Calcutta High Court
Mukhtar Alam vs Yasmin Khalique And Ors on 5 August, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Original Civil Jurisdiction
Commercial Division
The Hon'ble Justice Sabyasachi Bhattacharyya
APO No. 89 of 2024
IA NO: GA-COM 1 of 2024
Mukhtar Alam
Vs
Yasmin Khalique and Ors
With
AP-COM No. 677 of 2024
Mukhtar Alam
Vs
Yasmin Khalique and Ors
For the petitioner : Mr. Tarique Quasimuddin, Adv.
Mr. Ishaan Saha, Adv.
Mr. Zaniab Tahur, Adv.
For the respondent : Mr. Sohail Haque, Adv.
Mr. M.I.A. Lodhi, Adv.
Hearing concluded on : 18.07.2024
Judgment on : 05.08.2024
Sabyasachi Bhattacharyya, J:-
1. Both the present challenges arise out of consecutive orders passed by
the learned Arbitrator in connection with the self-same arbitral
proceedings between the parties.
2. The facts of the case in brief are that the respondents, as claimants,
filed the arbitral proceedings claiming damages, declaration and
injunction on the allegation that the respondent/present appellant
acted in breach of the contractual and statutory terms of
confidentiality and loyalty by carrying on a rival business in a
clandestine manner to the detriment of the interest of the partnership
firm, of which the appellant is a 50% partner whereas the
claimants/respondent nos.1 and 2 are partners having 25% share
each. The respondent no.3 is the partnership firm itself.
3. The respondent/present appellant filed a statement of defence with
counter claim for an award of payment of his proportionate 50% share
in the profits earned by the claimant/respondent no.3-firm by
continuing to carry on business after dissolution of the firm on
November 17, 2018.
4. The partnership firm, it may be mentioned here, does business in
Tobacco Gul under the name and style of „Musa Ka Gul‟.
5. On the prayer of the respondent/present appellant made in an
application for interim award under Section 31(6) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act")
the erstwhile Arbitrator (since deceased) passed an interim award on
November 12, 2020. The two issues on which such interim award was
passed were;
(a) Whether on a true construction the Partnership Deed dated 1st
April 2006, is a partnership at will; and
(b) If so, whether by notice of dissolution dated 17th November,
2018, served by the Respondent on the other partners, the firm
stands dissolved.
Both the issues were held in the affirmative. The erstwhile
Arbitrator held that the partnership was a partnership at will and that
it stood dissolved by the notice dated November 17, 2018, served by
the respondent/present appellant, which was treated to be a notice of
dissolution of partnership.
6. The said award was challenged before this Court under Section 34 of
the 1996 Act, which was dismissed, upholding the interim award. In a
challenge to such order under Section 37 of the 1996 Act, the
concerned Division Bench substantially affirmed the award, apart
from setting aside certain observations. A challenge before the
Supreme Court by way of a Special Leave Petition by the
claimants/respondents met with failure.
7. Subsequently on the demise of the erstwhile Arbitrator, the present
Arbitrator was appointed by the Court to resolve the dispute between
the parties. The said learned Arbitrator passed two orders on May 15,
2024.
8. By the first order, an application filed by the respondents/appellant
under Section 16 of the 1996 Act was rejected, which is the subject-
matter of challenge in AP (Com) 677 of 2024.
9. By the next order, the Arbitrator invoked the provisions of Section 26
of the 1996 Act, appointing one Mr. Kajol Kumar Guha Ray, a
Chartered Accountant, to ascertain the total sales of the product
"Musa Ka Gul", sold by three entities, being one M.S. Industries, a
partnership firm, a sole proprietorship having the same name, and
another proprietorship concern by the name of Md. Musa Tobacco
Company.
10. M.S. Industries, the proprietorship firm, belongs to the wife of the
present appellant. In the partnership firm by the name of M.S
Industries, the son and wife of the present appellant are partners and
the present appellant himself is allegedly the proprietor of Md. Musa
Tobacco Company.
11. The said second order has been challenged in APO No. 89 of 2024.
12. Learned senior counsel appearing for the appellant places reliance on
Indian Farmers Fertilizer vs. Bhadra Products reported at (2018) 2 SCC
534, for the proposition that if there is a final determination of an
issue between the parties, the same cannot be re-adjudicated all over
again. The Supreme Court considered the language of Section 31(6) of
the 1996 Act, and held that it is advisedly wide in nature and covers
"any matter", subsuming issues at which the parties are in dispute.
13. Learned Senior Counsel argues that even if termed as an interim
award, such an award is final as regards the issues decided therein,
though made at an interim stage. Such issues conclusively
adjudicated in the interim award cannot be revisited once again at the
time of passing the final award. It is stressed upon that in view of the
interim award dated November 12, 2020 passed by the erstwhile
Arbitrator, the issue as to whether the claimant/respondent no.3-firm
is a partnership at will and as to whether the same was dissolved by
the notice dated November 17, 2018, were conclusively decided in the
affirmative. Such conclusive adjudication could not be reopened by
the present Arbitrator.
14. It is argued that the turning down of the Learned Arbitrator of the
issue of res judicata raised by the present appellant itself tantamounts
to an award, being a final adjudication on the issue, thus amenable to
the jurisdiction of this Court under Section 34 of the 1996 Act.
15. Learned Senior Counsel for the appellant also assails the punitive
costs imposed in the said order.
16. Learned Senior Counsel argues that in effect, the subsequent order
appointing a Chartered Accountant for ascertaining the accounts of
independent entities other than the parties to the arbitration amounts
to grant of relief under Section 17 of the 1996 Act, which is amenable
to a challenge under Section 37 of the said Act.
17. It is next contended that, in the absence of any amendment to the
original claims, such order was entirely de hors the jurisdiction of the
Arbitral Tribunal and ought to be set aside. It is argued that M.S.
Industries, both the sole proprietorship and the partnership, are not
parties to the arbitration agreement and as such no order could be
passed against them.
18. Learned senior counsel argues on merits as well, contending that the
appellant had renewed the trademark "Musa ka Gul" as a partner of
the respondent no. 3-firm in February 2019, after the notice of
dissolution, only for the beneficial winding up of the firm. In such
context, reliance is placed on Section 47 of the Indian Partnership Act,
1932.
19. It is next argued that although the order for ascertaining accounts of
third party entities was purportedly passed under Section 26 of the
1996 Act, the same is in effect an interim measure under Section 17
and thus amenable to appeal under Section 37 of the said Act.
Learned senior counsel distinguishes the scopes Sections 26 and 17
in such context.
20. Under Section 26, it is argued, an expert may be appointed to assist
the Tribunal if necessary in making the final award whereas in the
present case, the accounts directed to be given fall beyond the scope
of the reference.
21. Learned counsel for the respondent controverts the appellant‟s
submissions and cites a co-ordinate Bench judgment of this Court in
M.D Creations and Others vs. Ashok Kumar Gupta reported at (2023)
SCC Online Cal 1419 where the Court held that where the
plea challenging jurisdictional competency of the Arbitrator is
dismissed, the aggrieved party has to wait till the passing of the final
award and only then can file an application for setting aside the award
under Section 34. For the same proposition, learned counsel also
relies on Deep industries Limited vs. Oil and Natural Gas Corporation
Limited reported at (2020)15 SCC 706.
22. It is argued that neither the order under Section 26 of the 1996 Act
nor the order turning down the objection as to jurisdiction under
Section 16 are amenable to challenges respectively under Sections 37
and 34 of the 1996 Act. It is argued that that appellant has wrongfully
granted license of the firm‟s trademark to his wife and as such, the
Arbitrator was well within his scope of reference to direct accounts to
be filed in respect thereof.
23. For the sake of convenience, AP (Com) 677 of 2024, is taken up for
adjudication first. The said challenge under Section 34 of the 1996 Act
is on the premise that the order of the Arbitrator turning down the
plea of lack of jurisdiction, in effect, decides the issue of res judicata
conclusively between the parties.
24. The maintainability of the appeal is required to be decided first before
entering into the merits of the same. Section 2 (1) (c) of the 1996 Act
defines "arbitral award" to include an interim award. Section 31 of
the 1996 Act, which deals with the form and contents of an arbitral
award, in sub-section (6) thereof, provides that the arbitral tribunal
may, at any time during the arbitral proceedings, make an interim
arbitral award on any matter with respect to which it may make a
final arbitral award.
25. The scope of interim award has been dealt with by the Supreme Court
lucidly in Indian Farmers (supra). In the said matter as well, the
dispute arose from an order passed in respect of an application under
Section 16 of the 1996 Act, challenging the jurisdiction of the Arbitral
Tribunal.
26. The question which arises in the present case is how far the issue
decided by the impugned order pertains to an adjudication by the
Arbitral Tribunal on its jurisdiction. Section 16 of the 1996 Act,
provides that the Tribunal may rule on its own jurisdiction, including
ruling on any objections with respect to the existence or validity of the
arbitration agreement. The said provision contemplates a plea that the
Arbitral Tribunal does not have jurisdiction. Under sub-section (2) of
Section 16, the plea may pertain to the initial jurisdiction of the
tribunal to decide on the disputes referred to it, while under sub-
section (3) of Section 16, a plea can be taken that the Arbitral Tribunal
is exceeding the scope of its Authority. Under sub-section (4) of
Section 16, in either of the cases, the Arbitral Tribunal may admit a
later plea if it considers the delay justified.
27. Importantly, under Section 16(5), the Arbitral Tribunal shall decide on
such a plea and where it takes a decision rejecting the plea, continue
with the arbitral proceedings and make an arbitral award. Unlike the
UNCITRAL Model Law, on which the 1996 Act is largely modelled, we
do not have an immediate further challenge against an order of the
Arbitral Tribunal holding in favour of its jurisdiction and the aggrieved
party has to wait till the final award, although if the Tribunal upholds
the objection as to its jurisdiction, an appeal is maintainable under
Section 37 of the 1996 Act.
28. Under sub-section (6) of Section 16, a party aggrieved by the final
award may make an application for setting aside the award in
accordance with Section 34.
29. Section 34 (2)(a), in sub-clause (iv) thereof, provides scope of challenge
to the award on the ground that the arbitral award deals with a
dispute not contemplated by or not falling within the terms of
submission to arbitration or that it contains decisions on matters
beyond the scope of the submission to arbitration.
30. Although under sub clause (b) of sub-section (2) of Section 34, there is
a scope of challenge on the ground of contravention of fundamental
policy of Indian law and/or conflict with the basic notions of morality
or justice, fact remains that in a challenge under Section 34 against
the final award, there is no scope of reopening an issue which has
been conclusively determined by the Tribunal at an interim stage.
31. To explore the connotation of "an award" under the 1996 Act, which
has not been defined in extenso in the said Act, reference to the
definition of "decree" as provided in the Code Of Civil Procedure is
inevitable, since the nature and implications of an award cannot be
distinguished from that of a decree passed by the Civil Court in a
similar dispute. As per the Civil Procedure Code, "decree" means the
formal expression of an adjudication which, so far as regards the
Court expressing it, conclusively determines the rights of the parties
with regard to all or any of the matters in controversy in the suit and
may be either preliminary or final.
32. A preliminary decree, to a certain extent, is akin to an interim award
since the rights of parties are conclusively decided on some
issue/issues but the suit/arbitral proceeding continues even
thereafter and ultimately culminates in a decree/final award.
33. Thus, to ascertain whether by the order impugned in AP (Com) 677 of
2024 the Arbitrator conclusively determined the rights of the parties
in respect of a controversy in the arbitral proceeding, we are to look
into the character of the controversy decided by the impugned order.
34. The plinth of the objection taken by the present appellant before the
Arbitrator in its application under Section 16 was that the two issues
decided in the interim award dated November 12, 2020 had attained
finality and that the portion of the claim based on such issues had
been rendered infructuous and ought to be rejected. Hence, the very
premise of the objection raised was that the issues of the partnership
being a partnership at will and it having been dissolved by the notice
dated November 17, 2018, operate as res judicata in further
proceedings before the Arbitrator.
35. Under normal circumstances, Section 37 of the 1996 Act provides for
an appeal under the said Section only in cases where the Arbitrator
holds that it does not have jurisdiction within the contemplation of
sub-sections (2) and (3) of Section 16.
36. Seen from such restricted perspective, by the impugned order, the
Arbitrator merely held that it had jurisdiction, thus curtailing the
remedy of a challenge under Section 37 of the 1996 Act. The scheme
of the said act is such that if the Arbitrator holds in favour of its
jurisdiction, the remedy of the aggrieved party lies in a challenge
under Section 34 when the final award is passed by the Arbitrator. No
interim challenge at that stage is envisaged under the 1996 Act.
37. However, in the instant case. the adjudication impugned was not
restricted to whether the Arbitrator had jurisdiction to decide on the
subject-matter and/or whether the issues in question fell beyond the
scope of his Authority. Rather, the issue raised before the Arbitral
Tribunal was wider in scope, raising an objection on the ground of
res judicata.
38. The Arbitrator, by the impugned order, did not merely observe that it
had jurisdiction to proceed with the reference but returned categorical
findings that there was no order to the effect that the contents and/or
finding the interim award dated November 12, 2020 would be treated
as binding on him while passing the final award. It was further
observed that there is no reason as to why the findings or conclusions
arrived at by his predecessor in the interim award dated November 12,
2020 should be treated as "res judicata". Hence, what was effectively
done was that the issue of res judicata was conclusively decided by
the learned Arbitrator, thus taking the adjudication on such issue into
the realm of a conclusive determination on the said issue, which is
directly germane on the cardinal components of controversy between
the parties.
39. Section 31(6) envisages that the Arbitral Tribunal, during the
proceedings, may make an interim arbitral award on any matter with
respect to which it may make a final arbitral award, which has been
given the status of an „award‟ under Section 2(1)(c)of the 1996 Act,
thus making it amenable to a challenge under Section 34 of the said
Act.
40. In the present case, the issue of res judicata was a matter with respect
to which the Arbitral Tribunal might have made a final arbitral award.
Thus, the adjudication on the issue of res judicata was a conclusive
determination on the said issue, finally determining the rights and
contentions of the parties at the interim stage, precluding the same
from being re-agitated at the stage of final hearing of the arbitral
proceedings.
41. Hence, going by the tenor of the impugned order, it cannot be
restricted to the limited conspectus of jurisdiction as envisioned in
Section 16 but is much wider in scope, entering into the domain of a
final and conclusive determination on one of the matters in
controversy between the parties in the arbitral proceedings which has
serious repercussions on the other issues as well, hence lending it the
colour of an interim award. Thus, although no appeal is maintainable
against the same under Section 37(2)(a), the said conclusive
determination, being an interim award, is definitely amenable to a
challenge under Section 34 of the 1996 Act.
42. In fact, a cue can be borrowed from the previous round of litigation as
to the nature of such adjudication.
43. Precisely the same issues had been determined by the erstwhile
Arbitrator in his interim award dated November 12, 2020, where it
was finally determined that the deed of partnership dated April 1,
2006 is a partnership at will and the same stands dissolved,
consequent upon service of the notice dated November 17, 2018 by
the respondent/appellant on the claimants. Such adjudication was
challenged under Section 34 of the 1996 Act, by the
claimants/respondents themselves, although unsuccessfully up to the
Supreme Court. Hence, those issues have attained finality and cannot
be reopened now by the Arbitral Tribunal. It is well-settled that if an
issue is decided conclusively, it can operate as res judicata even
within the same proceeding at subsequent stages.
44. Thus, the present challenge under Section 34 is very much
maintainable against the decision of the Arbitrator to turn down the
objection as to res judicata.
45. Moving on to the merits, the impugned order whereby the learned
Arbitrator has held that he was not bound by the conclusive decisions
in the interim award dated November 12, 2020 is palpably erroneous.
46. Under Section 34 (2-A), of the 1996 Act, if the Court finds that the
award is vitiated by patent illegality appearing on the face of it, it may
be set aside. The proviso thereto stipulates a restriction in cases
where the ground for setting aside is merely an erroneous application
of law or reappreciation of evidence, neither of which applies in the
present case. The faulty exercise of jurisdiction by the Learned
Arbitrator does not require any reappreciation of evidence and is not
limited to a mere erroneous application of the law. The illegality of
reopening the issues which have been conclusively determined by the
interim award dated November 12, 2020, is in conflict with the basic
notions of justice and in contravention with the fundamental policy of
Indian law. In the teeth of the previous interim award, the unreasoned
finding of the learned Arbitrator to the effect that it is not bound by
the interim award or that the said award should not be treated as res
judicata, to say the least, is shocking to the conscience and cannot be
sustained.
47. In Indian Farmers (Supra), in a similar challenge under Section 16 of
the 1996 Act, the Supreme Court considered the judgment of National
Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft, reported at
(2007) 4 SCC 451 where it was observed that when an Arbitral
Tribunal finds that a claim was dead and not available to be made at
the relevant time or that the claim was not maintainable for other
valid reasons or that the claim was barred by limitation, it could not
be held to be a case of refusal to exercise jurisdiction by the Arbitral
Tribunal.
48. In Indian Farmer (supra), while deciding whether the issue of limitation
tantamounted to an interim award, the Supreme Court observed that
the language of Section 31(6) is advisedly wide in nature. A reading of
the said sub-section, it was held, makes it clear that the jurisdiction
to make an interim award is left to the good sense of the Arbitral
Tribunal and that it extends to "any matter" with respect to which it
may make a final arbitral award. The expression "matter" is wide in
nature and subsumed issues at which parties are in dispute. Any
point of dispute between the parties which has been answered by the
Arbitral Tribunal can therefore be the subject-matter of an interim
arbitral award, it was held. The Supreme Court also considered
Section 32(1) of the 1996 Act, which states that the arbitral
proceedings would be terminated only by the final arbitral award as
opposed to an interim award, thus making it clear that there can be
one or more interim awards prior to a final award which conclusively
determine some of the issues between the parties, culminating in a
final arbitral award which ultimately decides all remaining issues
between them.
49. Thus, as in the present case, even if the arbitral proceeding ultimately
gets terminated with the passing of the final award, there may be
several interim awards which conclusively determine some of the
issues between the parties. Hence, the conclusive decision on the
issue of res judicata is well within the purview of an interim award as
contemplated in Section 31(6) and thus amenable to a challenge
under Section 34 of the said Act.
50. Having said so, it cannot but be reiterated that the impugned
unreasoned interim award whereby the learned Arbitrator turned
down the objection as to res judicata and decided to reopen the two
issues already decided by the previous interim award dated November
12, 2020, which has already attained finality up to the Supreme
Court, suffers from palpable illegality, is contrary to fundamental
principles of Indian law and also against all notions of justice and is
shocking to the conscience as well.
51. Thus, AP-COM No. 677 of 2024 is allowed on contest, thereby
setting aside the impugned interim award (although couched as an
order) dated May 15, 2024, whereby the learned Arbitrator held that it
is not bound by the interim award dated November 12, 2020. It is
hereby held that the learned Arbitrator is debarred from re-
adjudicating on the two issues which were decided by the erstwhile
learned Arbitrator in its interim award dated November 12, 2020, by
operation of the principle of res judicata. Insofar as the declaration in
such previous interim award to the effect that the deed of partnership
dated April 1, 2006 is a partnership at will and the same stands
dissolved consequent upon service of the notice dated November 17,
2018 by the respondent on the claimants is concerned, the said
decision is final and binding between the parties and cannot be
further adjudicated upon by the learned Arbitrator.
52. APO No. 89 of 2024 is now taken up for consideration in the above
backdrop.
53. Although the learned Arbitrator invoked Section 26 of the 1996 Act to
pass such order, a careful scrutiny of the order itself shows that the
same grants an interim remedy under Section 17 of the said Act.
54. Although an exercise under Section 26 of the 1996 Act is not subject
to challenge under Section 37, an order passed within the purview of
Section 17 of the said Act is.
55. Section 26 of the Act contemplates the appointment of an expert suo
moto by the Arbitral Tribunal, without requiring any application for
such purpose. Such appointment, as per Section 26(1)(a), can be
passed to report to it on specific issues to be determined by the
Arbitral Tribunal.
56. In the present case, by the impugned order, the learned Arbitrator has
appointed a Chartered Accountant to ascertain the total sales of the
product "Musa Ka Gul" sold by three entities, none of which are
parties to the arbitration agreement or partners of the respondent
no. 3-firm. Although the present petitioner might be the proprietor of
one of such entities, namely Md. Musa Tobacco Company, he is not a
part of the proprietorship firm or partnership firm by the name of M.S
Industries, which are run by his wife and son.
57. Hence, Section 26 (1)(a) does not envisage any expert to be appointed
to report on issues which are not the subject-matter of the arbitral
proceeding at all.
58. A cardinal premise of an expert appointment under Section 26 is that
the said appointment has to be on specific issues covered by the
arbitration clause and germane for the adjudication between the
parties to the arbitration agreement. Section 26(1)(b) empowers the
Arbitrator to require "a party" to give the expert any relevant
information or to produce relevant documents, etc. Since none of the
entities which have been directed to furnish such information and
documents to the expert appointed are parties to the arbitral
proceeding or the arbitration agreement or even the partnership firm,
the order cannot be said to be one under Section 26 of the 1996 Act.
59. Apart from the fact that the order was passed against entities which
are not parties to the arbitration agreement or the partnership firm or,
for that matter, parties to the arbitral proceedings, the period for
which the report was directed to be submitted goes way beyond the
contemplation of the reference itself. The reference, claim and counter
claim relate to a period prior to dissolution of the firm and, after the
previous interim award deciding that the dissolution took place by the
notice dated November 17, 2018, orders of interim nature can at best
be passed directing accounts till such date or incidental orders strictly
to facilitate winding up of the firm after such dissolution.
60. The report was directed to be filed from April 1, 2017 to February 29,
2024, whereas it has been conclusively determined in the interim
award dated November 12, 2020, that the partnership firm itself stood
dissolved as on November 17, 2018.
61. Thus, the majority of the period covered by the impugned order falls
beyond the pale of operation of the partnership firm, that is,
respondent no.3.
62. In such context, a reference of the relevant provisions of the Indian
Partnership Act, 1932 would be relevant.
63. Before embarking on the said enquiry, it has to be kept in mind that
the reference frame would be the dissolution of the partnership firm
(respondent no.3) on November 17, 2018.
64. Section 16 of the Indian Partnership Act 1932 has two components.
65. Sub-Section (a) stipulates that if a partner derived any profit for
himself from any transaction of the firm or from the use of the
property or business connection of the firm or the firm name, he shall
account for the profit and pay it to the firm.
66. Sub-section (b) of Section 16 provides that if a partner carries on
business of the same nature as and competing with that of the firm,
He shall account for and pay to the firm all profits made by him in
that business.
67. None of the said provisions apply for the period after November 18,
2024, when the partnership firm itself stood dissolved. Taking the
best case of the claimants/respondents, Section 50 of the 1932 Act is
also required to be accounted for. As per the said Section, subject to
contract between the partners, the provision of Clause (a) of Section
16 shall apply to transactions by any surviving partner or by the
representatives of a deceased partner undertaken after the firm is
dissolved on account of the death of a partner and before its affairs
have been completely wound up.
68. The said provision, however, is not applicable to the instant case for
various reasons. First, the dissolution in the present case is not on
account of the death of a partner. Secondly, the allegations sought to
be levelled in the amendment to be introduced by the claimants
pertains not to the present appellant deriving any profit from any
transaction of the firm or use of property or business connection of
the firm but that the appellant is carrying on business of the same
nature and competing with that of the firm. The latter eventuality is
covered by Section 16(b), which does not come under the purview of
Section 50, and hence cannot apply to a dissolved partnership firm at
all. Even sub-section (a) of Section 16 is not applicable for the reasons
as indicated above.
69. Next moving on to Section 45 of the 1932 Act, the same provides that
notwithstanding the dissolution of a firm, the partners continue to be
liable as such to third parties for any act done by any of them which
would have been an act of the firm if done before dissolution. The said
provision is not attracted in the instant case as well, since the
allegations made and the accounts directed to be assessed by the
impugned order do not pertain to activities between the partners on
behalf of the partnership firm on the one hand and third parties on
the other, but relate to transactions inter se between the partners.
70. Section 46 of the 1932 Act provides for the right of partners to have
the business wound up after dissolution. As per the said provision, on
the dissolution of a firm, every partner or his representative is
entitled, as against all the other partners or their representatives, to
have the property of the firm applied in payment of the debts and
liabilities of the firm and to have the surplus distributed among the
partners or the representatives according to their rights. Thus, the
rights conferred thereunder have, as their focal point, the date of
dissolution of the partnership firm.
71. In the instant case, however, the learned Arbitrator has directed a
roving enquiry into activities of third party-entities much after the
dissolution of the partnership firm, which, thus, cannot have any
nexus whatsoever with the winding up of the business of the firm.
72. Again, Section 47 of the 1932 Act contemplates the legal fiction of
continuing authority of partners for the purpose of winding up. Under
the same, after the dissolution of the firm, the authority of each
partner to bind the firm and the other mutual rights and obligations of
partners continue notwithstanding the dissolution. However, in
specific terms, such continuation is so far as may be necessary to
wind up the affair of the firm and to complete transactions begun but
unfinished at the time of the dissolution, but not otherwise.
73. Hence, the entire deeming fiction of continuing authority is tied-up to
the necessity to wind up the affairs of the firm and limited to complete
transactions begun but unfinished at the time of the dissolution,
highlighting the dissolution as the cut-off event for such continuance.
74. In the present case, the learned Arbitrator has directed the Chartered
Accountant appointed by him to ascertain total sales of three third
party-entities much beyond the date of dissolution, which is utterly de
hors the mandate of the Arbitrator and the charter granted to him by
the arbitration clause in the partnership deed.
75. The arbitration clause clearly restricts the mandate of the Arbitrator to
any case of dispute arising between the partners of or between the
surviving partners on the one hand and the heir/heirs etc. of any
deceased partner or the retiring partner on the other. As such, the
appointment of a Chartered Accountant to ascertain total sales by the
impugned order is not only in respect of third parties who have
nothing to do with the partnership firm but also pertains to a period
primarily subsequent to the dissolution of the firm. Such post-
dissolution period cannot be the subject-matter of scrutiny by the
Arbitrator either under the arbitration clause or the terms of reference
or the pleadings of the parties in the statement of claim and statement
of defence/counter claim.
76. The impugned order, it may be noted, is not merely restricted to
appointment of an expert to report on specific issues to be determined
by the Tribunal or confined to a requirement of the parties to give
relevant information or produce documents before the expert. By its
very nature, the impugned order grants reliefs contemplated under
Section 17 of the 1996 Act and takes the colour of a direction for
accounts.
77. Section 17(1)(ii) contemplates, inter alia, interim measures of
protection in respect of preservation of the subject-matter of the
arbitration agreement, securing amounts in dispute in the arbitration
as well as preservation or inspection of any property or thing which is
the subject-matter of dispute in arbitration. The impugned direction in
the nature of accounts, thus, comes within the pale of Section 17 of
the 1996 Act, irrespective of the purported invocation of Section 26 by
the learned Arbitrator. Although the learned Arbitrator quoted
Sections 26 as his source of power, the power exercised in the
impugned order flows from Section 17 of the 1996 Act, and as such,
the said order is squarely amenable to a challenge under Section
37(2)(b) of the 1996 Act.
78. As discussed above, the said order is palpably illegal and de hors
jurisdiction on several counts.
79. First, the expert appointed by the Arbitrator has been directed to
ascertain total sales of three independent third party-entities who
have nothing to do with the partnership firm, nor are partners or
parties to the arbitral proceeding or the arbitration agreement between
the parties. Hence, the learned Arbitrator had no jurisdiction to pass
orders against such entities. It is well-settled that an Arbitral Tribunal
is, after all, a creature of the agreement between the parties and
cannot travel beyond the scope of such agreement. The arbitration
clause contained in the partnership deed between the parties does not
contemplate any dispute with any third party-entity and as such, the
impugned order is bad on such count.
80. Secondly, the majority of the period for which the total sales have
been directed to be ascertained, that is, from November 18, 2018, to
February 20, 2024, is a post-dissolution period, which is not the
subject-matter of the dispute between the parties. As per the claims
and the counter claims by both parties, the subject-matter of the
dispute is restricted to a period during subsistence of the partnership
firm. By the impugned order, the learned Arbitrator has thrown the
gates of his own jurisdiction wide open, encompassing disputes not
contemplated either in the arbitral agreement or in the arbitral
proceeding itself. Such order, thus, is de hors the jurisdiction of the
Arbitral Tribunal itself and is bad in law on such count as well.
81. In such view of the matter, the impugned order dated May 15, 2024,
appointing a Chartered Accountant to ascertain total sales of three
third party-entities for the period from April 1, 2017, to February 29,
2024 is palpably illegal and beyond the jurisdiction of the learned
Arbitrator and, as such, cannot be sustained in the eye of law.
82. Accordingly, APO No. 89 of 2024 is allowed on contest. The order of
the learned Arbitrator dated May 15, 2024 appointing a Chartered
Accountant to ascertain total sales of the three third party-entities for
the period from April 1, 2017 to February 29, 2024, along with
ancillary directions, is accordingly set aside.
83. IA No. GA-COM 1 of 2024 is disposed of accordingly.
84. There will be no order as to costs.
85. Urgent certified server copies, if applied for, be issued to the parties
upon compliance of due formalities.
( Sabyasachi Bhattacharyya, J. )
