Anoop V. Mohta, J.
1. Heard finally by consent of the parties.
2. The petitioner, who is a partner of a firm called 'M/s. Muktanandan Corporation' (for short, the firm), after dissolving it by a notice 16.04.2009, has invoked Section 9 of the Arbitration & Conciliation Act, 1996 (for short, the Act) and seeking various interim measures/protection against the respondents.
3. A Registered Partnership Deed dated 17th September, 1975 entered into between one Rajinder Singh (husband of respondent No. 2 and father of respondents 3 to 5) and late Smt. Gurdev Kaur (mother of the petitioner, respondent No. 1 and Mr. Rajinder Singh) and thereby constituted the firm. Rajinder and Gurdev (now both deceased) had equal share in the profits, losses, assets and liabilities of the firm. The partnership was at Will.
4. As averred, the firm had purchased or acquired out of the funds 33,24,400 equity shares of Rs. 10/- each of one Mukat Pipes Limited (the Company), during the period 1991-2001 in the name of the deceased Rajinder Singh. As alleged, he held those shares in his fiduciary capacity and/or as Trustee for and on behalf of the firm. Those shares were purchased on behalf of the firm out of the funds paid from the Bank account of the partnership, but in the name of Rajinder as the partnership firm is not 'a person' within the meaning of Section 41 of the Companies Act, 1956 and, therefore, cannot be a member and as the name of partnership firm also cannot be entered as a shareholder in the record of the company. Rajinder Singh, during his lifetime, as a partner had signed the balance-sheet and the profit and loss accounts of the firm, from time to time. The equity shares of Mukat Pipes Ltd. had been shown as an asset and an investment of the firm in the balance-sheet for the year ended 31.03.1991. The annual accounts of the firm for the year ending 31.03.2001 and 31.03.2002, had been admittedly signed by the deceased Rajinder. This shows that the shares were treated as an asset and investment of the said partnership firm at the relevant time. The balance-sheet for the year ended 31.03.2003 of the partnership firm showing the said shares as an investment of the partnership firm was also signed by Rajinder as a partner of the firm. The income received by way of dividends in respect of the shares had been reflected as an income of the firm in the Profit and Loss Account read with Schedule of the other income for the year ended 31.03.2002. The assessment order dated 14.01.1999 passed by the Income Tax Department for the year 1996-1997 also shows the income received by the firm as and by way of dividend from Mukat Pipes Limited to the tune of Rs. 53,19,014/- had been assessed as an income of the firm. From 1992 till the year 2001, the partnership has received an aggregate sum of around Rs. 3,80,00,000/- (Rupees three crore eighty lacs) towards dividend and had been accordingly credited as an income of the firm. In the individual income tax return of deceased Rajinder the income from dividends were never shown in his personal annual returns or books of account. There is nothing on record to show that Rajinder had paid the amount to purchase those shares and, therefore, become sole and exclusive owner.
5. On 02.04.2003, without dissolving the partnership firm was re-constituted by a Supplementary Deed of Partnership dated 02.04.2003 (the last/supplementary deed) whereby the deceased Rajinder and Gurdev, the petitioner and respondents 1 and 2 agreed to have a 20% share in the profits, losses, assets, liabilities including capital of the said partnership firm., As per clause 5, the capital should be introduced by the parties thereto or any of them as and when required either equally or otherwise on such terms and conditions as may be mutually agreed upon by and between the partners. Clause 8 of the Supplementary Deed, all other terms and conditions of the earlier Deed were incorporated by reference. The arbitration clause contained in clause 15 of 17th September 1975 earlier Deed thereby got incorporated in the Supplementary Deed dated 02.04.2003.
6. The Supplementary Deed dated 02.04.2003 appears to have been signed by all the partners and also initialled on all the pages i.e. late Rajinder Singh, late Mrs. Gurdev, the petitioner and respondents 1 and 2, at the relevant time.
7. On 7th September, 2003 Mrs. Gurudev Kaur died intestate. On 03.01.2004 Rajinder Singh also died intestate. Both the original partners of the firm expired, but the partnership firm continued with remaining partners i.e. the petitioner and respondents 1 and 2.
8. There were various disputes and differences between the parties with regard to the ownership of these shares. Respondent No. 2 on 17.03.2005 gave notice to the company for transmitting the said shares in her name which the petitioner objected. However, the company transmitted the said shares in the name of respondent No. 2 on 11.05.2005 without the consent and knowledge of the petitioner. The petitioner and respondent No. 1 therefore filed a Company Petition under Section 111-A of the Companies Act, 1956 before the Company Law Board and thereby challenged the transmission of the shares and for rectification of the Register of Members. Respondent No. 2 had also filed a Company Petition on 13.12.2005 before the Company Law Board, New Delhi under Sections 397 and 398 of the Companies Act, 1956. Both the matters were disposed of by a common order on 14.02.2007. Two Appeals were preferred against the common order by the petitioner and respondent No. 1 separately before this Court. The petitioner was later on transposed as a respondent in the Company Appeals. By a consent minutes of order dated 4.5.2007 both the Company Appeals were disposed of.
9. On 31st May, 2007 in view of the consent minutes respondent No. 1 filed Suit No. 1453/2007 in this Court for declaration that those shares are the property of the firm in which the petitioner and respondents 1 and 2 have equal shares. On 16.12.2008 the said Suit was dismissed in view of the bar under Section 69(1) of the Partnership Act, 1932. Respondent No. 1 preferred an Appeal on 22.01.2009 before the Division Bench of this Court.
10. Respondent No. 2, after transmitting the said shares in her name and being owner having 43.38% of the subscribed and paid up capital of the company, managed to issue the notices for holding the adjourned 19th Annual General Meeting (AGM) of the company on 27.04.2009.
11. The petitioner, therefore, ultimately through Advocate's letter dated 16.04.2009 dissolved the partnership firm and prayed for the account of all the assets and profits of the firm. The respondents have not complied and denied the said notice of dissolution. The petitioner, therefore, preferred the present Petition on 20.04.2009.
12. The partnership firm which was at Will has been dissolved by the notice. Sections 43, 46, 47 and 53 of the Partnership Act, 1932 will now take its own course. In the result, as the firm is dissolved, no partner has a right to continue the business of the firm except for winding up and to complete the commitments prior to dissolution. It also means that no continuation with the day to day business of the firm as it was prior to the dissolution. The parties need to proceed for final settlement of the account between the partner and distribution of the assets/cash after considering the liabilities of the dissolved firm. No one partner excluding the others can do the business. Therefore, in case where there is a serious disputes and differences, it is just and convenient and necessary to appoint Receiver as contemplated under Order 40, Rules 1 and 2 of the Civil Procedure Code (CPC). : AIR2004SC1433 Firm Ashok Traders v. Gurmukh Das Saluja and : AIR2005Delhi323 -Ashok Kumar Mittal v. Ashwani Kapoor] In view of the rival submissions as made, therefore, question is whether the petitioner is entitled for any relief as prayed in the present petition pending the resolution of disputes between the parties.
13. Admittedly, there are two deeds and an agreement of arbitration. The point, whether the supplement deed is fraudulent or got signed by misrepresentation or fraud, is a matter of trial. Under Section 9 of the Act and considering the scheme and purpose of the same, it is necessary for the Court to hold/observe prima facie that there is an arbitration agreement or not before passing order as contemplated.
14. If we take note of both these two documents (Deeds) and as admittedly, the supplemental Deed of Partnership dated 2.04.2003 by incorporation noted the arbitration clause which was available in the Deed of 1975, it means the Supplementary Deed dated 2.04.2003 had the arbitration clause. Sections 7 and 9 read with the whole scheme of the Act, the requirement is that there should be a written arbitration agreement between the parties. These two written documents are sufficient to support the same.
15. At prima facie stage, it is sufficient to observe that the Supplementary deed is also signed by the respective partners. The disputes and/or objection with regard to those signatures unless accepted, after due trial and as, considering the scope of Section 9 of the Act cannot be decided finally, I am of the view that there is arbitration agreement between the parties to refer the dispute to the arbitral Tribunal.
16. The submission, that the unregistered Supplementary Deed is also an issue which is not sufficient to discard the existing arbitration clause. The effect of unregistration of such deed so far as the present Petition is insignificant for the basic reason that Section 9 petition cannot be said to be a Suit as contemplated under Section 69 of the Partnership Act. Such application under Section 9 of the Act though the partnership Deed is unregistered, is maintainable. A Division Bench of Bombay High Court in Masood Mohmmed Hussain v. Gulam Rasul Mohammedali and Ors. 2007 (2) Bom.C.R. 291, while dealing with the similar situation and sections and the Supreme Court judgments, observed in para 14 as under:
14. Even otherwise, in our considered view, the view that an application under Section 9 of the Arbitration and Conciliation Act moved by a partner of an unregistered firm is maintainable is more appropriate as it enables the parties to avail of a remedy which otherwise would not have been available by virtue of Sub-section 2(A) of Section 69 introduced by the Maharashtra Legislature. Having held that the application under Section 9 of the Arbitration and Conciliation Act is maintainable,....
17. A partner of the unregistered firm cannot be rendered remedyless on this count. Therefore, as required, I am of the view that there exists an arbitration agreement between the parties and, therefore, petition under Section 9 of the Act as filed is maintainable.
18. The submission with regard to Section 187-C of the Companies Act, 1956 is also of no assistance as non-filing of the declaration in no way can be the reason to decide the effect of these written documents though one is unregistered.
19. The order of Company Law Board (CLB) dated 14.02.2007 to resolve the question or genuineness of the Supplementary Deed and; as the party agreed to approach to the Court that itself is not sufficient to hold that the document is not genuine. The effect of the consent order to get the decision from the Civil Court on this issue is also a matter of trial. Even otherwise, unless those documents are declared null and void cannot be treated as invalid or illegal, at this stage, as prayed and contended. Admittedly, there is a Suit filed by respondent No. 1 and the same is pending. The Suit is not filed by the petitioner. It is settled law the person who alleges and avers that a particular document is invalid or obtained by fraud or a misrepresentation, the basic burden lies upon him. The allegations of fraud, misrepresentation need detail particulars, inquiry and trial. It is difficult to observe anything at prima facie stage, in this regard, that the said document is fraudulent or obtained by fraud and/or by misrepresentation and, therefore, should not be given effect to. The Supplementary Deed is dated 02,.04.2003. Gurudev died on 7th September, 2003. Therefore, admittedly the second partnership was in existence when Gurudev died.
20. The issue with regard to fraud, misrepresentation or forgery, even otherwise, just could not have been decided by the CLB for want of jurisdiction and authority.
21. The submission is that the arbitration petition is barred by limitation. after dissolution of the firm on 16.04.2009. The claim that 33,24,400 shares are the property of the firm or unless declared it to be belonging to late husband of respondent No. 2 is again a matter of trial. The dispute as raised in this regard after dissolution of the unregistered firm, therefore, cannot be said to be barred by limitation so far as the present proceedings is concerned. In the present case, there are various disputed facts which need detail evidence even to decide the issue of limitation as raised.
22. The submission that the petitioner has abandoned and waived his right to enforce the arbitration agreement in view of consent order dated 04.07.2007 as agreed to file the Suit to agitate these issues/grievances with regard to the same shares is also unacceptable. This again, in my view, is a matter of trial. It is difficult to decide, at this prima facie stage, that this amounts to abandonment or waiver of their rights. The existence of arbitration agreement, as noted above and as observed, at this stage, is sufficient to consider the case of the petitioner as contemplated under Section 9 of the Act.
23. The submission that respondent No. 1 has filed Suit No. 1453/2007 for a declaration with respect to the title of the shares and the petitioner is defendant No. 1 in the Suit though the interest of the petitioner and respondent No. 1 is same and, therefore, hit by doctrine of 'waiver' and 'abandonment' is also unacceptable, basically in view of dissolution of the firm on 16.04.2009. In my view, it changes the whole scenario and brings in new cause of action with regard to the firm's account and its property. Therefore, whether this act of petitioner amounts to waiver or abandonment and/or has no right to raise issue of share in this petition as well as before Arbitral Tribunal is also a matter of detail inquiry and trial. The situation before the dissolution of the firm and after the dissolution of the firm is changed. Now it is a case of respective rights and entitlement of all the partners of the dissolved firm.
24. The reliance on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr. : [2003]3SCR558 , to submit that the present proceedings as sought to be agitated is impermissible and issues can be agitated before the Tribunal. In the present case, as noted, the circumstances after dissolution of the firm changes totally.
25. There is an ample material on record to show that deceased Rajinder was holding the shares for the benefit of the partners, and it was for and on behalf of the firm. Therefore, at this stage, there is force in the contention raised by the learned senior counsel for the petitioner that those shares were held in trust by deceased Rajinder for all the partners, basically the partners then existing. The petitioners were not partners at the relevant time and, therefore, they have no right or claim on those shares is immaterial issue when admittedly, the 2003 Deed where the petitioners and respondents as noted above were partners of the firm and that firm is now dissolved. The fact that shares were held and recorded accordingly itself is sufficient at this stage to observe that there exists dispute with regard to the property of the firm. The shares are the property of the firm as contemplated under Section 14 of the Partnership Act, 1932 or not is again a matter of trial and inquiry. The parties or the partners of the firm cannot blow hot and cold, subject to their convenient, for their respective benefits.
26. As per the Supreme Court judgment in Arjun Kanoji Tanker v. Santaram Kanoji Tanker : (1969)3SCC555 which is based upon Section 14 of the Partnership Act, it is held that unless there is an express or implied agreement, the individual partner's property cannot be treated or assumed to have become the property of the partnership firm. In the present case, there are various differences and disputes raised based upon the documents on either side with regards to the shares. Therefore, the scrutiny and detail inquiry and evidence with regard to the contents of those documents is again a matter of trial when the existence and signatures on those documents are not at all in dispute. Under what circumstances those documents were prepared and signed and what was the reason behind those signatures on the said documents just cannot be decided in a petition under Section 9 of the Act. No conclusion can be drawn on either side.
27. There is nothing on record to show and suggest that deceased Rajinder had purchased those shares of his own income and become exclusive owner of the shares and the firm also never treated or considered those shares as firm's property and/or considered always as an individual property of the deceased Rajinder. The contra material is also on record. It is, therefore, difficult to accept the contention of either side that in view of these circumstances, as recorded, those shares exclusively are owned by the deceased Rajinder and, therefore, now respondent No. 2 and it is not the property of the firm.
28. The effect of dissolution of the firm, during the subsistence of the partnership and after dissolution of the partnership has been elaborated in Adanki Narayanaoppa and Anr. v. Bhaskara Krishnappa (dead) & thereafter his heirs and Ors. AIR 1966 SCC 1300. The Apex Court taken the decision after due trial. It means, recording and taking note of various material available or placed by the respective parties in support of their contention, the Apex Court observed as under: 'From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership.'
What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share and which on his bankruptcy passes to his trustees.
29. The balance-sheet of the company, if challenged or doubted, that needs to be decided by giving opportunity to the parties, Petlad Turkey Red Dye Works Co. Ltd. v. Dyes and Chemical Workers Union and Ors. : (1960)ILLJ548SC , as relied upon by the learned senior counsel for respondent No. 2, was a case where in a labour dispute, the workers raised objection to the balance-sheet as they were concerned with their claims. The objection was raised at appropriate time. In the present case, no such serious dispute was raised at appropriate time. When dispute arose between the parties with regard to the shares now said doubts have been raised for the first time in the present petition in reply.
30. These are the commercial documents between the parties. As, at the relevant time, no objections were raised about this and even if now raised, the presumption at this stage, in my view, unless rebutted goes in favour of the balance-sheet of the company. The party who alleges or raises doubt of such documents and basically the partners of the firm, who failed to raise such objection, at the relevant time, need to be proved their case that these balance-sheets, income tax returns and all other documents are not genuine or intended for some different purpose.
31. The concept of 'fiduciary capacity' or 'Trust/Trustee', is elaborated in Prem Ballabh Khulbe v. Mathura Dutt Bhatt : [1967]2SCR298 . In the case in hand, in view of above reasoning itself, unless disapproved or proved otherwise shows that deceased Rajinder's name as holder of shares was on behalf of the firm. It was never treated by him as an individual or self owned shares. After dispute and after his death, if such issues are raised, then again the burden lies upon the person who alleges the same. It also means the denial of the signatures and documents which were in existence during the lifetime of the deceased Rajinder.
32. The petitioner has relied on undisputed balance-sheet, income tax returns, the dividends accounted in the name of the firm, to show that the said shares are the shares of the firm. In reply to this, respondent No. 2 has relied upon share certificate dated 23.02.2001 as contemplated under Section 84 of the Companies Act, 1956, Register of Members of the company as contemplated under Section 164 of the Companies Act. Admittedly, these shares were purchased and were in the name of deceased Rajinder and, therefore, Rajinder's name reflected as holder of the shares. These facts are not in dispute. The issue is whether he was holding those shares in a fiduciary capacity or as trust or trustees of other partners, which according to the petitioners were purchased from the funds of the firm in the year 1995 itself. At present the shares are in the name of respondent No. 2, the widow of Rajinder and are pledged with IDBI.
33. Once the firm is dissolved, the various provisions of the Indian Partnership Act take its own course as noted above. It means, proper equal distribution of the property subject to liability if any and in the present case, unless it is decided finally at this prima facie stage, I am of the view that these shares are appears to be of the property of the firm or cannot be treated as the exclusive property of respondent No. 2 as claimed. However, as observed, it is subject to detail trial.
34. The Benami Transactions (Prohibition) Act, 1988 applies to this transaction or no, cannot be gone into at this stage, in view of above facts and the documents.
35. In view of the above, considering the facts and circumstances and the reasoning given, in my view, this case squarely falls within the ambit of Order 40, Rule 1, Order 39, Rule 1 and Order 38, Rule 1 of Code of Civil Procedure (CPC). The Apex Court in Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd. : AIR2007SC2563 has now settled that all these provisions are need to be taken note of while granting order under Section 9 of the Act. Therefore, this is a case where firm is already dissolved and it is, therefore, just and convenient to protect the property of the firm and considering the averments made, the petitioner is entitled for the relief in terms of prayers (a) and (b) as prayed.
36. The petitioner has already invoked arbitration clause and suggested the names of the Arbitrators and awaiting the response of the respondents.
37. Resultantly, there will be an order in terms of prayer (a) of the petition with a rider that as the shares are already pledged with IDBI(Industrial Development Bank of India), it will be subject to rights of IDBI and final decision of the shares' issues.
38. So far as the prayer (b) is concerned, the statement is made by the learned Counsel for the parties that except shares as referred above, all basic assets of the firm are with the petitioner. In view of this, it is desirable that pending the arbitral proceedings between the parties and passing of award and for a period of four weeks therefrom, both the parties, their agents, servants or any person claiming through or under them, are restrained from in any manner selling, transferring, alienating, disposing off, parting with possession or creating any third party rights of any nature whatsoever in respect of the assets and properties of the firm and/or acting upon the corporate and legal benefits arising from the said shares in any manner whatsoever, if not already acted. If acted, no further steps be taken without the leave of the Court/tribunal.
39. It need not be mentioned that the parties need to cooperate for all the purposes to protect the property of the firm.
40. Petition is accordingly allowed accordingly. No costs.
41. The learned Counsel appearing for the respondents submits that the effect and operation of this judgment be stayed as there are various issues agitated and as this Court has passed this order and appointed the Receiver.
42. Considering the submissions made, I am inclined to observe that so far as the appointment of Receiver is concerned, pursuant to prayer (a), that Order will take effect after six weeks from today.
43. So far as prayer (b) is concerned, that will continue as the firm is already dissolved and in view of the reasoning already given.
44. The submission is that respondent No. 2 has already exercised her right and that is a subject matter of other proceedings. The Division Bench of this Court has already by its order dated 24.04.2009 in Appeal (L) No. 53/2009 in Notice of Motion No. 2012/2007 in Suit No. 1453/2007-Kuljinder Singh Ahluwalia v. Smt. Sandeep Kaur Ahluwalia and Ors. observed as under:
2. The learned Counsel appearing for the respondents, on the other hand, submitted that even if any decision is taken at the AGM of 27th April, 2009, the said decision shall not be given effect to till 30th April, 2009 and in order to see that in the meanwhile the working of the company is not paralysed, the earlier Board of Directors shall continue to function.
45. In view of above, the position stands as of today to continue for six weeks from today so far as above action based upon the shares are concerned or till further order passed by the Court.
46. The parties to act on an authenticated copy of this order.
47. No costs.