IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Arb. Case No.25 of 2008 Reserved on : 2nd April, 2009 Date of Decision: May 8, 2009 Deepak Arora and another Petitioners Versus Shri Vijay Khanna Respondent Coram The Hon’ble Mr. Justice Sanjay Karol,J. Whether approved for reporting1? Yes. For the petitioners: Mr. J.S.Bhogal, Senior Advocate, with Mr.Ashwani K.Sharma, Advocate. For the respondent: Mr.Bhupender Gupta, Sr. Advocate, with Mr.Bimal Gupta, Advocate. Sanjay Karol, J. Shri Deepak Arora and Shri Jatinder Bir Singh (hereinafter referred to as the petitioners) have filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) against Shri Vijay Khanna (hereinafter referred to as the respondent). The petitioners are claiming relief to the effect that the respondent be restrained from disposing, transferring, alienating etc. the physical possession of the partnership property bearing Khasra No.172, 173, 239, 237 and 240, measuring 0-15-24 hectares, situated in Mohal Kand Mauza Khanyara, Tehsil Dharamshala, District Kangra, (hereinafter Whether the reporters of Local Papers are allowed to see the Judgment? 2 referred to as the suit property) upon which hotel in the name and style of M/s Snow Hermitage Resorts is being run. The petitioners are also seeking appointment of a Receiver to take possession and charge of the suit property along with the superstructure; an independent auditor be appointed to audit the accounts of the partnership firm and the respondents be restrained from encashing the FDRs issued by the State Bank of India, Dharamshala. The petitioners have alleged that in terms of deed of partnership dated 26.3.2003 petitioners and the respondent became partners (Shri Deepak Arora -25%, Shri Jatinder Bir Singh – 25% and Shri Vijay Khanna – 50%) in the entire hotel project set up by the respondent. All the partners were given the status of working partners and were entitled to draw salary. The respondent, however, was given the responsibility of actively conducting the day to day working of the business and smooth running of the hotel project. In terms of deed of partnership, the respondent had to sell to the petitioners, 50% share in the hotel project including land, super structure, furniture and fixtures thereupon. The respondent failed to comply with the statutory formalities of taking permission under Section 118 of the H.P. Tenancy and Land Reforms Act, 1972 (hereinafter referred to as the Tenancy Act). The petitioners have put in money in the project, the respondent is acting in breach of terms and conditions of the partnership deed and his conduct is detrimental to the rights and interest of the petitioners. He had been siphoning off huge amount of money received by him from various sources in cash. Since June, 2006 the petitioners have not received any profit or salary or remuneration from the partnership business. The respondent had borrowed Rs.32 lacs from the State Bank of India, 3 Dharamshala Branch in which the petitioners became co-borrowers and the suit property alongwith the hotel/super structure was also mortgaged. With the efforts of the petitioners, the entire amount stood paid but now the respondent is attempting to take back the documents of title with dishonest intention of alienating the suit property which in fact is the asset of the partnership concern. Vide letter dated 24.8.2007 petitioners informed the Bank and requested them not to release the documents of title to the respondent. The respondent has transferred funds from the partnership account and got prepared FDRs amounting to Rs.7,40,000/- from the State Bank of India. The petitioners having been left with no option dissolved the partnership vide letter dated 26.5.2008 and vide legal notice dated 20.6.2008, Clause 16 of the partnership deed containing an arbitration clause was invoked. The respondent has failed to (a) file statutory returns under the income tax, sales tax, luxury tax laws etc. (b) siphoned off funds received from the travel agent and further attempted to remove the already appointed travel agent with a person convenient to him (c) the Income Tax authorities have taken cognizance of the transaction entered into by the respondent in cash and as such issued notice dated 25.4.2008 (d) the affairs of the partnership business is being carried out in a manner which are detrimental to the interest of partners. The same is evident from the fact that three cheques issued by the respondent stood dishonoured resulting into initiation of criminal prosecution (d) the actions of the respondent are detrimental to the affairs of the partnership as also the partners, hence there is urgent need to issue necessary directions as prayed for. 4 The respondent filed its reply specifically pleading that as per the petitioners’ desire the business of the partnership came to an end with the dissolution of the partnership firm. The petition has been malafidely filed, without any intention of taking recourse to arbitration, with the sole object, and purpose of harassing the respondent, who is carrying on his business of running the hotel as sole proprietor, in the super structure built on the suit property as owner thereof. Not only have the petitioners siphoned off huge amounts of the money out of the partnership business but they have also taken away all record including books of accounts. The petitioners miserably failed to meet up their contractual commitments in terms of the partnership deed, execution of which is admitted. The respondent has elaborated the events which led to the formation of the partnership firm and its dissolution. The respondent had desired to set up a hotel at Dharamshala for which purpose he sought expert opinion and advice and got prepared a project report. The land was identified and in January/February, 1998 agreement to sell was entered into with the then owners. Thereafter with the compliance of all formalities, necessary statutory permission under Section 118 of the Tenancy Act, was accorded by the State Government on 24.5.1999 in favour of the respondent. On 3.6.1999, sale deed was registered. To set up a hotel under the name and style of M/s Snow Hermitage Resorts on November, 2000 the respondent took loan of Rs.25 lacs from the State Bank of India, Dharamshala branch. The respondent set up a hotel comprising of 20 rooms alongwith facility of conference hall, restaurant, kitchen, lift, lobby, staff quarters, parking lot and lush green fully developed lawns for the hotel and complete two bed rooms, dinning, drawing with kitchen set for 5 exclusive use of the respondent. The hotel was made functional on 9.12.2002. Since the respondent was facing financial hardship in meeting the running expense of the hotel, he ventured out to raise funds from various sources. The matter was discussed with his friend, Shri Jitender Bir Singh, petitioner No.2, who in turn introduced Shri Deepak Arora, petitioner No.1 to him. Petitioner No.1 expressed his desire to purchase the suit property, value of which was assessed at Rs.1.865 Crores. After few deliberations, it was suggested that an arrangement by way of partnership be entered into between the parties, to run the hotel till the time the property was purchased by the petitioners. It was in this background that the partnership dated 26.3.2003 was entered into between the parties. The ownership of the suit property continued to be that of the respondent and the partnership was only for the purposes of running the hotel. According to the respondent between the year 2003 and June, 2006 even though the management of the property was with the petitioners but they managed the affairs of the Hotel only from Delhi. The petitioners appointed their own man as a travel agent who directly did the bookings of the rooms from Delhi. The petitioners directly received the booking amount in Delhi and neither accounted for nor deposited the same in the partnership account at Dharamshala. He has denied having received any amount in cash from Mr. Vinit Jain of M/s Timeless Travels, Delhi allegedly appointed by the petitioners. Except for a sum of Rs.22,50,000/- the petitioners never contributed any amount towards the partnership business. The petitioners did not pay any amount towards sale of 50% share in the suit property or the super structure built thereupon to the 6 respondent. The suit property was used by the partnership firm without payment of any rent, maintenance charges. The respondent has not received anything for the same either from the petitioners or from the partnership firm. After dissolution of the firm, the suit property as also the super structure is being exclusively used as owner thereof by the respondent. The petitioners have no right, title and interest in the same. It is not an asset of the partnership, hence the petitioners have got nothing to do with the same. The petitioners have neither obtained statutory permission nor paid anything towards the sale consideration. The petitioners also did not contribute any amount towards repayment of the loan. They have misled the Court by falsely stating that the petitioners had become co-borrowers in the suit land. On 3.6.2008 and 9.6.2008, the petitioners visited Dharamshala and not only took away the entire cash/sale proceeds but also all books, therefore, statutory returns could not be filed. With regard to criminal prosecution, the respondent has come out with a defence that in order to set up a lift in the hotel, he had entered into an agreement with one Shri Vijay Kumar Dhawan, who was to take the loan for installing the lift, which in turn was to be repaid by the respondent. In order to secure his interest, said Shri Vijay Kumar Dhawan had obtained blank cheques. The account from which the said cheques were issued was later on closed and a new bank account was opened. The petitioners were in the know of the same, but, however, said Shri Vijay Kumar Dhawan connived with the petitioners and manipulated the presentation of the said blank signed cheques through one Shri Muthaswamy. 7 The respondent, however, has admitted that FDRs in the name of partnership concern were got prepared by him for the reason that the money lying in the C.C. account was not bearing any interest. Mr.J.S.Bhogal, learned counsel for the petitioners, by reiterating the stand taken in the petition, has argued that the respondent is unilaterally running the business of the partnership concern. He alone is managing the affairs and has changed the bank account hence keeping in view the ratio of law laid in Ashok Kumar Mittal vs. Ashwani Kapoor and another, AIR 2005 Delhi 323 Addanki Narayanappa and another, AIR 1966 SC 1300 and Tilak Chand Jain vs. Darshan Lal Jain and another, AIR 1985 J&K 51 not only the respondent be restrained from transferring/alienating the suit property/hotel and managing the affairs/assets of the partnership concern, but also a Receiver be appointed to take over the same, also an auditor be appointed to audit the accounts to ensure filing of statutory returns. Per Contra, Mr.Gupta, learned senior counsel has opposed the petition on the ground that the petitioners have got no prima facie case entitling them for the interim relief. Since no transfer in the land or super- structure took place, in terms of partnership deed dated 26.3.2003, hence, the petitioners have got no right in law or equity to claim the reliefs. The petitioners’ conduct, by itself is a ground, good enough to disentitle them for the reliefs. There is no imminent threat or danger to the suit property/hotel. None of the assets of the firm are dissipated, frittered or wasted away in any manner, hence the petition for lack of cause of action needs to be dismissed. At best, the petitioners are entitled for rendition of accounts and distribution of other assets of the partnership concern, for 8 which the petitioners can seek recourse to such remedies as are available to them in accordance with law. The petition has been malafidely filed with the intention of crippling the respondent financially. In support of his contention, he has relied upon the ratio of law laid down by the Apex Court in Adhunik Steels Ltd. vs. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125, Ram Baran Prasad vs. Ram Mohit Hazra, AIR 1967 SC 744 and Arjun Kanoji Tankar vs. Santaram Kanoji Tankar, (1969) 3 SCC 555. I have heard the learned counsel for the parties and perused the record. The deed of partition dated 26.3.2003, contains the following relevant clauses:- “Whereas the partner of the first part is the absolute owner in possession of land comprised in Khasra Nos. 172, 173, 239, 237 and 240, total land measuring 0-15-24 Hects, situated in Mahal Kand Mauza Khanyara, Tehsil Dharamsala, District Kangra, vide Jamabandi for the years 1996-97 and that the partner of the first part has raised a Hotel Building over the above mentioned land under the name and style of Messers SNOW HERMITAGE RESPORTS, at Dharamsala-Khanyara Road, Mahal Kand Mauza Khanyara, Tehsil Dharamsala, District Kangra, and is carrying out the abovementioned Hotel business under his sole Proprietorship. WHEREAS the partner of the first part has invited the partners of the second and third parts to become partners in the entire Hotel Project, namely, M/S Snow Hermitage Resorts, including the land and building and that the partners of the second and third parts have agreed to enter as partners in the said property and business. 9 WHEREAS the partner of the first part has also agreed to sell and that the partners of the second and third parts to this deed have agreed to purchase the 50% share of ownership of the aforesaid overall Hotel Project including Land, Building structure, Furniture and Fixtures etc. with all basic amenities like Electricity/ Water/lift and complete furniture and fixtures for which all legal formalities including execution of documents/permission in respect of transfer of the said ownership in favour of the partners of the second and third parts are being done and are in process under Section 118 of the H.P. Land and Tenancy Act. ….” “1. That the partnership business is and shall be that of running Hotel and/or some other business as the parties may agree upon and shall be carried on under the name and style of Messers Snow Hermitage Resorts, on Dharamsala- Khanyara Road at Village Kandi, Tehsil Dharamsala, District Kangra, H.P. and or at any other place or places as the parties may from time to time decide by mutual agreement.” “2. That the business of the partnership firm shall be carried or under the name and style of MESSERS SNOW HERMITAGE RESORTS.” “4. That the profit and loss of the business of the firm shall be divided or borne between the partners in the following ratio. Sr.No. Name of Partners Profit Loss 1. Shri Vijay Khanna 50% 50% 2. Shri Jatinder Bir Singh 25% 25% 3. Shri Deepak Arora 25% 25% 5. That the capital of the firm shall be contributed by the partners as may be mutually agreed upon from time to time. The firm shall pay interest @ 12% P.A. to the partner on the amount of Capital contribution or loan advanced by each of them respectively and the profit or loss of the business of the 10 firm shall be arrived at after the accounting for the interest so payable as a business expenditure of the partnership. Such interest shall be payable on the amount standing to the credit of the account of the partners and such interest shall be credited to the account of each partner at the close of the accounting year. In case of loss or lower profits, Lower rate of interest or no interest can be allowed as agreed mutually by the partners. 6. That all the partners to this Deed are working partners and shall be entitled to draw salary to be decided mutually. However, the first partner to this deed has agreed himself to keep actively engaged in conducting the day to day affairs of the business, being managing partner and shall be responsible for the entire matters relating to the smooth running of the business of the said Hotel.” “13. That the parties to this deed shall be held responsible for the assets, liabilities, debt and credit money of the firm/ business in their respective shares and on the dissolution of the partnership business/firm all the partners shall be entitled to claim in any right or share in goodwill, name, quota, licence, permits, tenancy rights of the firm in their respective profit sharing ratio.” “15(a). That the capital investment of the incoming partners in this partnership business shall be as per their Ratio of Shares.” It is a settled position of law that for interpreting the terms of the deeds/ agreements, the Court has to see the intention of the parties. In the present case, except for the pleadings and the documents placed on record, there is no other material from which the intention of the parties can be gathered and inferred. The assertions made by the petitioners in the pleadings stand refuted by the respondent. There are claims/allegations and 11 counter-claims/counter allegations. The petitioners have placed on record the following documents:- (i) Copy of partnership deed dated 26.3.2003 (ii) Copy of complaint under Section 138 of Negotiable Instruments Act, 1881 (iii) Copy of e-mail dated 6.2.2007 (iv) Copy of reply addressed to Income Tax Officer (v) Copy of bank statements (vi) Copy of letter dated 26.5.2008 dissolving partnership firm (vii) Copy of notice dated 20.6.2008 The respondent has not placed any document on record. To gather the intention of the parties, documents i.e. (i) partnership deed (ii) letter dated 26.5.2008 dissolving partnership firm and (iii) notice dated 20.6.2008, are to be considered. The existence and receipt of three documents is not in dispute. The partnership deed, prima facie, contains two agreements entered into inter se between the parties (i) intention of transferring 50% share in the immovable property i.e. the suit land and super structure built thereupon by the respondent in favour of the petitioners and (ii) to enter into a joint venture and constitute a partnership concern for running the hotel in the ratio and terms provided for therein. In my considered view, both are independent to each other. One is not dependant upon the other. My conclusion is based on the language and the contents of the deed of partnership entered into between the parties. In the recital clause the parties admit that the respondent is the absolute owner and in possession of the land on which he has raised a hotel 12 building in which he is running a concern under the name and style of M/s Snow Hermitage Resorts as its sole proprietor. The parties “agreed to enter as partners in the said property and business”. The parties themselves have created a distinction between the property and the business. The transfer of share in the land and the super structure is subject to compliance of statutory provisions. Incidentally, what steps were taken by the parties between 26.3.2003 and filing of the petition i.e. 24.6.2008, in this regard has neither been stated in the petition nor any document with respect thereto placed on record. In terms of clause (1) the parties expressly intended to carry out “some other business” and to carry out the business of running of hotel either in the hotel set up on the suit premises or “any other place or places as the parties may from time to time decide by mutual agreement”. Clause (4) of the deed specifically mentions the ratio in which the profits and the losses out of “the business of the firm” is to be shared between the parties. The deed is silent with regard to partition of the land and the super-structure built thereupon in the event of dissolution of the partnership. The share in the property is not defined as has been done so in the case of partnership concern. Further Clause (5) itself creates a distinction between the consideration for the transfer of share in the suit land, hotel and the business of the partnership for which the “capital of the firm” had to be “contributed by the partners as may be mutually agreed”. Such contribution was also to carry interest. Clause 13 which talks of the assets of the firm is conspicuously silent with regard to the suit property and the hotel. It only 13 talks of “tenancy” rights. It is no body’s case that the Hotel constituted as a tenancy right. Therefore, from the terms of the agreement, it is evident that the parties, much less the respondent had ever intended to put the suit property/hotel in the joint stocks of the partnership concern. Petitioners have not produced any document to show what steps were taken for completing the sale transaction. The only averment made is that “the respondent, on one pretext or the other, has not given effect to and completed the legal transfer of the property to the petitioners inspite of the expressed provisions of the Partnership Deed and the understanding between the parties.” Admittedly as on 26.3.2003, legal formalities were under process. What transpired thereafter for effecting transfer of 50% interest in the land and the building/ “overall hotel project” has not been explained. It is also not the petitioners’ case that they had paid sums to the respondent towards the purchase of their share. The parties, prima facie, cannot be said to have acted and discharged their reciprocal contractual and statutory obligations for transfer of share in the suit property/“overall hotel project” in favour of the petitioners. Section 118 of Tenancy Act provides for as under:- “118. Transfer of land to non-agriculturists barred- (1) Notwithstanding anything to the contrary contained in any law, contract, agreement, custom or usage for the time being in force, but save as otherwise provided in this Chapter, no transfer of land (including sales in execution of a decree of a civil court or for recovery of arrears of land revenue), by way of sale, gift, exchange, lease, mortgage with possession or 14 creation of a tenancy shall be valid in favour of a person who is not an agriculturist.” Hence, valid sale of land to a non- agriculturist is invalid. In terms of sub-section (3) of Section 118 of the Tenancy Act, if transfer is effected in contravention of sub-section (1), the same shall be void ab initio and the land involved in such transfer shall, together with structures, buildings or other attachments, vest in the State Government, free from all encumbrances. In any event mere agreement to sell does not by itself create any interest in or charge on immovable property. (Ram Baran Prasad v. Ram Mohit Hazra & Ors. AIR 1967 SC 744 & Shivji v. Raghunath & Ors. (1997) 10 SCC 309. In view of the said provisions, therefore, it cannot be said that any transfer of interest could have taken place de hors the provisions of the statute. Even though the parties intended to purchase/sale 50% share of ownership in the suit property and super structure built thereupon, but, however, in my considered view in the absence of any overt acts of the petitioners, it cannot be said that the parties had acted upon the same and till such time the necessary statutory permissions are granted there cannot be any transfer of interest of the suit property/super structure. The fact that the transfer of sale had not taken place is also evident from the following admission of the petitioners made in the legal notice dated 20.6.2008, the contents of which are reproduced as under:- “However, till date on one pretext or the other, you have not given effect to and completed the transfer of the above mentioned property to my clients inspite of the express 15 provisions of the Partnership Deed and the understanding between the parties.” Section 14 of the Indian Partnership Act, 1932 reads as under:- “14. The property of the firm: Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the