2007 Supreme(SC) 392

2007(3) Supreme 1
SUPREME COURT OF INDIA
(From Allahabad High Court)
Dr. AR. Lakshmanan & Altamas Kabir, JJ.
Ravi Prakash Goel—Appellant
versus
Chandra Prakash Goel & Anr.—Respondents
Civil Appeal No. 1526 of 2007
(Arising out of SLP (C) No. 6723 of 2006)
Decided on 21-3-3007
Counsel for the Parties :
For the Appellant : Rakesh Diwedi, J.C. Gupta, Sr. Advocates, Rajesh, Anurag Tomer, Advocates.
For the Respondents : Chandra Shekhar, Sanjay Kumar Tyagi, S.K. Verma, Advocates.

IMPORTANT POINTS
1. On the dissolution of a partnership firm, the arbitration clause in the partnership deed does not come to an end and so if a dispute had arisen during the lifetime of the deceased partner, his legal representatives would be entitled to take proceedings under the Arbitration Act.
2. It is not legally essential to specifically make a mention in the partnership deed that the partners include their legal heirs, representatives, assigns or legatees etc. and the arbitration clause in the partnership deed could be invoked by the legal heir/legal representative of the deceased partner particularly where the dispute had arisen during her life time.
3. When the claim of legal representative of the deceased partner is based on the Will as well as being a legal heir of the deceased, non probate of Will is not a germane factor to be considered at the time of appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

Headnote:(i) Arbitration and Conciliation Act, 1996—Sections 11, 35 and 40—Indian Partnership Act, 1932—Sections 46, 47 and 48—Appointment of Arbitrator —Arbitration agreement not to be discharged by death of party thereto—It is enforceable by or against the LRs of deceased—Partnership business—Mother of appellant, one of the partners in the firm retired from partnership w.e.f. 31-3-1992 while other partners carried on business—When respondents, continuing partners, did not render accounts of the partnership firm to appellants mother, she sent a notice to the firm raising disputes regarding accounts of the firm—Respondents were informed that on account of her illness, she has authorized her son, appellant to look into accounts of the partnership business on her behalf—Appellants mother executed her last Will in favour of appellant to her only son bequeathing her estate in appellants name including the instant partnership business—Appellants mother expired leaving her last Will—Appellant sent notice to respondents for settlement of dispute by appointment of arbitrator, as per the terms of the partnership deed—Application filed u/s 11 of the Arbitration Act—Chief Justice of the High Court dismissed appellants application holding that applicant had no presently establishable binding arbitration agreement with respondents—Whether order passed by the Chief Justice of the High Court is sustainable—(No)—Whether appellant is entitled to claim appointment of arbitrator under the arbitration clause of the Partnership Deed—(Yes).

       Held : It is clear from Section 40 of the Arbitration Act that an arbitration agreement is not discharged by the death of any party thereto and on such death it is enforceable by or against the legal representatives of the deceased, nor is the authority of the arbitrator revoked by the death of the party appointing him, subject to the operation of any law by virtue of which the death of a person extinguishes the right of action of that person. (Para 16)

       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.(Para 18)

       On the dissolution of the firm, the arbitration clause does not come to an end and so if a dispute had arisen during the lifetime of the deceased partner, his legal representatives would be entitled to take proceedings under Section 20 of the Arbitration Act, 1940. (Para 20)

       When a partner dies and the partnership comes to an end it is not only right but also the duty of the surviving partner to realize the assets for the purpose of winding up of the partnership affairs including the payment of the partnership debts. However, it is true that in a general sense the executors or administrators of the deceased partner may be said to have a lien upon the partnership assets in respect of his interest in the partnership and taking the partnership account.(Para 21)

       We are of the opinion that in view of the provisions of Section 46 read with Section 48 of the Indian Partnership Act as well as Section 40 of the Arbitration and Conciliation Act, 1996, the application for appointment of an arbitrator under the arbitration clause of the partnership deed was liable to be allowed and the learned Chief Justice has erred in overlooking the said provisions. While right to sue for rendition of accounts of partnership firm survives on the legal representative of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed. In the instant case, the appellant being the only son of his deceased mother, undisputedly a partner in the partnership firm with the respondents especially where the dispute concerning the partnership affairs had arisen already during her life time. The view taken in the impugned order with the appellant has no presently establishable binding arbitration agreement with the respondent is erroneous in law and facts.(Para 22)

       This apart, the appointment of arbitrator could not be rejected on the ground of non-production of the will executed by the mother when no family member is disputing the will and the appellant’s claim vis-a-vis the partnership firm, even otherwise also the appellant is the legal heir of the deceased partner being her only son. In our view, non-probate of will is not a germane factor to be considered at the time of appointment of arbitrator under Section 11 of the Arbitration Act. In our opinion, the partnership deed clearly recites that all the disputes touching the affairs of the partnership firm were referable to arbitrator and it cannot be gainsaid that the dispute regarding accounts of the partnership firm is a dispute touching the affairs of the firm. As already stated, it was not legally essential to specifically make a mention that the partners included their legal heirs, representatives, assigns or legatees etc. and the arbitration clause could be invoked by the appellant as the legatee as well as the legal heir/legal representative of the deceased Dulari Devi particularly where the dispute had arisen during her life time. The appellant’s claim in the instant case is based on the will as well as being a legal heir of the deceased Dulari Devi. The appellant, in our opinion, possessed a legal and enforceable right to invoke arbitration clause and moved application under Section 11 of the Arbitration Act before the High Court for appointment of arbitrator. The word “party” as used in the partnership deed does not exclude inclusion of legal heirs, legal representatives etc. as being canvassed by the respondents. Thus, in our opinion, in view of the provisions of Sections 40 and 46 of the Partnership Act read with Section 40 of the Arbitration Act, the appellant has a legal right to commence arbitration by moving an application under Section 11 of the Arbitration Act in the High Court as in our view, the right to sue survives on him as legal representatives of the deceased Dulari Devi and he is entitled to invoke clause 13 of the partnership deed. Moreover, the dispute referable to arbitration had already arisen during the life time of Dulari Devi which is also well settled that where a dispute is referable to arbitration, the parties cannot be compelled to take recourse to in the civil courts.(Para 22)

       (ii) Partnership Act, 1932--Sections 46, 47 and 48—Right to Representative of a Partner—Right to sue for rendition of accounts of partnership firm survives on LRs of a deceased partner—Appointment of an arbitrator under the arbitration clause of partnership deed —Legal representative of a deceased partner is entitled to invoke the arbitration clause contained in the partnership deed—Arbitration Act, 1940— Section 20.

       Held : Section 46 provides two things, namely, 1) first is to realize the assets of the business and then to apply the same for discharge of liabilities and finally to distribute the surplus, if any, among the partners. All that Section 46 empowers is that every partner shall claim that this is to be done for ultimate distribution of the surplus to the partners according to their shares. A suit to enforce the latter right relating to the distribution of surplus is generally called a suit for an account which means account taken up accordingly. This right to a partner to file a suit for account is not affected by the fact that the retiring partner has already inspected the accounts of the firm. Section 46 is, however, merely declaratory of the rights of the partners or their legal representatives in the surplus and does not set out the mode of calculating the surplus. The share of a partner upon the winding up of a dissolved firm, is only in the residue which is left after the liabilities mentioned in the various clauses of Section 48 have been paid out. Payment of capital and advances to partners is not out of the residue. The amount paid as capital investment to a partner will have to be deducted in order to find the value of the residue, because the value of a partner’s share is only his proportion of the residue.(Para 19)