Arbitration Request No. 34 of 2018 (Shri A.A. Mohamed Nisham v. King Beedi Company and others)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE SMT. JUSTICE P.V.ASHA** **WEDNESDAY,THE 05TH DAY OF DECEMBER 2018 / 14TH AGRAHAYANA, 1940** ## **AR.No. 34 of 2018** **PETITIONER/S: SHRI.A.A.MOHAMED NISHAM MANAGING PARTNER, KING BEEDI COMPANY,S/O. LATE SHRI. A.B ABDUL KADAR, PERMANENT RESIDENT AT ADAKKAPARAMBIL HOUSE,PADIYAM P.O, MUTTICHUR, TRICHUR DISTRICT,NOW CONVICT NO.2322, CENTRAL PRISON POOJAPPURA,THIRUVANANTHAPURAM - 685 012.** **BY ADV. K.R.SUNIL ADV.SABI C. SHAJI RESPONDENT/S: 1 SMT.K.SUBAIDA PARTNER, KING BEEDI COMPANY, W/O. LATE A.B ABDUL KADER,'ADAKKAPARAMBIL HOUSE, PADIYAM P.O, MUTTICHUR,TRICHUR DISTRICT. 2 SRI.A.A ABDUL NIZAR PARTNER, KING BEEDI COMPANY, S/O. LATE A.B ABDUL KADER,'ADAKKAPARAMBIL HOUSE, PADIYAM P.O, MUTTICHUR,TRICHUR DISTRICT. 3 A.A ABDUL RAZACK PARTNER, KING BEEDI COMPANY, S/O. LATE A.B ABDUL KADER,'ADAKKAPARAMBIL HOUSE, PADIYAM P.O, MUTTICHUR,TRICHUR DISTRICT. 4 B.P BASHEER ALI PARTNER, KING BEEDI COMPANY, S/O. LATE B.P USMAN, BUNGLAVIL KARIYAMKODE, ANIKODE, PALAKKAD DISTRICT. BY ADVS. SRI.SANTHOSH MATHEW, R2,R3&R4 SRI.ARUN THOMAS, R3&R4 SMT.MARIA ROY, R3&R4 SMT.VEENA RAVEENDRAN, R3&R4 SRI.ANIL SEBASTIAN PULICKEL, R3&R4 SRI.JENNIS STEPHEN, R3&R4 SRI.VIJAY V. PAUL, R3&R4** **THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 28.11.2018, THE COURT ON 05.12.2018 PASSED THE FOLLOWING:** **P.V.ASHA, J. -----------------------------------Arbitration Request No.34 of 2018 -----------------------------------Dated this the 5[th] day of December, 2018** ## **ORDER** **This Arbitration Request is filed by one of the partners, who along with the respondents entered into a partnership deed-Annexure A for carrying out the business in the name and style of M/s.King Beedi Company. The respondents are his mother and brothers. Annexure A partnership deed was registered on 28.10.2013 with the petitioner as the Managing Partner, with 40% share. The petitioner is Convict No.2322 undergoing imprisonment at Central Prison, Poojappura, on conviction by Sessions Court, Thrissur for an offence under Section 302 of IPC. While in jail, he had executed power of attorney in favour of respondents 2 and 3, who are his brothers, authorising them to represent him in his business and other activities as mentioned therein. However certain** Arbitration Request No.34/2018 :3: **disputes arose between petitioner and respondents. Thereupon, the petitioner issued Annexure-B notice on 10.09.2017 informing that he nominated and appointed a Senior Advocate of this Court as Arbitrator on his part and requesting the respondents to appoint Co-Arbitrator in tune with Clause 20 of Annexure A partnership deed.** **2. On receipt of Annexure B notice, the respondents issued Annexure-C reply notice dated 03.10.2017 stating that the partnership is already reconstituted on 28.09.2016, based on resolution dated 09.09.2016 of the firm, for the purpose of the smooth functioning of the business, in view of the physical absence of the petitioner, making respondents 2 and 3 as Joint Managing Partners with full liberty to take decisions regarding daily routine affairs of the management of the business of the firm. As per the reconstituted partnership deed, the Arbitrators are to be appointed by a decision of the majority of the partners. They also stated that the share of all the partners continues to be the same and in order to safeguard the interest of the petitioner and** Arbitration Request No.34/2018 :4: **considering his service as Managing Partner, it was also decided to pay his emoluments. It was also stated that as per the reconstituted deed if any important policy decision regarding the affairs of the partnership is to be taken, the majority partners shall decide and the majority partners' decision will be final and binding on all the partners. They informed that the respondents who form the majority of partners, have appointed an Advocate from Trissur as Arbitrator. This Arbitration request was filed in the above circumstances, for appointment of an Arbitrator for the respondents.** **3. The petitioner stated that reconstitution of the partnership was made without his knowledge by misusing the power of attorney executed by the petitioner in favour of the respondents.** **4. Respondents 2 to 4 filed a counter affidavit producing Annexure R1 Partnership Deed executed on 28.09.2016 reconstituting Annexure A partnership. It is stated that after conviction of the petitioner, it became impossible for him to run the day to day** Arbitration Request No.34/2018 :5: **affairs of the Company, as he is undergoing imprisonment. Therefore he executed a Power of Attorney registered as Deed No.4-576-69-72-432/2000/2015 dated 06.10.2015 of Kannur SRO authorising respondents 2 and 3 to act on his behalf. Thereafter since changes were necessary they reconstituted the partnership deed on 28.09.2016. On behalf of the petitioner, power of attorney holders had signed the partnership deed. The respondents stated that as per clause 21 of Annexure R1 partnership deed dated 28.09.2016 two Arbitrators shall be appointed by majority of the partners and that a reference under Section 11 of the Arbitration and Conciliation Act, 1996 can be made only if the procedure prescribed therein fails. They stated that the petitioner has not invoked any steps as prescribed under Clause 21 of the Partnership Deed executed on 28.09.2016. Clause 21 of Ext.R1 Partnership Deed executed on 28.09.2016 reads as follows:** _21. That any dispute of question in connection with the partnership of the deed or the carrying on the business or management of the partnership shall be decided by referring to the arbitration of two (2) Arbitrators appointed by the majority of the partners. The award given by the Arbitrators are binding on all_ Arbitration Request No.34/2018 :6: _the partners herein above. The seat of the arbitrator shall be at Trichur, Kerala. Further the disputes among the partners in relation to this partnership shall be within and under the jurisdiction of Trichur District, Kerala and that to be settled with the concerned jurisdictional Court_ . **5. Therefore it is stated that the petition under Section 11 of the Arbitration and Conciliation Act, 1996 ('the Act') could not have been filed by the petitioner except after following the procedure prescribed therein as majority of the partners have to appoint two Arbitrators.** **6. The petitioner filed an affidavit producing Annexure-D and E Power of Attorney executed in favour of respondents 2 and 3. The petitioner submits that on coming to know about Ext.R1 agreement from the reply notice Annexure-C, the petitioner executed two cancellation deeds Annexure-F and G on 08.09.2017 cancelling the power of attorney executed in favour of respondents 2 and 3. The petitioner stated that respondents 2 and 3 are exploiting the business by misappropriation and mismanagement. It is stated that they have developed a hostile attitude against** Arbitration Request No.34/2018 **==> picture [12 x 8] intentionally omitted <==** **petitioner without disclosing the affairs of the Company, statement of Accounts, details regarding the purchase of raw materials, details regarding the sale of the finished products, income and expenditure and further the remuneration admissible to the petitioner as per the terms of the partnership dated 28.10.2013 where as all those conditions were specifically stated in the power of attorney Annexure D and E. On coming to know about it the same was cancelled by executing Annexure F and G on 08.09.2017. It is stated that since the petitioner was under arrest and thereafter imprisoned the power of attorney holders started misappropriation without permitting the petitioner to access and to inspect the affairs of the accounts for which he is entitled under Section 12 of the Indian Partnership Act. It is also stated that under Section 58 of the Indian Partnership Act in order to reconstitute partnership deed, the statement accompanying the application should have been signed by all the partners or by their agents specifically authorised on their behalf. It is stated that there is** Arbitration Request No.34/2018 :8: **no such specific authorisation in favour of respondents 2 and 3. Therefore according to him the reconstitution itself is illegal. It was also pointed out that when the petitioner is undergoing imprisonment they have shown the residential address of the petitioner without disclosing the fact that he is undergoing imprisonment and in such an event reconstitution would not have been possible. It is also pointed out that recitals in the power of attorney does not permit respondents 2 and 3 to reconstitute the partnership deed. According to the petitioner, it was only on account of his effort that the business got flourished and on account of the mismanagement of the respondents it has become dull. He alleges that the respondents are not even giving emoluments due to him or his share as per the partnership deed. It is also the case of the petitioner that re-constitution is possible only on account of death or retirement. Learned counsel for the petitioner has also pointed out that all the partners are entitled to have access to all the documents relating to the business of the firm and that petitioner was denied** Arbitration Request No.34/2018 :9: **such access. Petitioner also pointed out that if any liability is incurred by the firm being the share holder with major share he would also be liable under section 25 and 26 of the Partnership Act.** **7. But learned Counsel for the respondents pointed out that Annexure-A itself was registered before reconstitution with the consent of all the parties and Annexure R1 was also registered with the knowledge and consent of all the parties. It is also pointed out that the petitioner has not challenged the partnership deed which is duly executed and registered for which he should have approached the Civil Court.** ## **8. Heard the learned counsel on either side.** **9. Relying on the judgment in** _**Shree Ram Mills Ltd. Vs. Utility Premises (P) Ltd : (2007) 4 SCC 599, Surender Kukreja and others vs. Mohan Lal Kukreja and another : (2009)4 SCC 585, Erach F.D.Mehta vs. Minoo F.D.Mehta : AIR 1971 SC 1653**_ **etc, the learned counsel for the petitioner argued that even arbitrability of the dispute can be decided by Arbitrator himself. It is argued that even if the genuineness of the deed is** Arbitration Request No.34/2018 :10: ## **disputed that also can be decided by the Arbitrator.** **10. On consideration of the contentions on either side, it is seen that petitioner has made the request based on Clause 20 of Annexure A partnership deed, which reads as follows:** _“That any dispute of question in connection with the partnership of the deed or the carrying on the business or management of the partnership shall be decided by referring to the Arbitration of two (2) Arbitrators appointed by the parties in dispute. The award given by the Arbitrators are binding on all the parties herein above. The seat of the Arbitrator shall be at Kochi, Kerala. Further the disputes among the partners in relation to this partnership shall be within and under the jurisdiction of Trichur District, Kerala and that to be settled with the concerned jurisdictional court.”_ ## **11. The reconstituted partnership deed Annexure-** **R1 also under clause 21, provides that disputes shall be got resolved by appointing 2 Arbitrators; but they should be appointed by the majority of the partners. As per Section 10 of the Arbitration Act though the parties are free to determine the number of Arbitrators, such number shall not be an even number. Section 10(2) provides that failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator. Therefore the** Arbitration Request No.34/2018 :11: **provision in both the partnership deeds to the extent those provide for appointment of 2 Arbitrators cannot have any force of law. Thus when a request is made, that can be only for appointment of a sole Arbitrator. Therefore the appointment stated to have been made by the petitioner is only to be ignored. In view of the inherent defect in both the deeds the contention of the respondents 2 and 3 that the request is not liable to be allowed on a request for appointment of an Arbitrator on behalf of the respondents, is not correct.** **12. Though the contention of the respondents is that petitioner has not proceeded as provided in Annexure-R1 partnership deed and that he can make a request only if the respondents failed to appoint Arbitrator as provided in Clause 21 of Annexure R1, no embargo is seen in Annexure R1 in making a request with respect to the disputes which arose with respect to Annexure A partnership deed.** **13. Under Section 7 of the Arbitration Act an arbitration agreement means an agreement by the parties** Arbitration Request No.34/2018 :12: **to submit for arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. It also provides that agreement shall be in writing if it is contained in a document signed by the parties. Sub section 6A of Section 11 provides that consideration of this Court shall only be confined to the existence of an arbitration agreement.** **14. It is relevant to note that the Constitution Bench in** _**SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618**_ **, held that the Chief Justice while dealing with a petition filed under Section 11 shall examine whether the party making the motion has approached the right High Court; whether there is an arbitration agreement, as defined in the Act; whether the person who has made the request before him, is a party to such an agreement; he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the** Arbitration Request No.34/2018 :13: **final payment without objection; as it may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause; it would be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration.** **15. In the judgment in** _**Shree Ram Mills's**_ **case (supra) the apex court considered a case where an application was made for arbitration under Section 11 and objections were raised on the ground that the claim was barred by limitation and there was no live issue to be settled. However it was found that the issue was kept live as a memorandum of understanding and there were subsequent transactions. It was held that it would be appropriate to leave that question to be decided by the arbitral tribunal along with the merits of the claims involved in the arbitration.** **16. In the judgment in** _**Surender Kukreja's case (supra)**_ **the apex court was considering a dispute between brothers who were partners. The dispute was** Arbitration Request No.34/2018 :14: **over a retirement deed based on which the partnership was alleged to be dissolved, on the ground that it was a forged and fabricated document. There, the Arbitrator was appointed after getting a report from the Central Forensic Science Laboratory for examination in which it was found that the signature was not genuine. Therefore apex court found that it was only appropriate to leave the question regarding the genuineness of the alleged retirement deed to be decided by the arbitrator along with other matters.** **17. In the judgment in** _**Erach F.D's**_ **case (supra) the apex court was considering a case where the dispute arose between the partners. An agreement dated 22.12.1966 was alleged to have been superseded by another agreement of 17.01.1968, that part of the dispute has to be referred to a person other than Arbitrator. It was held that as the primary dispute was as to the agreement set up by the respondent relating to the dissolution of the partnership and the dispute with regard to that agreement alleged to have been entered subsequently could be referred to the** Arbitration Request No.34/2018 :15: **arbitrators, in accordance with the terms of the partnership agreement.** **18. However in this case there is no allegation of forgery. Dispute is over the authority of the respondents 2 and 3 based on power of attorney for entering into re-constitution apart from other disputes over the partnership entered into in Annexure A. The cancellation deed is seen to have been executed on 08.09.2017 subsequent to the reconstitution of the partnership deed as per Annexure R1.** **19. The objection of the respondents that the prayer in the Arbitration Request is for appointment of an Arbitrator, on behalf of the respondents, that too after appointing an Arbitrator on behalf of the petitioner, cannot be sustained because such an appointment provided in the deed of partnership is non-est being contrary to Section 10(1) of the Act.** **20. There is an agreement as defined under Section 7 of the Arbitration Act which provides for appointment of Arbitrator in order to resolve the dispute between the partners. Though the partnership is** :16: Arbitration Request No.34/2018 **seen to have been re-constituted on 29.09.2016, the disputes with respect to Annexure A1 deed can very well be referred to Arbitration, invoking the provision contained in Clause 20 therein by appointment of sole Arbitrator. The parties can raise all the disputes which arose consequent to that.** **21. The purpose of Arbitration and Reconciliation Act is to resolve the disputes amicably and expeditiously. The dispute is between petitioner and his mother and siblings over a partnership for carrying on business inherited.** **22. In the above view of the matter, I find that the Arbitrator can be appointed in order to resolve the disputes arising out of Annexure-A partnership deed. It will be open to the Arbitrator so appointed, to decide on the arbitrability of all the disputes raised by the parties including the authority of respondents 2 and 3 to re-constitute the deed.** **Hence this Arbitration Request is allowed. Sri.E.M.Joseph, Advocate, Edasserry Towers, St.Francis Church Road, Kaloor, Kochi-17 is appointed as the** Arbitration Request No.34/2018 :17: **Arbitrator to resolve the disputes between the parties. The learned Counsel for the petitioner shall obtain and produce before the Registry, a disclosure statement from the Arbitrator as provided in Section 11(8) of the Arbitration and Conciliation Act, 1996. The certified copy of the order need be released only on production of the same. The original of the disclosure statement shall be retained by the Registry, in the file along with this order and a copy of the same shall be appended to the certified copy of this order.** **P.V.ASHA** rkc Arbitration Request No.34/2018 :18: ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **ANNX. A: TRUE COPY OF THE ARBITRATION AGREEMENT DT.28.10.13 EXECUTED BETWEEN THE PETITIONER AND THE RESPONDENTS.** **ANNX.B: TRUE COPY OF THE LAWYER NOTICE DT.10.9.17 ISSUED BY THE PETITIONER TO THE RESPONDENTS, REFERRING THE DISPUTES TO ARBITRATION AND NOMINATING AND APPOINTING HIS ARBITRATOR** **ANNX.C: TRUE COPY OF THE REPLY NOTICE DT.3.10.17 ISSUED BY RESPONDENTS 2 TO 4.** **ANNX.D: TRUE COPY OF THE POWER OF ATTORNEY DT.6.10.15** **ANNX.E: TRUE COPY OF THE POWER OF ATTORNEY DT.6.10.15** **ANNX.F: TRUE COPY OF THE CANCELLATION DEED EXECUTED BY THE PETITIONER ON 8.9.17** **ANNX.G: TRUE COPY OF THE CANCELLATION DEED EXECUTED BY THE PETITIONER ON 8.9.17** ## **RESPONDENTS' EXHIBITS:** **ANNX.R1: TRUE COPY OF THE PARTNERSHIP DEED DT.28.9.16** Arbitration Request No.34/2018 :19: **==> picture [428 x 599] intentionally omitted <==** Arbitration Request No.34/2018 :20: