Appeal No 717 of 1963
Appeal from the judgment and order dated April 30 1962 of the Madhya Pradesh High Court at Jabalpur in Misc
Appeal No 75 of 1961
ST Desai and LN
Shroff for the appellants
GS Pathak and Remeshwar Nath for respondents Nos 1 to 3
A V Viswanatha Sastri and Remeshwar Nath for respondents nos4 and 5
November 19 1963
The Judgment of AK Sarkar and JC Shah JJ was delivered by Shah J M Hidayatullah J delivered a separate Opinion
SHAH J Vrajlal Manilal  Company a firm consisting originally of four partners 1 Manilal Anandji 2 Jivrajbhai Ujamshi Sheth 3 Punjabhai section Patel and 4 Chintamanrao has been doing business of manufacturing bidis at Sagar and Delhi since 1944
From time to time fresh partnership deeds were executed readjusting the shares of the partners admitting new partners and adjusting the shares of the partners
In 1954 Manilal Anandji retired from the firm and on January 271955 Punjabhai section Patel died
On February 16 1956 a fresh deed of partnership was executed
The firm then consisted of eight partners Jivraj and his two sons being entitled in the aggregate to annas 43 share in a rupee in the profits Chintamanrao and his two sons to annas 76 share in a rupee and the two sons of Punjabhai section Patel to the remaining annas 43 share
By paragraph 7 the books of account were to be maintained by the managing partner the financial year of the firm 483 being from Diwali to Diwali and profits and losses were to be ascertained at the close of the year and a copy of the balance sheet with profits and loss statement was to be supplied to each partner and if no objection regarding the accounts was raised within four months from the end of the year the  accounts were to be deemed conclusive and binding unless vitiated by fraud
By paragraph 12 it was stipulated that a partner desiring to retire from the partnership may unless the other partners agreed to  his retirement otherwise do so after giving six months notice to all the partners in writing terminable at the  end of the year ie the Diwali immediately following the date of the notice
Paragraph 13 provided In case of retirement of any partner the valua  tion of the Firm will be made on the following basis for the purpose of settling the account of the retiring partner a Goodwill of the Firm That is right to use the trade marks trade labels and the name of the Firm
In making the valuation of the above the net profits of the last five years will be taken as the value of the Goodwill of the Firm
b Outstandings Udhari Recoveries  That is loans and debts outstanding against persons other than partner will be calculated at 85  of the book value of the Firm
c Stock of Raw Materials That is tobacco bidis bidi leaves labels and other moveable property will be valued at the book value of these in the books of the Firm and all such stock and moveables thus valued shall be given to the remaining partners
d Immoveable Property Such as buildings godowns gardens lands etc
will be valued at the parchase price or their book value in the books of the Firm as the case may be and all these shall be given to the remaining partners
 484 Paragraph 16 incorporated a clause for reference of disputes between the partners relating to the business or dissolution of the firm to arbitration
In April 1958 Jivraj and his two sons appellants in this appeal desired to retire from the partnership and a deed of reference was executed on April 16 1958 appointing Ambalal Ashabhai Becharbhai Somabhai and Chaturbhuj Jasani as arbitrators to decide the dispute
It was recited in the deed of reference that since Jivraj and his two sons had expressed a desire to retire and the remaining five partners had agreed to take over the entire business of the firm it was necessary to effect the final account of the retiring partners with regard to the matters mentioned below as far possible according to and taking into consideration the terms and conditions of the Partnership Agreement
Goodwill of Trade MarkProperty 3Credits Udhari 4Dead stock
Stock in trade ie the raw material or the finished goods invested in the business
Other matters connected with these transactions
Profit and Loss Account
The Receipt ond Payments account of the amounts of the partners
By Paragraph 6 it was provided that the firm shall be continued by the remaining five partners and that those five partners shall make full payment to the retiring partners Jivraj and his two sons of such amounts in such manner and on such conditions as shall be decided upon by the arbitrators
Paragraph 7 set out the powers exercisable by the arbitrators in the matter of calling for production of account books and documents and other information from the parties
The deed of reference was subsequently modified and the parties agreed that the reference be 485  carried out by the sole arbitrator Shri Jasani
Pursuant to this modified agreement Jasani entered upon the reference and made his award on January 9 1959
By his award he fixed the value of the goodwill of the entire firm at Rs 32 lakhs including in that amount the depreciation and appreciation of the property dead stock and dues to be recovered
He also fixed the profits for the broken period of Samvat year 2014 from the commencement of the year till April 19 1958 at Rs 280000 and after adjusting the personal accounts of the three retiring partners awarded to Jivraj Rs 34622358 nP to Amritlal son of Jivraj Rs 40451999 nP and to Bhagwandas son of Jivraj Rs 38601914 nP and directed that the ownership over the assets of the firm ie property moveable and immoveable Trade mark labels stock in trade long term leases and contracts etc shall remain with the remaining partners subject to the liabilities of the firm the retiring partners not being responsible for the liabilities of the firm nor having any interest in the firm or its business
This award was filed in the Court of the Additional District Judge Sagar under section 142 of the Indian 
Chintamanrao and his sons then applied for an order setting aside the award on diverse grounds
In this appeal by the retiring partners two heads of objections only survive for determination and we propose to refer only to those two heads viz 1 That the arbitrator in making his award travelled outside his jurisdiction delimited by the agreement of reference in that in fixing Rs 32 lakhs as the value of the di visible assets of the firm he included therein the depreciation and appreciation of the property dead stock and outstandings which he was by the terms of the reference incom petent to include
2 That the arbitrator was guilty of legal misconduct in that he had in the course of arbitration proceedings admitted in his record 486 a statement of account prepared by Jivraj and his sons without the knowledge of the other partners and without giving them an opportunity to make their submissions thereto
The retiring partners resisted the petition to set aside the award and submitted that they were entitled to have the assets of the firm in which they had a share fixed at an amount much in excess of Rs 32 lakhs and that the arbitrator had not overstepped his jurisdiction in fixing the value of the goodwill at Rs 32 lakhs and that the statement of account referred to by the applicants was prepared under the directions of the arbitrator and in his presence and it was admitted in the record of the arbitrator to the knowledge of the remaining partners who had assented thereto
The Trial Court upheld these and certain other objections and set aside the award
The High Court confirmed the decision of the Trial Court insofar as it related to the two objections hereinbefore set out
The question which we propose to consider first is whether in making the valuation of the firm for determining the share to be paid to the retiring partners did the arbitrator overstep the limits of his authority under the agreement of reference
It may be recalled that by cl 6 of the arbitration agreement the remaining partners had to make full payment to the retiring partners of such amount as may be decided by the arbitrator
But in determining the amounts to be awarded to the retiring partners the authority of the arbitrator was restricted
He had in determining the amounts due to the retiring partners to take final accounts with regard to the matters set out in cl 4 as far as possible according to and taking into consideration the terms and conditions of the Partnership agreement
By this direction the clauses of the partnership agreement were incorporated in the agreement of reference
The final account of the retiring partners with regard to the eight matters 487 specified in cl 4 was undoubtedly to be made as far as possible according to and taking into consideration the terms and conditions of the partnership agreement
The language used in the deed of reference is of compulsion not of option it means that if there be in the partnership agreement any term or condition which deals with any particular matter of which an account was to be taken under cl 4 of the agreement of reference it has to be strictly followed
Use of the expression as far as possible did not confer any discretion upon the arbitrator to ignore the terms and conditions of the partnership agreement
In paragraph 13 of the partnership agreement in making valuation of the firm for the purpose of settling accounts the value of the goodwill the outstandings stock of raw material and moveable and immoveable property had to be taken as directed therein
In the matter of valuation of the goodwill of the firm therefore no discretion was left to the arbitratorthe value of the goodwill had to be the aggregate ofthe net profits of the last five years
Debts due to the firm from persons other than partners had to be calculated at 85  of the book value of the firm
In respect of the stock of raw materials and other moveable property the book value in the books of the firm had to be accepted by the arbitrator and in the case of immoveable property such as buildings godowns gardens lands etc
the book value in the books of the firm was to be accepted and if none such was available the purchase price as mentioned in the books was to be accepted
In all these matters the arbitrator had by cl 4 of the arbitration agreement to make the final account of the retiring partners according to and taking into consideration the terms and conditions of the partnership agreement and had no option
It is necessary to remember that the partnership agreement does not grant to a retiring partner a share in the aggregate of the four items mentioned in clsa b c  d of paragraph 13 ie goodwill of the firm outstandings stock of raw materials including 488 moveable and immoveable property
The partnership agreement merely provides that the valuation of the firm shall be made as set out therein for the purpose of settling the account of the retiring partners ie in ascertaining theamount due to the retiring partners valuation of the assets in clsa to d of paragraph 13 shall be made in the manner set out therein
The arbitrator was therefore bound to adopt the valuation prescribed by the partnership agreement but that is not to say that the retiring partner was entitled to a share equal to the aggregate of the values of the four items mentioned in paragraph 13
It is neces sary to emphasize this matter because on behalf of the retiring partners a considerable argument was advanced before us on the assumption that they were entitled to a share equal to the aggregate of the values of the four items of property mentioned in paragraph 1 3 of the partnership agreement and that by the method of valuation adopted by the arbitrator they were awarded much less than what they were under the partnership agreement entitled to
Paragraph 13 merely prescribes the valuation in respect of four out of the items which had to be considered in ascertaining the valuation of the firm
The phraseology used in paragraph 13 in the opening part of the paragraph makes it clear beyond all doubt that the valuation of the firm had to be made on the basis specified for the purpose of settling the account of the retiring partner
The specific items in paragraph 13 do not prescribe any method of valuation of the debts and liabilities of the firm but the debts and liabilities must be taken into account in assessing the value of the share of the retiring partners
The arbitrator had to make a valuation of the firm ie of all the assets of the firm and of the debts due by the firm and thereafter to settle the account of the retiring partners
We may now turn to the award made by the arbitrator
The dispute between the parties has to be resolved on a true interpretation of the following clause I assess the value of the goodwill at Rs 32 lakhs
489 This amount includes the depreciation and appreciation of the property dead stock and dues to be recovered
 We have taken this as the correct rendering into English of the original award which is in Hindi
It is accepted by both the parties before us as a true rendering The arbitrator has as he has observed in his award taken only the value of the goodwill in determining the amounts to be allotted to the retiring partners and has not expressly referred to the valuation of the three other items viz the outstandings the stock in trade and moveables and the immoveable property mentioned in paragraph 13 of the partnership agreement
Counsel for the retiring partners urged that on the admission made by Chintamanrao the value of the goodwill alone was Rs 217065010and if the value of the immoveables stock in trade etcand outstandings be added thereto the aggregate would considerably exceed Rs 32 lakhs
But this argument is founded on the fallacious assumption that the debts and liabilities of the firm have to be ignored in determining the shares of the retiring partners
Counsel for the respondent submitted that in substance the goodwill had alone to be valued by the arbitrator for the property moveable and immoveable stockin trade and the outstandings of the firm were approximately equal to the aggregate of the debts and obligations of the firm
Reliance in this behalf was placed upon a balance sheet ExtA 13 of the assets and liabilities of the firm showing the financial position of the firm on April 161958 and the value of the tangible assets such as the stock of raw materials moveable and immoveable property and outstandings according to the balance sheet was approximately equal to the debts and liabilities of the firm
But it is not necessary for us to decide whether the submission of the respondents is correct
The arbitrator has in his award stated that Rs 32 lakhs is the value of the goodwill alone and for some reason not disclosed by him he has not valued the other 490 assets
He has also not disclosed in his award how he has arrived at the valuation of Rs 32 lakhs
One thing however stands out prominently in the award that in assessing the value of the goodwill he has included the depreciation and appreciation of the property dead stock and the outstandings
The arbitrator could undoubtedly make a lump sum valuation of the firm in the award made by him
He was not obliged in the absence of a direction in that behalf to set out in his award the valuation of the different components which aggregated to the lumpsum
The arbitrator had to value the firm and in doing so to abide by the specific directions but he was not obliged to set out in the award separate valuations of all or any of the items mentioned in para 4 of the deed of reference or in paragraph 13 of the partnership agreement nor to set out the extent of the debts and obligations assessed by him
What then is the effect of the inclusion by the arbitrator in the valuation of Rs 32 lakhs of the depreciation and appreciation of the property deadstock and dues to be recovered Ratio of the decisionDiverse arguments were submitted by counsel for the appellants in support of the plea that the inclusion of what is called the depreciation and appreciation in respect of the various items does not amount to overstepping the limits of the jurisdiction of the arbitrator
It may be re iterated that the powers of the arbitrator were by the terms of cl 4 of the deed of reference clearly restricted
He was to take final account of the retiring partners with regard to the matters mentioned therein as far as possible according to and taking into consideration the terms and conditions of the partnership agreement
Restriction on the power of the rbitrator in valuing the property dead stock and outstandings was explicit
He could not therefore adopt any valuation different from the valuation prescribed by paragraph 13 of the partnership agreement
But the arbitrator has as he has himself stated in valuing the goodwill at Rs 32 lakhs included in that amount the value of the depreciation and appreciation of the property dead stock and dues to be recovered
491 Counsel for the appellant submitted that reduction of outstandings of the firm by 15  in respect of the dues from persons other than the partners was a mode of ascertaining the depreciation in respect of that item provided by cl
b of paragraph 13 of the partnership agreement and the arbitrator in taking into consideration that depreciation has not acted outside his jurisdiction
It would be difficult to regard the method of valuation as prescribed in respect of the outstandings as including depreciation
Even assuming that the reduction of the outstandings of the firm from persons other than the partners by 15  as directed in clb of paragraph 13 of the partnership agreement be regarded as depreciation of the assets inclusion of depreciation and appreciation in respect of the other assets was not permitted by the deed of partnership
In valuing the moveable property including the stock of raw materials the arbitrator could not adopt any valuation other than that mentioned in clc of paragraph 1 3 of the partnership agreement namely the book value as given in the books of the firm
Similarly in the valuation of immoveables such as buildings godowns gardens lands etc he had to accept the book value as mentioned in the books of account of the firm and if no book value was available the purchase price as mentioned in the books was to be accepted
The arbitrator had no power to make any adjustment in respect of those items by including depreciation or appreciation in their value
The principle of Cruikshank and others vs Sutherland and others1 on which reliance was placed by counsel for the retiring partners has in our judgment no application to this case because in that case though there was an article of the partnership providing that the share of a deceased partner in the assets of the partnership should be ascertained by reference to the annual account made up on April 30 next after the death the articles were wholly silent as to the 1 492 principle to be adopted in preparing a full and general account of the property
There was no usage or course of dealings between the partners from which an inference could be drawn that on the death of a partner his share shall be paid out on the footing of book value
The executors of the deceased partner claimed that his share be determined at the fair value of the firm
At p 138 it was observed by Lord Wrenbury
Even if there were a usage to state an account for one purpose in one way that is not a usage to state it for another purpose in the same way
There is a passage in Blisset vs Daniel 10 Hare at p 515 which is useful reading in this connection
An account stated for one purpose is not necessarily stated for another purpose
The fact is that in this partnership an account has never been stated with a view to fitting the case of a retiring partner or a deceased partner or a senior partner who is going to exercise an option of taking over all the assets
The partners have never had any such event in view in making the account which they have made
There has never been an account prepared which was intended to meet all the various contingencies of events such as these
In the case before us there is no dispute that the duty of the arbitrator was to make valuation of the firm subject to paragraph 13 of the partnership agreement and it may even be granted that in arriving at that valuation he was not bound by paragraph 7 but on this question we express no opinion
But the values as mentioned in the different clauses had to be accepted in making up the partnership account in respect of the four matters specifically enumerated
The principle of Cruikshank s case1 did not apply because the partnership agreement in this case itself provides that the book value in the books of the firm shall be accepted
1 493 The expression book value in the context in which it occurs in the partnership agreement means the value entered in the books of account
Adoption of the book value is therefore obligatory and there is no scope of any adjustment in the value in the light of any depreciation or appreciation of the property outstandings stock in trade or dead stock apart from what may actually be included in the book value in the books
It is the book value alone which has to be taken
If the depreciation or appreciation has been taken into account by the partners in assessing the book value that was evidently part of the book value as entered in the books of account
If there was no book value entered in respect of any immoveable property the decisive value was to be the purchase price
It was then urged that it was for the arbitrator to adjudicate upon the true meaning of the partnership agreement and to give effect thereto and if in making a valuation of the firm he was of the opinion that depreciation and appreciation in respect of certain items of assets should be included for the purpose of making up the account of the partners the Court had no jurisdiction to set aside the award on that account merely because the Court took a different view as to the true meaning of the arbitration agreement
But if the partnership agreement was incorporated in the deed of reference the limits of the jurisdiction of the arbitrator must be determined by the Court and not by the arbitrator
By assuming that he was entitled to include beside the value of the four items as mentioned in paragraph 13 some amount by way of appreciation in the value of those items the arbitrator purported to set at naught the specific directions given in that behalf An award made by an arbitrator is conclusive as a judgment between the parties and the Court is entitled to set aside an award if the arbitrator has misconducted himself in the proceedings or when the award has been made after the issue of an order by the Court superseding the arbitration or after 494 arbitration proceedings have become invalid under s35 of the or where an award has been improperly procured or is otherwise invalid s30 of the 
An award may be set aside by the Court on the ground of error on the face of the award but an award is not invalid merely because by a process of inference and argument it may be demonstrated that the arbitrator has com mitted some mistake in arriving at his conclusion
As observed in Chempsey Bhara and Company vs Jivraj Balloo Spinning and Weaving Company Ltd at p 331 An error in law on the face of the award means in their Lordships  view that you can find in the award or a document actually incorporated thereto as for instance a note appended by the arbitrator stating the reasons for his judgment some legal proposition which is the basis of the award and which you can then say is erroneous
It does not mean that if
in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is and then going to the contract on which the parties  rights depend to see if that contention is sound
The Court in dealing with an application to set aside an award has not to consider whether the view of the arbitrator on the evidence is justified
The arbitrator s adjudication is generally considered binding between the parties for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in section 30
It is not open to the Court to speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion
On the assump tion that the arbitrator must have arrived at his conclusion by a certain process of reasoning the Court cannot proceed to determine whether the conclusion is right or wrong
It is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it 1 LR 50 IA 324495 is not disclosed by the terms of his award
But the arbitrator has in the present case expressly stated in his award that in arriving at his valuation he has included the depreciation and appreciation of the property outstandings and dead stock and in so doing in our judgment the arbitrator has travelled outside his jurisdiction and the award is on that account liable to be set aside
The question is not
one of interpretation of paragraph 13 of the partnership agreement but of ascertaining the limits of his jurisdiction
The primary duty of the arbitrator under the deed of reference in which was incorporated the partnership agreement was to value the net assets of the firm and to award to the retiring partners a share therein
In making the valuation of the firm
his jurisdiction was restricted in the manner provided by paragraph 13 of the partnership agreement
It was next urged that the depreciation or appreciation which had been entered in the assessment of the book value were other matters connected with the transactions mentioned in the deed of reference
But manifestly those other matters were apart from the valuation of the goodwill property outstandings and the dead stock
It was then urged that when the arbitrator stated that he had included depreciation and appreciation of certain assets in the value of the goodwill in the award he merely meant that such depreciation and appreciation was included as was in the circumstances permissible
But that would be ignoring the express recital in the award
In fact under the scheme of valuation envisaged by the partnership agreement and therefore the deed of reference there was no scope for including in the valuation appreciation of the assets
Again to argue as was sought to be done that even though the arbitrator stated that he had included in the amount of Rs 32 lakhs the depreciation and appreciation of the property dead stock and dues there being no power to include appreciation appreciation in the property and the 496 dead stock could not have been included amounts to reaching a conclusion from an assumed premise of which the conclusion was a component
It was also urged that the expression depreciation and appreciation had no such meaning as decrease or increase in the market value of the property dead stock and outstandings and the clause merely meant that in fixing the valuation such depreciation or appreciation as had gone into the assessment of the book value of the different items was taken into consideration
But the arbitrator has not said that he merely took into consideration the depreciation and appreciation which went into the book value assigned by the partners to the assets in the account he has clearly stated that he had included the depreciation and appreciation in those assets in the valuation of the goodwill
Finally it was urged that the recital about the inclusion of depreciation or appreciation was a mere surplusage and should be discarded
But it would be difficult to regard a statement made by the arbitrator relating to what he says he had included in the valuation of the goodwill as a mere surplusage especially having regard to the orders made by him insisting upon the production of documentary evidence and certain books of account from Chintamanrao
It may be pointed out that by cl 7 of the deed of reference very wide powers were conferred upon the arbitrator to call upon the disputing parties to produce the accounts etc which the arbitrator desired and to produce any other papers or documents which the arbitrator would like to inspect and to reply to any enquiry verbal or written of any sort or in any connection and in any form the arbitrator wanted
The orders passed by the arbitrator in exercise of these powers tend to indicate that in his view he was competent to ascertain and include in the valuation of the firm the depreciation and appreciation on the various items which were taken into account in arriving at the valuation
By order dated September 16 1958 the arbitrator gave direction amongst 497 others to Chintamanrao to file a statement of houses etcof immoveable property valuation of the same as shown in the books of account ie figures regarding it and also the approximate value statement as it existed at the date of demand according to the estimate of Chintamanrao
In the note to the order it was stated that Chintamanrao had produced certain papers but they were incomplete and therefore he was ordered to bring copies of the incomplete papers and also those papers which were not sent by him
On October 10 1958 Chintamanrao produced a statement of the net profits of the five years preceding the date of dissolution which he called the price of the goodwill for Samvat years 2009 to 2013
The aggregate of the net profits was Rs 217065010which he called price of the goodwill
He then submitted a statement of the outstandings of the different shops aggregating to Rs 916366 and the value of the goods purchased and other property and submitted that the total value of the goodwill of the firm by taking into account the profits of the firm for the last five years as per the statement filed was Rs 2170650103 and deducting therefrom 15  of the outstandings of the firm considered as irrecoverable the balance was Rs 2033295129 and that this was the amount from which the shares of the retiring partners were to be computed
On December 2 1958 an application was filed by Chintamanrao inviting the attention of the arbitrator to the agreement of reference and to the terms of the deed of partnership especially paragraphs 7 and 13 and submitting that the book values of items 2 to 5 in paragraph 4 of the agreement of reference were already in the books of account and could be easily found without any detailed or elaborate examination of the books of account it was unnecessary to enter upon any detailed inspection of the various entries
On this application an order was passed on December 5 1958 by the arbitrator that the inspection of the books of account do start on December 21 1958 in his presence at Sagar in the office of Messrs Virajlal Mannilal and Company and that Chintamanrao do 1 SCI64 32 498 make arrangements for giving inspection of all the books of account
On December 22 1958 another application was submitted by Chintamanrao stating that it was not necessary to produce certain registers and manufacturing accounts and that the orders in that behalf were beyond the jurisdiction of the arbitrator and that he was unable to produce the documents demanded
It was submitted by that application that the kind of inspection claimed and granted amounted to re opening of the accounts for the last five years which were closed with the consent and to the knowledge of all the partners and which could not in law be re opened
On December 23 1958 an application was made by Amrat Lal son of Jivraj one of the retiring partners submitting that the arbitrator had to value the goodwill and this had to be done by ascertaining the value of the profits of the five years and for that purpose the arbitrator was entitled to ascertain yearly profits by scrutinising the account books and finding out the yearly net profits
On these applications on December 25 1958 the arbitrator gave a direction that Chintamanrao do produce the papers mentioned in item No 2 in the order dated September 16 1958 namely the gross and net profits of the last five years and that he do produce the other papers which were ordered to be produced by the order dated September 16 1958
Thereafter on January 9 1959 the arbitrator made his award
The insistence of the arbitrator upon production of the gross and net profits of the last five years indicate that it was the opinion of the arbitrator that he was entitled to take into consideration not only the book value of the assets given in the partnership books of account but the depreciation and appreciation of those assets
The specific use of the expression by the arbitrator that he had included the depreciation and appreciation of various items of property and the procedure followed by him including the orders therefore clearly establish that the expression used by him was not a mere surplusage
499 It is clear that the arbitrator has included in his valuation some amount which he was incompetent by virtue of the limits placed upon his authority by the deed of reference to include
This is not a case in which the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication
It is a case of assumption of jurisdiction not possessed by him and that renders the award to the extent to which it is beyond the arbitrator s jurisdiction invalid
It is however impossible to sever from the valuation made by the arbitrator the value of the depreciation and appreciation included by the arbitrator
The award must therefore fail in its entirety
In this view of the case we do not think it necessary to consider whether the plea raised by the remaining partners that the award is vitiated on the ground that the arbitrator accepted from the retiring partners documents prepared from the books of account without giving an opportunity to the remaining partners to explain those documents
It was the case of Chintamanrao that these documents were prepared and handed over to the arbitrator without giving any notice to him
It was the case of the retiring partners that the documents consisted merely of extracts of entries in the books of account and that in any event Chintamanrao had assented to those documents being included in the record of the arbitrator
For the reasons set out by us in dealing with the first plea for setting aside the award and that plea having succeeded we do not think it necessary to enter upon the respective contentions of the parties on the second ground
We accordingly hold that the award was properly set aside by the Courts below
Counsel for the retiring partners submitted that on the view taken by us the award should be remitted to the arbitrator under section 16 of the 
No such request was however made by them in the Trial Court or in the High Court and we will not be justified in the circumstances of the case in 500 acceding to that request
We may observe that we have not heard counsel on the question whether in the circumstances of the case and on the conclusion recorded we have the power under section 16 to remit the award to the arbitrator
The retiring partners have also not asked for an order for supersession of the arbitration agreement in exercise of the powers of the Court under section 19
We have therefore refrained from considering that question also
The appeal fails and is dismissed with costs in one set
HIDAYATULLAH J
This appeal arises out of an arbitration award which was set aside by the Additional District Judge Sagar on the objection of the respondents
The judgment of the Additional District Judge was confirmed on appeal by the High Court and the present appeal has been filed on a certificate granted by the High Court under article 133 1c of the Constitution
The arbitration was without the intervention of the Court
Previously it proceeded before three arbitrators but the authority of two of the arbitrators was revoked by the Additional District Judge Sagar at the agreed request of the parties to the reference
It then proceeded before one Chaturbhuj V Jasani who gave his award on January 9 1959
The arbitration proceedings were necessary because of the retirement of the appellants from a firm called Virajlal Mannilal  Co which at that time consisted of eight partners in three groups
These groups were the three appellants Jivraj and his two sons owning 43 share respondents Nos1 3 Chintamanrao and his two sons owning 76 share and the two remaining respondents who are brothers owning the balance
By agreement this retirement was to take place on April 15 1958
In revoking the award the High Court in concurrence with the court below has upheld two objections a that the arbitrator exceeded his jurisdiction and b that he was guilty of misconduct in receiving some evidence behind the back of Chintamanrao
501 The firm of which the several parties here were partners had a written deed of partnership executed on February 16 1956
This deed replaced earlier deeds to which reference is not necessary
The partnership kept its accounts from Diwali to Diwali and every year it drew up a balance sheet and a profit and loss account copies of which documents were given to all the partners
The accounts so stated were subject to objection but if none was made they were conclusive and binding on the partners
All this was provided in the deed of partnership which also provided for the retirement of partners and its 13th paragraph laid down special terms as follows In case of retirement of any partner the valuation of the Firm will be made on the following basis for the purpose of settling the account of the retiring partner a Goodwill of the Firm That is right to use the trade marks trade labels and the name of the Firm
In making the valuation of the above the net profits of the last five years will be taken as the value of the Goodwill of the Firm
b Outstandings Udhari Recoveries That is loans and debts outstanding against persons other than partner will be calculated at 85  of the book value of the Firm
c Stock of Raw Materials That is tobacco bidis bidi leaves labels and other moveable property will be valued at the book value of these in the books of the Firm and all such stocks and moveables thus valued shall be given to the following partners
d Immovable Property Such as buildings godowns gardens lands etc
will be valued at the purchase price or their book value in the books of the firm as the case may be and all these shall be given to the re maining partners
 502 As a result of an arrangement reached aliunde by which the businesses of these partners which were in different firm names and various places were to be divided between the appellants on the one hand and the respondents on the other the parties desired an arbitration to separate the shares of the appellants as partners retiring from the firm Virajlal Mannilal  Co A deed of reference was executed by them on April 16 1958
After the usual recitals it provided that a final account of the partners should be taken with regard to eight matters as far as possible according to and taking into consideration the terms and conditions of the partnership agreement
 The eight matters were 1Goodwill of Trade MarkProperty 3Credits UdhariDead StockStock in trade ie the raw material or the finished goods invested in the businessOther matters connected with these transactionsProfit and Loss Account The Receipt and Payments account of the amounts of the partners
It was further provided that the firm Virajlal Mannilal was to continue with the respondents after the appellants had retired therefrom and the appellants were to be
paid an amount to be determined by the arbitrator and in such a manner and on such conditions as he might direct
The arbitrator having filed the award in Court the respondents filed objections only two of which noticed above succeeded and the award was set aside
I shall therefore proceed straight to those objections of which only the first was fully argued before us
In making his award the arbitrator gave the appellants a 143 share from a lump amount of Rs32 lacs which he described as goodwill of the firm adjusting in the respective shares of the three appellants in that sum all amounts standing to their credit 503 or debit as the case may be in the account books of the firm
He also assessed the goodwill for the period from Diwali to the date of retirement and made suitable additions
His real decision is contained in three or four lines in the award which of course contains other matters and his exact words in Hindi have given rise to some difference because they have been translated in two different ways on the record of the case
The two translations are 1 The value of the goodwill of the whole firm 1 assess at Rs 3200000 Rupees thirtytwo lacs
In this sum property dead stock and depreciation and appreciation of Udhari are also included 2 The value of the goodwill of the whole firm 1 assess at Rs 3200000 Rupees thirtytwo lacs
In this sum the depreciation and appreciation of property dead stock and Udhari is also included
 The second translation is probably more accurate than the first but to my mind it is not a matter of mere words but of what the arbitrator has done
The award is in Hindi and the two words appreciation and depreciation are in English
They might well have been used to still all controversy about issues which the parties had raised before him relating to these matters
The arbitrator might in other words have used these words loosely without meaning anything except to show that he had looked into everything which the parties desired him to see
The dispute is thus whether the arbitrator exceeded his jurisdiction by adding back depreciation amounts to the book value andor allowing for appreciation of property which was successfully claimed by the respondents in the High Court and the Court below to be not open to him In this appeal it was contended on behalf of the appellants that the deed of partnership as well as the order of reference left the arbitrator a free hand and even if the arbitrator wrongly interpreted the deed of partnership and did add back the depreciation andor 504 appreciation no question of jurisdiction could arise
Reliance is placed upon the observations of the Judicial Committee in the well known case of Chamsey Bhara  Co vs Jivraj Balloo Spg
 WvgCo1 where it was observed An error in law on the face of the award means in their Lordships  view that you can find in the award or a document actually incorporated thereto as for instance a note appended by the arbitrator stating the reasons for his judgment some legal proposition which is the basis of the award and which you can then say is erroneous
It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is and then going to the contract on which the parties  rights depend to see if that contention is sound
Here it is impossible to say from what is shown on the face of the award what mistake the arbitrators made
The only way that the learned judges have arrived at finding what the mistake was is by saying inasmuch as the arbitrators awarded so and so and inasmuch as the letter shows that the buyer rejected the cotton the arbitrators can only have arrived at that result by totally misinterpreting Rule 52
But they were entitled to give their own interpretation to Rule 52 or any other Article and the award will stand unless on the face of it they have tied themselves down to some special legal proposition which then when examined appears to be unsound Mr Desai contends that the arbitrator might have interpreted the partnership deed wrongly but that was a matter within his jurisdiction and the error if any not being one of law on the face of the award the Civil Court had no authority or jurisdiction to set aside the award
The other side contends as has so far been held in the case that the reference read with the partnership deed created an area of 1 ILR at 586
505 jurisdiction which the arbitrator has outstepped
The first point is therefore to decide what were the limits of the arbitrator s action as disclosed by the reference and the deed of partnership and then to see what the arbitrator has actually done and not what be may have stated loosely in his award
This is the only way in which the excess of jurisdiction can be found If the interpretation of the deed of partnership lies with the arbitrator then there is no question of sitting in appeal over his interpretation in view of the passage quoted above from Champsey s case but if the parties set limits to action by the arbitrator then the arbitrator had to follow the limits set for him and the court can find that he has exceeded his jurisdiction on proof of such action
The arbitrator derived his authority from the reference and we must turn to its terms in the first instance
The material portion has been quoted and it shows that in view of the retirement of Jivraj and his sons parties considered it necessary to effect the final account of the retiring partners with regard to the matters mentioned below as  far possible according to and taking into consideration the terms and conditions of the partnership agreement and then followed the eight items
The words underlined are in the recitals but they do show that the parties desired a division in accordance with the terms of the partnership agreement
The words as far possible show some latitude in one sense but the force of those words is to be discovered with the aid of the other words according to and taking to consideration etc which lay down that the terms of the partnership agreement must prevail over personal opinion
The partners appointed the arbitrators to decide the eight matters and to enable them to give their decision undertook by cl 7 of the reference to furnish all accounts documents and information which the arbitrators might require of them
Now the deed of partnership which was to prevail as far as its terms were applicable provided that to settle the final account of the retiring partners 506 four items of assets should be valued in a particular way
These directions were contained in cl  13 of the deed already set out earlier
Thus goodwill was equal to five years  net profits debts due to the firm were to be taken not at their book value but at 85  of that value stocks of raw materials were to be valued at book value and immovable properties at purchase price or their book value in the books of the firm as the case may be
The goodwill took no account of anything but the net profits
Admittedly the net profits of the preceding five years were Rs 2170650 10 
This set at rest sub clause a of cl 13 of the partnership agreement
Admittedly also the outstandings Udhari came to Rs 916366 at their book value and 15 thereof came to Rs 137354136
The net Udhari therefore was Rs 77901126
Differences really arose in the matter of valuation of raw materials and immovable properties and in this connection
the appellants asked to see an account of gross profits for the past five years which the arbitrator ordered Chintamanrao to produce
According to the appellants the value of properties given by Chintamanrao was the written down value and the right figure according to the agreement was not Rs 624369 as stated by Chintamanrao but Rs 1657000 
In reply Chintamanrao stated that it was not the practice of the firm to prepare an account of gross profits but he added that gross profits could be calculated from the account books by the other side or by the arbitrator and he offered the services of an accountant to prepare such an account
The documents which the arbitrator is said to have received behind the back of Chintamanrao though not some of the other respondents are the abstracts which show the gross profits and what was excluded to reach the net profits
The net profits in these accounts and the net profits given by Chintamanrao agree
I do not refer to the dispute about the production of the documents since that part of the case was not argued before us but these accounts prime facie do show that in working out net profits for the five years depreciation of immovable property and goods was taken 507 into account
The same depreciation appears to have been taken into account in the balance sheet while valuing the assets against the liabilities
In other words depreciation of immovable properties and goods over the five years for which the goodwill was to be calculated appeared to have been taken twice over
I would have persuaded myself to go into this matter more deeply but for the fact that such depreciation does not altogether account for the difference between 21 lacs and 32 lacs
The balance sheets show a very slender difference between the assets and liabilities over the five years and it may be taken that the value of Udhari raw materials and immovable properties is offset by the liabilities
Nothing remains except a very petty sum as profit to be carried over for addition to the goodwill
The duplicated depreciation does not in fact account for the increase from Rs 21 lacs to Rs 32 lacs
The conclusion is therefore inescapable that the arbitrator meant what he said when he spoke of including appreciation and depreciation in the valuation of the properties etc
For this reason he must be held to have exceeded his jurisdiction and it is not a question of his having merely interpreted the partnership agreement for himself as to which the Civil Court on authority could have had no say unless there was an error of law on the face of the award
Reliance is placed upon the case of Cruickshank and others vs Suiherland and others   that if accounts in the past were not prepared to meet the contingency of retiring partners the accounts must be recast for this special purpose and the arbitrator must necessarily have freedom to value property in his own way and not by accepting old accounts already made by the partners
The intention here was that the arbitrator should prepare the final accounts as the partners would themselves have done under the partnership agreement and the arbitrator had to follow cl 13 of the partnership agreement which was binding on 1 508 the partners and therefore on him
The partnership agreement did not speak of market value or fair value
It stated that the purchase price or the book value as the case may be alone could be taken into account
This meant that the book value where available and the purchase price in other cases only were to enter in the calculations
There was thus no option to go to fair value or market price at all
I do not think that we should supersede the arbitration agreement under s19
No circumstance was made out for such a course
I would have directed a remit to the arbitrator under section 16 of the but my brethren take a different view of the matter and I leave the matter there
The contention of the appellants on the question of juris diction decided against them must fail and I agree that the appeal should be dismissed with costs
Appeal dismissed


Summary:
The appellants and the respondents entered into a partnership in the business of manufacturing bidis
Under the agreement a partner was entitled to retire after giving notice of six months to all partners
It contained a clause for reference of disputes between the partners relating to the business or dissolution of the firm to arbitration
It also contained a clause providing how four items including goodwill should be valued
According to this clause goodwill was equal to five years net profits for debts due to the firm were to be taken not at their book value but at 85 of that value stocks of raw materials were to be valued at book value and immovable properties were to be valued at their purchase price or their book value
About two years later the appellants desired to retire from the partnership and a deed of reference was executed and a sole arbitrator was appointed
This provided that the remaining partners shall continue the firm and they shall make full payment to the retiring partners of such amounts in such manner and on such conditions as shall be decided upon by the arbitrator
The arbitrator gave the award
He fixed the value of the goodwill of the firm at Rs32 lakhs including in that amount the depreciation and appreciation of the property dead stock and dues to be recovered
 The award was filed in the Court under section 142 of the Indian 
481 The respondents applied for an order setting aside the award on diverse grounds two out of which survived for consideration in the present appeal
The first was that the arbitrator in making this award exceeded his jurisdiction because in fixing Rs 32 lakhs as the value of the devisable assets of the firm he included therein the depreciation and appreciation of the property dead stock and outstandings secondly that the arbitrator was guilty of misconduct
The trial court upheld these and certain other objections and set aside the award
The High Court confirmed the decision of the trial court insofar as it related to the two contentions
The present appeal is on a certificate granted by the High Court
Heldi An award made by an arbitrator is conclusive as a judgment between the parties and the court is entitled to set aside an award if the arbitrator has misconducted himself in the proceeding or when the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35 of the or where an award has been improperly procured or is otherwise invalid under section 30 of the Act
An award may be set aside by the Court on the ground of error on the face of the award but an award is not invalid merely because by a process of inference and argument it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion
Champser Bhara and Company vs Jivrai Balloo Spinning and Weaving Company Ltd LR 50 IA 324 and Cruikshank and others vs Sutherland and others  distinguished
iiIt is not open to the Court to speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusions
iiiIn the present case the arbitrator had included depreciation and appreciation of certain assets in the value of the goodwill which he was incompetent to include by virtue of the limits placed upon his authority by the deed of reference
This was not a case in which the arbitrator has committed an error of fact or law in reaching his conclusions on the disputed questions submitted for adjudication
It was a case of assumption of jurisdiction not possessed by him and that rendered the award to the extent to which it was beyond the arbitrators  jurisdiction invalid
It is however impossible to sever from the valuation made by the arbitrator the value of the depreciation and appreciation included by the arbitrator
The award must therefore fail in its entirety
Per Hidayatullah J i If the parties set limits to action by the arbitrator then the arbitrator had to follow the limits set for him and the court can find that he exceeded his jurisdiction on proof of such excess
iiIn the present case the arbitrator in working out net profits for four years took into account depreciation of immovable 1SCI64 31 482 property
For this reason he must be held to have exceeded his jurisdiction and it is not a question of his having merely interpreted the partnership agreement for himself as to which the Civil Court could have had no say unless there was an error of law on the face of the award