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2004 Supreme(All) 292
IN THE HIGH COURT OF ALLAHABAD
M. KATJU, R. S. TRIPATHI
MODERN METAL INDUSTRIES - Appellant
Versus
SHANTI PAROLIA - Respondents
First Appeal 2 Of 2004
Decided On : 02/17/2004
A.K.SRIVASTAVA, H.NABAKUMAR SINGH, RAVI KANT CHADHA, S.P.GUPTA, Vipin Sinha
The majority partners must consult the minority, act in good faith, and for the welfare of the firm. Disputes involving breach of trust and mala fide actions are arbitrable under the Arbitration Act.
Headnote:
Arbitration Act - Partnership Dispute - Section 9, Partnership Act, 1932
Fact of the Case:
The appellant, a managing partner of a partnership firm, filed an application under Section 9 of the Arbitration Act seeking interim relief after the respondents, who were sleeping partners, unilaterally stopped the operation of the firm's bank account, causing severe financial crisis and jeopardizing business contracts.
Finding of the Court:
The court found that the respondents' actions were in breach of trust and mala fide, causing irreparable harm to the firm's operations. The court held that the majority partners cannot override the minority without consultation and good faith, and granted interim relief to the appellant, allowing sole operation of the bank account and restraining interference by the respondents.
Issues: The issues involved the unilateral stoppage of the firm's bank account by the sleeping partners, the breach of trust and mala fide actions, and the applicability of Section 9 of the Arbitration Act.
Ratio Decidendi: The court ruled that the majority partners must consult the minority, act in good faith, and for the welfare of the firm. It held that the dispute was arbitrable and granted interim relief to prevent irreparable harm to the firm's operations.
Final Decision: The appeal was allowed, setting aside the impugned order and granting the appellant sole operation of the firm's bank account, while restraining interference by the respondents.
( 1 ) THIS appeal has been filed against the impugned order of the District Judge, Kanpur Nagar dated 22-12-2003 by which the appellants application under s. 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Arbitration Act) has been dismissed.
( 2 ) HEARD Sri S. P. Gupta, learned senior advocate and Sri Sunil Gupta learned senior Advocate for the appellant, and Sri Ravi kant, Senior Advocate and Sri H. N. Singh for the respondents.
( 3 ) THE facts of the case are that a partnership firm M/s. Modern Metal Industries, appellant No. 1, was constituted under the partnership Act, whose partners included (1)the appellant No. 2, Shri Bhagwan Gupta, (2) Smt. Shanti Parolia and (3) Smt. Sunil kumari Parolia. The business of the firm consisted of manufacture and sale of various aluminium and steel products, and the factory is located in the premises at 83/258 a, Juhi Khurd, Kanpur. True copy of the partnership deed is at page 46 of the paper book in this case being Annexure-1 to the affidavit in support of the stay application. Clause 18 of the partnership deed states : that all disputes and questions in connection with the partnership or interpretation of this deed arising between the partners or between any one of them and the legal representative of the other or between their respective legal representatives and whether during the continuation of or after the termination of this partnership shall be referred to sole arbitrator Sri Dataram parolia, 44, Burtolla Street, Calcutta according to the provisions of the Arbitration Act in force and his decision shall be binding on all concerned. "
( 4 ) THE partnership was initially constituted in 1965 and it was reconstituted thrice but the present three partners were part ners of the firm throughout. The last recon-stltutlon of the firm was in the year 1982 with only the present three partners. Thus it is evident that the firm has been functioning for almost 40 years.
( 5 ) IT is not disputed that from the very inception the appellant No. 2 has been residing at Kanpur whereas the respondents 1 and 2 are housewives and have been residing with their families at Calcutta. The wife of appellant No. 2 is the sister of the husbands of respondents 1 and 2. It is alleged by the appellant No. 2 that since the place of business and factory of the firm was at Kanpur it is obvious that the understanding between the partners was that the respondents 1 and 2 will be sleeping partners while appellant No. 2 was to be exclusive managing partner of the firms business located at Kanpur. It is alleged that this fact is not even disputed by the respondents 1 and 2 as in their legal notice dated 1-10-2003 it has been mentioned that they are permanent residents of Calcutta while appellant No. 2 has been managing the affairs of the firm/factory at Kanpur. It has also been admitted by the respondents 1 and 2 in their application dated 17-11-2003 before the High Court in previous F. A. F. O. No. 1059 of 2003 between the parties that they had agreed that one partner alone, namely, appellant No. 2, Shri Bhagwan Gupta, shall operate the S. B. I. Bank account of the firm at Kanpur. Paragraph 3 of the said application reads as follows : "that it is relevant to state here that under the terms of the partner, all partners had equal right and it was only the consent given by remaining partners that one partner was allowed to operate the bank account. "
( 6 ) IT may be mentioned that in the counter-affidavit in reply to the affidavit in support of the stay application in the present appeal it has been stated (vide paragraph10): "the account was being operated jointly initially by the appellant No. 2 and one other partner Indra Dev Gupta up to. . . . . . . . and after retirement of Sri Indra Dev Gupta with the consent of the partners by Shree bhagwan Gupta. . . . . "
( 7 ) THUS from the facts it appears that the bank account of the firm in the S. B. I. Account at Kanpur was being oper
