Impartiality in appointing a receiver is crucial; a managing partner cannot be appointed as a receiver of a dissolved partnership amid trust issues and financial misappropriation allegations.

JUDGMENT :

Alok Aradhe, CJ.

Mr. Avinash Desai, learned Senior Counsel represents Mr. Mohd. Omer Farooq, learned counsel for the appellant. Mr. B.Chandrasen Reddy, learned Senior Counsel represents M/s.Chandrasen Law Offices, for the respondents.

2. This appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the 1996 Act’) has been filed against the order dated 14.03.2024 passed in C.O.P.No.82 of 2023 by the District Judge, for Trial and Disposal of Commercial Disputes, at Hyderabad, by which respondent No.1, namely Managing Partner of M/s.Cafe Bahar Restaurant has been appointed as Receiver. In order to appreciate the grievance of the appellant, relevant facts need mention which are stated infra.

(i) FACTS:

3. The parents of the appellant and the respondent Nos.1 to 3 and deceased respondent No.4 constituted a partnership firm, namely M/s.Cafe Bahar and Restaurant (hereinafter referred to as ‘the Firm’), which is engaged in the business of running an Irani restaurant and bakery since 1999. After the death of the parents of the appellant, and the respondent Nos.1 to 3 and deceased respondent No.4, the Firm was re-constituted and a Deed of Reconstitution dated 01.10.2020 was executed. The appellant has 14% share in the Firm.

4. After execution of the Deed of Reconstitution, disputes arose between the appellant and the respondents. According to the appellant, the respondents did not pay her the rightful share in the profits of the Firm since January, 2021 i.e., for 3 years and 9 months and was paid only a sum of Rs.1,00,000/- per month. The said amount is deducted from the capital of the appellant in the firm. As per the version of the appellant, the respondents have misappropriated and withdrawn huge sums from the bank accounts of the Firm.

5. Respondent Nos.1 to 3 issued a notice dated 06.09.2021 to dissolve the Firm to which the appellant submitted a reply on 09.09.2021 stating that the Firm stands dissolved. The respondent Nos.1 to 3, thereupon, initiated arbitration proceedings seeking dissolution of the Firm. The arbitrator by an Award dated 22.09.2023 permitted the withdrawal of the claims while preserving the rights and contentions of the appellant.

6. The appellant issued a notice on 07.10.2023 of dissolution of the Firm and the respondents were asked to render accounts and to distribute the assets of the Firm. The appellant filed an application under Section 9 of the 1996 Act seeking appointment of a Receiver to take over the business of the Firm. The Commercial Court, by an order dated 13.02.2024 passed in C.O.P.No.82 of 2023 allowed the aforesaid application filed by the appellant. The operative portion of the said order reads as under:

“In the result, petition is allowed. Both the parties are directed to submit their proposals by 19.02.2024 for appointing a receiver and to give necessary directions to the receiver in order to manage the day to day affairs of the partnership firm and its properties.”

7. The aforesaid order has not been challenged by either of the parties and has attained finality. Thereafter, in pursuance of the proposal submitted by the parties, the Commercial Court by an order dated 14.03.2023 inter alia held that the Firm runs the Café, which is famous and well known to the public and if a third party is appointed as a Receiver, it would be difficult for Receiver to manage the day to day affairs of the business. The Commercial Court, therefore, appointed respondent No.1, namely the Managing Partner of the Firm as Receiver to manage the day to day affairs of the business, subject to the terms and conditions enumerated therein. Being aggrieved, the appellant has filed this appeal.

(ii) INTERIM ORDER:

8. A Division Bench of this Court with consent of the parties had appointed Mr. P.Raju, retired District Judge as Receiver to supervise the running business of the Café during pendency of the Appeal and has fixed his remuneration at Rs.2,00,000/- per month, which was