Case: Jivarajbhai Ujamshi Sheth And Others Vs. Chintamanrao Balaji And Others

goods purchased, and other property, and submitted that the total value of the goodwill of the firm by taking into account the profit of the firm for the last five years "as per the statement filed was Rs. 21,70,650/10/ 3 and deducting therefrom 15% of the outstandings of the firm considered as irrecoverable, the balance was Rs. 20,33,295 /12/9", 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 Messers. Virajlal Manilal and Company and that Chintamanrao do 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 Amrit 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 instance 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.23. 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 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.24. 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 of 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.25. We accordingly hold that the award was properly set aside by the Courts below.26. Counsel for the retiring partners submitted that on the view taken by us, the award should be remitted to the arbitrator under O. 16 of the Arbitration Act, 1940. 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 acceding to the 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 S. 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 S. 19. We have, therefore, refrained from considering that question also.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 Cruikshanks case, (1922) 93 LJ Ch 136 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.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.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 of 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.Counsel for the retiring partners submitted that on the view taken by us, the award should be remitted to the arbitrator under O. 16 of the Arbitration Act, 1940. 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 acceding to the 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 S. 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 S. 19. We have, therefore, refrained from considering that question also.