22 Jun 2121

The Appellate Court's powers under Section 37, are more restricted than the Court's limited powers under Section 34 of the Arbitration and Conciliation Act, 1996 - Bombay High Court

Case : Hasina Mohamed Shafik Laljee and Ors. v. Fatima Correa Nee Fatima Yakubali Appeal No. 28 of 2020 in Arbitration Petition No. 792 of 2018 with Interim Application (L) No. 9905 of 2020 in Appeal No. 28 of 2020

Court : Bombay High Court

Bench : Justice R. D. Dhanuka and Justice V. G. Bisht

Decided on : 22 Jun 2121

The Relevant Statutes

Article 5, 65 and Section 10 of the Limitation Act, 1963

Article 106 of the Limitation Act, 1908

Section 9, 37, 34, 17, 34(2)(b) of the Arbitration and Conciliation Act, 1996

Section 48. 37, 46, 50, 2(b), 4, 9, 14, 15, 16(a), 16(b), 53, 34, 56, 50(a), 42, 47 of the Indian Partnership Act, 1932

Section 88, 95, 5 of the Indian Trust Act, 1882

Section 42 of the English Act, 1890

Brief Facts & Procedural History

1. The appellants were the first petitioners in an Arbitration Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, while the respondent was the first respondent in the Arbitral proceedings. Mr Mahomedali Esmail, respondent no. 1's grandfather-in-law and great grandfather of the appellant nos. 2 to 4, was a tanner, export and importer, and a trader in hides and skin, shares, and other related lines before October 1960, under the name and style of M/s. Mohamedali Esmail is a one-person business. Mr Mohamedali Esmail formed a partnership firm with Mr Yakubali Mohamedali Sewjee (hereafter referred to as ‘Yakubali'), according to a Deed of Partnership, to carry on the same business under the same name.

2. M/s. Mahomedali Esmail agreed and purchased the only proprietary concern's assets and liabilities. Following the death of Mr Mahomedali Esmail, Yakubali requested his nephew, Mr Mohamed Shafik Habib Hajibhoy Laljee, to join him as a business partner. Yakubali and Mohamed Shafik formed a registered partnership business in the name and style of M/s.Mohamedali Esmail through a Deed of Partnership. The firm was in the business of importing and exporting hides and skins, as well as a variety of other products.

3. The respondent claims that Yakubali contributed exclusively to the capital of the aforementioned business, including money, name, client base, and goodwill from the prior firm, among other things. The earnings and losses were split 51 per cent to 49 per cent between Yakubali and Mohamed Shafik. The said partnership was a partnership at will. According to the reply, the aforementioned firm's business was conducted from 703, Stock Exchange Tower, Dalal Street, Mumbai – 400 001. The stated premises belonged to Yakubali, who permitted the partnership firm to use them for its operations.

4. The respondent (original claimant) is the great-granddaughter of one late Mr Mohamedali Esmail, and the appellants' nos. 2 and 3 are his great-grandchildren. The respondent's dead cousin's widow is the first appellant. The appellants no. 2 and 3 are the appellant no. 1's daughters. The respondent's case is that she and her spouse moved to Kuwait permanently following their marriage. The responder had resided in Kuwait for over four decades and only visited her parents in Mumbai on rare occasions.

5. The respondent contends that, according to the Indenture, I Salmabai Abdullamia, (ii) Amin Bibi Shaik Ahmed, (iii) Hafsabibi Abdul Hafiz, (iv) Fatmabibi Shaik Mahmud, (v) Rukiya Bibi Shaik Mohamed, and (vi) Rashidabibi Abubakar, styled as "the Vendors," gave, sold (I) Government land in the Registration District of Sub-Registrar of Bombay City and Bombay Suburban at Dharavi, Mahim bearing Collector's Old Nos. 4, 16, and 27 New Nos. 16493, A/16493, 1505, B/16505 and 16517, New Survey Nos. 1-A/3743, 1-2/3743, 1/3742, 4/3741, 2-3/3741 and 1/3742 and bearing C.S. No. 342 (part) or thereabouts together with tenements and dwelling houses standing thereon; and (ii) Leasehold land situate in the Registration District of Sub-Registrar of Bombay City and Bombay Suburban at Dharavi, Mahim bearing Collector’s Old Nos. 1856 (part), New Survey No. 1/3743 (part) and bearing C.S. No. 1/342 admeasuring approximately 4369 sq. yards equivalent to 3993.26 sq. meters. or thereabouts together with hereditaments and premises standing thereon, more particularly described in the said Indenture for consideration of Rs.1,25,000/-. admeasuring approximately 4369 sq. yards equivalent to 3993.26 sq. meters. or thereabouts together with hereditaments and premises standing thereon, more particularly described in the said Indenture for consideration of Rs.1,25,000/-.

6. Yakubali passed away, leaving only his wife, Mrs Zarina Yakubali, and the respondent herein, Yakubali's daughter, as legal heirs. The respondent claims that the firm stopped doing tanners and other similar work around 1982, before Yakubali's death. The business, on the other hand, had rented out the different properties to various tenants. The mentioned partnership firm was not reconstructed after Yakubali's death and was disbanded. The respondent's position is that, to the best of the respondent's knowledge and belief, the stated partnership company had no obligation. As co-owners, Yakubali and Mohamed Shafik's legal heirs gained entitled to the firm's assets.

7. The respondent's position is that the said Mohamed Shafik continued to collect rent from tenants in the name of the said business and used the said buildings and premises, among other things. In the respondent's lifetime, he neither disclosed the accounts nor shared the earnings earned from the firm's assets with her or her late mother. According to the respondent, the profit earned from the firm's assets was kept in trust for Yakubali's heirs by the aforementioned Mohamed Shafik. Because the revenue from the dissolved firm's assets was not significant, the respondent was living overseas, and her mother was elderly and unable to investigate the case, neither the respondent nor her mother insisted on receiving their part from Mohamed Shafik. Because the respondent and Mohamed Shafik had a formal relationship, the respondent had complete confidence that Mohamed Shafik would properly manage the assets of the dissolved business.

8. Mrs Zarina Yakubali died without a legal heir, leaving only the respondent. Mrs Zarina Yakubali bequeathed her entire estate, including the said property, to the respondent in her last will, and as a result, the respondent, as the only legal heir of Yakubali and Mrs Zarina Yakubali, becomes entitled to the said share of Yakubali in the suit property. Mohamed Shafik died shortly after, leaving only the appellants and Ms Heena Mohamed Shafik Laljee as legal heirs. The respondent claims that following Mr Mohamed Shafik's death, the appellants and Heena Mohamed Shafik Laljee continued to collect rentals from the properties/lands in the name of the abovementioned business.

9. According to the respondent, the appellants, particularly appellant no. 3, continued to portray themselves as partners of the business before different statutory agencies and the general public until 2012. The appellants, on the other hand, did not provide any accounts to the respondent or share the revenues made from the firm's business or the property in question. According to the respondent, appellant no. 3 fraudulently portrayed himself as a partner of the partnership company in his letter to the Additional Collector and C.A., Mumbai, and issued the letter in that capacity.

10. When the respondent visited India in September/October 2012, he learned from his tenants, Mr Vijay Dharma Pol, Mr Aspi Darab Pader, and Mr Kanayalal Maurya, that the appellants were making misrepresentations to the world at large about the said property with malafide intentions to defeat the vested right title and interest in the said property of the respondent. The respondent returned to India and chose to stay in Mumbai, where he made many attempts to learn about the condition of the firm's properties.

11. According to the respondent, RTI Act inquiries indicated that the appellants had made a bogus Declaration-Cum-Indemnity, an affidavit, and several other papers to defeat the respondent's right, title, and interest in the firm's properties. The appellants claimed in those papers that following Yakubali's death, the business was changed into Mohamed Shafik's sole proprietorship, and that after Mohamed Shafik's death, the property passed to the appellants as the only legitimate heirs of Yakubali and Mohamed Shafik. Mrs Zarina Yakubali was Yakubali's widow after he died. The appellants had a right to the land in question. The respondent also claims that the appellants attempted to transfer the property into their names and filed several applications with various agencies in that respect. The respondent, through her attorney, sent a notice to the appellant, requesting that they refrain from making any unlawful claims about property ownership and using the arbitration clause included in the Partnership Deed. The respondent claims that the appellants were negotiating with a few tenants for transfer fees in exchange for consenting to transfer the respective tenanted premises and that the appellants might collect transfer fees of up to Rs.5 crores for the tenanted premises transfer.

12. The respondent filed an Arbitration Petition No. 503 of 2013 in The High Court of Judicature at Bombay under Section 9 of the Arbitration and Conciliation Act, 1996 seeking certain interim measures sometime in 2013. The aforementioned Arbitration Petition was rejected by a decision of a learned Single Judge of The High Court of Judicature at Bombay. The respondent filed an appeal with The High Court of Judicature at Bombay's Division Bench. A Division Bench of The High Court of Judicature at Bombay dismissed the appeal with an order. The parties had resolved to send all of their issues and disagreements to the Arbitral Tribunal, according to the Division Bench. The respondent agreed that the appellants may carry on with their firm's operations. The tenants' claims against the appellants might likewise be pursued by the appellants. The Division Bench issued an injunction prohibiting the appellants from selling, disposing or encumbering, parting with possession, or establishing any third party rights concerning the subject property without first giving the respondent two weeks' notice. The respondent was permitted to apply temporary remedy under Section 9 or 17 of the Arbitration and Conciliation Act, 1996. The respondent submitted a statement of claim for different reliefs with the Arbitral Tribunal. The appellants filed a written statement in response to the stated statement of claim.

13. Before the Arbitral Tribunal affirmed, the respondent filed her affidavit in place of examination in chief. She was cross-examined by the appellants' experienced counsel. The third appellant filed an affidavit in place of an examination in chief, which was upheld. He was cross-examined by the respondent's skilled counsel. Both parties filed written arguments and comment differentiating the decisions cited by each other before the Arbitral Tribunal. The Arbitral Tribunal issued a judgement ruling that as a co-owner of the Dharavi property, the respondent is entitled to a 51 per cent part of the profits and would continue to receive her share of the profits until the Deed is wound up under clauses 13 and 14 of the Deed of Partnership.

14. The appellants were also ordered to pay the respondent 51 per cent of the earnings from the Dharavi property from 1982 until the date of the award, and then until the winding up. The Arbitral Tribunal did not award the respondent any interest until the date of the award. The Arbitral Tribunal, on the other hand, awarded the respondent interest at the rate of 9% per annum on the portion of the profits until final payment, as well as the cost of Rs.20 lacs. The appellants filed an arbitration case number. 792 of 2018 with The High Court of Judicature at Bombay after being aggrieved by the aforementioned Arbitral judgement of March 23, 2018. The appellants' arbitration petition was rejected by the knowledgeable Single Judge. The appellants, who were aggrieved by the aforementioned verdict, filed their appeal under section 37 of the Arbitration and Conciliation Act, 1996.

The Issue of the Case

Whether impugned the order dated 11th July 2019 passed by the learned Single Judge valid?

The Observations of the Court/Commission

1. Referring to the case of MMTC Limited Vs. Vendanta Limited, (2019) 4 SCC 163 and in case Dyna Technologies Private Limited Vs. Crompton Greaves Limited, (2019) 20 SCC 1, the Honourable Supreme Court of India has addressed the jurisdiction of an Appellate Court under Section 37 of the Arbitration and Conciliation Act, 1996 to interfere with an arbitral judgement. The Supreme Court has ruled that the Appellate Court's powers under Section 37 are extremely limited. There is little doubt that Section 34 of the Arbitration and Conciliation Act, 1996 restricts a challenge to an award to the reasons set out therein or as construed by other courts. The Appellate Court's powers under Section 37, are more restricted than the Court's limited powers under Section 34 of the Arbitration and Conciliation Act, 1996.

2. High Court of Judicature at Bombay observes that the respondent is correct in invoking clause 14 of the Partnership Deed, which states that the property of the business comprises all property and rights and interests in a property originally incorporated into the stock of the firm, subject to a contract between the partners, or acquired by or for the company, whether by purchase or otherwise, for the firm's purposes and in the course of business and includes the firm's goodwill.

3. Referring to the case of Prem Ballabh Khulbe vs. Mathura Datt Bhatt, (1967) 2 SCR 298, according to the Supreme Court, a partnership does not create a fiduciary relationship between the partners or make either of them a trustee for the other or his representatives. However, the relationship may develop as a result of one of them dying or as a result of other unusual circumstances.

4. Referring to the case of Tilokram Ghosh and Ors. v/s. Smt. Gita Rani Sadhukhan and Ors., AIR 1989 Calcutta 254, according to the Calcutta High Court, Section 37 of the Indian Partnership Act, 1932 must be read in conjunction with Section 88 of the Indian Trust Act, 1882, which states that continuing partners are trustees for the estate of the dead partner, as shown in illustration (f) thereunder. The principles established by the Calcutta High Court in the aforementioned judgement would apply to the facts of this case. 

5. Referring to the case of P.S. Nagarunjan vs. Robert Hotz, AIR 1954, Punjab 278, the Punjab and Haryana High Court has ruled that in cases where the surviving partner continues to carry on the firm's business, a suit for a share of the profits under Section 37 of the Indian Partnership Act, 1932 is maintainable and does not fall under Article 106 of the Limitation Act, 1908, which corresponds to Article 5 of the Limitation Act, 1963.

6. Referring to the case of Nilmadhab Nandi and Ors. vs. Srimati Nirada Sundabi Dadi, 1941 SCC OnLine Cal 119, the Calcutta High Court has ruled that the rights conferred on a legal representative of a deceased partner under Section 37 of the Indian Partnership Act, 1932 are not a right to a share of the profits of a dissolved partnership within the meaning of Article 106 of the Limitation Act, but rather a right arising from the subsequent disposition of the deceased partner's assets. High Court of Judicature at Bombay concur with the views expressed by the Calcutta High Court in the aforementioned ruling, which applies to the facts of this case.

7. Referring to the case of Babu alias Govindoss Krishnadoss vs. Official Assignee of Madras and Ors., 1934 SCC OnLine PC 22, the Madras High Court has ruled that the representative of a deceased partner's interest in one of the properties is not based solely on contract and that the surviving partners, who have the right and duty to realise the partnership property, have a fiduciary relationship with the deceased partner's representatives. In the said judgement, the Madras High Court cited a decision in the case of In re Bourne, which held that when a partner dies and the partnership ends, the surviving partner has the right, but also the duty, to realise the assets to wind up the partnership affairs, including paying the partnership debts. 

8. High Court of Judicature at Bombay observes that the said Mohamed Shafik breached his fiduciary responsibilities to the legal representatives and estate of the said dead partner Yakubali by continuing to use partnership assets after the suit firm was dissolved by operation of law in 1982. This fiduciary obligation persisted until the properties held in trust were dispersed to all partners and the dead partner's estate. 

9. Referring to the case of Shreedhar Govind Kamerkar vs. Yesahwant Govind Kamerkar and Anr., (2006) 13 SCC 481., the Supreme Court ruled that the partners' rights and responsibilities about partnership property would only be discharged when the business was fully wound up and the firm's assets were divided.

10. Referring to the case S.V. Chandra Pandian and Ors vs S.V. Sivalinga Nadar And Ors. 1993 SCR (1) 58, 1993 SCC (1) 589, the Supreme Court ruled that throughout the partnership's existence, a partner would be entitled to a portion of the profits, and following the partnership's dissolution, a share of the residual, if any, on account settlement. In this instance, the appellants were unable to demonstrate or refute the respondent's claim that the suited company had no obligations. As a result, the appellants were obligated to pay the respondent's fair due share.

11. Referring to the case of Mohamed Laiquiddin and Anr. vs. Kamala Devi Misra, (2010) 2 SCC 407, the Supreme Court has ruled that when a partnership business has only two members, the firm is assumed to be dissolved when one of them dies, notwithstanding the inclusion of a provision that indicates otherwise. The Supreme Court held in the said judgement that under the Partnership Act of 1932, property brought into the partnership by the partners when it is formed or acquired in the course of business becomes the partnership's property, and a partner is entitled to a share in the money representing the value of the property upon dissolution, subject to any special agreement between the partners. As a result, the High Court of Judicature at Bombay inclined to accept the argument advanced by the learned senior counsel for the appellants that, upon the death of Yakubali and then the death of Yakubali's wife, the property became the sole property of Mohamed Shafik or, after his death, became the sole property of the appellants. The experienced senior counsel's statement contradicts both the appellants' position in the pleadings and the law.

12. Referring to the case V. Subramaniam vs. Rajesh Raghuvandra Rao, (2009) 5 SCC 608, the Supreme Court has ruled that, unlike shareholders in a corporation who are not co-owners of the company's property, partners in a firm are co-owners of the firm's property. The Supreme Court's principles in the above-mentioned decision apply to the facts of this case. According to findings, the said Mohamed Shafik and the said Yakubali owned 51:49 of the income and assets of the said suit company. The fiduciary connection between Mohamed Shafik and the said estate of Yakubali remained after Mohamed Shafik's death, as did the relationship between Mohamed Shafik and the respondent. The learned senior counsel's position that the respondent, who was the legitimate successor of the aforementioned Yakubali, cannot make any claim in the assets of the suit property due to limitation or otherwise is contradictory to the Supreme Court and many other High Courts' principles of law.

13. Referring to the case of Mansha Ram vs. Tej Bham AIR 1958 Patna 854, although the Punjab and Haryana High Court has decided that a partner is not a trustee of the other, it cannot be denied that the partners are in a fiduciary relationship, and in such a scenario, equity will never allow the surviving partner to trade or use the other's property for his gain. If he generates a profit, it must be given to the owner of the property from which the profit was generated. The appellants stated in their statement of defence before the Arbitral Tribunal that following the death of Yakubali, the said Mohamed Shafik continued to use the said Dharavi property, but that the firm was managed as a sole proprietorship. The appellants, having admitted to using partnership assets after the partnership firm was dissolved by operation of law, acted in a fiduciary capacity and as trustee in respect of the share of the deceased partner's estate in the profits and assets of the suit firm, and were thus liable to return the share of the deceased partner's estate to the estate in the profits and assets of the suit firm.

14. Referring to the case of Ahmed Musaji Saleji & Ors. vs. Hashim Ebrahim Saleji & Ors., AIR 1915 P.C. 116 (D), apart from fraud or misconduct like fraud, a division bench of the Privy Council has held that it is well settled that when a firm dissolve, one of the partners retains assets of the firm in his hands without any settlement of accounts & uses them to continue the business for his benefit, he may be ordered to account for these assets with interest thereon. That decision was upheld on appeal and then by a judicial committee.

15. High Court of Judicature at Bombay also observes that the mere absence of a reference to the assets of the Partnership company in the purported Will written by the respondent's mother does not imply relinquishment of the dead husband's share of the Partnership assets and earnings. The bequest made in a testamentary instrument cannot be construed as a waiver of any claim that the testator would otherwise be entitled to under the law. The respondent had already explained why it took so long to file a claim against the appellants, claiming that the delay was due to the parties' connection with Mohamed Shafik during his lifetime and that the appellants were holding the property in trust after he died. As a result, there was no statute of limitations on a claim for a portion of the suit firm's assets or profit from the date of the firm's dissolution. The experienced senior counsel for the appellants' argument that Article 5 of the Limitation Act would have been applied to the respondent's claim under Section 37 of the Indian Partnership Act, 1932 is without merit. Section 37 of the Indian Trusts Act must be read in conjunction with Section 50 of the Indian Partnership Act, 1932 and Section 16A of the Indian Partnership Act, 1932, as well as Section 88, illustration (f), and Section 95 of the Indian Trusts Act.

16. Referring to the case Parmanand Vadilal Vasant and Anr. vs. State of Gujarat and Anr., AIR 1994 Guj 206, the Gujarat High Court ruled that following the firm's dissolution, the partnership assets would pass to the partners or their representatives as tenants-in-common. The principles of law established by the Gujarat High Court in the preceding case apply to the facts of this case. We concur with the Gujarat High Court's viewpoints in the above-mentioned ruling.

17. Referring to the case of Shreedhar Govind Kamerkar vs. Yesahwant Govind Kamerkar and Anr., (2006) 13 SCC 481., the Supreme Court has ruled that if a partnership business's affairs are entirely wound up, the legal heirs of the partners retain their interest in the earnings and assets of the firm. 

18. High Court of Judicature at Bombay also observes that the respondent's learned counsel correctly differentiated this Court's decision in the case of Seemaben Shankar Patel vs. Motibhai K. Patel, 2015 SCC OnLine Bom 337 on the basis that the subject of the firm's dissolution had already occurred. The Partnership firm's assets had already been divided. The dead partner did not file a claim for the firm's assets to be dissolved.

19. High Court of Judicature at Bombay also observes that Learned counsel for the respondent correctly relied on the Supreme Court's decisions in the cases of Associated Builders (supra) and Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (2019) 15 SCC 131 in support of the argument that because the arbitral tribunal's findings were not perverse, no interference under Section 34 of the Arbitration and Conciliation Act, 1996 is permissible. The Supreme Court's rulings in the cases of Associated Builders (above) and Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (2019) 15 SCC 131 apply to the facts of this case. In Fermenta Biotech Limited vs. K.R. Patel delivered on 11th October 2018, the High Court of Judicature at Bombay ruled that even if the arbitral tribunal's opinion is reasonable, it cannot be inferred upon by this Court when hearing the petition under Section 34 of the Arbitration and Conciliation Act, 1996.

The Decision Held by the Court/Commission

High Court of Judicature at Bombay held that

1. The Arbitral Tribunal's challenged judgement, dated March 23, 2018, holding that the respondent (original claimant) is entitled to a 51 per cent stake of the Dharavi property as Co-owner, is upheld.

2. The impugned direction in the arbitral award that the respondent herein would continue to receive her share of the profits until winding up under clauses 13 and 14 of the Deed of Partnership, and that the appellants would pay the respondent 51 per cent of the profit from the Dharavi property from 1982 until the date of award & thereafter until winding up is set aside since the account between the partners are not settled by the Arbitral Tribunal. As a result, the award requiring the appellants to pay interest on that portion of the profits until ultimate payment from the date of award is set aside.

3. The award in the impugned award in respect of expenses valued at Rs.20,00,000/- is upheld.

4. The appellants must comply with the arbitral award on March 23, 2018, as amended by this judgement, as soon as possible and within three months from today.

5. Interim Application No.9905 of 2020 does not survive the dismissal of the appeal and is thus dismissed.

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