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Pannalal Paul & Ors. v. Padmabati Paul & Ors.
Structured Summary of the Opinion (Bachawat, J.)
Factual and Procedural Background
The appellants and respondents were co-partners in two businesses: a Homeopathic medicines business carried on as "Paul & Co." at No. 82, Clive Street, and a paper business carried on as "Hari Narayan Paul and Co." at No. 103, Old China Bazar Street.
The appellants Pannalal Paul, Chunilal Paul and Lakshman Chandra Paul (sons of Hari Narayan Paul, deceased) each held a one-fourth share in profits and losses of the two partnership businesses. The respondents Padmabati (the widow) and Satya Charan Paul and Amar Nath Paul (minor sons of another son of Hari Narayan Paul) jointly held one-fourth share.
The respondents instituted a suit in this Court for dissolution and accounts of the two partnerships and for realisation and distribution of partnership assets, and also applied for appointment of a receiver. By an order dated 31 January 1956, all disputes relating to the two partnerships were referred to sole arbitration by Mr. D.K. Ghose, Barrister-at-Law. The parties filed statements and led evidence; the arbitrator held over one hundred sittings and made an award dated 25 July 1957.
The appellants moved to set aside the award; the learned Judge, Mallick, J., dismissed that application. The appellants appealed from the order refusing to set aside the award.
Legal Issues Presented
- Whether the arbitrator's award purported to create a new partnership between the three appellants (i.e., whether the award effectively compelled retirement of some partners and compelled the remainder to form a new partnership).
- Whether the award contravened sections 46 and 48 of the Indian Partnership Act by allotting all assets of the dissolved firms to the appellants without providing that liabilities be discharged out of the assets in the first instance.
- Whether the arbitrator exceeded his authority or acted erroneously in law by allotting assets to the appellants instead of directing sale or conversion into money.
- Whether the award was invalid because the appellants were not willing to take the properties at the valuation fixed by the arbitrator.
- Whether the arbitrator misconducted himself by failing to answer specific issues (Nos. 4, 6, 7, 11, 13, 17 and 19) relating to valuation of assets and liabilities.
- Whether the arbitrator failed to value the assets and liabilities before making the award.
- Procedural issue raised below (but not pressed on appeal): whether the award had been filed out of time.
Arguments of the Parties
Appellants' Arguments (as presented by Mr. Sen)
- The award is bad because it effectively creates a new partnership among Pannalal, Chunilal and Lakshman Chandra Paul rather than dissolving the existing partnerships.
- The award contravenes sections 46 and 48 of the Indian Partnership Act by allotting the entire assets to the appellants without providing for payment of liabilities out of those assets in the first instance; therefore the arbitrator acted in excess of his powers and the award is erroneous in law.
- The arbitrator ought to have sold or directed sale of partnership assets; he had no power to allot the assets and properties of the dissolved firm to one or more partners at a valuation fixed by him.
- The allotment was invalid because the appellants were not willing to take the properties at the arbitrator's valuation.
- The arbitrator misconducted himself by not answering certain enumerated issues relating to valuation of assets and liabilities.
- The arbitrator did not in fact value the assets and liabilities before making his award.
- In the trial Court the appellants also contended that the award had been filed out of time (this point was not pressed on appeal).
Respondents' Position (as shown in the opinion)
- The respondents instituted the dissolution suit and sought accounts and a receiver; they did not make a complaint in this Court that the award infringed their rights under sections 46 and 48 of the Indian Partnership Act (i.e., they did not move to set aside the award on that ground).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ram Protap Chamria v. Durga Prosad Chamria (1) L.R. 53 I.A. 1 | Authority showing that an arbitrator cannot create a new partnership by express terms of an award where he has no authority to do so. | Distinguished: in that case the arbitrator expressly created a new partnership; in the instant award the arbitrator did not create a new partnership but allotted assets and thereby effected dissolution; hence Ram Protap Chamria did not control. |
| Narsingh Narayan Singh v. Ajodhya Prosad Singh (2) 16 C.W.N. 256 | Principle that only the party prejudiced by the exercise of excessive authority by an arbitrator is entitled to object to an award on that ground; a party who benefits cannot impeach the award for that error. | Applied to hold that appellants, who obtained ownership of assets and thus benefitted, could not challenge the award on the ground of excess of authority or error in their favour. |
| Sherbanubai Jafferbhoy v. Hoosein-bhoy Abdoolabhoy (3) A.I.R. 1948 Bombay 292 | Example where an award allocating properties but leaving liabilities could infringe section 48 and be set aside when the complaining partner was the one prejudiced. | Distinguished: in that case the complaining partner (who was prejudiced) moved to set aside the award; in the present case those whose rights might be contravened did not move, so the Bombay decision did not mandate setting aside here. |
| Syers v. Syers (4) (1876) 1 A.C. 174 (at 183–4) | Statement that, although sale of partnership assets is the ordinary course on dissolution, the Court may mould relief and may permit allotment to a partner willing to take the business at valuation in appropriate circumstances. | Relied upon to support the proposition that on a reference in a dissolution suit an arbitrator (like the Court) may allot assets to a partner at a valuation instead of directing sale; hence the arbitrator did not exceed his authority by allotting assets. |
| Sivagnanathammal v. S.V. Nallaperumal Pillai (5) 67 M.L.J. 880 (at 889) | Authority used by appellants to argue arbitrator had no power to allot properties where appellants were not willing to take them. | Rejected: the point was not raised below, was a question of fact (whether appellants were willing), and could not be raised for the first time on appeal; the contention was described as hopeless. |
Court's Reasoning and Analysis
The Court addressed each principal contention raised by Mr. Sen in turn and explained why the award could not be set aside:
- Creation of a new partnership: The Court examined clauses 1–4 of the award. Clause 1 allotted the two businesses (with assets, goodwill and tenancy rights) to the three appellants and made them responsible for the debts and liabilities; clause 2 provided that the respondents would have no right, title or interest in the businesses from the date of the award. On a fair construction these provisions indicated that the arbitrator intended that the partnerships be dissolved from the date of the award and that the clauses were consequential directions. The Court emphasized that partnership is a contractual relation and that an award does not create a partnership; if the appellants thereafter agree among themselves to carry on business in co-partnership, that partnership would be created by their agreement, not by the award. The Court distinguished Ram Protap Chamria because in that case the arbitrator expressly attempted to create a partnership.
- Compliance with sections 46 and 48 of the Indian Partnership Act: The Court recited the statutory entitlement under section 46 (application of firm property to payment of debts and distribution of surplus) and the provisions of section 48 (mode of settlement of accounts and order of application of assets, including sub-clause (b) requiring application first to third-party debts). The Court observed that the award allotted assets to the appellants while making them responsible for liabilities, so appellants would be expected to apply those assets to discharge liabilities. The appellants thereby obtained an advantage (full ownership) instead of merely a general lien; the respondents, who could have objected that their statutory rights were infringed, had made no such complaint. The Court applied the principle from Narsingh Narayan Singh that a party who benefits from an erroneous award cannot impeach it on that ground.
- Power to allot vs. requirement to sell: The Court observed that although sale of partnership assets is the general rule on dissolution, the Court (and by analogy an arbitrator acting pursuant to a reference) can mould relief according to the equities of the case and may authorize allotment of properties to a partner willing to take them at a valuation fixed by the Court or arbitrator. The Court relied on Syers v. Syers to support this proposition and held that the arbitrator had the authority to make the allotment; whether the allotment was wise or appropriate on the facts was for the arbitrator to decide and did not render the award in excess of his authority.
- Appellants' willingness to take properties at valuation: The Court treated this as a new contention that had not been raised earlier (not in the petition, not before the learned Judge, nor in the memorandum of appeal). It noted that whether the appellants were willing to take the properties at the arbitrator's valuation is a question of fact and could not be raised for the first time on appeal; therefore the contention was rejected as "hopeless."
- Failure to answer specific issues / award on whole case: The Court explained that an arbitrator is not bound to make a separate finding on every issue; an arbitrator may award on the whole case. In this case the arbitrator adjudicated the rights by awarding a specific sum (Rs. 12,255) payable by the appellants to the respondents on the final taking of accounts. That award was a determination of the rights referred and did not amount to misconduct in failing to answer each enumerated issue.
- Failure to value assets and liabilities: The Court treated this contention as a new point not argued earlier. It recorded the principle that every presumption should be made in favour of the award and that there was nothing to show that the arbitrator did not value the assets and liabilities before making the final award; accordingly, the contention was disallowed as being raised for the first time on appeal.
- Procedural point (filing out of time): This ground had been raised in the trial Court but was not pressed in this Court; therefore it received no further consideration on appeal.
Holding and Implications
Holding: The appeal is dismissed.
Consequences and immediate effects:
- The order of the learned Judge (Mallick, J.) refusing to set aside the arbitrator's award is upheld.
- The appellants are ordered to pay the costs of and incidental to this appeal to the respondents.
- The effect of the award (as described in clauses 1–4) stands: the appellants were allotted the two businesses and their assets and made responsible for the debts and liabilities, the respondents were declared to have no right, title or interest in those businesses from the date of the award, the appellants were to indemnify respondents against losses on account of liabilities, and the appellants were directed to pay Rs. 12,255 to the respondents.
Broader precedent: The opinion does not purport to lay down a novel principle of law beyond applying and distinguishing existing authorities; the decision affirms that an arbitrator on a reference in dissolution proceedings may, in appropriate circumstances and within his authority, allot partnership assets to a partner at a valuation rather than order a sale, and that a party benefitting from an award cannot impeach it for errors in his favour. The opinion contains no statement purporting to create a new binding precedent beyond its application to the facts of the case.
Bachawat, J.:— This is an appeal from an order refusing to set aside an award. The appellants and the respondents carried on business in copartnership in Homeopathic medicines under the name and style of Paul & Co., at No. 82, Clive Street, and another business in paper under the name and style of Hari Narayan Paul and Co., at No. 103, Old China Bazar Street. The appellants Pannalal Paul, Chunilal Paul and Lakshman Chandra Paul are the sons of one Hari Narayan Paul, deceased, and each of them had one-fourth share in the profits and losses of the two partnership businesses. The respondent Padmabati is the widow and the respondents Satya Charan Paul and Amar Nath Paul are the minor sons of another son of Hari Narayan Paul and they jointly had one-fourth share in the profits and losses of the two businesses. The respondents instituted a suit in this Court for dissolution and accounts of the two partnerships and for the realisation and distribution of the partnership assets and properties. The respondents also applied for appointment of a receiver. By an order dated January 31, 1956 all disputes in respect of the two partnerships mentioned in the plaint and in the petition for appointment of receiver were referred to the sole arbitration of Mr. D.K Ghose, Barrister-at-Law. The parties filed their respective statements before the arbitrator and adduced oral and documentary evidence. We are informed that the arbitrator held over one hundred sittings. Several issues were raised in the reference. Eventually, the arbitrator made his award on July 25, 1957. The appellants being dissatisfied with the award moved an application to set it aside. Mallick, J., held that the appellants had made out no ground for setting aside the award and dismissed the application. The appellants have preferred this appeal from that order.
2. To appreciate the arguments addressed before us it is necessary to refer relevant portions of the impugned award. Clauses 1, 2, 3 and 4 of the award are as follows:—
1. “Pannalal Paul, Chunilal Paul and Lakshman Chandra Paul are from this day entitled to the right, title and interest in the businesses of Harinarayan Paul and Co. and Paul and Co. They will have all the assets of the said 2 businesses including ‘Good Will’ and tenancy rights of the shop they will be responsible for and bear all the debts and liabilities of the said businesses in respect of Income Tax, Sales Tax, Chartered Bank of India Ltd., Titagar Paper Mills Ltd., Bhola Nath Paper House, arrears of rent and other small sundry debts”;
2. “Sm. Padmabati Paul, Satya Charan Paul and Amarnath Paul will from this day have no right, title and interest in the said businesses nor will they have any liability or debt of the said 2 businesses.”
3. “Pannalal Paul, Chunilal Paul and Lakshman Chandra Paul will indemnify and reimburse Sm. Padmabati Paul, Satya Charan Paul and Amar Nath Paul in case the 3 latter suffer any loss on account of the aforesaid liabilities or debts of the said 2 businesses.”
4. “Pannalal Paul, Chunilal Paul and Lakshman Chandra Paul will forthwith pay Sm. Padmabati Paul, Satya Charan Paul and Amarnath Paul the sum of Rs. 12,255/- (Rupees Twelve thousand two hundred and fifty five) only.’
3. In support of this appeal Mr. Sen contends that the award is bad, inasmuch as it purports to create a new partnership between the three appellants, Pannalal, Chunilal and Laksh-man. He contends that on a true construction of the award the arbitrator has not dissolved the partnerships, that in substance he has compelled some of the partners to retire, and has awarded that the remaining partners are to carry on the two businesses in future in co-partnership. I am unable to accept this contention. The whole argument is based upon the fact that the award does not explicitly award that the two firms have been dissolved. But it is to be seen that by clause 1 of the award the two businesses with all their assets and liabilities have been allotted to the appellants with effect from the date of the award and by clause 2 it is provided that the respondents will have no right, title and interest in the two businesses as from the date of the award. On a fair construction of the award it must be held that the arbitrator awarded that the two partner ships would stand dissolved as from the date of the award. Clauses 1, 2, 3 and 4 of the award contain directions consequential on the dissolution of the two partnerships. The award allots the two businesses and all their assets to the appellants. By force of the award the appellants have become the co-owners of the two businesses and of all the business assets. But the award has not created a new partnership. It has not directed the appellants to carry on the two businesses in co-partnership. Partnership is a relation created by contract. The appellants may now agree to carry on the two businesses in co-partnership and if they do so, a new partnership will be created, not by the award, but by the agreement, Mr. Sen relied upon the decision in Ram Protap Chamria v. Durga Prosad Chamria (1) L.R 53 I.A 1. That decision is entirely distinguishable. In that case by the express terms of the award the arbitrator purported to create a new partnership. The arbitrator had no authority to create the new partnership. In the instant case the arbitrator has not by his award created a new partnership. The first contention raised by Mr. Sen therefore fails.
4. Mr. Sen next contends that the award is in contravention of sections 46 and 48 of the Indian Partnership Act inasmuch as the entire assets of the dissolved firms have been allotted to the appellants without providing for payment of the liabilities of the dis solved firms out of the assets in the first instance and that consequently the award is in excess of the powers conferred on the arbitrators by the order of reference and is also erroneous in law on the face of it. By section 46 of the Indian Partnership Act, on the dissolution of the firm, every partner is entitled, as against all the other partners, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners according to their rights. Section 48 of the Indian Partnership Act provides for the mode of settlement of accounts between the partners and for the order of the application of the assets of the firm on its dissolution. Sub-clause (b) of section 48 provides that the assets of the dissolved firm shall be applied, in the first instance, in paying the debts of the firm to third parties. Every partner has the right as against the other partners to insist that the assets of the dissolved firm be applied in accordance with the provisions of sections 46 and 48 of the Indian Partnership Act. Each partner has for that purpose a general lien over the assets of the dissolved firm. By the award in this case the appellants have been allotted all the assets and properties of the dissolved firms and have also been made responsible for all the liabilities thereof. It is expected that the appellants will apply all the assets allotted to them towards discharge of those liabilities. The rights conferred on the appellants by sections 46 and 48 have in no way been infringed by the award. Far from suffering a prejudice they have obtained an advantage by it. Instead of their general lien over the properties of the dissolved firms they have now obtained the full ownership over those properties. The respondents also were entitled to insist that all the assets of the dissolved firms should be applied in the first instance towards the discharge of those liabilities; they could contend that the award was in contravention of their rights under sections 46 and 48, inasmuch as it had allotted all those assets to the appellants without providing, in the first instance, for the payment of the liabilities. But the respondents have made no complaint on that account. The appellants are in no way prejudiced by the contravention of the respondents' rights under sections 46 and 48 and they are not entitled to have the award set aside on that ground. It is well settled that a party who is not prejudiced by an erroneous award and who on the contrary has gained an advantage by it cannot move to set aside the award. In Narsingh Narayan Singh v. Ajodhya Prosad Singh (2) 16 C.W.N 256 at page 258, Mookerjee and Carnduff, JJ., observed:
“It is an elementary principle that only the party prejudiced by the exercise of excessive authority by the arbitrator is entitled to object to the award by reason of it: the party in whose favour the erroneous action of the arbitrator operates cannot be heard to impeach the validity of the award on this ground.”
5. Similarly an error on the face of the award is not a valid ground of complaint where the error is in favour of and is to the advantage of the party moving to set it aside.
6. Mr. Sen relied upon the decision in Sherbanubai Jafferbhoy v. Hoosein-bhoy Abdoolabhoy, (3) A.I.R 1948 Bombay 292. In that case the award provided that the debts and liabilities of the dissolved firm were to be discharged by the two partners in equal shares and that on payment of a certain sum of money by one partner to the other, the properties of the partnership would belong to the partner paying the money. The other partner moved to set aside the award. She complained that her rights under Section 48 of the Indian Partnership Act had been infringed. The ground taken was that if the partner to whom the properties had been allotted was unable to pay his share of the liabilities and the applicant had to discharge all the liabilities, the applicant would not be able to look to the assets of the partnership for the discharge of the liabilities, though she was in law entitled to do so. The Bombay High Court set aside the award. It is to be noticed that the award there was set aside at the instance of the partner who complained of the infraction of her rights under section 48. In the instant case the partners whose rights, if any, under section 48 have been contravened do not move to set aside the award. The Bombay case is therefore distinguishable. The second contention raised by Mr. Sen, therefore, fails.
7. In this Court Mr. Sen urged several new contentions. Mr. Sen contends that the award is invalid, inasmuch as the arbitrator ought to have sold or directed the sale of the partnership assets and properties. He contends that on a reference of the disputes in a suit for dissolution of a firm the arbitrator has no power to allot the assets and properties of the dissolved firm to one or more of the partners. This contention was not raised in the court below. The argument that on such a reference the arbitrator has in no circumstances the power to allot the assets and properties of the partnership to one or more partners at a valuation fixed by the arbitrator has no substance. By section 46 of the Indian Partnership Act each partner is entitled to insist that all the assets of the dissolved firm shall be applied for the purposes mentioned therein. As a corollary to this right, the partners are entitled to ask that all those assets be converted into liquid money and that the money so realized be applied for those purposes. Ordinarily this conversion is made by a sale of the partnership properties. In a suit for dissolution of a firm, sale of the assets of the dissolved firm is the general rule. But the Court has the power to mould the relief in accordance with the circumstances of the case. If the equities of the case so require, the Court has the power to direct that the properties be allotted to the partner who is willing to take them at a valuation fixed by the court and that the proceeds be applied for the purposes mentioned in section 46 of the Indian Partnership Act. In Syers v. Syers, (4) (1876) 1 A.C 174 at 183-4 Lord Cairns, L.C, observed:
“My Lords, it is very true, as was said at the Bar, that on dissolving a partnership of this kind the ordinary course would be for the Court to direct a sale of the assets, and, if necessary, a sale of the concern as a going concern, and to give liberty for proposals to be made by either party to purchase it before the Judge in Chambers. My Lords, those provisions are moulded in every case by the Court to meet the circumstances of the particular case; and it appears to me that, looking at the nature of this business, and looking at the very small interest which was taken in it by the Respondent, it would certainly not be desirable in this case to have a sale, or to bring these premises to the hammer for the purpose of ascertaining what sum ought to be given for them. It is a case, therefore, in which, if a decree for a dissolution had been made in the first instance, I apprehend that the Court would have thought it right to authorise the owner of seven-eighths of the concern to lay proposals for a purchase before the Judge in Chambers.”
8. Similarly on a reference of disputes in a suit for dissolution of a firm the arbitrator has full power to make an allotment of the assets and properties of the dissolved firm to one of the partners at a valuation fixed by the arbitrator. The award in this case is therefore not in excess of the authority conferred on the arbitrator. We are not concerned with the propriety of the allotment. Whether, on the facts of the particular case, the allotment to the appellants should have been made and if so, on what terms were matters entirely for the arbitrator to decide. This new contention of Mr. Sen, therefore, also fails.
9. Mr. Sen next contended relying upon the decision in Sivagnanathammal v. S.V Nallaperumal Pillai, (5) 67 M.L.J 880 at 889 that the arbitrator had no power to allot the properties to the appellants as the appellants were not willing to take them. This is a hopeless contention. This contention was not raised either in the petition or in the argument before the learned Judge or in the memorandum of appeal. The question whether or not the appellants were willing to take the properties at a valuation fixed by the arbitrator is entirely a question of fact. The appellants cannot be allowed to raise a new question of fact for the first time in this Court.
10. Mr. Sen next contended that it was the duty of the arbitrator to answer the several issues raised by him specifically and that he misconducted himself, particularly in not answering issues Nos. 4, 6, 7, 11, 13, 17 and 19 relating to the valuation of the assets and liabilities of the firm. I am totally unable to accept this contention.
11. The arbitrator is not bound to make a separate and distinct finding on each issue. He may award on the whole case. In the instant case the arbitrator has awarded that on the final taking of the accounts the appellants are liable to pay to the respondents a sum of Rs. 12,255/-. The arbitrator has given an award on the whole case whereby he has fully and finally determined the rights of the parties in respect of the subject-matter referred.
12. Mr. Sen next contends that the arbitrator has in fact not valued the assets and liabilities. This is a totally new contention. The appellants did not contend either in the petition or before the learned Judge that the arbitrator had failed to value the assets and liabilities. The appellants cannot be allowed to make a new case for the first time in appeal. Every presumption must be made in favour of the award. There is nothing to show that the arbitrator did not value the assets and liabilities before he made his final award.
13. No other contention has been urged by Mr. Sen in this Court.
14. In the trial Court the appellants raised the further contention that the award should be set aside on the ground that it had been filed out of time. That contention is not pressed in this Court.
15. There is no merit in this appeal. The appeal therefore fails.
16. I propose that the appeal be and is hereby dismissed. The appellants do pay to the respondents the costs of and incidental to this appeal.
Lahiri, C.J:— I agree.
S.K.B
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