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PETITIONER: ERACH F. D. MEHTA

       Vs.

RESPONDENT: MINOO F. D. MEHTA

DATE OF JUDGMENT: 09/09/1970

BENCH: SHAH, J.C. BENCH: SHAH, J.C. HEGDE, K.S. GROVER, A.N.

CITATION:  1971 AIR 1653            1971 SCR  (2)  99

ACT: Arbitration  Partnership-Clause in deed of  partnership  for reference  of  disputes to Arbitration-One of  the  partners setting  up  agreement  that  partnership  be   dissolved-If dispute  regarding existence of such agreement one  touching Partnership Agreement.

HEADNOTE: A  partnership deed entered into between the  appellant  and the  respondent  contained a clause for  reference  "of  all disputes  and  questions whatsoever which may  arise  during partnership or afterwards between the partners touching  the partnership agreement including division of assets, debts or liabilities",  to  arbitration.  When  disputes  arose,  the respondent  claimed  that the partners had reached  an  oral agreement stipulating that the appellant was to retire  from the  partnership  and  was to assign  and  transfer  to  the respondent his rights, title and interest in the partnership business.   The appellant denied the two agreements set  Lip by  the respondent.  Subsequently, the dispute was  referred to  arbitration.   The appellant  submitted  to  arbitration without  prejudice to his stand that the arbitrators had  no jurisdiction  to  go  into  the  question  of  the   alleged agreement  Set up by the respondent.  The  arbitrators  were unable to make an award within the period prescribed by  the Arbitration   Act.    The  appellant   then   submitted   an application to the High Court under s. 33 of the Arbitration Act contending that the agreement set tip by the  respondent gave rise to new rights and obligations between the  parties and  to a dispute relating to these rights  and  obligations created  by the new agreement the arbitration clause of  the partnership  agreement bad no application.  The  High  Court rejected the contention.  Dismissing the appeal, HELD  :  The clause "all disputes and  questions  whatsoever which may arise during the partnership or afterwards between the  partners touching the partnership  agreement  including division of assets, debts and liabilities" clearly covers  a dispute  whether the parties agreed that the partnership  be dissolved.   The  agreement set up by the  respondent  while maintaining the covenants of the partnership agreement seeks to  dissolve  the partnership and to settle the  rights  and

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obligations  of the partners arising out of the  dissolution of  the partnership.  A dispute whether the partnership  was dissolved by mutual agreement was clearly a dispute  between the parties touching the partnership agreement. [102 F-G]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeals No.  2535  of 1969. Appeal  by special leave from the judgment dated August  28, September 1, 1969 of the Bombay High Court in Award Petition No. 41 of 1969. S.   T.  Desai,  S.  P. Bharucha, P. C.  Bhartari,  for  the appellant. M.   C.  Chagla, F. S. Nariman, P. R. Nariman, P. R.  Mridid and I. N. Shroff, for the respondent. 100 The Judgment of the Court was delivered by Shah, J. This appeal with special leave is filed against the judgment  of  a  single Judge of the High  Court  of  Bombay dismissing a petition under s. 33 of the Indian  Arbitration Act, 1940. On December 22, 1966, the appellant and the respondent,  who are  brothers,  entered  into an agreement to  carry  on  in partnership  three  businesses  (1) Messrs  F.  D.  Mehta  & Company; (2) The Great Western Stores; and (3) Dr.  Writer’s Chocolates  and Canning Company.  The relevant terms of  the deed of partnership were as follows :               "1.  The agreement has come into  effect  from               the 2nd day of November 1966.               3.    The duration of the partnership shall be               at will.               7.    The net profits of the partnership after               payment of all the outgoings incidental to the               partnership  business  shall  belong  to   the               partners  in  equal  shares  and  they   shall               likewise  bear  all losses including  loss  of               capital.               15.All  disputes and  questions  whatsoever               which  shall either during the partnership               or  afterwards arise between the  partners  or               between   one   of  them  and   the   personal               representatives of the other or between  their               respective  personal representatives  touching               these  presents or the interpretation of  this               deed  or the construction of  the  application               thereof   or  any  clause  or   thing   herein               contained or any account valuation or division               of  assets  debts  or liabilites  to  be  made               hereunder or as to any act deed or  commission               of either partner or as to any act which ought               to be done by the partners in dispute or as to               any  other matter in any way relating  to  the               partnership   business  or  the  affairs   and               transactions thereof or the rights, duties  or               liabilities  of  either  partner  under  these               presents shall be referred to two  Arbitrators               one  to  be  appointed by each  party  to  the               difference  in accordance with and subject  to               the provisions of the Indian Arbitration  Act,               or any statutory modification thereof for  the               time being in force." Disputes  arose  between the two partners.   The  respondent claimed  that  on January 17, 1968 the partners  reached  an

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oral  agreement stipulating that the appellant shall  retire from  the partnership and shall assign and transfer  to  the respondent his right, title-and interest in the  partnership business  against  payment  of the price fixed  by  Mr.  Jal Desai,  a  Chartered Accountant.  The appellant  denied  the agreement set up by the respondent.  On June 101 13, 1968 the respondent addressed a letter to the  appellant setting  out the terms of the oral agreement  dated  January 17,  1968 and intimated that "having regard to the  attitude adopted by" the appellant "there was no alternative left but to  have  a legal arbitration", and that Mr. K.  M.  Diwanji Solicitor  of  the  High Court of Bombay  was  nominated  an arbitrator  by the respondent, and the appellant was  called upon  to nominate his arbitrator "so that the  disputes  and differences  between  the parties may be  resolved"  by  the partnership  deed.   This request was repeated in  a  letter dated  June 14, 1968.  By his reply dated June 26, 1968  the appellant denied the agreement and without prejudice to  his contention  nominated Mr. J. B. Maneckji as arbitrator.   He simultaneously  intimated  that if the arbitrators  seek  to arbitrate  on  "the issue of the alleged agreement  of"  the appellant  "to go out of the firm", he "would  contend  that they had no power to do so". The  arbitrators  were unable to make an  award  within  the period  prescribed  by  the Arbitration Act.   There  was  a reference  to  Mr. Mehta an Advocate of the  High  Court  of Bombay  as umpire to adjudicate the dispute.  The  appellant then  submitted an application to the High Court  of  Bombay under  s.  33  of  the Arbitration Act  praying  (a)  for  a declaration that there was no existing arbitration agreement in  regard to the dispute in petition as to whether  or  not the  agreement  was  entered into  between  the  parties  on January  17, 1968 as stated in the statement of claim  filed by the respondent before the arbitrators on October 8, 1969; (b)  for a declaration that even if the deed of  partnership contained  an arbitration agreement the dispute  before  the umpire  "fell outside the scope of the arbitration  clause"; (c)  for  a declaration that the arbitration  agreement,  if any, relating to the said dispute was invalid; and (d) for a declaration  that  the umpire had no jurisdiction  to  enter upon  an  adjudication  of  the  said  dispute  between  the parties. The  petition was heard by Kantawala, J. Before the  learned Judge  four  contentions  were  raised  in  support  of  the petition               (1)   that  the  agreement dated  January  17,               1968 as alleged by the respondent gave rise to               new   rights  and  obligations   between   the               parties,  and to a dispute relating  to  those               rights  and  obligations created  by  the  new               agreement cl. 15 of the partnership  agreement               had no application;               (2)   that  the claim made by  the  respondent               relating  to the agreement dated  January  17,               1968  was not a claim which arose out  of  the               deed of partnership;               102               (3)   that the dispute related to an agreement               complete   independent   of   the   deed    of               partnership  and consequently it fell  outside               the ambit of the arbitration clause  contained               in cl. 15 of the deed of partnership; and               (4)   that  in any event the umpire could  not               grant specific performance of the agreement.

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The learned Judge rejected all the contentions and dismissed the  petition.   With  special  leave,  the;  appellant  has appealed to this Court. There  were  only two partners who agreed to  carry  on  the business in partnership.  Under the agreement dated  January 17, 1968 set up by the respondent, the appellant had  agreed "to   go   out  of  the  partnership"  and  to   accept   in consideration  thereof the value of his share as  determined by  the named valuer.  It was in substance an agreement  for dissolution  of  the  partnership and  for  payment  to  the appellant  value  of his share in  the  partnership  assets. There is no dispute that an agreement of partnership at will may  by  mutual agreement be dissolved and  the  rights  and obligations of the parties settled under the terms  thereof. The clause "all disputes and questions whatsoever which  may arise  ,during  the partnership or  afterwards  between  the partners   touching  the  partnership  agreement   including division  of assets, debts or liabilites" clearly covered  a dispute  whether the parties agreed that the partnership  be dissolved. We are not concerned at this stage to determine whether  the agreement  set  up  by the respondent was  in  fact  reached between the partners on January 17, 1968 : that is a  matter to  be  decided by the arbitrators.  A dispute  whether  the partnership was dissolved by mutual agreement was clearly  a dispute   between  the  parties  touching  the   partnership agreement.   We  are unable to agree with  counsel  for  the appellant  that the agreement set up by the  respondent  did not  stipulate  dissolution of the partnership.  It  is  the case  of the respondent which he had set up in  the  corres- pondence,, that it was agreed between him and the  appellant that  the latter was to retire from the  partnership.   When the  partnership  consisted  of only two  partners  and  one partner  agreed  to retire, there can be no doubt  that  the agreement  that one of the partners will retire  amounts  to dissolution of the partnership. The  argument  that  the agreement dated  January  17,  1968 supersedes  the  partnership agreement  dated  December  22, 1966, including the arbitration clause is, in our _judgment, futile.   The  agreement  set up  by  the  respondent  while maintaining its covenants seeks to dissolve the  partnership and to settle the rights and 103 obligations  of the partners arising out of the  dissolution of the partnership. It  was  not urged that the arbitrator  was  incompetent  to direct  that the appellant shall carry out the terms of  the agreement  to  which he was a party.  But  counsel  for  the appellant  contended  that  the  agreement  set  up  by  the respondent  extinguished  the authority of  the  arbitrators because  it provided for a subsidiary agreement to refer  to arbitration the dispute to the valuer relating to the  value of the share payable to the appellant.  The agreement set up by  the respondent provides that the appellant  will  retire from the partnership upon payment of a price to be fixed  by the  valuer.  But it is not the case of the respondent  that the valuer had the authority of an arbitrator.  We need  not express  any  opinion on the question whether in  a  dispute which   is  agreed  by  the  parties  to  be  submitted   to arbitration, reference to arbitration cannot be made  merely because subsequent to the arbitration agreement the  parties have agreed that a part of the dispute shall be referred  to or  decided  by  some  person  other  than  the  arbitrator. Whether or not the arbitrators are bound by that  subsequent agreement, and the arbitration qua such an arrangement could

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be deemed superseded, is not a matter which we are concerned to decide at this stage.  Primarily the dispute between  the parties  is as to the truth of ’the agreement set up by  the respondent  relating to the dissolution of  the  partnership and the dispute with regard to that agreement raised by  the appellant   can,  in  our  judgment,  be  referred  to   the arbitrators under cl. 15 of the partnership agreement. No  argument  has been advanced before us on the  last  plea raised  before  the High Court.  We are not called  upon  to decide  the extent of the power of the arbitrators under  an arbitration agreement that question does not strictly  arise in a petition under s.   33 of the Arbitration Act, 1940. The appeal therefore fails and is dismissed with costs. Y.P.                                                  Appeal dismissed. 104