Shakuntla Devi and Another vs Smt. Bimla Rani

R.L. Anand, J.—Two F.A.O. Nos. 1021 and 1022 of 1987 were filed in the High Court and were dismissed vide judgment dated 31st March, 1987 passed by the learned Single Judge and those appeals were directed against the judgment dated 3rd September, 1983 passed by the Court of Sub Judge 1st Class, Chandigarh, who allowed the application u/s 30 of the Indian Arbitration Act filed by Smt. Bimla Rani Aggarwal against the Arbitrator and other partners and set aside the award dated 23rd June, 1981 given by the Arbitrator and again referred the matter to the arbitration of Shri S.R. Sharma to enter into arbitrator afresh. Directions were further given by the learned Sub Judge to the Arbitrator to give the fresh award within the statutory period of four months from the date of the receipt of the reference. Not satisfied with the judgment of the learned Single Judge, Smt. Shakuntla Devi and Shri Rajeev Kumar Sharma have filed the present L.P.A.

The facts can be described in the following manner:-

The dispute is between the partners of M/s Ambica Stone Crusher. Besides the parties there were some other partners, including Shri Khilan Ram Budhiraja. A dispute arose between the parties and in terms of the agreement, the matter was referred for arbitration to Shri S.R. Sharma, Arbitrator, who gave the award dated 23rd June, 1981, declaring that Smt. Bimla Rani Aggarwal, respondent No. 1, shall continue as a partner and would be entitled to claim her share in the profits earned by the partnership business on the condition that she would contribute a sum of Rs. 47,000/- to the partnership within 30 days from the date of the award. She was ordered to pay interest at the rate of 18 per cent per annum. It was stipulated in the award that if she failed to make the payment, the other partners would be at liberty to remove her from the partnership and constitute a new partnership. A copy of the award was sent to Smt. Bimla Rani Aggarwal for compliance. Later on Smt. Bimla Rani Aggarwal filed an application u/s 14 read with Section 17 of the Arbitration Act on 23rd July, 1981, seeking direction to the Arbitrator to file the award in the Court so that she could file objections thereto. The Arbitrator filed the award in the trial Court on 25th February, 1982. Smt. Bimla Rani Aggarwal filed objections against the award u/s 30 of the Arbitration Act, in which she pleaded, inter alia, that the partnership firm had been dissolved with effect from July 14, 1981, and, therefore, she could not make any payment to that firm in pursuance of the award. The award had become unenforceable and could not be implemented. The award was a nullity, because it had been passed in violation of the principles of natural justice. All the partners in the firm had not been issued notices of the proceedings of the Arbitrator. One pf such partners was Shri K.R. Budhiraja. Still the award adversely affected her rights. In as far as Smt. Bimla Rani Aggarwal had been declared to be a partner, it had the effect of proportionately reducing the shares of all the other partners in the firm. The objections of Smt. Bimla Rani were contested by the contesting partners and the following issues were framed by the learned trial Court and were treated as preliminary:-

"2. Whether the award is incapable of execution as alleged in para No. 1 of the objection petition filed by Bimla Rani Aggarwal?

Whether Khilari Ram Budhiraja was the necessary party to the arbitration proceedings; if so, its effect?

Whether the Court has no jurisdiction to adjudicate upon this matter in dispute?"

Both the parties led evidence and vide order dated 3rd September, 1983 learned Sub Judge 1st Class set aside the award and further came to the conclusion that it would be in the fitness of things to refer the matter again to the Arbitrator so that the dispute between the parties was settled. Aggrieved by the order dated 3rd September, 1983 passed by the Sub Judge, Chandigarh, two appeals were filed in the High Court-one by Smt. Shakuntla Devi and the other by Smt. Bimla Rani and both the appeals were dismissed vide impugned judgment dated 31st March, 1987. Smt. Bimla Rani has not filed any appeal against the said judgment. However, the present L.P.A. No. 276 of 1987 has been filed by Smt. Shakuntla Devi and Shri Rajeev Kumar Sharma, who have given challenge to the decision of the learned Single Judge.

We have heard Shri R.S. Mittal, Senior Advocate, assisted by Ms. Aarti Gupta, Advocate, appearing on behalf of the Appellant, and Shri C.P. Sapra, Advocate appearing on behalf of the respondents,'' and with their- assistance have gone through the record of this case.

It was submitted by the learned counsel for the appellant that the award of the Arbitrator could only be set aside if the Court had come to the conclusion that the arbitrator had misconducted himself or the proceedings and in this case no finding has been given either by the trial Court or by the learned Single Judge to this effect, and, therefore, the learned Single Judge committed a patent illegality and an error justifying for the reversal of the impugned judgment. In support of his contention, learned counsel for the appellant has drawn our attention to the provisions of Section 30 of the Indian Arbitration Act, which lays down that an award shall not be set aside except that an arbitrator or umpire has misconducted himself or the proceedings; or the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid u/s 35 of the Arbitration Act or the award has been improperly procured or is otherwise invalid.

On the contrary, the learned counsel for the respondent has defended the judgment of the learned Single Judge.

After considering the submissions raised by the learned counsel for the appellants, we are of the considered opinion that the submissions raised by the learned Counsel are totally devoid of any merit. A reference to the award of the Arbitrator would show that declaration was given by him that on deposit of Rs. 47,000/- by Smt. Shakuntala Devi within 30 days from the date of the passing of the award she would be treated as a partner and she will be entitled to claim a share in the profits of the partnership firm. This award was pronounced on 23rd June, 1981. She could only make the payment if the partnership firm was in existence even as on 23rd July, 1981. In this eventuality the subsisting partners of the partnership firm were supposed to continue the partnership firm upto 23rd July, 1987 so that Smt. Bimla Rani Aggarwal could contribute Rs. 47,000/- along with interest, as ordered to her by the Arbitrator. But in the present case the other partners dissolved the partnership firm, which deprived Smt. Bimla Rani from making any payment to the partnership firm and in these circumstance the award became unexecutable. Had Smt. Bimla Rani made the payment of Rs. 47,000/- along with interest, as ordered to her by the Arbitrator, in that eventuality the interest of all the other partners would have certainly dwindled. In these circumstances it was obligatory on the part of the Arbitrator to issue notice of the arbitration proceedings to the other partners, such as Mr. Khilari Ram Budhiraja. A partnership firm is nothing but a union of certain persons who are termed as partners and they have a notional name, which is called as a partnership firm, so that they can run their business under that firm. The partners are the real proprietors of the partnership and in these circumstances it was incumbent on the part of the Arbitrator to serve a notice to invite their objections with regard to the arbitration proceedings. Dissolution of a partnership firm is not only a dissolution amongst the contesting partners but a dissolution of a status amongst all the partners of a partnership firm. In these circumstance, the presence of Mr. Budhiraja before the Arbitrator was very necessary and he could possibly show whether Smt. Bimla Rani was, in fact, a partner of the partnership firm or not. A perusal of the provisions of Section 30 of the Indian Arbitration Act would show that the expression ''misconduct'' is of wide import and would be a question of fact in each case and has to be ascertained from the facts of the entire proceedings. This term includes any mishandling of the arbitration proceedings or any neglect of duty on the part of the Arbitrator which is likely to lead to substantial miscarriage of justice. The word ''misconduct'' when applied to the proceedings of arbitrators does not necessarily imply moral turpitude; it is used in the sense of breach or neglect of such duties and responsibilities as devolve on the arbitrators acting judicially and as the Courts of justice expect from them before allowing finality to their award. It comprehends action opposed to rational and reasonable principles. Equally is the law that when it is proved that the arbitrator has been guilty of misconduct, in that eventuality, it is not necessary to prove for the party challenging the award that some prejudice has been caused to him by the passing of the award. In the present case the Arbitrator was dealing with an issue concerning the dissolution of the partnership firm and in. these circumstances all the partners of the partnership firm were necessary parties before him. He has not served a notice to Mr. Budhiraja. Rather a finding has been given at his back to that extent by which his share in the partnership firm could have been diminished. Before the expiry of 30 days from 23rd June, 1983, the partners opted to dissolve the firm and in this manner the award of the Arbitrator became unexecutable. Resultantly, it could not be made a rule of the Court u/s 17 of the Arbitration Act. This aspect of the case has been rightly discussed by the trial Court while deciding issues Nos. 2 and 3, which were treated as preliminary. Faced with this difficulty, learned counsel for the appellants has placed reliance on The Union of India v. Jai Narain Misra AIR 1970 S.C. 753, and submitted that the learned Single Judge should not have set aside the award at the instance of a party, who had not suffered any injury by the error committed by the Arbitrator. Incidentally, this citation was also relied upon by the learned Single Judge. We have also the occasion to go through this citation and we are of the view that the ratio of this judgment is not applicable to the facts in hand. In the present case the very initiation of the arbitration proceedings at the back of the partner, whose interests had been materially affected with the pronouncement of the award, amounts to misconduct within the meaning of Section 30 of the Indian Arbitration Act. At any rate, by not issuing a notice to all the partners, the Arbitrator had committed misconduct with relation to the arbitration proceedings itself. A glance to the provisions of Section 30(c) of the Arbitration Act would further make it clear that the words "is otherwise invalid" are of wide interpretation. What is the use of decree which cannot be en- forced. Frivolous decrees are not supposed to be passed by a Civil Court. We all know that the award has a force of decree once the objections are disposed of on merits. The decision of the Arbitrator could not be implemented with the dissolution of the firm by the other partners on 14th July, 1981. In these circumstances the award was otherwise invalid within the ambit of Section 30(c) of the Arbitration Act.

No other point was raised by the learned counsel for the appellants.

Resultantly. we do not see any illegality in the impugned judgment and affirm the same.

Consequently, we do not see any merit in this appeal and dismiss the same with no order as to costs