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2000(4) Supreme 671
SUPREME COURT OF INDIA
(From Bombay High Court)
S. Rajendra Babu and S.N. Phukan, JJ.
M/s. V.H. Patel & Co. & Ors. -Petitioners
versus
Hirubhai Himabhai Patel & Ors. -Respondents
Special Leave Petitions (C) Nos. 17010-12 of 1999
Decided on 18-4-2000
Counsel for the Parties :
For the Appearing Parties : T.R. Andhyarujina, Vinod A. Bobde, R.F. Nariman, V.A. Mohta, Sr. Advocates, S.M. Jadhav, B.T. Seth, N.D. Talele, W.S. Kane, D.M. Nargolkar, Shakil Ahamad Syed, Advocates.
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. 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. (Para 11)
In the instant case clause 11 of the Partnership deed 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 is should be looked from the angle as to what was the spirit behind the reference to the arbitration. The idea was to settle all 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. (Para 8)
The legal document discusses the scope of arbitration clauses in partnership disputes, specifically whether an arbitrator has the authority to decide on the dissolution of a partnership. The key points are:
When a partnership agreement contains a clause referring all disputes to arbitration, the arbitrator generally has the power to decide all matters arising out of the dispute, including the dissolution of the partnership, unless explicitly excluded by the terms of the reference (!) .
The scope of the arbitration is determined by the language of the arbitration clause and the terms of the court’s order of reference. If disputes regarding dissolution are encompassed within the scope of the arbitration agreement or court order, the arbitrator can adjudicate such issues (!) .
Disputes about partnership dissolution can arise from strained relationships, conduct destructive of mutual trust, or breach of agreement, and these can be grounds for dissolution that an arbitrator may decide if the arbitration clause includes such matters (!) (!) .
Even if the original pleadings do not explicitly include a claim for dissolution, such claims may be considered within the scope of arbitration if they relate to the disputes referred to the arbitrator, especially when the parties’ intention was to resolve all disputes comprehensively through arbitration (!) (!) .
The legal framework permits an arbitrator to decide on dissolution when the arbitration clause or court order explicitly or implicitly covers such issues, and the arbitrator’s jurisdiction depends on the language of the reference and the spirit of the arbitration agreement (!) .
The court’s role is to interpret the scope of the arbitration agreement and ensure that the arbitrator’s authority aligns with the terms of the reference, avoiding overreach into matters outside the agreed scope (!) .
In summary, the document emphasizes that arbitration clauses in partnership agreements can include the power to decide on dissolution if the scope of the reference encompasses such disputes, and courts should interpret the scope accordingly, respecting the parties’ intent and the language of the arbitration agreement.
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 own 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 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, Special Leave Petition No. 16533 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 and 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 agreed 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
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