allegations
against the plaintiffs inter alia that the plaintiffs are attempting to create
liabilities on Agha’s Super Market partnership firm and without their knowledge
and consent an agreement to lease for a new premises was executed.
3.
In response to the letter, the plaintiffs informed the defendant that they will
not sign any agreement creating encumbrance on the partnership firm. Since the
matter could not be resolved the plaintiffs again wrote a letter to the
defendant with few options for distribution of assets and the dissolution of
partnership firm in an amicable manner. It is also the case of the plaintiffs
that since defendant was not responding or not agreeable to discuss the matter,
therefore, the plaintiffs through their counsel written a letter dated
14.11.2011 whereby they dissolved the partnership firm. They also called the
defendant to settle the accounts. In paragraph 11 of the plaint and earlier
also the plaintiffs placed following options to the defendant.
(1) The assets of
the partnership firm i.e. the existing shop with all the furniture, fixtures
and equipment plus the warehouses and stocks be valuated and be sold to a third
party on a mutually agreed valuation.
(2) If the
defendant wishes to continue with carrying on the business at the present
premises, he may acquire the shop with all the furniture, fixtures and
equipment plus the warehouses and stocks on the mutually agreed valuation by
making the payment to the plaintiffs for their respective shares in those
assets. Similarly, if the defendant does not wish to continue with the
business, then the plaintiffs would have the option to acquire all the assets
as mentioned above by making the payment to the defendant for his share in the
assets, on the mutually agreed valuation.
(3) The assets of
the firm be valuated separately for example; the shop, furniture, fixture and
equipment, warehouses and the stocks and all the assets be sold separately to a
third party or be acquired by either the defendant by making the payment to the
plaintiffs for their respective shares or be acquired by the plaintiffs by
making the payment to the defendant for his share in the respective assets.
Since
the plaintiffs communicated their decision for dissolving the partnership firm,
the plaintiff No.1 intended to start new business. It is further stated that
the defendant requested the plaintiffs to include him in the new business and
due to intervention of common friends a meeting was convened between the
plaintiffs and defendant on 23.2.2012 in which it was agreed that the defendant
will be given 25% shareholding in the new company, and the mutually agreed
terms and conditions were reduced in writing which are as under:-
“As on February 23rd 2012
it is hereby agreed as follows between Mr.Anver Ali Virani, Mr.Feroze Virani
and Farid Virani:
(1). The 3 above Ex-Partners of
Agha’s Supermarket will each have 25% each of the shareholding in the new
company which is already formed.
These will be voting shares.
(2). One nominee of Feroz Virani and
two nominees each of Anver Virani and Farid Virani will all have 5%
shareholding. This 5% shareholding each is being given to the five nominees as
sweat equity which will vest in 5 years. The financial benefits will be given
to them from day one i.e., the beginning.
(3). The voting rights of the
nominees’ 25% shareholding will vest in Anver Virani and Farid Virani.
(4). All the assets (Lock, stock and
Barrel) will be taken over/assumed by the new company.
(5). The company’s assets can and
will be mortgaged with the bank for financing purpose.
(6). Feroz, Farid and Anver will
each put in 50 million as equity.
4.
It is further contended that despite agreeing the aforesaid terms and
conditions the defendant again approached the plaintiffs to modify the agreed
arrangement to the following effect :-
(a) That the
main location of the dissolved partnership firm i.e. Uzma Court DC-3, Block-8,
Clifton, Karachi will not be assumed/taken over by the new company and will
remain the private property of the three ex-partners.
(b) Furthermore,
the property i.e. the shop in Uzma Court DC-3, Block-8, Clifton, Karachi will
not be mortgaged with the banks for any financing that may be required by the
new company.
5.
It was further averred that the defendant counsel sent a letter to the
plaintiffs and further correspondence were exchanged between the parties.
Ultimately, the defendant resile from his commitment and stated that he signed
the agreement under influence, duress and coercion and he repudiated the
agreement. The plaintiffs have also attached the copy of draft of shareholders
agreement that they allegedly forwarded to the defendant for signature. In paragraph
25 of the plaint the plaintiffs have alleged that the defendant severely
hampered the business of partnership firm and caused colossal loss to the
plaintiffs and the firm was subsequently dissolved by the plaintiffs and it was
done so only after unprofessional, indecisive, whimsical and irrational
actions of the defendant, who caused irreparable loss to erstwhile partnership
business and the goodwill of the firm as well as the professional reputation of
the plaintiffs. Plaintiffs in paragraph 26 of the plaint have mentioned assets
of the partnership firm namely Agha’s Supermarket and prayed for appointment of
receiver in respect of the partnership firm. It is also prayed that accounts of
the firm be prepared and assets of the partnership firm be distributed amongst
partners inter alia selling of stock and valuation of name and goodwill of
Agha’s Supermarket.
6.
The defendant has filed this application under Section 34 of the Arbitration
Act for staying the proceedings and appointment of arbitrator in terms of
Clause 13 of the partnership deed dated 27.7.1978.
7.
The plaintiff No.1 has filed counter affidavit in which the partnership deed
was not denied but it was submitted that the plaintiff and defendant were
partners of Agha’s Supermarket wherein the defendant was holding 33% shares. It
was further stated that the partnership firm was dissolved on 14.11.2011,
therefore, the plaintiff and defendant are no more partners. It was further
averred that since partnership firm has been dissolved, therefore, there is no
question arise for referring any dispute to the arbitrator. The defendant has
himself filed Suit No.1198 of 2012 in this court for declaration, permanent
injunction and damages hence it is clear that the defendant himself submitted
to the jurisdiction of this court.
8.
The learned counsel for the defendant argued that the partnership deed contends
various clauses which are condition precedent for its dissolution. It was
argued that neither the firm has been dissolved nor it has stopped its
business, but Agha’s Supermarket is continuing to operate by mutual consent of
the plaintiffs and the defendants and its regular purchases and sales are being
made on regular basis. In the event of the dissolution it will immediately stop
and cessation of business activity and locking up of the business, warehouses
and godowns. It was further averred that in view of the Clause 13 of the
partnership deed the partnership firm cannot be dissolved unless the matter is
referred to the arbitrator hence the present suit is liable to be stayed under
Section 34 of the Arbitration Act. The plaintiffs recently attempted to create
liabilities without defendant’s knowledge and consent which was required to be
taken first under the terms of partnership deed. It was further contended that
the plaintiffs without knowledge of the defendant signed the agreement of lease
of the property situated at Khayaban-e-Iqbal, Block-9, Clifton Karachi and this
was done without taking the consent of the defendant, who has 1/3 share of the
business. Learned counsel argued that the act of the plaintiffs was against the
Clause 10 and 11 of the partnership deed. Since all such actions were not
approved by the defendant, he expressed his displeasure and reservation,
therefore, the plaintiffs sent a letter to the defendant in which they
threatened for dissolution of partnership firm. Learned counsel also referred
to various correspondences exchanged between the parties and argued that the
defendant still wanted to continue the partnership as well as the partnership
business. So far as the option given by the plaintiffs for the dissolution of
partnership firm is concerned, learned counsel argued that the defendant is
still willing to discuss the possibility of expansion of business and running
the business of Agha’s Supermarket at the present site and location in which
three partners have equal shares. So far as the handwritten documents is
concerned, the learned counsel argued that the plaintiffs made certain
misrepresentation during the course of negotiation and they did not record the
defendant’s views, and the document was signed under duress, coercion,
misrepresentation which was repudiated by the defendant through his letter
dated 17.4.2012.
9.
So far as the Suit No.1198/2012 is concerned, the learned counsel argued that
due to various illegal acts of the plaintiffs, the defendant was compelled to
file the suit, which is without prejudice to this application. Learned counsel
also referred to reply dated 21.1.2012, in which it was stated that the
defendant does not want to take any positive step and neither he wants to buy
the plaintiffs’ share for the dissolution of firm nor want to sell his share to
the plaintiffs nor want to sell all the assets to any third party and due to
this inability to take decision in the matter, the settlement of accounts
distribution of assets is being delayed. In the same letter, the plaintiffs’
counsel communicated to the defendant that if he feels that the matter be
referred to the arbitrator in pursuance of clause 13 of the partnership
agreement dated 27.7.1978 the plaintiffs are willing to consider the same.
Learned counsel argued that the dispute can only be resolved through
arbitration. In support of his arguments learned counsel for the defendant
relied upon the following case law:-
(1) [1896] 1.Ch 166
(Vawdrey v. Simpson). Where articles of partnership contain a clause
referring all matters in difference between the partners to arbitration, an
arbitrator has power to decide whether or not the partnership shall be
dissolved, and to award a dissolution, though the judge has full discretion to
determine, on a motion to stay proceedings under the Arbitration Act, 1889.”
Walmsley v White (40 W.R. 675) followed. Joplin v. Postlethwaite (61 L.T.(N.S)
629] explained.
(2) [1892] L.T.
433 (Walmsley v. White). The articles of partnership entered into between
the plaintiff and the defendant provided that, if during the continuance of the
partnership, or at any time afterwards, any difference should arise between the
partners, should be referred to arbitration. Held, that the arbitration clause
in the articles on its true construction was sufficient to cover a question of
dissolution; and that, on a reference under that clause, the arbitrators could,
if they, thought fit, award a dissolution.
(3) [1893] 1.Ch
521 (Befield v. Bourne). The arbitration clause in partnership articles
provided for the reference to arbitration of any difference between the
partners as to the construction of any of the articles, “or as to any division,
act or thing to be made or done in pursuance thereof, or to any other matter
or thing relating to the said partnership or the affairs thereof.” Held, that
the arbitrators would have power, under a reference, to award a dissolution of
the partnership, and therefore, the proper terms of such dissolution, including
if necessary the return of the premium; and consequently that the proceedings
in the action ought to be stayed.
10.
Mr.Arshad Tayebally, learned counsel for the plaintiffs argued that the
partnership between the parties is partnership at will and the same could be
dissolved through notice of dissolution as envisaged under Sections 7 and 43 of
the Partnership Act. Learned counsel referred to a notice given by him on
behalf of his client to the defendant on 14.11.2011 and argued that the proper
notice of dissolution of partnership was served with further intention to
discuss best possible ways for winding up the affairs of the Agha’s
Supermarket. It is further contended that the plaintiffs and the defendant all
are owners of the partnership’s assets and the entire assets of the dissolved
firm are required to be distributed amongst the partners hence, for that
reason, the plaintiffs has filed the suit for accounts and appointment of
receiver of the dissolved firm, permanent injunction and damages. However, he
further argued that notwithstanding the dissolution, the business of Agha’s
Supermarket continues to operate as there are perishable items/stocks to
dispose of and the defendant has not yet agreed to various options given by the
plaintiffs for settlement of accounts and distribution of assets. Learned
counsel referred to the plaint and argued that the plaintiffs have already
given three options, which are best to resolve the issue of distribution of assets
between the partners. He further argued that despite giving fair and reasonable
options, the defendant has failed to agree hence, the plaintiffs had no option
but to file this suit. Learned counsel further argued that after dissolution of
firm there is no question of settlement of dispute between the partners of a
dissolved firm through an arbitrator. It was further contended that no one can
be forced to continue the working relation with another against his will. So
far as the application under Section 34 of the Arbitration Act is concerned,
learned counsel argued that the defendant has already filed written statement
and subsequently he himself has filed a Suit No.1198 of 2012 in this court
against the plaintiffs in relation to the dissolved partnership firm which
amounts to taking steps in the proceedings. In support of his arguments the
learned counsel relied upon the following case law:-
(1) AIR 1952
Bombay 337 (Dhulia-Amalner M.T. v. Raychand Rupsi Dharamsi). A statutory
notice as contemplated by Section 43 is totally different thing from a
resolution which is merely a record of the deliberations and the result of the
said deliberations arrived at by a majority of votes at a particular meeting.
The notice must express a final intention to dissolve the partnership. It
should be explicit and should be precise. Evan a mistake in date would
invalidate the notice. In fact, the degree of precision which is required of a
notice would require the expression of an intention to dissolve with effect
from a particular point of time.
(2) AIR 1924 Privy Council 2 (Ram Singh v. Ram Chand). Partnership at
will is entitled to dissolution. In a partnership at will a partner is entitled
to dissolution. It is not an equitable right but it is a legal right.
(3) AIR 1927 Privy Council 70
(Sathappa v. Subrahmanyan). Dissolution. Filing plaint in a suit
for dissolution by one partner is enough of itself to put an end to a
partnership at will.
(4) PLD 1959 (W.P) Karachi 452 (Ali
Mohamedbhai v. Sadruddin). If the notice is valid, then the partnership
stands dissolved and the consequence should be the appointment of a receiver as
a matter of course.
(5) [1959] 2 All E.R. 220
(Olver v. Hillier). Partnership deed providing for reference of disputes to
arbitration. Action for dissolution started by partner. Application for
receiver and manager. Claim that dissolution “just and equitable”. Whether
action would be stayed pending arbitration. Held: in the exercise of its
discretion the court would permit the action to continue, having regard
especially to the facts that (i) the action claimed dissolution of the
partnership on the ground that it was just and equitable to dissolve it, the
power of deciding which was expressly conferred on the court by Section 35(f)
of the Act of 1890; and (ii) the appointment of a receiver and manager was
sought. Joplin v. Postlethwaite [(1889), 61 L.T. 629] applied. Vawdrey v.
Simpson [{1896) 1 Ch. 166) distinguished].
(6) 1988 CLC Karachi 570 (Sh.
Khursheed Anwar v. Kaiser Arts & Crafts and 2 others). Section 34
Arbitrator, appointment of. Appointment of arbitrator sought within scope of
arbitration clause in partnership deed. Justification for. Where cause of
action arose to plaintiff subsequent to dissolution of partnership firm,
dispute between parties, held, could not fall within scope of arbitration
clause contained in partnership deed. Even if such dispute was held to be
falling within scope of arbitration clause. Court would decline stay of
proceedings and referring matter to arbitrator where quite serious and
complicated questions of law and accountancy were involved in suit.
(7) AIR 1971 Calcutta 317 (V 58 C 65)
(Ganesh Chandra v. Kamal Kumar). Arbitration Act (1940), Section 34. In
a suit for dissolution of partnership on the ground that it is just and
equitable, the dispute relating to dissolution should be decided by the Court.
It should exercise its discretion in not staying the suit in spite of the
arbitration clause. (1959) 2 All ER 220 & AIR 1967 Mad 201 & ILR (1951)
2 Cal 140.
11. Heard
the arguments. Section 34 of the Arbitration Act relates to stay of proceedings
brought before the court in the subsistence of valid agreement of arbitration.
This Section aims at to make arbitration agreement effective and to prevent a
party from going to court contrary to his own agreement. Where the provisions
of this section are attracted the court may stay the proceedings requiring the
matter to be referred to the arbitrator. In order to stay the legal proceedings
it is necessary that the proceedings must have been commenced by a party to
arbitration agreement against any other party to the agreement, the legal
proceedings which is sought to be stayed must be in respect of a matter agreed
to be referred, the applicant for stay must be a party to the legal
proceedings, the applicant must have taken no steps in the proceedings after
appearance, the applicant must also satisfy that he was not only at the time
when the proceedings were commenced but still ready and willing to do
everything necessary for the proper conduct of the arbitration and the court
must be satisfied that there is no sufficient reason why the matter should not
be referred to arbitration. Mere existence of an arbitration clause in the
agreement does not bar jurisdiction of civil court but such clause only
provides that where a party to an agreement commences legal proceedings against
another party to the agreement, then such a party before filing a written
statement or taking any other legal step in the proceedings may apply to the
court to stay the proceedings.
12.
The court has jurisdiction to entertain the suit, however, the court in its
discretion may stay the suit but the court has to consider whether discretion
should be exercised in a particular case or not. Section 34 does not make it
obligatory on the court to necessarily refer the dispute to arbitration and may
exercise the discretion to stay the proceedings if it is satisfied that there
is no sufficient reason why the matter should not be referred to in accordance
with the arbitration agreement.
13.
Now, I would like to discuss clause 13 of the partnership agreement dated
27.7.1978 which reads as under :-
“13. That
whenever any differences or disputes shall arise among the partners whether in
relating to the interpretation of these presents or in relation to any other
matter whatsoever touching and concerning the partnership affairs, it shall be
referred to an Arbitrator to be appointed by the partners and the Award of the
said Arbitrator shall be final and binding on all the partners”.
The
above clause of the partnership deed relates to the resolution of disputes or
differences among the partners but in the same deed of partnership clause 14 is
also relevant which is reproduced as under:-
“14. That any
matter not provided in this deed shall be governed by the Partnership Act,
1932, or the then statutory modification thereof.”
14. The
aforesaid clauses and the intention of parties which may be gathered from the
wordings of both clauses unequivocally show that under clause 13 they agreed to
resolve the differences or disputes relating to the interpretation of
partnership deed or in relation to any other matter touching and concerning the
partnership affairs, the matter shall be referred to arbitrator to be appointed
by partners and the award of the said arbitrator shall be final and binding on
all partners. In the arbitration clause there is no specific condition
mentioned that in the case of dissolution of firm also the matter will be
referred to the arbitrator. There may be many differences or disputes between
the partners which could be resolved through the arbitration but each and every
dispute does not lead to the dissolution of firm. In clause 14 of the same
deed the partners agreed that any matter not provided in the partnership deed
shall be governed by Partnership Act.
15. The
plain reading of the arbitration clause does not show specifically that the
dissolution of firm is also covered. At this juncture, I would like to refer to
the case of Erach F. D.Metha Case (reported in AIR 1971 S.C. 1653) in
which this aspect was considered for proper construction of partnership deed as
well as the arbitration clause. In the case supra it was agreed between the
partners in the partnership agreement to refer to the arbitration all disputes
and questions whatsoever which may arise during the partnership or afterwards
between the partners touching the partnership agreement including division of
assets, debts or liabilities. The learned court held that the dissolution of
partnership firm is covered in the arbitration clause. In the present case no
specific condition relating to dissolution of firm is mentioned but broadly it
was agreed that any difference or dispute shall arise among the partners or to
the interpretation of the deed or any other matter touching or concerning
affairs shall be referred to arbitrator and under clause 14 overriding effect
was given that the matter not covered under the partnership deed shall be
governed by the Partnership Act.
16. There
is no dispute that the partnership in question was a partnership at will.
Section 7 of the Partnership Act 1932 deals with partnership at will which
reads as under :-
“7. Partnership
at will. Where no provision is made by contract between the partners for
the duration of their partnership or for the determination of their
partnership, the partnership is “partnership at will”.
The
partnership is deemed to be at partnership at will when no fixed period has
been agreed upon for the duration of partnership and there is no provision made
as to the determination of the partnership in any other way. This section may
be read with Section 43 which relates to the dissolution of partnership at
will. The essence of the partnership at will is that it is open to any of the partners
to dissolve the partnership by giving notice of dissolution. Section 43 of the
Partnership Act is reproduced as under:-
“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.
17.
As I observed earlier that Section 7 lays down that where no provision is made
by contract between the partners for the duration of their partnership or for
determination thereof, such partnership may be terminated at the will of any
one or more of the partners. When the partners not having thought it essential
to specify any definite time frame, then a general rule is that the court has
no discretion in the matter and cannot refuse to accept the dissolution. The
dissolution in such a case takes place from the date mentioned in the notice or
if no date is mentioned then from the date of communication of the notice. For
tendering the notice of dissolution of partnership there are three essentials
conditions which are required to be fulfilled i.e. the giving of notice, which
must be in writing and which must express the intention to dissolve the firm.
Section 43 will not come into operation unless these conditions are complied
with. While Section 44 of the Partnership Act envisages the dissolution of the
partnership by the court and at the suit of a partner the court may dissolve a
firm on the various grounds mentioned in Clauses (a) to (g) of the said
section.
18.
The plaintiffs in the present suit have not approached this court for the
dissolution of partnership firm, but they have invoked the jurisdiction of this
court by filing suit for accounts and appointment of receiver of a dissolved
firm, permanent injunction and damages. The case of the plaintiffs is that vide
notice dated 14.11.2011 the plaintiffs have already dissolved the firm and
called upon the defendant for settlement of the accounts. This letter/notice
was acknowledged by the defendant who submitted his reply on 30.12.2011 in
which it was inter alia stated that the defendant is willing to continue as
partner in the business as the partnership is so profitable and lucrative. The
defendant further stated that the plaintiffs have breached various conditions
of partnership agreement though he further shown his willingness to discuss the
possibility of expansion in the business. So far as the dissolution of the firm
is concerned, the plaintiffs stated that the partnership business is still
continue and in the event of dissolution there should be immediate stopping
and cessation of business activity and locking up of shop premises, warehouses,
godowns and sale of current goods, stock followed by simultaneous settlement of
accounts, payment of salaries to the staff. This letter was replied by the
advocate for the plaintiffs on 21.1.2012 in which various aspects were dealt
with and the learned counsel categorically stated in paragraph 11 that the
running of shop does not mean in any way that the partnership firm continues to
do business as the firm has already been dissolved. It was further stated to
the defendant that if he feels that the shop should immediately be closed and
warehouses and godowns be locked up, he should confirm the same in writing so
that the plaintiffs will consider such for the closure of the shop and locking
up the warehouses. It was further stated by the learned counsel for the
plaintiffs that due to defendant’s inability to take any decision in the
matter, settlement of accounts and distribution of assets amongst the partners
are being delayed considerably and if he feels that the matter be referred to
arbitrator in pursuance of Clause 13 of the partnership deed his clients
(plaintiffs) are also willing to consider the same.
19. The
suit was filed on 27.4.2012 in this court and prior filing the suit the plaintiffs
have also intimated the Registrar of Firms, Karachi through their letter dated
23.11.2011 regarding the dissolution of partnership firm w.e.f. 14.11.2011.
Along with intimation they have also attached a copy of notice of dissolution
of partnership firm sent to the defendant. Though on intimation the date
23.11.2011 is mentioned but the receiving date of the Registrar is 24.4.2012,
which is prior to the date of filing of the suit. In the chronological order
the defendant vide his letter dated 21.6.2011 attributed the plaintiffs the
breaches of Clause 6, 7, 10 and 11 of the partnership deed. It was further
alleged that the plaintiffs are attempting to create liabilities on Agha’s
Supermarket Partnership Firm without the knowledge and consent of the defendant.
He also objected the signing of the agreement to lease and clearly stated that
the same was not binding on him or the Agha’s Supermarket Partnership Firm. He
also denied to accept encumbrances and liabilities on the firm created by the
plaintiffs. Though plaintiffs replied the letter on 27.6.2011 but in the
concluding paragraph both the plaintiffs suggested the defendant that a meeting
be held between the partners to mutually agree to an amicable dissolution of
the firm and the way forwarded for the partners. Again on 01.08.2011 the
plaintiffs called upon the defendant to discuss the way forward to an amicable
dissolution of the firm and also tabled three options which are more
particularly described and mentioned in paragraph 4 of this order. None of the
above options was accepted by the defendant but he insisted in his application
that in view of Clause 13 of the Partnership Deed the matter may be referred to
the arbitrator.
20.
Another important aspect which cannot be ignored in the case in hand that though
the defendant has filed application for staying the proceeding but on the
contrary he has himself filed a Suit No.1198 of 2012 against the plaintiffs in
this court for declaration, permanent injunction and damages. The gist of the
plaint shows that mostly the plaintiff has focused on the same partnership firm
and the management affairs of the business of Agha’s Supermarket Partnership
Firm. The plaintiff in detail mentioned the assets of partnership firm
including the shop, warehouses goods/stocks and also attributed various
breaches of partnership agreement to defendant Nos.1 and 2 who are plaintiffs
in Suit No.438 of 2012. In paragraph 24 of the Suit No.1198/2012, it is
mentioned that despite the plaintiff’s (Feroz Virani) best efforts to reconcile
the differences with defendant Nos.1 and 2 as three equal partners of the
Agha’s Supermarket Partnership Firm (Farid Virani and Anwerali Virani) sent
letter through their advocate dated 14.11.2011 alleging dissolution of the
Agha’s Supermarket Partnership Firm. In paragraph 25 it is further stated that
both the aforesaid defendants made it clear by their letter dated
14.11.2011
that they did not want to continue in the Agha’s Supermarket Partnership Firm
with the plaintiff. In paragraph 64, the cause of action has been described and
one of the cause of actions is letter dated 14.11.2011 which was addressed to
the plaintiff by the defendant Nos.1 and 2 intimating the dissolution of
partnership firm. In sub-para 4 according to the plaintiff further cause of
action arose when the defendant Nos.1 and 2 filed a Suit No.438/2012 for
accounts and appointment of receiver of a dissolved firm, permanent injunction
and damages. The plaintiff in Suit No.1198/2012 has also sought declaration
that the defendant Nos.1 and 2 cannot run a competitive business and they stand
disqualified from acting as directors of defendant No.3 (Agha’s Private
Limited), which was allegedly incorporated by the defendant Nos.1 and 2 on the
basis of fraud and misrepresentation and in breach of fiduciary obligation,
breach of trust and running competitive business with clear conflicting
interests in breach of provisions of partnership deed dated 27.7.1978 and
20.6.1996. In the same suit he has also sought various declarations and
directions regarding partnership firm which is the subject matter of Suit
No.438 of 2012 in which an application has been filed under Section 34 of the
Arbitration Act.
21. Feroz
Virani (plaintiff) in Suit No.1198 of 2012 claiming that the defendant Nos.1
and 2 (Farid Virani and Anwerali Virani) have disqualified and accordingly they
ceased to have any right to act as partners of Agha’s Supermarket Partnership
Firm, who have filed Suit No.438/2012 to paralyze and destroy the business of
Agha’s Supermarket Partnership Firm. In the prayer clause (e) Feroz Virani
sought declaration that he is exclusive owner of 33% shares of Agha’s
Supermarket Partnership Firm including moveable and immoveable properties,
stocks, goods, name and goodwill. In this prayer clause he has also given
details of all assets. In prayer clause (f) he has prayed for declaration that
no third party rights or interest be created in respect of his 33% shares in
the partnership assets and or partnership firm and again he has given the
details of shops, warehouses, godowns, goods, stocks etc. In prayer clause (p)
he has prayed for permanent injunction directing status quo be maintained
during the pendency of the proceedings so that the business of Agha’s
Supermarket Partnership Firm be allowed to continue. In prayer clause (q) he
has also claimed permanent injunction against the defendant Nos.1 and 2 from
creating any third party rights or interest or from parting with the possession
of any of the partnership properties and or entering into other agreement with
any other person. He has also prayed in prayer clause (r) for a permanent
injunction against defendant Nos.1 and 2 from exclusively using the goodwill of
the name, logo and derivations of the name of “Agha’s” to the exclusion and
prejudice of the plaintiff and lastly he has also prayed that damages of Rupees
three hundred crores be awarded against the defendant Nos.1 and 2. On the one
hand the defendant filed the application for staying the proceedings with the
prayer that the matter be referred to the arbitrator and on the other hand he
himself has filed his own suit with various prayers relating to the same
subject matter.
22.
The arbitration clause is a universal feature of almost all partnership
agreements, the definite existence of arbitration clause in partnership
agreement that all disputes between the partners falling within the scope of
arbitration clause would have to be submitted to arbitration. The court can
itself adjudicate upon matters of law where a partner applied for dissolution
on the ground of its being just and equitable, even a widest arbitration clause
was not able to prevent the court in refusing to give its stay. The court
permitted the action to continue because whether it is just and equitable to
dissolve a firm is entirely a matter for the court to decide.
23. An
arbitration agreement will fall to be construed in the same way as in other
contract but the House of Lords in Fiona Trust & Holding Corporation v.
Privalov made clear that there will be an assumption that all disputes will
fall within the ambit of such an agreement. Accordingly, whilst the expression
“disputes or differences” is likely to be construed more widely than the word
“dispute” appearing alone. In most instances the clause will either expressly
or by necessary implication authorizes the arbitrator to order a dissolution of
the firm. [Reference can be made (1998) 1 W.L.R. 727 (C.A) (2007) Bus. L.R.
686, (2010) 2 Lloyd’s Rep. 209 (2005) 1 W.L.R. 2339 (CA) (2007) EWHC 1143 (Ch).
Page 342 (10-272) Lindley & Banks on Partnership, Nineteenth Edition by
Roderick I Anson Banks].
24. The
position in the case is different. Both the suits are related to the
partnership business. It is quite strange that the defendant in this case
applied for stay but in his own case he approached this court directly for the
relief(s) touching the partnership business and did not ask for the appointment
of the arbitrator or resolution of dispute through arbitration, In fact his conduct
has made the arbitration clause redundant and unworkable. The issues involved in
both the suits are overlapping, hence it would not advance the cause of justice
to stay the suit in hand and proceed another suit. If in one case the
arbitrator is appointed and other suit left for the decision of the court then
there is acute likelihood of conflicting decisions, which means that award
delivered by the arbitrator for making rule of court and the judgment rendered
by this court in defendant’s suit. It is also reflected from the pleadings that
neither the defendant wants to purchase the shares of plaintiffs nor agreed to
sell the entire business and assets in the open market nor he wants to sell his
own share to the plaintiffs but he shown his intention and insisted that the
partnership business should continue on the contrary, the plaintiffs are not willing
to continue the partnership and reluctant relationship hence they have filed this
suit for settlement of accounts and appointment of receiver. In my view it
would be most appropriate and expedient to proceed both the suits together
rather than the appointment of arbitrator in one suit.
25.
Learned counsel for the defendant relied upon the case of Vawdrey, Walmsley and
Befield (supra). In all three cases the plaintiffs did not approach the court
after tendering the notice for dissolution under the Partnership Act rather the
plaintiffs in that cases brought the action for dissolution of partnership
through court. In the case of Vawdrey the court held that no charges are made
by the plaintiff against his partner of fraud, dishonesty, or anything criminal
charges which the court might very well say are too serious to be tried by an
arbitrator. It was further held that the Judge has full discretion to determine
on a motion to stay the proceedings under the Arbitration Act whether the
matters in dispute shall be tried out in the action or referred to arbitration.
In the case of Walmsley the clause of arbitration covered the dissolution on
reference. It was held that the arbitration clause in the articles on its true
construction was sufficient to cover the question of dissolution. It was
further held that the Judge of the court below had nevertheless a discretion to
grant or refuse the application for an order to stay the action that the Court
of Appeal would not ordinarily interfere with the exercise of such discretion. In
the Belfield case the arbitration clause covered the dissolution with the words
“or as to any division”, therefore, in this case also the arbitrator was
appointed. In my view the facts and circumstances of the cited cases are
distinguishable as in none of the case the defendant who asked for the stay
initiated his own suit on the same subject matter.
26. Learned
counsel for the plaintiffs relied upon on the cases of Dhulia Amalner M.T.
which relates to the tendering of notice under Section 43 of the Partnership
Act that notice should express final intention to dissolve the partnership and
must be explicit and should be precise. There is no cavil to this proposition
which is almost couched in the same language under Section 43 of the
Partnership Act. In the Ram Singh case it was held that under the partnership
at will, partner is entitled to dissolution, which is not an equitable right
but a legal right. In the case of Sathappa it was held that filing of plaint in
a suit by one partner is enough to put an end to a partnership at will. In the
case of Ali Mohamedbhai this court held that if the notice is valid,
then the partnership stands dissolved and the consequence should be the
appointment of a receiver as a matter of course, which is in my view also a
true legal position. In the case of Sh. Khursheed Anwar,
it was held that even if a dispute falling within scope of arbitration clause,
court may decline stay where serious and complicated question of law or accountancy
is involved in the suit. In the case of Ganesh Chandra it was held that if
dissolution is claimed on the ground of just and equitable, the court may not
exercise jurisdiction to stay the suit.
27.
Now I would like to take up the case of Olver v. Hillier reported in [1959]
All E.R. 220. In this case the plaintiffs initiated an action for
dissolution and filed application for receiver and manger and claimed that
dissolution is just and equitable. The arbitration clause was comprehensive and
couched in the following words:
“All disputes
and questions whatsoever which shall either during the partnership or
afterwards arise between the partners……….touching this agreement or the
consideration or application thereof or in clause or thing herein contained or
any account valuation or division of assets debts or liabilities to be made
hereunder or as to any act deed or omission of either partner or as to any
other matter in any way relating to the partnership business or the affairs
thereof shall be referred to a single arbitrator”.
Despite
most comprehensive clause the court held that in exercise of its discretion the
court would permit the action to continue, having regard especially to the
facts that the action claimed dissolution of the partnership on the ground that
it was just and equitable to dissolve it, the power of deciding which was
expressly conferred on the court and the receiver and manager was sought. In the
Olver case, the Chancery Division referred to the case of Joplin v.
Postlethwaite, [1889] , 61 L.T. 629; and Vawdrey v. Simpson [1896], 1
Ch. 166. The Chancery Division applied the case of Joplin and the case of
Vawdrey was found distinguishable. Roxburgh, J, discussed in detail the
judgment authored by Chitty, J, in the case of Vawdrey v. Simpson and observed
as under:-
“At any rate,
Chitty, J., did not advert to a difficulty which troubles me, viz., the
difficulty of transferring to the arbitrator the power expressly conferred on
the court of deciding, not what the facts are, but whether, on the facts as
found, it is just and equitable to decree a dissolution…… But it seems to me
that where Section 35(f) is involved, the view which Bowen, L.J., and Fry,
L.J., took is particularly persuasive. Moreover, there is here a request for a
receiver and manager, and it may well be that the parties have by their
contract excluded the possibility of a receiver or manager over being appointed
in connection with this partnership….; It appears to me that the dissolution
of a partnership which involves the exercise of a judicial discretion under
Section 35(f), and which may involve the appointment of a receiver and manager,
is again a matter which perhaps is more conveniently left in the hands of the
court. On these grounds, exercising a discretion, I think that the matter is
entirely open to me. I decide not to grant a stay in this present case. The
motion is accordingly dismissed.”
28. At
this juncture, I would like to point out that the defendant had filed this application
on 10.5.2012 and on 11.5.2012, he filed written statement. In paragraph (R) of
preliminary objections, he objected the incorporation of Agha’s (Private)
Limited and alleged that new company was formed by the plaintiffs with fraud and
misrepresentation to defeat the rights of the defendant. In paragraph (S), he raised
various allegations that the plaintiffs has exploited the assets of the
partnership and misrepresented the turnover of the business for the benefit of
the Private Limited Company Agha’s (Private) Limited to the exclusion of the
defendant. It was further alleged that one page hand written document dated
23.2.2012 was a product of fraud and misrepresentation and a result of coercion
and the same is not binding upon the defendant. The controversy involved in
this case including tender of notice under Section 43 of the Partnership Act,
its legal effect and allegations of fraud, misrepresentation, exploitation of
the assets of the partnership for the benefit of Agha’s (Private) Limited and legal
effect of handwritten note whether the defendant accepted the terms and
conditions under coercion or by his freewill or subsequently repudiated are
very serious issues and require minute examination which can only be tried and
decided by this court and not by the arbitrator. The court may not grant stay
if complicated questions of law and facts are involved and I feel no hesitation
in my mind to hold that in the case in hand arbitration is not the suitable
method of determining the questions raised between the parties. Reference can
be made to AIR 1924 Calcutta 796 and AIR 1943 Patna 53.
29.
In the case of Vawdrey (supra), though arbitrator was appointed but it was also
held that no charges were made by the plaintiff against his
partner of fraud, dishonesty, or anything criminal charges which the court
might very well say are too serious to be tried by an arbitrator. In
the judgment of hon’ble Supreme Court reported in 1993 S.C. 42 [M/s.Eckhardt
& Co. v. Muhammad Hanif], it was held that under Section 34 of the
Arbitration Act, stay can be refused by the court if it is satisfied that there
is no sufficient reason for making reference to arbitration and substantial
miscarriage of justice would take place or inconvenience would be caused to the
parties. No hard and fast rule can be laid down or line of demarcation can be
drawn to say in what cases refusal can be made. Each case has different facts
and grant or refusal of stay is dependent upon peculiar facts and circumstances
of each case. The court can make objective assessment and come to the
conclusion whether stay legal proceedings can be granted or refused.
30. The
pros and cons of the matter lead me towards the direction of comprehensible conclusion
that there is no sufficient reason why the matter should be referred to the
arbitrator. Consequently, the application filed under Section 34 of the
Arbitration Act is dismissed. Office is directed to fix both the suits together
with all pending applications so that bone of contention between the parties
may be decided by the court.
Karachi:-
Dated.20.3.2013. Judge
Date Order with signature of Judge