stay the suit under Section 34 of the  Arbitration  Act and the reference was made of all  the disputes between the parties in the suit and, therefore, the occasion  to  make a counter claim in the written  statement could  arise  only  after the order of  reference.   Another ground  is  raised  in support of this contention  that  the terms  of partnership do not contemplate dissolution of  the firm  "at will" but by "mutual agreement".  Therefore, it is pointed  out  that dissolution of the firm is based only  on just  and  equitable ground and, therefore, partners’  claim for a decree for dissolution of the firm rests in its origin not  on  contract  but on the inherent right to  invoke  the courts’  jurisdiction  on equitable grounds in spite of  the terms  in which the right and obligation of the parties  may have   been  regulated  and   defined  by  the   partnership contract..   Our  attention  is  drawn   to  a  decision  in Rehmatunnissa  Begum & Ors.  v.  Price & Ors., AIR 1917 P.C. 116,  and  the commentary made by Pollock and Mulla  in  5th Edition  at page 147 which reads as follows :- "Although the arbitration  clause  in  a   partnership  agreement  may  be sufficiently  wide  to  include  the  question  whether  the partnership should be dissolved, the Court in its discretion may  not  stay  a suit for dissolution,  if  dissolution  is sought  under Section 44(g)(e).  In the undermentioned cases the  view taken is that whenever dissolution of  partnership is  sought under Section 44(g), then it is for the court  to decide,  whether it would be just and equitable to  dissolve the  partnership or not and such a matter cannot be left  to be  gone into and decided by the arbitrator in pursuance  of the arbitration clause contained in the partnership deed."

     In  that  view of the matter it is submitted that  the parties could not have intended to have referred a claim for dissolution  of the partnership under the inherent powers of the  court  and an intention to act consistently within  the law   and  practice  relating  to  arbitration   should   be attributed to the parties when they entered into the consent order  before this Court.  Shri R.F.  Nariman and Shri  V.A. Mohta,  the  leaned  senior advocates for  the  respondents, submitted  that an appeal to the Division Bench of the  High Court  would  lie  from the judgment of the  learned  Single Judge and a special leave petition should not be entertained by us.  In answer to this contention the learned counsel for petitioners  pointed  out that under the Indian  Arbitration Act,  1940 an appeal from a judgment remitting the award  to the  arbitrator  for reconsideration does not lie and it  is only  in  respect of appeals to which specific reference  is made  in  Section  39  an appeal  would  lie.   Shri  Mohta,

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however,  placed reliance on the decisions of this Court  in Iftikhar Ahmed & Ors.  v.  Syed Meharban Ali & Ors.,1974 (2) SCC  151,  Union of India v.  Mohindra Supply Company,  1962 (3)  SCR  497, and State of West Bengal v.  M/s  Gourangalal Chatterjee,  1993  (3) SCC 1.  The learned counsel  for  the respondents further drew our attention to a decision of this Court  in Orma Impex Pvt.  Ltd.  v.  Nissai Asb Pte.   Ltd., 1999  (2)  SCC 541, wherein it is stated that a question  of similar nature has been referred to a Bench of Five Judges.

     Inasmuch  as  we  have heard the  learned  counsel  on either  side on the merits of the matter, it is  unnecessary to  go  into the question whether an appeal could have  been preferred  to  the Division Bench in the High Court or  not, particularly  when a notice had already been ordered by this Court  and the matter has been finally heard.  We leave open this question to be raised in an appropriate proceeding.  So far  as the present case is concerned, it is suffice to  say that we examine the merits of the matter as put forth before us and decide the case.

     The   contention  of  the   learned  counsel  for  the petitioners  in this case pertains to the scope of reference to  arbitration  which turns around the terms of  the  order made by this Court on February 15, 1991 in Special Leave No. 11533  of 1990 and the Consent Terms on which the said order is  based.   It is no doubt true that in the two suits  that had  been filed there is no specific prayer for  dissolution of  the  firm.   The Consent Terms  indicate  that  disputes relating  to  the  rights  and obligations  of  the  parties arising  out  of  the  agreement  dated  July  3,  1987  and retirement  deed dated August 1, 1987 and to the user of the trade  marks  in  question  were   indeed  referred  to  the arbitrator.   The  High Court is conscious of  the  question that  the relief for dissolution of the firm was not one  of the  matters on which there was a dispute which was referred to  arbitrator.  However, the High Court is of the view that though  in the plaint there is no prayer for dissolution  of firm it was possible for the respondent to claim that relief in  the  civil  suit  and as the civil  suit  was  withdrawn pursuant  to the agreement reached before this Court, such a prayer  is, therefore, made before the arbitrator as all the disputes  between  the  parties in the suits  filed  by  the parties  were  referred to the arbitrator.  The  High  Court placed  strong  reliance upon the decision of this Court  in Orissa  Mining Corporation Ltd.  v.  M/s Prannath Vishwanath Rawlley  (supra).  Distinction is sought to be made  between the  aforesaid  case and the present case on the basis  that the  reference  was  made of all the  disputes  between  the parties,  a  counter  claim in the written  statement  could arise  only  after  the  order of  reference  and  in  those circumstances,  the  reference  would   cover  all  disputes between  the  parties, including one raised in  the  counter claim.   In  answer  to this aspect it is noticed  that  the first  respondent  filed a suit as partner of the firm  M/s. V.H.   Patel & Company for enforcing some of his rights as a partner  and seeking dissolution of the firm is also a right of  a  partner  and had the suit remained  pending,  it  was possible  for  him to amend his plaint seeking an order  for dissolution  of  the firm, the cause of action  for  seeking such relief would be the same on which his claim in the suit was  based.   Cause  of action for a counter  claim  can  be different  from  the  cause  of action  for  the  suit  and, therefore,  it  would  be permissible to hold that  a  claim which is based on the same cause of action on which the suit

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is  based  cannot be considered.  The High Court is  of  the view  that once the matter is referred to the arbitrator his jurisdiction  to consider all questions raised before him by the  parties which relate to the dispute could be considered and  driving a party to a separate litigation for the relief which  relates  to  the dispute referred to  the  arbitrator would  not  be proper.  Therefore, the High Court held  that the  it  is open to respondent No.  1 to claim a decree  for dissolution  of  the  firm in exercise of his  rights  as  a partner of the firm which he could have made by amending his pleadings in the civil suit and, therefore, it is within the jurisdiction  of  the arbitrator to consider that  question. It  is further to be seen that the parties are from the same family,  there  were  disputes between them, they  tried  to resolve  the disputes by entering into an arrangement  which ultimately failed.

     We  asked the parties to appreciate the matter in  the proper  perspective to produce the Partnership Deed and  the Partnership Deed dated April 21, 1986 is produced before us. Clause  5 provides that "the partnership is commenced on and from the 2nd day of April 1986 and shall continue for a term of period until the parties herein before mentioned mutually agree  to  dissolve".  Clause 11 thereto provides that  "all dispute  and questions in connection with the partnership or with  this  Deed  existing  between  the  parties  shall  be referred  to Arbitration under the provisions of the  Indian Arbitration  Act,  1940,  or any Statutory  modification  or re-enactment  thereof  for the time being in force." In  the suit  filed  before the court it is no doubt true  that  one party,  respondent No.  1, was seeking to establish that  he had  not retired from the partnership and, therefore,  there is  justification  in the criticism levelled by the  learned counsel  for the petitioner that the prayer for  dissolution of  the firm is inconsistent with such a claim.  But that is not  the  end  of the matter.  Even if he  had  not  retired pursuant  to the terms of the agreement entered into between the  parties,  it  is  certainly permissible  for  him  when disputes  had  arisen  between  the   parties  to  ask   for dissolution  of  the  partnership  and  when  that  was  not possible  by mutual consent a dispute could certainly  arise thereto  and  such  a dispute could have  been  referred  to arbitration  as  provided  in clause 11 of  the  Partnership Deed.   If that was permissible, such a contention could  be raised in the suit filed by the parties.  Merely because the disputes   between  the  parties   have  been  referred   to arbitration,  he  is  not  prevented  from  raising  such  a question or the arbitrator is prevented from deciding such a matter.   Therefore, agreeing with the view expressed by the High Court, we reject the contention raised on behalf of the petitioner that it was not permissible for the arbitrator to enter  upon the question of dissolution of the  partnership. Though  the  disputes between the parties originated on  the basis  whether one or the other partner had not retired from partnership or as to the rights arising in relation to trade marks  or  otherwise,  still when there is no  mutual  trust between  the parties and the relationship became so strained that  it is impossible to carry on the business as partners, it  was certainly open to them to claim dissolution and such a  question  could be adjudicated.  The scope  of  reference cannot  be  understood  on the actual wording  used  in  the course  of  the  order made by this Court or  the  concerned memorandum  filed before this Court, but it should be looked from  the  angle  as  to  what was  the  spirit  behind  the reference  to  the arbitration.  The idea was to settle  all

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the disputes between the parties and not to confine the same to  any one or the other issue arising thereunder.  In  that view of the matter, the contention addressed to the contrary is untenable.

     We  asked  the  learned  counsel  as  to  whether  the acceptance  of the finding recorded by the arbitrator  would put  to an end all the disputes between the parties, it  was frankly  stated  that  it  was  not  so.   Therefore,  still disputes  would  exist  and even those disputes have  to  be resolved  in  one  or  the other  proceeding.   We  fail  to understand  as  to  how the parties could  not  have  raised appropriate  pleadings in relation to disputes and get  them resolved  in  the  very suits that were already  pending  by appropriate  modification  of  the pleadings.  If  that  was permissible,  certainly  the present course adopted  by  the High Court is also permissible.

     A  contention  has  been  raised before  us  that  the arbitrator  has  no  power to dissolve a  partnership  firm, especially  on a ground that such dissolution is based on  a ground  or  any  other  ground which  renders  it  just  and equitable  to  dissolve and that is the power of the  court. It  was pointed out that mere strained relationship  between the  partners would not be enough to dissolve a partnership. It  is  not necessary for us to examine this  contention  in this  case  when the partners sought for dissolution of  the partnership  on various grounds enumerated in Section  44(c) to  (f)  may also be sufficient and may not be necessary  to invoke  the  inherent  jurisdiction  of   a  court  such  as dissolution is just and equitable.  If there has been breach of agreement and conduct is destructive of mutual confidence certainly  such  conduct  can  give rise  to  a  ground  for dissolution  of the partnership.  While mere disagreement or quarrel   arising  from  impropriety  of  partners  is   not sufficient  ground for dissolution, interference should  not be  refused  where  it is shown to the satisfaction  of  the adjudicating  authority  that the conduct of a  partner  has been  such  that it is not reasonably practicable for  other partners  to  carry  on the business  in  partnership.   For instance,  dissolution should be ordered if it is shown that the  conduct  of  a partner has resulted in  destruction  of mutual  trust  or  confidence which is the  very  basis  for proper  conduct of partnership.  It is not necessary for  us to  go into or seek for an explanation of the reasons  which may   have  induced  the   disputes  between  the  partners. Dissolution  will  arise where it appears that the state  of feelings  and  conduct of the partners have been  such  that business cannot be continued with advantage to either party.

     So  far as the power of the arbitrator to dissolve the partnership  is concerned, the law is clear that where there is  a clause in the Articles of Partnership or agreement  or order  referring  all the matters in difference between  the partners  to  arbitration,  arbitrator has power  to  decide whether  or  not the partnership shall be dissolved  and  to award its dissolution.  [See:Phoenix v.  Pope & Ors., (1974) 1  All  E.R.  512].  Power of the arbitrator will  primarily depend upon the arbitration clause and the reference made by the  court  to it.  If under the terms of the reference  all disputes  and  difference arising between the  parties  have been  referred  to  arbitration,  the  arbitrator  will,  in general,  be  able  to  deal  with  all  matters,  including dissolution.   There is no principle of law or any provision which  bars  an  arbitrator  to  examine  such  a  question.

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Although  the learned counsel for the petitioner relied upon a  passage of Pollock & Mulla, quoted earlier, that  passage is  only confined to the inherent powers of the court as  to whether  dissolution  of partnership is just and  equitable, but  we have demonstrated in the course of our order that it is  permissible  for  the court to refer  to  arbitration  a dispute  in relation to dissolution as well on grounds  such as  destruction  of mutual trust and confidence between  the partners which is the foundation therefor.

     For  the aforegoing reasons, we find no merit in these petitions and the same stand dismissed.