Counsel for the Petitioners: Sri A.K. Goyal, Advocate Counsel for the Respondent: Sri Ravi Kant, Senior Advocate assisted by Sri Umesh Kesharwani.
*** Hon'ble Ferdino I. Rebello, Chief Justice The petitioners are legal heirs of Late Sri Bhairon Nath Kesharwani, who was a partner in the first respondent-firm. Late Bhairon Nath Kesharwani was holding 13% share in the partnership firm and was working partner in the firm, entitled to salary remuneration of Rs.7000/- per month. In terms of Clause 5 of the partnership deed, the duration of the partnership was at Will. Clause 23 of the partnership deed sets out that in case of death or retirement of any partner the firm shall not be dissolved automatically but shall continue to be carried on with the remaining partners with such modified terms and conditions as may be agreed between them. The retiring or outgoing partner/partners shall have no right in the Goodwill, Assets, Sole selling agency business or any other rights and privileges attached to this firm and shall only be entitled to his/her credit balance if any after adjustment of profit and loss of his/her share in the firm. Clause 24 of the deed reads as under:-
"24. That in case of any dispute amongst the parties/partners either relating to any of the terms and conditions of the partnership deed or anything relating to or concerning any of the affairs of partnership business, the same shall be settled firstly amongst the partners and failing which through arbitrator or arbitrators, as appointed by the parties and whose decision shall be binding upon them. The proceedings shall be conducted in accordance with the provisions of the Indian Arbitration and Conciliation Act, 1996 as amended from time to time and or any other law relating to arbitration, for the time being in force."
2. It is the case of the petitioners that Late Bhairon Nath Kesharwani, during his life time, executed a registered Will dated 23.06.2009 leaving his immovable and movable assets and properties in favour of the petitioners.
3. The Power of Attorney of the petitioners, Smt. Kamla Devi, who is their real mother, sent a registered notice dated 23.6.2009 to the respondent-firm to pay capital balance standing in the name of Late Bhairon Nath Kesharwani. The respondent-firm, by letter of 6.7.2009, asked the Attorney of the petitioners to furnish the certified copy of the registered Will and Power of Attorney along with Succession Certificate. On 20.7.2009, the Attorney of the petitioners furnished the certified copy of the registered Will of Late Bhairon Nath Kesharwani and the registered General Power of Attorney executed by the petitioners in favour of their mother. As the bona fide request of the petitioners did not evoke any response, another registered notice dated 8.3.2010 was sent to the respondent-firm and its partners individually for payment of capital balance of late Bhairon Nath Kesharwani to the successor, namely, the petitioners. This in action on the part of the respondent-firm, according to the petitioners, is flagrant violation of Paragraph 23 of the Partnership Deed, resulting in an arbitral dispute and as such, a request was made to appoint an Arbitrator by mutual consent. A further notice was sent on May 31, 2010 for appointment of an Arbitrator, informing the respondent-firm that failing which, the petitioners would apply under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act').
4. This petition has thereafter been filed invoking the jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996. A supplementary affidavit was filed pointing out that the respondent-firm as on 31.3.2008 had paid interest of Rs.8,33,783.00 @ 12% per annum on his capital balance and the same was shown by Late Bhairon Nath Kesharwani in his income tax return submitted for the Assessment Year 2007-2008. On the basis of the aforesaid interest as on 31.3.2008, the capital balance payable in the respondent-firm works out to about Rs.70 lacs. Subsequent interest payable has also been set out.
5. Though the respondent-firm has not filed any counter affidavit, learned counsel for the respondent-firm was pleased to advance arguments both oral and in writing before this Court. According to the respondent-firm, the sole question raised for decision, is as to whether the petitioners are entitled to have the dispute referred to the Arbitral Tribunal. It is not disputed that Late Bhairon Nath Kesharwani was a partner in the firm and died on 29.10.2008. The petitioners are heirs and legal representatives of the deceased.
6. Reference is made to Clause 24 of the Partnership Deed, which provides for a reference to any dispute amongst the parties/partners to the Arbitration. Under Clause 23 of the partnership deed, the retiring or outgoing partner/partners shall only be entitled to his/her credit balance if any after adjustment of profit and loss of his/her share in the firm.
7. The respondent contends that Clause 19 of the Partnership Deed provides that the partners of the firm are partners in their individual capacity and no member or representative of the family of any partner shall be deemed to be a partner/party of the firm. Accordingly, the members of the family of the partners will have no right to interfere in the affairs of this firm and in day to day business activities of the firm. It is then submitted that undeniable fact of Clause 19 (disqualification) is that a representative of the partner is neither a party nor partner in the firm. Clause 24 of the Partnership Deed clearly uses the expression 'parties/partners'. Both the terms have been used simultaneously. Therefore, the word 'partner' will take colour from the word 'party'. Clause 19 is an exclusionary clause. Therefore, in view thereof, the general provisions contained in the Arbitration Act do not get attracted.
8. On behalf of the petitioners, learned counsel submits that once there has been an arbitral clause and the same has been invoked and on failure by the respondent-firm to agree to appoint an Arbitrator, they have rightly invoked the jurisdiction of the Chief Justice under Section 11 of the Arbitration and Conciliation Act, 1996. Reference is made to the judgment in Ravi Prakash Goel Vs. Chandra Prakash Goel & Anr. [AIR 2007 SC 1517].
9. According to the respondent, the petitioners are not parties to the Deed of Partnership and considering Clause 19 (disqualification clause) and Clause 24, the legal heirs of a deceased partner cannot invoke the jurisdiction of the Chief Justice invoking Section 11 of the Act.
10. The question for my consideration, therefore, is whether the legal heirs of a deceased partner pursuant to a registered Will are entitled to maintain an application under Section 11 of the Act. In Ravi Prakash Goel (supra), a similar issue had come up for consideration, namely, whether the legal heirs of a deceased partner could invoke the Arbitration Clause. The application moved for arbitration had been rejected by the learned Chief Justice. The matter was taken up in appeal. The petition had been dismissed by the learned Chief Justice on concluding that the applicant had no binding arbitration agreement. The following questions were framed by the Apex Court for consideration:-
"(a) Where right to sue for rendition of accounts survives on the 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 lifetime of the partner?.
(c) Whether in view of section 46 read with section 48 of the Indian Partnership Act as well as section 40 of the Arbitration Act, 1999, the petitioner is entitled to claim appointment of arbitrator under the arbitration clause of the Partnership Deed and the Hon'ble Chief Justice of the Allahabad High Court has erred in overlooking these provisions?.
The Supreme Court noted Section 40 of the Arbitration Act, 1999 and Sections 46, 47 and 48 of the Indian Partnership Act. Section 40 (1) of the Arbitration Act, 1999 sets out that 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. After considering the provisions of the Indian Partnership Act and Section 40 of the Arbitration Act, 1999 and also noticing the definition of 'legal representative' in Section 2 (1) (g) of the Arbitration Act, the Court held as under:-
"21. 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."
Thus, if an award can be enforced against legal representatives who are not parties to the arbitral agreement, conversely the legal representatives of a partner who is party to the arbitral agreement can also invoke the arbitral clause to the extent of the right of the deceased party.
11. This judgment was sought to be distinguished on behalf of the respondent by contending that there existed no exclusionary clause and considering that judgment, no dispute had arisen during the lifetime of the deceased partner.
In my opinion, the objection on behalf of the respondent deserves to be rejected. The law as can be understood from the ratio decedendi in Ravi Prakash Goel (supra) is that the death of a partner does not bring into an end the provision pertaining to arbitration and the legal heirs would be entitled to invoke the said arbitration clause. Once there is an arbitral clause, even though the legal heirs of the deceased partner may not be entitled to be inducted as partner, nonetheless their right to pursue the remedy by invoking the arbitral clause does not cease. Invocation of the arbitration clause at the instance of the legal representatives of the deceased partner is clearly maintainable. Thus, the petitioners are right in invoking the arbitration clause and have served the notice on the respondent.
12. Considering the above, in my opinion, as the arbitration clause subsists and the arbitration clause has been invoked by the Attorney of the petitioners on the death of the original partner, i.e., Bhairon Nath Kesharwani, the application is maintainable. The petitioners have moved through the Attorney, who is their natural mother. The attempt by the respondent to deny the petitioners from constitution an arbitral tribunal, to my mind, cannot be justified. If there be an arbitration clause, the legal heirs of the deceased partner, in terms of the judgment of Ravi Prakash Goel (supra), are entitled to initiate and pursue the arbitration proceedings. In the case of Ravi Prakash Goel (supra), the arbitral clause was invoked by the legal representatives. There can be no hesitation in holding that in respect of a person on the death of a partner, his legal heirs would also be entitled to invoke the arbitration clause. The respondent and its partners cannot and could not have refused to agree to the appointment of an Arbitrator. In my opinion, therefore, the petitioners have made out a case by invoking the arbitration clause.
13. Considering the above, Hon'ble Mr. Justice Dev Kant Trivedi, a retired Judge of this Court, is appointed as the sole Arbitrator to decide the claim raised by the petitioners and thereafter proceed to pass an order according to law.
14. This petition is accordingly, disposed of. No order as to costs.
Dt/-5th May, 2011 RKK/-
(F.I. Rebello, CJ) Arbitration Application No.55 of 2010:
Hon'ble Ferdino I. Rebello, Chief Justice Disposed of.
For orders, see order of date passed on separate sheets.
Dt/-5th May, 2011 RKK/-
(F.I. Rebello, CJ)