FAO No.1856 of 2010 - 1 - ****** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.1856 of 2010 Date of decision:21.09.2010. S.S.Gupta and sons (HUF) ...Appellant Versus Ramesh Kumar Gupta and others ...Respondents CORAM: HON’BLE MR. JUSTICE RAKESH KUMAR JAIN Present: Mr. Ramesh Kumar, Advocate, for the appellant. Mr. Ashish Chopra, Advocate, for respondent No.3. ***** RAKESH KUMAR JAIN, J This appeal is directed against order of the learned Additional District Judge, Chandigarh dated 15.05.2010 by which an application of the appellant filed under Section 9(ii)(c) of the Arbitration and Conciliation Act, 1996 [for short “the Act”] has been dismissed with the following observations: - “(i) the respondent will submit monthly accounts of the business of the firm to this court as FAO No.1856 of 2010 - 2 - ****** well as to the objector duly certified by Chartered Accountant and under the signatures of the respondent. In case, the objector had any doubt, he may move an application to this Court for checking of the accounts from independent Chartered Accountant. (ii) that all the details of the bank accounts and bank transactions of the firm will be disclosed to this Court with a detail of outstanding liability alongwith a monthly reconciliation statement of all the concerned banks. (iii) that the respondent will not transfer any immovable property of the firm except with prior permission of this court.” The brief facts of the case are that the parties to the dispute are partners of a firm vide partnership deed dated 01.04.1999. The firm is engaged in the business of manufacturing and trading of polythene, granules and fitting polymers etc. under the name and style of M/s United Polymer Industries. The partnership firm comprises of four partners having 25% share each. The firm is mainly dealing with the Gas Authority of India Limited as stockist. It is alleged that respondent Nos.2 and 3, namely R.K.Gupta and M.L.Gupta, executed a new partnership deed dated 26.02.2007 and submitted it to the Gas Authority of India Limited to carry on same business under the name and style of M/s United Polymer Industries situated at the same premises i.e. Plot No.136-140/85, Industrial Area, Phase-I, Chandigarh (U.T.) where the appellant and respondents are carrying on the business by virtue of partnership deed dated 01.04.1999. The appellant objected to the conduct of respondent Nos.2 and 3 who had assured that they would not work to the detriment and interest of the partnership created vide partnership deed dated FAO No.1856 of 2010 - 3 - ****** 01.04.1999, but still they submitted new partnership deed dated 26.02.2007 to the HDFC Bank for opening a new bank account to enable them to divert the funds of the firm constituted vide partnership deed dated 01.04.1999. Respondent Nos.1 to 3 filed an application under Section 9 of the Act before the learned Civil Court, who vide his order dated 25.02.2008, restrained the appellant from participating in day to day working of the partnership firm constituted vide partnership deed dated 01.04.1999. The relevant part of the order passed on 25.02.2008 by learned Additional District Judge, Chandigarh is as under: - “1) That the respondent is restrained from interfering in the day to day working and management of the partnership business of firm by indulging in false accusations and unnecessary correspondence. 2) That the petitioners will submit monthly accounts of the business of the firm to the court as well as to the respondent under their signatures and duly certified by Chartered Accountant. In case the court will have a doubt the accounts will be got checked from an independent Chartered Accountant. 3) That the share of profit of the respondent, if any, will be credited to his capital account quarterly subject to final accounts at the end of year. 4) That all the details of the bank accounts of the firm will be disclosed to the court with a detail of outstanding liabilities alongwith a monthly bank reconciliation statements of all the concerned banks. 5) That the petitioners will not transfer any FAO No.1856 of 2010 - 4 - ****** amount from any of the bank accounts for their personal purposes or any other purpose except for the smooth working of the business of the firm. 6) That none of the partners will have the right to violate conditions no.6 and 7 of the partnership deed, which will be considered as part of this direction. 7) That the parties will be at liberty to settle the dispute amicably and this order will not be bottleneck for that purpose. 8) That any of the parties are at liberty to approach this Court for clarification of any direction in case of any difficulty.” Shri G.C.Mittal (Retired Chief Justice) was appointed as the Arbitrator. He gave his award dated 18.12.2009. The appellant filed objection against award of the Arbitrator under Section 34 of the Act and also filed an application for seeking stay of the operation of the impugned award which has been dismissed by the learned Court below with the observations which have been mentioned in the opening part of this order. The only objection raised by the appellant in this appeal is that being shareholder to the extent of 25% in the business, he, in law, cannot be injuncted from entering the premises of the firm. As a matter of fact, the application filed by the appellant for staying operation of the award of the Arbitrator has been dismissed, but during pendency of the objection petition under Section 34 of the Act, the learned Court below provided safeguard to watch interest of the appellant. The appellant has been restrained by the learned Court below in its order dated 25.02.2008 passed under Section 9 of the Act, during the pendency of the arbitration proceedings, from interfering in day to day working and management of the partnership firm. The stay order has been made a part of the arbitration award by the learned Arbitrator, which reads as under: - FAO No.1856 of 2010 - 5 - ****** “In the light of the abovesaid conclusions, I would not have had any hesitation to hold that the respondent should be removed from the partnership firm by paying to him his share of money out of the partnership including the amount to the extent of his share out of the amount calculated towards the net profit of the firm but keeping in view the fact that the dispute is amongst the brothers, I am of the opinion that the interest of justice would be well served if he be only restrained from interfering, in any manner, in the day to day working and management of the partnership firm. Looking at his conduct, it would also be in the interest of the firm and the partners that he not only be restrained from taking part in any of the management decisions/meetings, which would rest only in the petitioners but also from entering the business premises and the godown of the firm situated at any place. The respondent is restrained from dealing with any third party by holding out himself to be a partner of the firm and shall not be entitled to sign and/or execute any document which may be required in day to day working of the management of the partnership firm or otherwise in connection with the running of the business of the firm including the documents required for the purpose of having any credit facilities from the bank(s)/financial institution(s) and/or GAIL. Any documents which have been signed and executed by the respondent earlier and on the basis of which the bank guarantees and/or credit facilities have been FAO No.1856 of 2010 - 6 - ****** issued, shall not be signed by the respondent and shall not be carried out in his name. The respondent shall facilitate and/or execute any such documents which may be required to be given to the bank(s)/financial institution(s) and/or GAIL for the purpose of having his name removed on any such document and for substituting the name(s) of the petitioners. Since the respondent is not allowed to interfere in day to day working and management of the firm to be a signatory to any of the document being executed by the firm, the execution of any documents for and on behalf of the firm by any three partners, would be taken to be sufficient compliance on behalf of the partnership firm. In case 2 or 3 petitioners sign a document on behalf of partnership firm and call upon the respondent also to sign the same and if he refuses to do or does dilly dallying, if the document is already signed by 3 partners, the document would be treated as duly executed by the partnership firm for all intents and purposes. In case the document was signed by 2 partners, then on signing the same by the third partner out of the petitioners would be treated as duly executed by the partnership firm for all intents and purpose. In the event it would not necessary to have the signature of the respondent on any such documents. The respondent who would not remain the signatory to any of the account in the financial institutions and/or banks, would however, be entitled to his share of net profit, if any, which FAO No.1856 of 2010 - 7 - ****** shall be credited quarterly by the petitioner to the account of the respondent to be opened and maintained by him separately. The respondent shall also be entitled to the statement of accounts of the business of the firm which shall be furnished by the petitioners quarterly under the signature of the petitioner/partners and duly certified by the Chartered Accountant. The respondent would be at liberty to move out of the partnership firm at any stage if he chooses to do so and if that be the case, he shall be entitled to his share (25%) of the amount from the partnership firm besides the amount to the extent of his share calculated towards the net profit of the firm.” Learned counsel for the appellant has, inter alia, contended that as per Section 12 of the Partnership Act, a partner (appellant) cannot be excluded from the business of the partnership firm. He relies upon a judgment of Delhi High Court in the case of Bawa Jodh Singh v. Bawa Gurdial Singh and others, AIR 1984 NOC 13 (DELHI) and the judgment of this Court in the case of Satish Kumar Mehta v. Suman Kumar Mehta, 2002(2) PLR 687. He also submitted that the order passed under Section 9 of the Act, during the pendency of the arbitral proceedings, is a temporary order and looses its significance after the passing of arbitral award. On the contrary, learned counsel for the respondents has vehemently argued that there is no restraint order passed by the learned Court below as an application filed under Section 9(ii)(e) of the Act has been simply dismissed vide the impugned order. However, the interest of the appellant has been looked after with certain observations which have been referred to in earlier part of this judgment. Basically, the appellant is aggrieved against the observation made by the learned Arbitrator whereby it has been observed that “since the respondent is not allowed to interfere in day to FAO No.1856 of 2010 - 8 - ****** day working and management of the firm to be a signatory to any of the document being executed by the firm, the execution of any documents for and on behalf of the firm by any three partners, would be taken to be sufficient compliance on behalf of the partnership firm.” It is also submitted that the arbitral award does not become conclusive if the objections under Section 34 of the Act are pending before the Court as it cannot be executed in terms of Section 36 of the Act, therefore, there is automatic stay against the award. He also submits that the matter can be resolved finally between the parties by maintaining the impugned order as the objection have already been filed and the case is progressing day to day. I have heard learned counsel for the parties and have perused the record with their able assistance. No doubt that the appellant has already preferred objection under Section 34 of the Act against the arbitral award and insofar as operation of the arbitral award is concerned, that automatically comes to halt in terms of Section 36 of the Act, which reads as under: - 36. Enforcement. -- Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 to 1908) in the same manner as if it were a decree of the Court.” Learned counsel for the respondents himself has submitted that the arbitral award cannot be executed in view of the fact that the appellant has filed objection under Section 34 of the Act within the period of limitation and is pending. The question, however, is as to whether the application filed by the appellant under Section 9(ii)(c) of the Act seeking injunction against the impugned award in order not to restrain the appellant from participating in day-to-day working of the partnership firm is maintainable or not? A bare look at the application filed under Section FAO No.1856 of 2010 - 9 - ****** 9(ii)(c) of the Act, which is also made a part of the record, would show that the sole grievance which has been raised by the appellant is that “the award aforesaid is without jurisdiction to the extent injunction has been issued against the applicant, a registered partner qua his participation in the day to day business of partnership, which is against Section 12(a) of the Partnership Act, 1932.” Shri Ramesh Kumar, learned counsel for the appellant has submitted that though the award cannot be executed by the respondents in view of the pendency of the objection under Section 34 of the Act, yet the Arbitrator could not have passed an order against the appellant restraining him from participating in day to day business of the partnership firm because Section 12 of the Indian Partnership Act, 1932 [for short “Act of 1932”] provides as under: - “12. The conduct of the business. -- Subject to contract between the partners, -- (a) every partner has a right to take part in the conduct of the business; (b) every partner is bound to attend diligently to his duties in the conduct of the business; (c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and (d) every partner has a right to have access to and to inspect and copy any of the books of the firm.” According to learned counsel for the appellant, Section 12(a) of the Act of 1932 gives immense powers to a partner of the firm to take FAO No.1856 of 2010 - 10 - ****** part in the conduct of the business of a partnership firm if it is so provided in the contract between the partners, namely the partnership deed, meaning thereby if it is provided in the partnership deed that a partner is a sleeping partner, then he would not be entitled to participate in the conduct of the business. In the present case, the appellant is not a sleeping partner and is rather an active partner who has a right to participate in the conduct of the business of the partnership firm. The submission made by learned counsel for the appellant is duly supported by a decision of this Court in the case of Satish Kumar Mehta (supra) in which this Court had held that in case of partnership firm, to give right to one partner and to keep the other partners out from the affairs of the business is most inequitable. The submission of learned counsel for the respondents that the appellant had not challenged initial order passed under Section 9 of the Act by the learned Court below in which similar order was passed restraining the appellant from participating in day to day business of the partnership firm, therefore, he is estopped from challenging the impugned order, is also having no force because in the said order dated 25.02.2008 it was categorically held by the Court that “these directions are only interim measure till the settlement of the dispute as stated above” and that an interim order comes to an end with the disposal of the substantive proceedings. Moreover, an interim arrangement may not be challenged by the aggrieved person but he is always entitled to challenge the main order which may be based upon the interim order. Therefore, I do not find any force in this argument of learned counsel for the respondents. Moreover, a close look at the impugned order would show that the learned Court below, while disposing of the application filed by the appellant under Section 9(ii)(c) of the Act, has only observed that the appellant has sought stay of the operation of the impugned award and has not dealt with argument of learned counsel for the appellant with regard to his objection that by virtue of the impugned award he cannot be restrained from participating in day to day business of the partnership firm which he otherwise is entitled in terms of Section 12 (a) of the Act of 1932. The question whether the arbitral award has been FAO No.1856 of 2010 - 11 - ****** passed in accordance with law or not or is liable to be set aside in terms of the provisions of Section 34 of the Act is yet to be decided by the Court who is seized of the matter. However, till then, the appellant has a legal right to enter the premises of the partnership firm. Hence, the present appeal is allowed and the impugned order is set aside. Before parting with the order, the learned Court below, who is seized of the objection petition filed under Section 34 of the Act, is directed to decide the same positively, within a period of 3 months, from the date of receipt of a certified copy of this order. September 21, 2010 (RAKESH KUMAR JAIN) vinod* JUDGE