[Cites 15, Cited by 0]
Bombay High Court
Thorat Wine Mart vs Surekha Ravindra Thorat on 1 April, 2026
2026:BHC-OS:7781
ARBP 522-25.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 522 OF 2025
Thorat Wine Mart and Ors. ... Petitioners.
Versus
Surekha Ravindra Thorat and Ors. ... Respondents.
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Mr Drupad Patil a/w. Mr Rahul Soman and Mr Prasad Keluskar for Petitioner
Nos.2 and 3.
Mr Firoz Bharucha i/by Mr Suraj Kaushik for Respondent Nos.1 to 4 .
Mr Kanetkar for Respondent No.5.
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Coram : Sharmila U. Deshmukh, J.
Reserved On : March 12, 2026
Pronounced On : April 01, 2026
ORDER :
1. By this petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short, "Arbitration Act"), the Petitioners-
Original Respondent Nos.1 to 3 challenge the Award dated 1 st
October, 2024 passed by the Learned Sole Arbitrator. For sake of
brevity, the parties are referred to by their status in arbitration
proceedings.
2. The dispute between the parties was referred to arbitration
invoking the arbitration agreement contained in the partnership deed
dated 1st July, 1987 entered into between two brothers Ravindra
Laxman Thorat (Ravindra) and Nakul Laxman Thorat (Nakul). The
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Claimants are the legal heirs of Ravindra and the Respondent Nos. 1
to 3 are legal heirs of Nakul. The business of sale of foreign made
Indian liquor was carried out initially by Nakul in partnership with their
aunt- Rukhminibai Thorat under partnership deed dated 26 th July,
1973. On 6th May, 1987, Rukhminibai Thorat retired from the
partnership business and Ravindra Laxman Thorat was admitted to
the partnership business by executing partnership deed dated 1st July,
1987. There were addendums to the deed of partnership dated 13 th
March, 1993 and 1st April, 1993. As per the partnership deeds, the
profits and losses of the partnership were to be shared between
Nakul and Ravindra in the ratio of 60% : 40%.
3. Ravindra expired on 11th January, 2001 and it is the Claimant's
case that thereafter Nakul was carrying on the business utilising the
partnership assets without final settlement of accounts. It was
claimed that in the year 2020, Nakul obtained Claimant No.1's
signature on document purportedly for renewal of liquor license.
Nakul expired on 15th September, 2009 and after his death business
was being carried out by his wife Malti and their sons. Malti expired on
24th May, 2020 and business was continued by the sons of Nakul. In
the year 2020, the Claimants sent legal notice seeking winding up of
the partnership firm, settlement of accounts of the partnership, 40%
share in the profit along with interest and 40% share in the
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partnership property.
4. The disputes were referred to arbitration and by the impugned
Award, the Learned Sole Arbitrator has directed winding up of affairs
of the partnership firm, settlement of accounts and payment of 40%
share in profit from the time the deceased partner ceased to be a
partner in the partnership firm along with interest 12% p.a. on the
unpaid amount and to pay 40% share in the partnership property
being shop premises bearing Shop No.2, Integrated Bhoomi, LBS
Marg, Ghatkopar (West) Mumbai-400086.
5. Mr. Patil, learned counsel appearing for the Petitioners-Original
Respondent Nos.1 to 3 would submit that in the statement of
defence, it was specifically pleaded that sum of Rs.32,000/- was paid
during Ravindra's lifetime and after his death in the year 2001, the
balance sheet was prepared in which the sum due in the capital
account of Ravindra was Rs.11,365/-. He submits that the Claimant
No.1 signed the balance sheet and acknowledged the sum due in
Ravindra's capital account. He submits that the Learned Arbitrator has
ignored this vital evidence resulting in perversity.
6. He submits that the liquor license was thereafter transferred to
the Respondent Nos.2 and 3 who carried out the business as the legal
heirs of Nakul. He would submit that the impugned Award holds that
the liquor license and the shop are the partnership assets, by relying
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on single rent receipt in respect of shop which later went into
redevelopment. Drawing attention to Section 37 of the Indian
Partnership Act, 1932 (for short, "Partnership Act"), he submits that
Section 37 speaks of share in profits and makes no reference to the
profit sharing ratio in partnership deed. He would submit that Section
37 applies in absence of contrary, whereas in present case Clause 10
constitutes a contractual agreement under which the partnership
property belonged to surviving partner. He submits that as the legal
heirs were paid the value of Ravindra's investments and profits as
reflected in the capital account of Rs.11,365/- as per the contract
between the parties, the share of the deceased in the partnership
property belonged to the Respondents.
7. He would submit that Ravindra expired in the year 2001 and the
claim was made in the year 2020 which was clearly barred by
limitation. He submits that the learned Sole Arbitrator has referred to
Section 88 and 95 of the Indian Trusts Act, 1882 (for short, "Trusts
Act") read with Section 10 of the Limitation Act, 1963 (for short,
"Limitation Act") to hold that the claim is not barred by limitation
without noticing that the property was not held as trustee and
therefore the provisions have no application. He submits that it was
the specific case before the learned Arbitrator that there was
acceptance of final amount and therefore claim is barred by limitation.
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8. Per contra, Mr. Bharucha, learned counsel appearing for the
Respondent Nos.1 to 4-Original Claimants would submit that specific
issue was framed whether the accounts in respect of the partnership
firm was settled between the Claimants and the Respondents which
was answered in the negative after taking into consideration the
evidence on record which showed that the accounts were not settled.
He submits that in the absence of final settlement of accounts,
Section 37 entitles the Claimants to a share in the subsequent profits
of the firm made by utilising the assets of partnership. He submits
that there is no evidence produced to show that the Respondents had
made payment of the value of Ravindra's investments to the
Claimants and therefore Clause 10 of partnership deed does not assist
the Petitioners. He submits that the findings of Learned Arbitrator
that the shop premises constitute asset of the partnership asset is
based on evidence and it is not the case of the Respondents that
Ravindra had no share in the immovable property. Drawing support
from the decision in the case of Hasina Mohamad Shafik Lalji and
Ors. vs. Fatima Correa Nee Fatima Yakub Ali, he submits that in
identical facts, this Court has applied the provisions of Section 88 and
95 of Trusts Acts read with Section 10 of Limitation Act, to hold that
the claim was not time barred. He submits that there is no perversity
demonstrated and hence, no interference under Section 34 is
warranted.
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9. Rival contentions now fall for determination:
10. The Claimants case is premised on the ground that there was no
final settlement of accounts, which gives rise to entitlement of the
Claimants to a share in subsequent profits of the partnership firm. The
right to a share in subsequent profits of the firm upon the death of a
partner emanates from Section 37 of the Partnership Act and reads
as under:
"37. Right of outgoing partner in certain cases to share
subsequent profits.--Where any member of a firm has
died or otherwise ceased to be a partner, and the surviving
or continuing partners carry on the business of the firm with
the property of the firm without any final settlement of
accounts as between them and the outgoing partner or his
estate, then, in the absence of a contract to the contrary,
the outgoing partner or his estate is entitled at the option
of himself or his representatives to such share of the profits
made since he ceased to be a partner as may be attributable
to the use of his share of the property of the firm or to
interest at the rate of six per cent per annum on the amount
of his share in the property of the firm:
Provided that whereby contract between the partners an
option is given to surviving or continuing partners to
purchase the interest of a deceased or outgoing partner,
and that option is duly exercised, the estate of the deceased
partner, or the outgoing partner or his estate, as the case
may be, is not entitled to any further or other share of
profits; but if any partner assuming to act in exercise of the
option does not in all material respects comply with the
terms thereof, he is liable to account under the foregoing
provisions of this section."
11. Section 37 governs a situation where there is no final
settlement of account and in absence of contractual agreement to the
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contrary the legal heirs of deceased partner are entitled to share in
profits made as may be attributable to use of the deceased's share in
property of the firm. The proviso to Section 37 carves out an
exception to the substantive provision by providing that where the
contractual arrangement gives right to the surviving partner to
purchase interest of the deceased, which option is duly exercised,
there cannot be any claim to further share in profits. It provides that
failure to exercise the option in all material respect renders the
surviving partner liable to accounts under the foregoing provision of
Section 37.
12. The statutory provision of Section 37 thus yields to a
contractual agreement and satisfaction of the contractual agreement
in all material respects is sine qua non to negate the claim to future
profits of the firm in case of deceased partner. In the present case,
Clause 10 of the partnership deed provides as under:
"10. If during the continuance of the partnership, any
partner shall die or become insolvent or retire, then the
value of his investment and profit in the partnership shall
be paid to him or his heir, executers or trustees and the
share of the deceased or outgoing partner shall as from his
death or ceasing to be a partner, belong to the remaining
partner or partners and the business shall be continued
with the remaining partner as the Sole Partner/Proprietor
at the Partnership Premise."
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13. The proviso to Section 37 demands compliance in all material
respects with the contractual terms and the Respondents in order to
deny the claim was mandated to show that the value of Ravindra's
investment and profit in partnership was paid to the estate of
Ravindra. It is upon satisfaction of this term which would entitle (a)
the surviving partner to continue with the business as proprietor at
the partnership premise and (b) negate the claim for future profits by
rendering compliance with the proviso to Section 37.
14. The Learned Arbitrator has considered the evidence on behalf
of Claimants and the admissions of Respondent No.2. The
Respondent No 2 has admitted that there is no document on record to
prove that the payments have been made in pursuance of Clause 10 to
the legal heirs of Ravindra. The non compliance of the contractual
agreement contained in Clause 10 of partnership deed in purchasing
the interest of the deceased partner would result in applying the
substantive provision of Section 37, which has been rightly applied by
the Learned Arbitrator.
15. Mr. Patil's reliance on the signature of Claimant No.1 appearing
on the balance sheet of the year 2001 at the highest would establish
acknowledgment of Ravindra's capital account of Rs.11,365/- . What is
required to be proved is the payment of amount due on account of
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capital to the estate of deceased in accordance with Section 48 of the
Partnership Act. The evidence on record is to the contrary and there is
clear admission by Respondent No.2 of non-payment. Resultantly, the
share of the deceased did not vest in the surviving partners and
utilisation of the deceased's share in running the partnership business
gave right to Claimants to seek share in profits of the firm. The sum of
Rs.32,000/- paid during the lifetime of Ravindra is immaterial as
Section 37 mandates settlement of account after death of Ravindra.
The finding of Learned Arbitrator on Issue No.6 that the accounts
were not settled between the claimants and Respondent Nos.2 and 3
is based on appreciation of evidence and is not shown to suffer from
perversity.
16. The Learned Arbitrator has awarded 40% share in profit which is
sought to be assailed on the ground that Section 37 does not speak of
share in the ratio as agreed in the partnership deed. The business of
the firm is sale of liquor using the liquor license and operated from
partnership premises of the firm. There is no submission canvassed
that the liquor license was not the property of the partnership firm.
The learned Arbitrator has taken into consideration the rent receipt of
the old shop Exhibit C-8 which stood in the name of the partnership
firm, that the rent was paid from the income of the firm and held that
the tenancy of the old shop stood in the name of the firm and that
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new redeveloped shop is in the lieu of the said old shop. Mr. Bharucha
has rightly pointed out the partnership deed which provides for the
business to be carried out from the old shop. Clause 10 of the
partnership deed also speaks of partnership premise referable to the
old tenanted shop. The learned Arbitrator has therefore rightly held
that the Respondents have not brought any evidence to show any
exclusive claim in respect of the tenancy and subsequent entitlement
to the premises in lieu of the tenancy. The business was therefore
being carried out by utilising the partnership assets including the
share of deceased in the assets of the firm.
17. Section 37 uses the expression "such share of the profits made
since he ceased to be a partner as may be attributable to the use of his
share of the property of the firm". It is admitted by the Respondent No
2 that the principle source of income is the income from the
partnership business. The Learned Arbitrator has relied upon the
decision of Hon'ble Apex Court in V. Subramaniam vs Rajesh
Raghuvendra Rao1 in which the Hon'ble Apex Court has held that
partners of a firm are co-owners of properties of the firm unlike a
company. Accepting the legal position, Ravindra and Nakul would be
co-owners of properties of the firm i.e. the liquor licenses and shop
premises. The business of sale of liquor is essentially from utilising
1 (2009) 5 SCC 608
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these two assets of the partnership firm. There is no evidence
adduced by the Respondents to demonstrate that the profits of the
firm subsequent to the death of Ravindra was not attributable to use
of Ravindra's share of the property. As per the partnership deed, by
utilising the same assets, the parties had agreed to share of profits in
the ratio of 60% : 40% which has been granted by the Learned
Arbitrator. In absence of any evidence by Respondents to
demonstrate that despite use of the same assets, there were other
factors which militates against the award of the profits of the firm on
account of utilising of share of deceased in the same proportion, the
award of profits in same ratio as agreed in the partnership deed
cannot be said to suffer from perversity.
18. On the aspect of limitation, the Learned Arbitrator has
considered the provisions of Section 88 and 95 of the Trusts Act and
Section 10 of the Limitation Act to hold that the claim of the claimants
with regard to the share in the capital and profits of the firm survives
unless the same has already been settled. In the case of Hasina
Mohamad Shafik Lalji and Ors. vs. Fatima Correa Nee Fatima Yakub
Ali (supra), an identical clause in the partnership deed came up for
consideration in the context of Section 34 of the Arbitration Act. In
that case, one of the partners had expired in the year 1982 and in the
year 2012, the arbitration clause was invoked claiming profits arising
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from the use of the deceased partner's share of the capital of the
firm. On aspect of limitation, the learned Single Judge considered the
provisions of Section 88, Illustration (f) and Section 95 of Trusts Act
dealing with the fiduciary obligation and Section 10 of Limitation Act
providing for suits against trustees and their representatives not
being barred by any length of time.
19. The Learned Arbitrator has applied the law laid by the learned
Single Judge to hold that the claim is not barred by limitation. There is
no contrary ruling pointed out to this Court to demonstrate that the
Award is not in compliance with the judicial precedent.
20. The winding up of the firm is complete only upon dissolution of
firm and settlement of account and when a surviving partner carries
on the business of partnership with the property of the firm without
settlement of accounts, the estate of the deceased partner is entitled
to share of the profits or to interest at the rate of 6% on the amount
of share. In this case the Learned Arbitrator has granted share in
profits of the firm in accordance with law.
21. In light of the above, the impugned Award is not demonstrated
to be vitiated on account of patent illegality, perversity or being in
contravention with the fundamental policy of Indian Law. Resultantly,
there is no warrant for interference under Section 34 of Arbitration
Act. Petition stands dismissed.
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22. In view of the dismissal of the petition, pending Interim
Applications, if any, do not survive for consideration and same stand
dismissed.
[Sharmila U. Deshmukh, J.]
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Signed by: Sanjay A. Mandawgad
Designation: PA To Honourable Judge
Date: 01/04/2026 20:35:47
