Bombay High Court

Satish Madhavrao Surve vs Vichare Motors And 2 Ors on 19 April, 2022

Bench: N. J. Jamadar

                                                                     COMAP180-19.DOC

                                                                               Santosh
                           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                ORDINARY ORIGINAL CIVIL JURISDICTION
                                      IN ITS COMMERCIAL DIVISION


                           COMM ARBITRATION APPLICATION NO. 180 OF 2019

                      Mr. Satish Madhavrao Surve (deceased)
                      through LRs.                                     ...Applicants
                                          Versus
                      M/s. Vichare Motors & ors.                     ...Respondents

         Digitally
                      Mr. Rajiv Thakur, for the Applicants.
         signed by
         SANTOSH
SANTOSH SUBHASH
                      Mr. G. B. Bhatt, for Respondent no.2.
SUBHASH KULKARNI
KULKARNI Date:
         2022.04.19
                      Ms. Shilpa Ovalekar, for Respondent no.3.
         18:30:48
         +0530


                                                   CORAM: N. J. JAMADAR, J.

RESERVED ON: 7th APRIL, 2022 PRONOUNCED ON: 19th APRIL, 2022 ORDER:-

1. This application under Section 11 of the Arbitration and

Conciliation Act, 1996 ("the Act, 1996") is preferred to appoint

an Arbitrator to adjudicate all the disputes arising out of the

Deed of Reconstitution dated 30th April, 2000, executed between

the predecessor in title of the applicants and respondent nos.2

and 3.

2. Respondent no.1 is a registered partnership firm. Initially

the firm was constituted by Mrs. Vimal Raosaheb Gujar, Mrs.

Sadhana Madhavrao Surve and Mrs. Shobha Balkrishna

Khanvilkar, three daughters of late Tatyasahib Babasahib

COMAP180-19.DOC

Vichare, with equal share in the profits of the firm. On the

death of Mrs. Shobha Khanvilkar, her son Mr. Jayraj -

respondent no.2 came to be inducted as a partner in the firm

under a Deed of (First) Reconstitution of the firm executed on

30th April, 2000. Another partner Mrs. Vimal Gujar expired on

22nd December, 2000. Her son Mr. Nandkumar - respondent

no.3 came to be inducted in her place as a partner of the firm

under Deed of (Second) Reconstitution of partnership firm dated

12th February, 2011. The applicants are the children of the third

original partner Mrs. Sadhana Surve.

3. The applicants assert that Mrs. Sadhana died on 1 st June,

2004. The applicants father Madhavrao informed respondent

nos.2 and 3 to admit him as a partner in the firm in the place of

deceased partner Mrs. Sadhana. Respondent nos.2 and 3

assured the father of the applicants and, later on, the applicant

no.1 that he would be inducted as a partner in the partnership

firm. Respondent nos.2 and 3 also failed to render the accounts

of the firm, carve out the share of deceased partner Mrs.

Sadhana and continued to carry on the business of the

partnership firm without settling the accounts. The Deeds of

Reconstitution of the partnership firm contain a dispute

resolution mechanism by reference of the dispute to arbitration.

COMAP180-19.DOC

The applicants thus invoked arbitration by addressing notice

dated 21st January, 2017. The notice was duly served on the

respondents. They failed to comply with the demand in the said

notice. Hence, this application for appointment of an Arbitrator

to adjudicate all the disputes between the parties.

4. An affidavit-in-reply is filed on behalf of respondent no.2.

It is admitted that respondent no.1 is a partnership firm. The

fact that Mrs. Sadhana Surve, the mother of the applicants, was

the partner of respondent no.1 firm is not contested. The

application is resisted principally on the ground that since Mrs.

Sadhana Surve expired on 1st June, 2004 and her name came to

be deleted as a partner of the firm, neither the husband of Mrs.

Sadhana nor the applicants ever raised any dispute regarding

the share of the deceased partner in the partnership firm or

claimed right of admission as a partner in the partnership firm.

Thus, the reference to arbitration is wholly uncalled for as the

substantive claim is hopelessly barred by limitation and there is

no live dispute amenable to arbitration. Of course, respondent

no.2 has denied the averments in the application that the father

of the applicants and later on applicant no.1 made repeated

request to induct him as a partner in the partnership firm and

render the accounts.

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5. In the backdrop of the aforesaid pleadings, I have heard

Mr. Thakur, the learned Counsel for the applicant and Mr.

Bhatt, the learned Counsel for respondent no.2 and Ms.

Ovalekar, the learned Counsel for respondent no.3, at some

length.

6. Uncontroverted facts first. It is incontrovertible that the

firm was initially constituted by three sisters; Mrs. Vimal Gujar,

Mrs. Shobha Khanvilkar and Mrs. Sadhana Surve. It is

incontestable that upon the death of Mrs. Shobha Khanvilkar,

respondent no.2 Mr. Jayraj Khanvilkar came to be inducted as a

partner under the Deed of (First) Reconstitution dated 30 th April,

2000 with Mrs. Vimal and Mrs. Sadhana as the continuing

partners. Indisputably, after the death of Mrs. Vimal Gujar on

22nd December, 2000, the Deed of (Second) Reconstitution was

executed on 12th February, 2001. Mr. Nandkumar - respondent

no.3, the son of Mrs. Vimal, came to be inducted as a partner of

respondent no.1 firm, with Mrs. Sadhana, the predecessor in

title of the applicants, and Mr. Jayaraj - respondent no.2, as

continuing partners. There is not much controversy over the fact

that Mrs. Sadhana continued to be a partner of the firm till her

death i.e. 7th June, 2004. In fact, respondent no.2 placed on

record a copy of Deed of (Third) Reconstitution dated 2 nd

COMAP180-19.DOC

December, 2005, whereby after recording the factum of death of

deceased partner Mrs. Sadhana, respondent nos.1 and 2

continued to carry on the said business with effect from 2 nd

June, 2004.

7. The Deed of (First) Reconstitution dated 30th April, 2000

and the Deed of (Second) Reconstitution dated 12 th February,

2001 made a provision for death retirement and insolvency of

partners; which read as under:

"12. Death/Retirement/Insolvency of Partners:

In the event of retirement or death or insolvency of any of the parties hereto, the partnership business shall not stand dissolved. An account of the affairs of the firm shall be prepared upto the concerned date. The share in assets of the Firm after deducting the liabilities of the Firm shall be payable to the parties or to their heirs, successors or nominees, as the case may be, and the remaining partners shall be eligible to continue the business of the firm."

8. The Deeds of Reconstitution contain an arbitration clause

as under:

"13. Arbitration:

In the event of any dispute arising amongst the parties hereto as regards the interpretation of any of the clauses here to or any other mater concerning with the business, the matter of such disputes shall be referred to arbitration. The parties hereto shall appoint one or more persons to act as arbitrator or arbitrators and the decision of the arbitrator shall be final and binding on all the parties hereto."

9. On the basis of the aforesaid clauses in the Deeds of

Reconstitution, the applicants have invoked the arbitration with

a case that respondent nos.2 and 3 did not induct the heirs of

COMAP180-19.DOC

deceased partner Mrs. Sadhana and render the accounts, as

stipulated under Clause 12 extracted above. It is not the case of

the respondents that the accounts, as of the date of death of

Mrs. Sadhana, the deceased partner, have been settled and the

claim of the heirs of the deceased partner satisfied.

10. Respondent no.2 controverts the assertion that first the

husband of Mrs. Sadhana and, later on, the applicant not made

request for induction as a partner in the firm. On the contrary,

according to respondent no.2, no dispute was ever raised, and

thus no arbitrable dispute survives after a lapse of 13 years of

the death of Mrs. Sadhana, the deceased partner. As the

substantive claim is stale and hopelessly barred by law of

limitation no case for exercise of jurisdiction under Section 11 of

the Act, 1996 is made out, submitted Mr. Bhatt.

11. To buttress the aforesaid submission, Mr. Bhatt placed a

strong reliance on the judgment of the Supreme Court in the

case of Bharat Sanchar Nigam Ltd. and anr. Vs. M/s. Nortel

Networks India Pvt. Ltd.1

12. In the said case, the Supreme Court has considered

following two issues:

1     (2021) 5 Supreme Court Cases 738.

                                                           COMAP180-19.DOC

(i) The period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 ("the 1996 Act"); and;

(ii) Whether the Court may refuse to make the reference under Section 11 where the claims are ex facie time barred?

13. The Supreme Court answered the first issue as under:

"15. It is now fairly well-settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days from issuance of the notice invoking arbitration. In other words, an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s)/ dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment."

14. On the second issue, the Supreme Court adverted to the

legislative history of Section 11, the judgments which governed

the field before Section 11 came to be amended by insertion of

Sub-section 6(A) and (B) by Arbitration and Conciliation

(Amendment) Act, 2015 with effect from 23 rd December, 2015,

the judicial pronouncements post amendment, especially in the

cases of Duro Felguera SA vs. Gangavaram Port Ltd.,2 Mayavati

Trading Company Private Ltd. vs. Pradyut Dev Burman 3 and

Vidya Drolia vs. Durga Trading Corporation4 and concluded that

the Court is now required only to examine the existence of the

arbitration agreement. All other preliminary or threshold issues

are left to be decided by the Arbitrator under Section 16, which

2(2017) 9 SCC 729.

3(2019) 8 SCC 714.

4(2021) 2 SCC 1.

COMAP180-19.DOC

enshrines the kompetenz-komptenz principle. The doctrine of

kompetenz-komptenz implies that the arbitral tribunal is

empowered, and has the competence to rule on its own

jurisdiction, including determination of all jurisdictional issues.

This was intended to minimize judicial intervention at the pre-

reference stage, so that the arbitral process is not thwarted at

the threshold when a preliminary objection is raised by the

parties.

15. In the process of answering issue no.2, the Supreme Court

pointed out the distinction between jurisdictional and

admissibility issues. It was enunciated, an issue of 'jurisdiction'

pertains to the power and authority of the Arbitrator to hear

and decide a case. Admissibility issues, however, relate to

procedural requirements such as breach of pre-arbitration

requirements, for instance, a mandatory requirement for

mediation before the commencement of arbitration, or a

challenge to a claim or part of the claim being either time-

barred or prohibited until some pre-condition has been fulfilled.

An admissibility issue is not a challenge to the jurisdiction of

the arbitrator to decide the claim.

16. On the nature of the issue of limitation, the Supreme

Court observed thus:

COMAP180-19.DOC

"32. The issue limitation, in essence, goes to the maintainability or admissibility of the claim, which is to be decided by the arbitral tribunal. For instance, a challenge that a claim is time-barred, or prohibited until some pre- condition is fulfilled, is a challenge to the admissibility of that claim, and not a challenge to the jurisdiction of the arbitrator to decide the claim itself."

(emphasis supplied)

17. Holding thus, the Supreme Court concluded that it is only

in very limited category of cases where there is not even a

vestige of doubt that the claim is ex facie time-barred or that the

dispute is non-arbitrable, that the court may decline to make

the reference. However, if there is even the slightest doubt, the

rule is to refer the dispute to arbitration, otherwise it would

encroach upon what is essentially a matter to be determined by

the Tribunal.

18. Mr. Bhatt heavily banked upon the aforesaid enunciation

of law to draw home the point that the claim in the instant case

is hopelessly time-barred and, therefore, reference to arbitration

wholly unwarranted. Laying emphasis on the time-lag of about

13 years between the death of Mrs. Sadhana, the deceased

partner and the invocation of arbitration by notice dated 21 st

January, 2017, Mr. Bhatt would urge that ex facie the claim is

time-barred.

19. If the submission is considered through the prism of the

time-lag alone, it appears attractive on the first blush. However,

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on a close scrutiny, in the light of the governing provisions of

the Limitation Act, 1963, the submission that the claim is

simply barred by the law of limitation does not merit acceptance

unreservedly.

20. Two provisions of the Limitation Act deserve consideration.

First, Article 5 of the Limitation Act which provides limitation for

a suit for accounts and share of the profits of a dissolved

partnership firm. It provides three years period of limitation,

The time begins to run from the date of the dissolution.

Second, Article 113 which provides limitation of three years for

any suit for which no period of limitation is otherwise expressly

provided in the schedule. The time begins to run when the right

to sue accrues.

21. In the case at hand, the applicability of Article 5 and

Article 113 of the Schedule comes to the fore. Article 5 applies

to a suit for accounts and a share of the profits of a dissolved

partnership firm. Under Section 42 of the Indian Partnership

Act, 1932, subject to the contract between the partners, a firm

is dissolved inter alia by the death of the partner. In the instant

case, we have noted that there is a clear stipulation to the

contrary in the partnership deeds for, under Clause 12, it is

expressly provided that the firm shall not stand dissolved in the

COMAP180-19.DOC

event of retirement or death or insolvency of any of the partners.

The remaining partners were to continue the business of the

firm and the account of the affairs of the firm were to be

prepared up to the date, on which the retirement or death or

insolvency of one of the partners occurs, and thereupon the

share of the such partner or the legal representatives shall be

paid.

22. Thus, on the death of Mrs. Sadhana, the firm did not

dissolve. It is the case of respondent no.2 that respondent

nos.2 and 3 continued to carry on the business of the firm with

effect from the very next day i.e. 2 nd June, 2014. In the

aforesaid fact situation, the claim of the applicants would not be

governed by Article 5 of the Limitation. A suit for accounts

which is not covered by Article 5 is governed by the Article 113

of the Schedule, where the time begins to run when right to sue

accrues.

23. There is an essential distinction between a suit for the

accounts of a partnership firm which is dissolved and a suit

where the surviving partners continue to carry on the business

of the firm, after the death of one of the partners, and the legal

heirs of the deceased partner seek enforcement of the rights to

the assets of the deceased partner in the partnership firm. The

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claim then takes the character of the rights governed by Section

37 of the Indian Partnership Act, which provides that the estate

of the deceased partner is entitled to such share of profits made

since the deceased partner ceased to be a partner as may be

attributable to the use of his share of the property of the firm or

to the interest at the rate of 6% p.a. on the amount of his share

in the property of the firm. When the surviving partners

continue the business of the partnership firm without

settlement of the accounts between them and the deceased

partner, the cause of action continues from day to day and as

long as the business continues, the firm continues to make

profit. In such a case, ordinarily, the bar of limitation does not

operate.

24. I have adverted to the aforesaid principles, for the limited

purpose of determining the issue of reference to arbitration only,

with a view to ascertain whether the claim is ex facie time-

barred and a deadwood. On a prima facie review, I do not find

that the claim is ex facie time-barred. Therefore, the objection

on behalf of respondent no.2 to refer the dispute to arbitration

does not merit acceptance.

25. The upshot of the aforesaid consideration is that the

application deserves to be allowed.

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26. Hence, the following order:

:ORDER:

(i) The application stands allowed.

(ii) Mr. Shanay Shah, Advocate, practicing in this Court

is appointed as Sole Arbitrator to adjudicate upon

claims and counter claims, if any, and/or all the

disputes which arise out of the partnership

agreements, between the parties.

(iii) The learned Arbitrator is requested to file his

disclosure statement under Section 11(8) read with

Section 12(1) of the Act, 1996 within two weeks with

the Prothonotary and Senior Master and provide

copies to the parties.