IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 4TH MAY 2010 / 14TH VAISAKHA 1932 Arb.A.No. 33 of 2007() ---------------------- O.P.(ARB) 29 OF 2009 OF DISTRICT COURT, PALAKKAD APPELLANTS/PETITIONERS ------------------------------------------ 1. C.M.NARAYANAN, S/O C.V.MUTHUVELAN, RESIDING AT 4029, 1ST CROSS, HAL 2ND STAGE, INDIRA NAGAR, BANGALORE-560008. 2. C.N.MUTHUKRISHNAN, S/O C.M.NARAYANAN, RESIDING AT 4029, 1ST CROSS, HAL 2ND STAGE, INDIRA NAGAR, BANGALORE-560008. 3. T.R.RAJANI, W/O C.M.NARAYANAN, RESIDING AT 4029, 1ST CROSS, HAL 2ND STAGE, INDIRA NAGAR, BANGALORE-560008. BY ADV. SRI.T.KRISHNAN UNNI, SENIOR ADVOCATE RESPONDENT(S): RESPONDENTS -------------------------- 1. C.G.BABU, S/O LATE C.M.GANGADHARAN, RESIDING AT CHAMAKKAD HOUSE, VADAKKANCHERRY P.O., ALATHUR TALUK, PALAKKAD DISTRICT. 2. C.G.PRIVI, S/O LATE C.M.GANGADHARAN, RESIDING AT CHAMAKKAD HOUSE, VADAKKANCHERRY P.O., ALATHUR TALUK, PALAKKAD DISTRICT. 3. C.G.RAJEEV, S/O LATE C.M.GANGADHARAN, NOW RESIDING AT FLAT NO.107, RAHEJA ENCLAVE, RACE COURSE ROAD, COIMBATORE-641018. 4. P.S.SATHEEDEVI, W/O LATE C.M.GANGADHARAN RESIDING AT CHAMAKKAD HOUSE, VADAKKANCHERRY P.O., ALATHUR TALUK, PALAKKAD DISTRICT. ADV. SRI.C.C.THOMAS, SENIOR ADVOCATE FOR R1 TO 4 THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 04/05/2010, ALONG WITH ARB. APPEAL NO. 8 OF 2008 THE COURT ON THE SAME DAY PASSED THE FOLLOWING: PIUS C. KURIAKOSE & C.K. ABDUL REHIM, JJ. ------------------------------------------ Arb. Appeal Nos. 33 0f 2007 & 8 of 2008 ------------------------------------------------ Dated this the 4th day of May, 2010 J U D G M E N T Pius C. Kuriakose, J. Both these appeals are directed against the order of the District Court, Palakkad in OP. (Arb.) No. 29 of 2007. Appeal No. 33 of 2007 is filed by the petitioners in the Arbitration O.P. while Appeal No. 8 of 2008 is filed by the respondents in the Arbitration O.P. For sake of convenience we will refer to the appellants in Arb. Appeal No. 33 of 2007 as the petitioners and the respondents in that appeal as the respondents. 2. As found by the court below the facts are that the petitioners and the respondents are partners of a partnership firm by name and style Hotel Arathi which is conducting a hotel and managing a shopping complex at Vadakkumcherry in Palakkad District. The petitioners and the respondents are partners of yet another partnership Arb. Appeal. 33/07 & 8/08 - 2 - firm by name Savitha Bar which carries on business as retail dealers of various varieties of Indian made foreign liquor at Vadakkumcherry itself. The first respondent Sri. C.G.Babu is the Managing Partner of both these firms. When disputes arose between the petitioners and the respondents as regards the business of the two firms for resolving those disputes by arbitration, petitioners 2 and 3 filed AR. No. 20 of 2002 in respect of Savitha Bar and A.R. No. 21 of 2001 in respect of Hotel Arathi before this Court. This court appointed Mrs. Elizabeth Mathai Idiculla, former District and Sessions Judge as Arbitrator under the provisions of the Arbitration and Conciliation Act, 1996. The Arbitrator passed an award in the two arbitration cases referred to her on 12-6-2004. By the above award in arbitration request No. 21/02 it was directed that the firm Hotel Arathi shall stand dissolved and it was declared that the share of petitioners 1 and 2 in the assets and liabilities of the firm shall be 50%. , the remaining 50% being the share of Arb. Appeal. 33/07 & 8/08 - 3 - respondents. By the award in A.R. No. 21 of 2002 it was directed that the firm Savitha Bar will also stand dissolved and it was declared that the share of petitioners 2 and 3 in the assets and liabilities of the firm will be 50% while the remaining 50% will be the share of the respondents. In the award passed in AR. No. 21/02 the Arbitrator has left open the dispute between the parties as regards the title of 40 cents of land wherein Hotel Arathi is situated on the ground that the arbitration clause in the partnership deed does not cover the said dispute. The Arbitrator has directed the petitioners who are claimants in the A.R. to apply on the execution side for valuation of only the movable assets of the firms including the goodwill and the licence of the firms Savitha Bar and Hotel Arathi which was found to be assets of the firms. 3. The respondents filed Arb. O.P. No. 160 of 2004 under Section 34(2b)(i) of the Arbitration & Conciliation Act, 1996 for setting aside the award in AR. No. 20 of 2002 to Arb. Appeal. 33/07 & 8/08 - 4 - the extent the same holds that the FL-3 Licence pertaining to Savitha Bar is an asset of the firm. In that O.P. the respondents filed IA. No. 1863 of 2004 for stay of all further proceedings pursuant to the finding of the Arbitrator that the FL-3 Licence is an asset of the firm and to permit the first respondent o use the licence as per the Abkari Act. Stay was sought for on the averment that unless the same is granted, petitioners 2 and 3 will prevent the first respondent from using the licence granted by the authorities to him in his individual capacity. The District Court granted stay and according to the petitioners, the respondents continued to exploit the FL-3 Licence and even got the same renewed. It is stated that the above stay was in force till O.P. No. 160 of 2004 was finally disposed of. According to the petitioners, since the Arbitrator had left out the disputes regarding the fixed assets (land and building) of the firm Hotel Arathi, even though the firm stood dissolved by the award, the petitioners were not in a position to have the assets and Arb. Appeal. 33/07 & 8/08 - 5 - liabilities of the firm determined and quantified in execution of the award. It is pointed out that under the provisions of the Foreign Liquor Rules, an FL-3 Licence is limited and can be exploited only in the premises described therein. The award passed by the Arbitrator is therefore enforceable only as regards the share of profits due to the petitioners in the two businesses. The goodwill, licence and other movable assets cannot be valued de hors the fixed assets. 4. According to the petitioners, the respondents were utilising the fixed assets of the firm for exploiting FL-3 licence and the licensed premises without satisfying the award and were continuing to deny the petitioners their legitimate share of the income. Hence they filed O.P. No. 221 of 2004 before the District Court, Palakkad under Section 9 of the Arbitration and Conciliation Act praying that a receiver be appointed to take charge of hotel Arathi and Savitha Bar or in the alternative to appoint either the second petitioner or the first respondent as the receiver of Arb. Appeal. 33/07 & 8/08 - 6 - the businesses. In O.P. No. 221 of 2004, the petitioners offered to run Savitha Bar and Hotel Arathi as receivers and to pay to the respondents a sum of Rs.1,75,000/- per mensem. The prayer was that the above arrangement be continued till winding up of the firms and distribution of the assets of the firms by court. Since the hearing and disposal of Arb. O.P. No. 221 of 2004 was getting delayed and the respondents were taking steps to seek renewal of the FL-3 Licence without bothering to pay the petitioners their share of profits for the periods prior to and after awards passed by the Arbitrator, the petitioners filed IA. No. 507 of 2005 in Arb. O.P. No. 221 of 2004 invoking various provisions for an interim order restraining the respondents from carrying on the hotel and bar business and from applying for and obtaining renewal of the FL-3 licence for the period from 1- 4-2005. Section 53 of the Indian Partnership Act, 1932 was one of the provisions was invoked and according to the petitioner, the said provision will enable the petitioners to Arb. Appeal. 33/07 & 8/08 - 7 - obtain the relief sought for in the IA. I.A. 507 of 2005 and Arb. O.P. Nos. 221 of 2004 and 160 of 2004 were heard together. The District Judge by common order dated 25-7- 2005 dismissed O.P. No. 160 of 2004 and confirmed the finding of the Arbitrator in AR. No. 20 of 2002 that the FL-3 Licence is an asset of the firm. O.P. No. 221 of 2004 and IA. No. 507 of 2005 were also dismissed by the District Court. According to the petitioners, this was without properly appreciating the reliefs sought for and on a wrong understanding of the law on the point and without noticing the significant fact that a winding up of the firms after dissolution can be had only after the assets are ascertained, valued and put up for sale. 5. Against the order dismissing the O.P. (Arb.) No. 220 of 2004, the petitioners filed Arb. Appeal No. 34 of 2005 before this Court. The respondents challenged the order in Arb. O.P. No. 160 of 2004 by filing Arb. Appeal No. 35 of 2005. In that matter, this Court passed an interim order Arb. Appeal. 33/07 & 8/08 - 8 - directing the respondents to pay the entire arrears ordered by the Arbitrator and to continue to pay at the rate of Rs.50,000/- per mensem to the petitioners till the disposal of the appeals. Petitioners allege that though the arrears ordered by the Arbitrator were paid, monthly payments directed by this Court from the date of the award were not made. Both the appeals were disposed of by this Court by judgment dated 30-3-2006. By virtue of that judgment this Court appointed the first respondent as party receiver for conduct of the businesses. He was directed to submit periodical reports before the District Court. It was also directed that if any further direction is necessary, the parties were free to move the District Court. It is pointed out that though the above judgment was challenged before the Supreme Court, the SLPs were dismissed confirming the judgment of this Court. The petitioners submit that pursuant to the appointment as receiver by this Court, the first respondent is conducting the businesses. It is alleged Arb. Appeal. 33/07 & 8/08 - 9 - that he is not making the monthly payment due to the petitioners. It is pointed out that the quantification of the shares of profits at Rs.50,000/- was made only as an an interim measure by this Court. Even that amount is not being paid from the date of the award onwards. Since this court had directed the parties to approach the District Court for further directions, the petitioners filed Arb. O.P. No. 29 of 2007 before the District Court praying that the first respondent be removed from receivership and that the second petitioner be appointed as receiver in his place and also for a direction to the first respondent to deposit before the court the entire profits from the two businesses which may come to Rs.1,75,000/- per mensem, each from 12-6- 2004 onwards. In that O.P. the petitioners filed IA. No. 298 of 2007 seeking a temporary injunction restraining the first respondent from getting the FL-3 licence relating to the Bar renewed. The above IA was dismissed by the District Court. However, the District Court directed payment of Rs.50,000/- Arb. Appeal. 33/07 & 8/08 - 10 - per mensem to the petitioners towards the share of profits. Subject to those conditions, the first respondent was allowed to continue as receiver. Petitioners complain that even after that order the first respondent did not deposit the share of profits as directed by this Court and the District Court. The first respondent has not cared to file any report or accounts either before this Court or the District Court with respect to the conduct of the business. Finally, when O.P. No. 29 of 2007 came up for final hearing the District Court dismissed the same by virtue of the impugned judgment reiterating the direction to the first respondent to deposit Rs.50,000/- per mensem towards the share of profits. 6. In Arb. Appeal No. 33 of 2007 the order of the District Court in the Arbitration O.P. No. 29 of 2007 is challenged on various grounds. It is urged that in open disobediance of the directions passed by this Court and by the District Court, the first respondent receiver is Arb. Appeal. 33/07 & 8/08 - 11 - appropriating the entire profits derived out of the businesses without caring to deposit or pay even the amount of Rs.50,000/- per mensem which is due to the petitioners. It is urged that the quantum ofRs.50,000/- per mensem fixed by this Court was only as an interim measure. The Arbitrator in her award fixed the above amount on the basis of an agreement between the parties entered into as early as in 1999. Subsequently there has been substantial increase in the volume of business and theprofits derived out of the business during the last nine years. It is pointed out that the consistent case of the petitioners is that the respondents are earning net profit of Rs.3.6 lakhs per mensem (Rs.12,000/- per day) from the date of the arbitral award. The petitioners are admittedly entitled to 50% of the actual profits derived. The petitioners offered before the Court below that they are prepared to accept 1.75 lakhs per mensem as their share of profits and prepared to pay so much of amounts to the respondents if the management of Arb. Appeal. 33/07 & 8/08 - 12 - the businesses is entrusted with them. The court below fixed the quantum at Rs.50,000/- per mensem itself without taking into consideration the subsequent increase of the volume of business and profit derived out of the business. It is urged that the court below went wrong in not taking into consideration the conduct of the respondents in not filing any report or accounts before any court regarding the business conducted by him. It should have been noticed by the Court below that he is not making payment of share of profits and that the entire profit is being appropriated without accounting to anybody. The court below should have seen that a court receiver is not expected to function in such a manner. It is urged that the court below went wrong in thinking that no material is available to fix the quantum of profits derived out of the business. The court below should have accepted the offer of the petitioners that they will conduct the business and pay Rs.1,75,000/- per mensem to the respondents if they are appointed as Arb. Appeal. 33/07 & 8/08 - 13 - receivers. 7. The grounds urged in Arb. Appeal No. 8 of 2008 filed by the respondents are mostly founded on the plea of the respondents that the FL-3 Licence is the exclusive private property of the first respondent and that the ex-partners of the dissolved firm cannot have any right whatsoever in the businesses of the dissolved firm. The challenge is mostly against the direction under the impugned order to the respondent to deposit the amount of Rs.50,000/- per mensem towards the share of the respondents. It is urged in the appeal that the direction to the first respondent to deposit the sum of Rs.50,000/- per mensem towards the share of the petitioners is illegal and that the said direction is passed without proper application of mind. It is urged that the petitioners cannot have any right in the profits of the business after the dissolution of the partnership firm. Once the partnership firm is dissolved with effect from a particular date the partners of the dissolved firm are entitled Arb. Appeal. 33/07 & 8/08 - 14 - to claim settlement of accounts as on the date of dissolution. The business under the FL-3 Licence issued and renewed in the name of the first respondent is carried on by him in his individual capacity and the ex-partners of the dissolved firm cannot have any right. It is urged that overlooking the above vital aspects that the impugned direction is passed by the court below. It is urged that the court below having found that the remedy of the respondents to seek settlement of the accounts in appropriate proceedings, the court below was not at all justified in issuing the impugned direction. It is urged that the remedy of the petitioner is to seek settlement of the accounts in appropriate proceedings. It is urged that the court below should have found that as far as the shares of the petitioners are concerned execution petitions are pending before the District Court, Palakkad. It is urged that the finding that petitioners are entitled to share in the FL-3 Lincense carried on by the first respondent is illegal. As the Arb. Appeal. 33/07 & 8/08 - 15 - first respondent is the holder of the licence which stands in his name and as the firm is now dissolved with effect from 12-6-2004 the exploitation of the licence by the first respondent is in his individual capacity nobody has any right in it and can make any claim for share of profit. It is urged that FL-3 licence in question is issued to Sri.C.M.Gangadharan, father of respondents 1 to 3 and husband of the 4th respondent. After the demise of Sri.Gangadharan the licence was transferred into the name of the first respondent on the basis of the no objection certificate given by the other legal heirs. Even though the licence was extracted by the firm illegally violating Rule 19 of the Foreign Liquor Rules, the said licence cannot be conducted by any other person except the first respondent. Reference is made to the judgment of this Court in Narayanan & Co. v. Commissioner of Income Tax, 1996(1) KLT 546, Joseph Francis v. Commissioner of Excise & others, 2005(2) KLJ 256, and also to the judgment of the Supreme Arb. Appeal. 33/07 & 8/08 - 16 - Court in Joseph Joseph v. State of Kerala, 2002 (1) KLT 827 (SC) and it is argued that conduct of partnership business by exploiting a licence which is issued in favour of a named licensee is illegal and void in view of Section 23 of the Indian Contract Act and that being so, the petitioners cannot insist on any share of profit from the business now carried on and their right can only be to get the accounts settled with effect from 12-6-2004. It is urged that the conduct of business by the partnership by exploiting an FL-3 Licence is without notice to the Excise Department and hence the business was done in violation of Rule 19 of Foreign Liquor Rules. The building where the business is being carried on belongs absolutely to the respondents. These aspects have not been taken into account by the District Judge while passing the impugned order. It is urged that the respondents are ready and willing for appointment of an Arbitrator for settling the accounts of the firm as on 12-6-2004, the date of dissolution of the firms. The Arb. Appeal. 33/07 & 8/08 - 17 - respondents have no objection in appointing the very same Arbitrator for the purpose of settlement of accounts. 8. Very extensive arguments were addressed before us by Sri.T.Krishnan Unni, learned senior counsel for the appellants petitioners and by Sri. C.C. Thomas, learned senior counsel for the respondents. The submissions of the learned counsel were based on the basis of the grounds raised in the respective appeal memos. Sri.C.C. Thomas in support of his submissions placed reliance on the judgment of a Full Bench of this Court in Narayanan & Co. v. Commissioner of Income-tax, 1996(1) KLT 546 (FB) and on the judgment of a Division Bench of this Court in State of Kerala & others v. M/s. Panamoottil Investments and others, 2010 (1) KHC 353 (DB). Sri.T. Krishnan Unni, per contra drew my attention to the order of the District Court in IA. 298/07 as well as to a judgment of this Court in C.M.Appeal No. 110 of 1999. 9. Having anxiously considered the rival submissions Arb. Appeal. 33/07 & 8/08 - 18 - addressed at the Bar in the light of the ratio emerging from the precedents cited and having gone through the impugned order as well as the other papers to which our attention was drawn by the learned counsel, we are of the view that the respondents (appellants in Arb. Appeal No. 8 of 2008) cannot have no legitimate grievance about the order impugned. At the same time, we find elements of genuineness in the grievance voiced by the appellants in Arb. Appeal No. 33 of 2007. 10. The award passed by the Arbitrator has become final in the sense that the application filed by the appellants in Arb. Appeal No. 8 of 2008 to the court under Section 34 (2b)(i) of Arbitration and Conciliation Act 1996 (OP. (Arb.) No. 160 of 2004) was dismissed and Arb. Appeal No. 35 of 2005 preferred against the same to this Court was disposed of without interfering with the finding that the FL-3 Licence is an asset of the partnership firm. The Supreme Court also dismissed the special leave petition preferred against the Arb. Appeal. 33/07 & 8/08 - 19 - judgment of this Court in Arb. Appeal No. 35 of 2005. It is therefore idle for the appellants in Arb. Appeal No. 8 of 2008 to contend that the FL-3 Licence is a private property belonging to the first appellant therein and the appellants in Arb. Appeal No. 33 of 2007 are not entitled to raise any claim over the profits arising from the business carried on the strength of the licence. The appointment of the first appellant in Arb. Appeal No. 8 of 2008 as party receiver was made by this Court by its judgment in Arb. Appeal Nos. 34 of 2005 and 35 of 2005. It was this court which directed him to submit periodical reports before the District Court as is expected to be done by any court receiver. As already indicated, the common judgment of this Court in Arb. Appeal Nos. 34 and 35 of 2005 has become final since the special leave petitions filed against them before the Supreme Court was dismissed by the Supreme Court. Under the above facts situation it is not at all open to the appellants in Arb. Appeal No. 8 of 2008 to dispute the Arb. Appeal. 33/07 & 8/08 - 20 - liability of the first appellant therein to pay 50% of the profits from the business to the appellants in Arb. Appeal No. 33 of 2007. The argument of Mr.C.C.Thomas, learned senior counsel for the appellant in Arb. Appeal No. 8 of 2008 on the basis of the Abkakri Law cannot be accepted in the factual backdrop of the present appeals. The appellant in Arb. Appeal No. 8 of 2008 need not have any apprehension of being pulled up by any statutory authority for conducting the bar in alleged violation of the conditions of licence since his conduct of licence is not in his individual capacity but in his capacity as receiver appointed by the court. In fact, similar contentions appear to have been raised by the appellant in CMA. No. 110 of 1999, a case decided by a Division Bench of this Court on 10-4-2001. That was also a case where a court receiver was appointed for the running of business on the strength of a bar licence which stood in the name of one of the parties to the case, a partnership firm. It was argued on behalf of the appellants in that case Arb. Appeal. 33/07 & 8/08 - 21 - that a liquor licence cannot be transferred without the prior permission of the Excise Commissioner in terms of Rule 19 of Foreign Liquor Rules and in such a situation, the court cannot appoint a receiver to exploit the liquor licence or to run a