Case: M/S V.H. Patel &amp; Company &amp; Ors Vs. Hirubhai Himabhai Patel &amp; Ors

A partnership firm, Ms V.H. Patel & Company, was constituted consisting of four brothers, namely, Jamnadas Himabhai Patel, Vallabhbhai Himabhai Patel, Gordhandas Himabhai Patel and Hirubhai Himabhai Patel, all sons of Dineshbhai Hirubhai Patel. On the death of Jamnadas Himabhai Patel the partnership was reconstituted with Gordhandas Himabhai Patel, Vallabhbhai Himabhai Patel, Hirubhai Himabhai Patel, Parmanand Jamnadas Patel and, Jatin Parmanand Patel and Akashya Parmanand Patel, sons of Parmanand Jamnadas Patel. The said firm is engaged in the business of manufacture, storage and sales of marketing of different variety of tobacco, tobacco preparations, zarda and allied products. It has three registered trade marks, (i) Surya Chhap Zarda, (ii) Surya Chhap Tobacco, and (iii) Pan Chhap 12 Number Zarda. Disputes having arisen relating to the business of the partnership firm, an `Agreement of Mutual Understanding was executed by stating that all the said trade marks owned by the firm were to cease to be of one ownership but had to be owned by all the partners thereof. Respondent No. 1 and other partners were to use the said trade marks separately only in the territories allotted to them thereunder as per agreement with each of the partners having a percentage in the share of profits and losses under the then existing deed of partnership dated April 21, 1986. On August 1, 1987 a Deed of Retirement was executed by all the partners of the firm providing for retirement of respondent No. 1 as partner thereof on certain terms and conditions. On July 28, 1989 a suit was filed by respondent No. 1 in Civil Suit No. 18689 in the Court of the Civil Judge, Senior Division, Chalisgaon, for a declaration that the retirement deed dated August 1, 1987 was ineffective, inoperative, unenforceable, null and void and that he continued to be the partner of the firm. On September 14, 1989 another suit was filed by the petitioners in the District Court, Chalisgaon, under the Trade and Merchandise Marks Act, 1958 for injunction against respondent No. 1 Hirubhai Himabhai Patel and his two sons Praveen Hirubhai Patel and Dinesh Hirubhai Patel and their partnership firm not to use and exploit the aforesaid three trade marks under the name of Ms. H.H. Patel & Company and for other incidental reliefs. On the basis of the pleadings raised, the District Judge, Chalisgaon, passed an order of injunction against respondent No. 1 Hirubhai Himabhai Patel and others restraining them from using and exploiting the three trade marks. Against the said order of injunction an appeal was preferred in the High Court which was allowed and injunction granted by the trial Court was vacated. Thereafter, a Special Leave Petition No. 14533 of 1990 was preferred before this Court against the order of the High Court. This Court passed an order on February 15, 1991 disposing of the matter in the following terms16.1.1991 when this petition came up for hearing before us, we had suggested to the parties that having regard to their close relationship and the nature of the dispute it would be desirable to explore the possibility of settlement or have the dispute resolved through arbitration. The parties have now arrived at a consent order which is signed and presented by the learned advocates for the Petitioner and the Respondents, which we take on record. According to the consent terms the parties have agreed to have their dispute resolved through sole arbitration of Mr. Justice D.M. Rege (Retd.) of Bombay High Court. We direct an order to be drawn up in terms of consent terms. The Special Leave Petition will stand disposed of in terms of the consentcrucial part of the Consent Terms is also extracted hereunder which is contained in para No. 2 thereofthe parties agree that disputes relating to the rights and obligations of the parties arising out of the agreement dated 3.7.1987 and retirement deed dated 1.8.1987 and to the user of the trade marks in question and determination of the rights of respondent No. 1 as a partner of the Petitioner firm as per the pleadings in the parties in suit No. 5 of 1989 and No. 186 of 1989 pending in the Court of District Judge, Jalgaon and in the Court of Senior Division Judge, Chalisgaon respectively be referred to the sole arbitrator of Shri D.M. Rege, Retired Judge Bombay High Court. The arbitrator will file the award in the Bombay High Court in accordance with the provisions of the Arbitration Act.Thus the disputes between the parties which arose in the suit stood referred to sole arbitration of Justice D.M. Rege. Claims were preferred before the sole arbitrator by all parties. The arbitrator made an award on January 25, 1999. He declared that the writingagreement dated July 3, 1987 and retirement deed dated August 1, 1987 is invalid, void, ineffective and not binding on the parties and created no rights or obligations between the parties thereto. He further declared that respondent No. 1 had not retired under the aforesaid deed but continued as a partner of the firm Ms V.H. Patel and Company from and after August 1, 1987. This relief was, however, to operate in favour of respondent No. 1 only on his paying an sum of Rs. 5,17,927.17 to the firm and it was also declared that the three registered trade marks continued to be the assets of the firm Ms V.H. Patel & Company and Ms H.H. Patel & Company or its partners including Hirubhai Himabhai Patel or any other person has no right, title and interest in the said trade marks and they were permanently restrained from using andor exploiting in the course of trade or otherwise any of the three registered trade marks in any territory. The arbitrator did not entertain the counter claim of the respondents seeking for dissolution of the firm Ms V.H. Patel & Company on the ground that it was beyond the scope of reference. On February 15, 1999 the partners of Ms V.H. Patel & Company assigned the three trade marks in favour of V.H. Patel Tobacco Private Limited, a private limited company owned by close relatives of the partners of Ms V.H. Patel & Company for Rs. 65 lakhs. The award was filed in the Bombay High Court. Respondent No. 1 filed an arbitration petition challenging the said award and prayed for setting aside the findings of the arbitrator on certain issues. The petitioners also filed an arbitration petition under Section 18 of the Arbitration Act, 1940 for interim relief of injunction and, another arbitration petition was filed by respondent No. 1 for partial decree in terms of the accepted part of the award, namely, in terms of (b) and (c) of the operative part of the order and for status quo ante as on January 25, 1989 by setting aside the assignment deed dated February 18, 1999. The learned Single Judge of the High Court confirmed the award of the sole arbitrator so far as the declaration that the agreement dated July 3, 1987 and the retirement deed dated August 1, 1987 are ineffective, unenforceable and not binding on the parties. The learned Single Judge set aside the finding on issue No. 17, that is, whether the arbitrator has jurisdiction to entertain the counter claim by which counter claim respondent No. 1 had sought for dissolution of the firm of Ms V.H. Patel & Company and remitted the issue back to the arbitator for de novo consideration and decision in accordance with law. The learned Single Judge directed that till the arbitrator makes a fresh award, arrangement in relation to the business as was in existence while the proceedings were pending before the arbitrator should continue to operate for a period of four weeks after the award was made. It was also made clear that the assignment of trade marks shall have no effect and the private limited company to whom the trade marks have been assigned shall not be entitled to do the business on the basis of those trade marks. This order of the learned Single Judge of the High Court that is in challenge before us.

Court's reasoning:
So far as the power of the arbitrator to dissolve the partnership is concerned, the law is clear that where there is a clause in the Articles of Partnership or agreement or order referring all the matters in difference between the partners to arbitration, arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. [See :Phoenix v. Pope and others, 1974(1) All E.R.512]. Power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the Court to it. If under the terms of the reference all disputes and difference arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal with all matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine such a question. Although the learned counsel for the petitioner relied upon a passage of Pollock and Mulla, quoted earlier, that passage is only confined to the inherent powers of the Court as to whether dissolution of partnership is just and equitable, but we have demonstrated in the course of our order that it is permissible for the Court to refer to arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence between the partners which is the foundation therefor.