Telangana High Court

Mrs. Bibi Hajjar Dashti vs Mr. Syed Ali Asghar Bolooki on 28 October, 2024

     THE HON'BLE THE CHIEF JUSTICE ALOK ARADHE
                        AND
      THE HON'BLE SRI JUSTICE J.SREENIVAS RAO

        COMMERCIAL COURT APPEAL No.14 OF 2024

JUDGMENT:

(Per the Hon'ble the Chief Justice Alok Aradhe)

Mr. Avinash Desai, learned Senior Counsel represents

Mr. Mohd. Omer Farooq, learned counsel for the appellant.

Mr. B.Chandrasen Reddy, learned Senior Counsel

represents M/s.Chandrasen Law Offices, for the respondents.

2. This appeal under Section 37(1)(b) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'the 1996 Act')

has been filed against the order dated 14.03.2024 passed in

C.O.P.No.82 of 2023 by the District Judge, for Trial and

Disposal of Commercial Disputes, at Hyderabad, by which

respondent No.1, namely Managing Partner of M/s.Cafe Bahar

Restaurant has been appointed as Receiver. In order to

appreciate the grievance of the appellant, relevant facts need

mention which are stated infra.

(i) FACTS:

3. The parents of the appellant and the respondent Nos.1 to

3 and deceased respondent No.4 constituted a partnership firm,

namely M/s.Cafe Bahar and Restaurant (hereinafter referred to

as 'the Firm'), which is engaged in the business of running an

Irani restaurant and bakery since 1999. After the death of the

parents of the appellant, and the respondent Nos.1 to 3 and

deceased respondent No.4, the Firm was re-constituted and a

Deed of Reconstitution dated 01.10.2020 was executed. The

appellant has 14% share in the Firm.

4. After execution of the Deed of Reconstitution, disputes

arose between the appellant and the respondents. According to

the appellant, the respondents did not pay her the rightful

share in the profits of the Firm since January, 2021 i.e., for 3

years and 9 months and was paid only a sum of Rs.1,00,000/-

per month. The said amount is deducted from the capital of the

appellant in the firm. As per the version of the appellant, the

respondents have misappropriated and withdrawn huge sums

from the bank accounts of the Firm.

5. Respondent Nos.1 to 3 issued a notice dated 06.09.2021

to dissolve the Firm to which the appellant submitted a reply on

09.09.2021 stating that the Firm stands dissolved. The

respondent Nos.1 to 3, thereupon, initiated arbitration

proceedings seeking dissolution of the Firm. The arbitrator by

an Award dated 22.09.2023 permitted the withdrawal of the

claims while preserving the rights and contentions of the

appellant.

6. The appellant issued a notice on 07.10.2023 of

dissolution of the Firm and the respondents were asked to

render accounts and to distribute the assets of the Firm. The

appellant filed an application under Section 9 of the 1996 Act

seeking appointment of a Receiver to take over the business of

the Firm. The Commercial Court, by an order dated 13.02.2024

passed in C.O.P.No.82 of 2023 allowed the aforesaid application

filed by the appellant. The operative portion of the said order

reads as under:

"In the result, petition is allowed. Both the parties are directed to submit their proposals by 19.02.2024 for appointing a receiver and to give necessary directions to the receiver in order to manage the day to day affairs of the partnership firm and its properties."

7. The aforesaid order has not been challenged by either of

the parties and has attained finality. Thereafter, in pursuance

of the proposal submitted by the parties, the Commercial Court

by an order dated 14.03.2023 inter alia held that the Firm runs

the Café, which is famous and well known to the public and if a

third party is appointed as a Receiver, it would be difficult for

Receiver to manage the day to day affairs of the business. The

Commercial Court, therefore, appointed respondent No.1,

namely the Managing Partner of the Firm as Receiver to manage

the day to day affairs of the business, subject to the terms and

conditions enumerated therein. Being aggrieved, the appellant

has filed this appeal.

(ii) INTERIM ORDER:

8. A Division Bench of this Court with consent of the parties

had appointed Mr. P.Raju, retired District Judge as Receiver to

supervise the running business of the Café during pendency of

the Appeal and has fixed his remuneration at Rs.2,00,000/- per

month, which was directed to be borne by the appellant and the

respondents equally. The aforesaid Receiver had submitted a

Report to this Court in a sealed cover. The sealed cover was

opened and the learned Senior Counsel for the parties were

granted the opportunity to go through the Report submitted by

the Receiver. Learned Senior Counsel for the parties have gone

through the aforesaid Report submitted by the Receiver.

According to the appellant, due to non-cooperation of the

respondents, the Receiver has not been able to supervise the

business, while the contention of the respondents is that on

account of interference of the appellant with the functioning of

the Café, the employees are not reporting to duty. Admittedly,

the Café is closed since 10.10.2023.

(iii) SUBMISSIONS ON BEHALF OF THE APPELLANT:

9. Learned Senior Counsel for the appellant submitted that

the duration of business of the partnership is at will and the

same stands dissolved on receipt of notice of dissolution. The

Commercial Court ought to have appreciated that respondent

No.1 has mismanaged the affairs of the Firm and has run the

business by completely excluding the appellant from the profits

of the Firm. It is contended that it was wholly inappropriate to

appoint the respondent No.1 as the Receiver and to permit him

to run the business in the same manner as he was doing prior

to dissolution of the Firm. It is further contended that the

respondent Nos.1 and 3 have withdrawn a sum of Rs.2.5 crores

and Rs.1.6 crores respectively on 31.03.2023 and have

misappropriated the funds as well as assets of the firm. The

conduct of the respondent No.1 disentitles him to be appointed

as the Receiver and his appointment is prejudicial to the

interest of the appellant as the same would facilitate

misappropriation of funds and assets of the Firm.

10. It is submitted that after the interim order dated

27.09.2024 was passed by this Court, the respondent Nos.1

and 3 have acted in a mala fide manner with the sole object of

making it impossible for the Receiver to function and have

instructed the staff not to cooperate with the Receiver

appointed with the consent of the parties. It is pointed out that

on account of instructions of respondent Nos.1 and 3, the

entire staff is absent from the duties at the Café from

10.10.2024 and the Café has been closed. It is argued that the

Commercial Court erred in relying on the decision of the

Supreme Court in Firm Ashok Traders vs. Gurumukh Das

Saluja 1 and Motilal vs. Badri Nath 2 for the proposition that

the nature of business warrants appointment of partner as

Receiver. It is contended that the aforesaid decisions do not

apply to facts of the present case as in the aforesaid decision,

the issue with regard to the running partnership firms/joint

family business was involved. It is further contended that in the

facts and circumstances of the case, the Commercial Court

ought to have appointed a third party as a Receiver and the

appellant has no objection to the same. It is further contended

that various Resolution Professionals have been appointed as

Receivers to run the hotels. In this connection, reference has

been made to a Panel prepared by the Insolvency and

Bankruptcy Board of India. In support of his submissions,

reliance has been placed on the decision of the Madras High

Court in Devi Textiles vs. S.Suganthi 3 and a decision of the

Patna High Court in Sheoarain Jaiswal vs. Darshan Lal Jain4.

(2004) 3 SCC 155

AIR 1982 J&K 1

1999 SCC OnLine Mad 501

1971 SCC OnLine Pat 133

(iv) SUBMISSIONS ON BEHALF OF THE RESPONDENTS:

11. On the other hand, learned Senior Counsel for the

respondents has submitted that the Order passed by the

Commercial Court is just and proper and while directing the

appointment of respondent No.1 as the Receiver, the

Commercial Court has placed reliance on the decision of the

Supreme Court in Firm Ashok Traders (supra), which squarely

applies to the facts of the case. It is further submitted that in

the Award dated 20.09.2023, the Arbitrator has recorded the

finding that the duration of business of partnership is not at

will and the appellant has challenged the aforesaid Award in

proceeding under Section 34 of the 1996 Act. It is contended

that the amounts which were withdrawn by the respondent

Nos.1 and 3 were on account of salary of the employees of the

Firm. It is further contended that due to interference of the

appellant with the running of the Café, the Receiver was unable

to run the restaurant and the same has been closed with effect

from 10.10.2023. It is urged that the third party does not have

any experience of running the family concern and therefore, he

cannot be appointed as a Receiver and he cannot run the Café

effectively. It is pointed out that an application has been filed

seeking recall of the Order dated 27.09.2024 passed in this

appeal appointing the retired District Judge as the Receiver. It

is contended that the order passed by the Commercial Court

does not call for any interference in this Appeal.

12. We have considered the submissions made on both sides

and have perused the record.

(v) ANALYSIS:

13. Section 43 of the Partnership Act, 1932 provides for

dissolution by notice of partnership at will. For the facility of

reference, Section 43 is extracted below:

"43. Dissolution by notice of partnership at will.--

(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice."

Thus, it is evident that partnership firm at will may be

dissolved by any partners giving notice in writing to all the

partners to dissolve the partnership firm and the firm is

dissolved from the date mentioned in the notice as the date of

dissolution and in case no date was mentioned from the date of

communication of notice.

14. Clause 4 of the Deed of re-constitution of the partnership

reads as under:

"The duration of partnership business shall be "AT WILL". The retirement or death of any partner shall not 'IPSO-FACTO' dissolve the firm."

Thus, from the perusal of aforesaid clause, it is evident

that the duration of business of the partnership is at will. We

have carefully gone through the award dated 22.09.2023

passed by the arbitrator. The aforesaid award does not record

any finding that the partnership is not at will. The respondent

Nos.1 to 3 had issued a notice dated 06.09.2021 dissolving the

Firm. Thereafter, they issued a notice dated 18.04.2023 seeking

to withdraw the earlier notice dated 06.09.2021 seeking

dissolution of the Firm. Subsequently, the appellant by a notice

dated 07.10.2023 had dissolved the Firm with immediate effect.

The partnership Firm stands dissolved on receipt of the notice

by the respondents.

15. The solitary issue which arises for consideration in this

Appeal is whether in the obtaining factual matrix of the case,

the Managing Partner can be appointed as a Receiver to

manage the affairs of the Firm, which stands dissolved.

16. The Receiver in a claim or other proceedings is an

impartial person appointed by the Court to manage the affairs

of the Firm during the pendency of a lis between the parties and

acts as hand of the Court. The appointment of Receiver in

respect of a dissolved partnership is in the discretion of the

Court and while exercising the discretion, the Court will be

guided for consideration of observing and protecting the

property and assets of the dissolved form will not permit them

to be dissipated or used by one partner exclusively to the

detriment and disadvantage of the other partners, who are

excluded from the appointment of partnership Firm.

17. In Kerr & Hunter on Receivers and Administrators,

18th edn., at pg. 65, while dealing with appointment of

Receiver in partnership cases learned Authors have opined as

under:

"The readiness of the court to appoint a receiver in partnership cases depends upon whether the

partnership has been dissolved at the time when the application is made. If a dissolution has clearly been effected by the service of the claim form, or if the partnership has expired by effluxion of time, a receiver will readily be appointed, though the appointment is not a matter of course."

18. Impartiality is an essential attribute of a Receiver.

Therefore, normally one of the parties to a lis should not be

appointed as Receiver without consent of the other parties

unless a very special case is made out. Therefore, normally

when the relationship between the parties are strained and

there is deficit of trust and allegations and counter-allegations

are made against each other, in such circumstances a party to

the lis should not be appointed as Receiver. Similar view was

taken by a Division Bench of Patna High Court in Sheonarain

Jaiswal (supra) and a learned Single Judge of Madras High

Court in Devi Textiles (supra).

19. In the instant case, the appellant and the respondent

Nos.1 to 3 are related to each other as sister and brothers.

According to the appellant, she has not been paid her rightful

share in the profits of the partnership firm from January, 2021

i.e., 3 years and 9 months. It is the case of the appellant that

the working partners have withdrawn a sum of Rs.2.5 cores

and Rs.1.6 crores from the account of the firm on a single day

i.e., on 31.03.2023. According to the appellant, respondent

Nos.1 and 3 have not shared the books of accounts and have

excluded her completely from the properties of the firm and are

misappropriating the funds of the firm and are likely to alienate

the assets of the firm. On the other hand, respondents have

denied the aforesaid allegations and have pointed out that the

respondents have withdrawn the amount for making payment

of salaries to the employees of the firm. They have denied the

allegations of misappropriation of the fund as well as the assets

of the firm made on behalf of the appellant. This Court had

made an attempt for resolution of the dispute between the

parties by way of mediation. However, even the aforesaid

attempt has failed. The aforesaid facts clearly show that the

relationship between the parties is strained and there is a lack

of trust in each other.

20. In Firm Ashok Traders (supra), the Supreme Court did

not deal with a partnership, whose duration of business was at

will. In the aforesaid decision, the Supreme Court was dealing

with running of business of a Firm, which dealt with retail

liquor trade. In the aforesaid decision, in the facts and

circumstances of the case, it was held that the business of the

Firm should be allowed to continue at the hands of the persons

who were running it so far. The aforesaid decision is not an

authority for the proposition that a party can be appointed as

Receiver in case where the relationships are severely strained

and there is a lack of trust between them. The aforesaid

decision is of no assistance to the respondents.

(vi) CONCLUSION:

21. For the aforesaid reasons, the order dated 14.03.2024

passed in C.O.P.No.82 of 2023 by the Commercial Court insofar

as it directs appointment of Managing Partner of the Firm as a

Receiver cannot be sustained. It is accordingly set aside.

22. Admittedly, the Cafe is closed on 10.10.2024. It is in the

interest of the parties that the same is made functional. The

Insolvency and Bankruptcy Board of India has prepared a panel

of Resolution Professionals who are based in Hyderabad and

are looking after the hotel business during the pendency of the

proceedings under the Insolvency and Bankruptcy Code. There

is a need to appoint a neutral person as Receiver to manage the

affairs of the Firm. The Managing Partner of the Firm can also

not be permitted to manage the affairs of a dissolved Firm as

before. Therefore, Mr. Dantu Indu Sekhar, Resolution

Professional in the panel of Insolvency and Resolution Board of

India is appointed as Receiver to manage the affairs of Firm,

M/s.Cafe Bahar Restaurant, subject to the following terms and

conditions:

(i) The Receiver shall maintain the accounts of the

business property and vouch the receipts and payments

properly including cash counters, online orders by way of

e-commerce apps.

(ii) The Receiver shall maintain the sale proceeds

properly accounted for and no part of the proceeds is siphoned

off and/or carried away unaccounted by anyone.

(iii) The Receiver shall deposit the day to day sale

proceeds in the Firm's bank account bearing A/c

No.34833697002, State Bank of India, Old MLA Quarters,

Hyderabad.

(iv) The Receiver shall operate the accounts of the Firm

and withdraw or transfer the money from the said accounts

strictly for the purpose of running the business of M/s.Cafe

Bahar Restaurant.

(v) The Receiver shall ensure that no amount shall be

transferred to the accounts of any third party, unless such

transfer is required for the business of the Firm.

(vi) The Receiver shall maintain the record of all

expenses, incurred during the course of business including

payments to vendors, price of raw materials, utility charges and

salaries to staff etc., and submit the same to all the partners by

enclosing supporting vouchers or bills or invoices at every

fortnight, and

(vii) The partners shall have reasonable right to visit the

Cafe during business hours and watch the activities going on,

without interfering with the business activities run by the

Receiver.

23. Needless to state that the parties shall cooperate with the

Receiver to enable him to ensure that the business of the

Partnership Firm is managed efficiently during the pendency of

the lis. It is clarified that any observations/findings in this

order has been made only for the purposes of deciding this

Appeal and shall have no bearing on the merits of any

proceeding which may be initiated/pending between the

parties. The interim order dated 27.09.2024 is vacated.

24. The Appeal is accordingly disposed of. There shall be no

order as to costs.

Miscellaneous petitions, pending if any, shall stand

closed.