Professional Documents
Culture Documents
Contracts 2 COMPLETE
Contracts 2 COMPLETE
Contracts 2 COMPLETE
UNIVERSITY
SUBJECT – CONTRACTS II
1|Page
ACKNOWLEDGEMENT:
I want to express my special thanks to my professor, ‘P. JOGI NAIDU SIR’, who gave
us this golden opportunity to do this wonderful project on the topic ’RESOLUTION
OF PARTNERSHIP’, which also helped us in doing a lot of research and we came to
know about a lot of things.
Secondly, we also thank DSNLU for providing me with all the necessary materials
required for the completion of the project.
2|Page
TABLE OF CONTENTS
1. ABSTRACT ............................................................................................................... 4
2. INTRODUCTION ..................................................................................................... 5
4. PARTNERSHIP DISPUTE
SETTLEMENT…………………………………………………………………….8
7. M/S V.H. PATEL & COMPANY & ORS vs HIRUBHAI HIMABHAI PATEL
& ORS....................................................................................................................... 15
9. BIBLIOGRAPHY……………… ……………………………………………….21
3|Page
Abstract
Resolution of Partnership
This project deals with the resolution of a dispute in a partnership organisation under the
Indian partnership act of 1932, this project will try to elucidate the effective ways and
methods of resolving a partnership dispute arising among the partners of a firm or company.
3) M/S V.H. Patel & Company & Ors vs Hirubhai Himabhai Patel & Ors.3
1
FAO (OS) No.469 of 2006.
2
1971 AIR 1653, 1971 SCR (2) 99
3
MANU/SC/0287/2000
4
Yogendra N.Thakker vs Vinay Balse And Anr on 13 June, 2018.
4|Page
Introduction
The Indian “Partnership Act, 1932 is an act to define and amend law relating to partnership.
The definition of partnership is given under section 4[1] of the Indian Partnership Act, 1932.
The section reads the definition of partnership as partnership is the relation between persons
who have agreed to share the profits of a business carried on by all or any of them acting for
all.”
Another important”section i.e. section 69 of The Indian Partnership Act, 1932[2] also holds
the importance in this research. The section reads as the provisions of sub-sections (1) and (2)
shall apply also to claim of set-off or other proceeding to enforce a right arising from contract,
but shall not affect-“’
1. the“enforcement of any right to sue for the dissolution of a firm or for accounts of a
dissolved firm, or any right or power to realise the property of a dissolved firm, or
2. the powers of an official assignee, receiver or Court under”the Presidency-towns
Insolvency Act, 1909, (2 of 1909). or the Provincial Insolvency Act, 1920, (5 of 1920).
to realise the property of an insolvent’partner.5
Since there”is a contract or a partnership agreement between the two partners or among more
than two partners, the partnership dispute may arise at some point of time because of”any
reasons.
There are”various ways for resolution of a partnership firm, the latest one being the ADR
And the traditional way to settle a despite is by initiating civil proceedings and fighting your
case in a court of law.
5
Indian Partnership act 1932.
5|Page
Causes of a Partnership Dispute in a partnership Firm
Partnership”disputes can’arise for many reasons as two partners own a business together and
work together. However, some of the most common causes’of partnership”disputes include:
6|Page
being distributed fairly when they are operating a’business”together, this can
result in conflict arising.
Having discussed what all”can be the reasons’for disputes in partnership disputes, now comes
the settlement of these kinds of disputes. A decent and well-balanced dispute resolution process
is essential for maintaining the smooth functioning of the partnership business. The process
commences right from choosing what kind of resort the parties are looking for; or any technique
explicitly mentioned in the Partnership Agreement. If the method resorted for resolving the
dispute is mediation, then the appointment with the’mediator or the place of mediation would
be considered as a part of the dispute resolution process.…………………………..
There are various’options available to all the parties for resolving partnership dispute. The
parties can either negotiate by settling down at an agreement by the process of Alternative
Dispute Resolution (ADR), or can go to‘the’Court for”settlement.
Arbitration
The“Arbitration”Agreement will confirm which arbitration rules the arbitrator will adopt. Most
give discretion to the arbitrator to secure evidence“and invite submissions on the facts and law
at their discretion to enable them to fairly”make”a decision.
Mediation
Mediation”aims to get parties to agree to terms that are mutually beneficial, rather than fighting
a battle over who has the law on their side. After successful mediation, the parties will most
likely enter into a legally”binding”agreement.
7|Page
Rather“than imposing a solution, a mediator acts as a facilitator, helping the parties involved
arrive at a satisfactory settlement. The mediator is a neutral third party who attempts to
encourage both sides of the dispute to consider what would be”the best overall outcome for
everyone.
Negotiation
Litigation
The most”familiar type of dispute resolution, civil litigation typically involves a defendant
facing off against a plaintiff before either a judge or a judge and jury. The judge or the jury is
responsible for weighing the evidence and making”a ruling.
The information conveyed in hearings and trials usually enters, and stays on the public record.
Lawyers typically dominate litigation, which often ends in a settlement agreement during the
pretrial period of discovery”and:preparation.
Out of” all “the dispute settlement processes ADR (Alternative Dispute Resolution) is the best
method to settle the disputes in partnership disputes. The most frequent option” to resolve
partnership disputes is ADR.
8|Page
Case Laws
FACTS
The”Appellant filed a petition under Section 207 of the Arbitration Act, 1940 praying for an
appointment of an Arbitrator. The parties are real brothers and were carrying on business with
each other in the name and style of M/s. D.R. Kukreja and Company.
The business of the “partnership, D.R. Kukreja & Co., was primarily the running of cinema
hall, i.e., Sapna Cinema. This cinema hall was constructed on a plot of land in East of Kailash,
New Delhi which was given on lease to the partnership by the Delhi Development Authority
(„DDA‟) by a perpetual lease deed dated 1st September 1970. Their mutual rights and
obligations were governed by partnership deeds, the last of which was executed on 10.7.1984.
In terms of the Clause of the said deed, disputes arising between the”parties had to be resolved
by way of arbitration before a sole arbitrator to be nominated by”the parties.
The respondent”said that the partnership was dissolved by the parties with mutual consent in
terms of the retirement deed dated 16.8.1990 alleged to have been executed by the appellant.
However, the appellant denied executing any such retirement deed and filed a petition under
Section 20 of the Arbitration Act seeking a direction for filing the arbitration agreement dated
10.7.1984 in the Court and for reference of the dispute between the parties to arbitration in
terms of Clause thereof. It was alleged in the petition that disputes relating to payment of profits
earned by the partnership firm and the interest on the said amount had arisen between the parties
which called for adjudication by the arbitrator under Clause and also alleged the”respondent
6
FAO (OS) No.469 of 2006.
7
-Application to file in Court arbitration agreement.
9|Page
for mismanaging the affairs of the partnership by employing undesirable elements and other
dubious means.
This was opposed by”the respondent by filing a written statement contending‘that the petitioner
has misrepresented the true facts and that there was no subsisting arbitration agreement
between the parties in the light of the retirement deed dated 16.8.1990 allegedly executed by
the petitioners by which the partnership between the parties stood dissolved and all claims
stood completely satisfied. It was also alleged that the petitioners had not come”to the Court
with clean hands and had deliberately omitted to mention the fact of their retirement from the
business under the retirement deed.
The genuineness’of the retirement deed was, however, challenged by the appellants herein who
asserted that no retirement deed has been executed by them.
By an order dated 1.5.1996, the learned Single Judge hearing the arbitration petition referred
the disputed deed of retirement for examination and opinion to the Central Forensic Science
Laboratory (CFSL). The document in question was accordingly examined by the CFSL who
reported that the alleged signatures of the petitioners on the alleged retirement deed were not
genuine. The learned Single Judge held that the plea that there was no dispute because of the
alleged retirement deed and receipts can be easily gone into by the arbitrator, and in view of
the report of the forensic expert between the parties it cannot be prima facie said that the dispute
does not subsist. The report of the forensic expert creates a’substantial doubt in the stand taken
by the respondent of the alleged retirement of the appellant from the partnership.
ISSUE
Subsequently the“petition under Section 20 of the Arbitration”Act was filed by the appellants
seeking a direction for ‘filing the arbitration agreement dated 10.7.1984 in the Court and for
reference of the dispute between the parties to arbitration in terms of Clause 11 thereof. It was
10 | P a g e
alleged in the petition under Section 20 that disputes relating to payment of profits earned by
the partnership firm and the interest on the said amount had arisen between the parties which
called for adjudication by the arbitrator under Clause 11. The petitioner further alleged that the
respondent had been mismanaging the affairs of the partnership by employing undesirable
elements and other dubious means, thereby disentitling’himself to remain in control of the
partnership.
By an order dated 1.5.1996, the learned Single Judge hearing the arbitration petition referred
the disputed deed of retirement for examination and opinion to the Central Forensic Science
Laboratory (CFSL). The document in question was accordingly examined by the CFSL who
reported that the alleged signatures of the petitioners on the alleged retirement deed were not
genuine.
The learned Single’Judge held that the plea that there was no dispute because of the alleged
retirement deed and receipts can be easily gone into by the arbitrator, and in view of the report
of the forensic expert between the parties it cannot be prima facie said that the dispute does not
subsist. The report of the forensic expert creates a substantial doubt in the stand taken by the
respondent of the alleged retirement of the appellant from’the partnership.
JUDGMENT
The learned Single Judge relied on the decision of this Court in Erach F.D. Mehta Vs. Minoo
F.D. Mehta8 and held that the arbitration clause in the present case is wide enough to include
all the disputes sought to be referred. Hence the learned single Judge allowed the petition under
Section 20.
In appeal, however, the Division Bench of the High Court was of the view that in case there is
a dispute as to the very existence of an arbitration clause by reason of supersession of the
agreement in which the same is contained by another subsequent agreement arrived at between
the parties, the said dispute cannot be referred to arbitration.
8
AIR 1971 SC 1653
11 | P a g e
Finally set aside the decision of the Division Bench and court appoint Mr. Justice D.P.
Wadhwa, retired Judge of the Supreme Court as the sole Arbitrator to decide the dispute
between the parties, including the dispute whether the alleged retirement deed was genuine or
not. Hon'ble Mr. Justice D.P. Wadhwa can fix his own terms of emoluments and other
requirements.
FACTS
On December 22, 1966, the appellant and the respondent, who are brothers, entered into an
agreement to carry on in partnership three businesses (1) Messrs F. D. Mehta & Company; (2)
The Great Western Stores; and (3) Dr. Writer's Chocolates and Canning Company.
A partnership deed entered into between the partners contained a clause for reference "of all
disputes and questions whatsoever which may arise during partnership or afterwards between
the partners touching the partnership agreement including division of assets, debts or
liabilities", to arbitration.
Disputes arose‘between the two partners. The respondent claimed that on January 17, 1968 the
partners reached an oral agreement stipulating that the appellant shall retire from the
partnership and shall assign and transfer to the respondent his“right, title-and interest in the
partnership business against payment of the price”fixed by Mr. Jal Desai, a Chartered
Accountant. The appellant denied the agreement set up by the respondent. On June 13, 1968
the respondent addressed a letter to the appellant setting out the terms of the oral agreement
dated January 17, 1968 and intimated that "having regard to the attitude adopted by" the
appellant "there was no alternative left but to“have a legal”arbitration", and that Mr. K. M.
Diwanji Solicitor of the High Court of Bombay was nominated an arbitrator by the respondent,
and the appellant was called upon to nominate his arbitrator "so that the disputes and
differences between the parties may be resolved" by the“partnership”deed. This request was
9
AIR 1971 SC 1653
12 | P a g e
repeated in a letter dated June 14, 1968. By his reply dated June 26, 1968 the appellant denied
the agreement and without ‘prejudice to his contention nominated Mr. J. B. Maneckji as
arbitrator. He simultaneously intimated that if the arbitrators seek to arbitrate on "the issue of
the alleged agreement of" the appellant "to go out of the firm", he "would contend that they
had no power to do so". The arbitrators were unable to make an”award within the period
prescribed by the Arbitration Act.
ISSUE
For a declaration that even if the deed of partnership contained an arbitration agreement the
dispute before the umpire fell within or outside the scope of the arbitration clause.
There is‘no dispute that an agreement of partnership at will may by mutual agreement be
dissolved and the rights and obligations of the parties settled under the terms”thereof.
We are not”concerned at this stage to“determine whether the agreement set up by the
respondent was in fact reached between the partners on January 17, 1968: that is a matter to be
decided by the arbitrators. A dispute whether the partnership was dissolved by mutual
agreement was clearly a“dispute between the parties”touching the partnership agreement. We
are unable to agree with counsel for the appellant that the“agreement set up by the respondent”
did not stipulate dissolution of the partnership. It is the case of the respondent which he had set
up in the corres- pondence, that it was agreed between him“and”the appellant that the latter
was to retire from the partnership. When the partnership consisted of only two partners and one
partner agreed to retire, there can be no doubt that the agreement that one of the partners will
retire amounts to dissolution of the partnership. Primarily the dispute between the parties is as
to the truth of 'the agreement set up by the respondent relating to”the dissolution of the
partnership and the dispute with regard to that agreement raised by the appellant can, in our
judgment, be referred to the arbitrators under cl. 15 of the“partnership”agreement. No argument
has been advanced“before us on the last plea raised before the High Court. We are not called
upon to decide the extent of the power of the arbitrators under an arbitration agreement that
question does not strictly arise in a petition under s. 33 of the Arbitration”Act, 1940.
13 | P a g e
JUDGMENT
The clause "all disputes and questions whatsoever which may arise during the partnership or
afterwards between the partners touching the partnership agreement including division of
assets, debts and liabilities"
M/S V.H. Patel & Company & Ors vs Hirubhai Himabhai Patel & Ors10
FACTS
In this case, members of the Patel family came together to form a partnership firm which
manufactured, sold and marketed different varieties of tobacco. 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 trademarks:
(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
mark’s owned by the firm were to cease to be of one ownership but had to be owned
by all the partners thereof.
Their agreement said that any questions regarding the rights and obligations of the parties
and the use of the firm’s trademarks would be referred to the sole arbitration of a certain
retired Judge of the Bombay High Court.
On 1st August 1987, a Deed of Retirement was executed between the partners, ordering the
retirement of the respondent H.H. Patel. The respondent filed a suit challenging this deed and
10
MANU/SC/0287/2000
14 | P a g e
claimed that he was still a partner of the firm. A dispute also arose between the two parties
regarding the use of the firm’s three trademarks. In light of these disputes and the close relation
of the parties, the court suggested them to go for arbitration as provided by their agreement.
The arbitrator held that the retirement deed was invalid and the respondent continues to be a
partner. However, he denied considering the respondent’s claim seeking dissolution of the firm,
saying that it was beyond the scope of his reference.
ISSUE
It was pointed out that mere“strained”relationship between the partners would not be enough
to dissolve a partnership. It is not“necessary for us to examine this contention in this case when
the partners sought for dissolution of the partnership on various grounds enumerated in Section
44(c) to (f) may also be sufficient and may not be necessary to invoke the inherent jurisdiction
of a court such as dissolution is just and equitable. If there has been breach of agreement and
conduct is destructive of mutual confidence certainly such“conduct”can give rise to a ground
for dissolution of the partnership. While mere disagreement or quarrel arising from impropriety
of partners is not sufficient ground for dissolution, interference should not be refused where it
is shown to the satisfaction of the adjudicating authority that the conduct of a partner has been
such that it is not reasonably“practicable”for other partners to carry on the business in
partnership. For instance, dissolution should be” ordered if it is“shown”that the conduct of a
partner has resulted in destruction of mutual trust or confidence which is the very basis for
proper conduct of partnership.
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.
15 | P a g e
JUDGMENT
The Supreme Court held that where the partnership deed or agreement directs disputes and
differences to be referred to an arbitrator, the arbitrator has the power to examine these issues,
including dissolution. The power of the arbitrator depends upon the arbitration clause in the
partnership deed and the reference made by the court to it. If the reference states that all disputes
and differences between the parties have to be referred to arbitration, the arbitrator will be able
to deal with dissolution too. There is no provision of law that prohibits an arbitrator to examine
the dissolution of a partnership.
Clearly, an arbitrator can decide the dissolution of a firm. An arbitrator might award dissolution
on the grounds that it is “just and equitable” to do so. This can occur in various different
situations, like when the dispute between the partners is severe and beyond repair, or when the
business is not being carried on as per the provisions of the agreement between the partners.
However, don’t we always assume that the court will decide what is just and equitable? The
Partnership Act too, says in Section 44(g) that the court has the power to dissolve a firm if it
finds it “just and equitable” to do so.
FACTS
In this case, 5 persons formed a partnership firm together on 21st February 1968. After several
changes, the last deed of the partnership was executed on 24th April 2000. It said that the
partnership would be “at-will” and could be dissolved only through unanimous consent of all
the partners. It also said that all disputes and questions relating to the partnership would be
referred to an arbitrator.
On 1st October 2003, the respondents issued a notice seeking to suspend the petitioner as a
partner of the firm. The petitioner challenged this in an arbitration petition.
The arbitrator held that the business was being carried out against the provisions of the
Partnership Deed and that the firm should be dissolved. The petitioner issued a notice for
11
Yogendra N.Thakker vs Vinay Balse And Anr on 13 June, 2018.
16 | P a g e
dissolution. The respondents challenged this saying that an arbitral court could not decide
dissolution under Section 44(g) of the Indian Partnership Act, 1932, i.e. because it was “just
and equitable” to do so. They claimed that only Courts had the power to make this decision on
this basis.
ISSUE
Whether the power to dissolve a partnership firm under Section 44(g) of the Partnership Act
rests only with the court and cannot be exercised by an arbitral tribunal?
It is held that under the arbitration clause entered into between the parties, the arbitrator has
power to decide whether the firm can be dissolved or not even though there is no specific
provision in the Partnership Deed providing for dissolution of the firm, at the instance of one
of the partners. In my view, the principles laid down by the Andhra Pradesh High Court in case
of Vijayalakshmi Jayaram12 would apply to the facts of this case. I am in respectful agreement
with the views expressed by the Andhra Pradesh High Court in the said judgment.
The Calcutta High Court in case of Mahendra Kumar Poddar13 considered a similar arbitration
clause and held that it cannot be construed that dissolution of the partnership firm cannot be
decided by the arbitrator at all. It is held by the Court that a declaration in respect of the
dissolution of the firm by an arbitrator cannot be subject to be non-est by saying that in view
of section 44 of the Partnership Act, only the Court may dissolve a firm but not the arbitrator.
The Calcutta High Court has interpreted the word "Court" under section 44 of the Partnership
Act, 1932 and held that the word "Court" includes the arbitrator.
The Rajasthan High Court in case of Jagdish Chandra & Anr. 14 has after adverting to several
judgments of the Supreme Court and other High Courts and the judgment of the Privy Council
in case of Rehmatunnisa Begum & Ors.15 has held that it cannot be said that the arbitrator
12
AIR 1995 AP 351
13
AIR 2001 Cal 58, 2001 (2) ARBLR 62 Cal
14
Civil Appeal No.2743/2000
15
(1918) 20 BOMLR 714
17 | P a g e
cannot decide the issue which otherwise the Court is required to decide in a suit for dissolution
of a partnership. The judgment of the Rajasthan High Court in case of Jagdish Chandra & Anr.
applies to the facts of this case. I am in respectful agreement with the views expressed by the
Rajasthan High Court in the said judgment.
JUDGEMENT
The Bombay High Court held that under the arbitration clause of a partnership agreement, the
arbitrator has the power to decide whether the firm should be dissolved or not, even though no
express provision regarding the same has been given in the Partnership Act. The respondents
had already accepted that an arbitral tribunal has the power to dissolve a partnership under
subsections (a) of Section 44 of the Partnership Act and so their argument that it couldn’t do
so under Section 44(g) did not make sense, as dissolution on just and equitable grounds is also
a form of dissolution.
Also, their argument would go against the wide arbitration clause given in their partnership
agreement which said that all disputes and issues could be resolved by arbitration, which
therefore included dissolution.
CONCLUSION
Thus, there“are two important takeaways from this project on dispute resolution : first, that
where the partnership agreement of a firm provides a wide arbitration clause and states that all
disputes between partners shall be“resolved” through arbitration, it also involves the question
of dissolution of a firm; and second, an arbitrator or arbitral tribunal can award dissolution of
a firm which will be legally binding on the parties and its”authority to do this has been backed
by the court.
The dispute in“partnership dispute can be solved by the various methods like arbitration,
conciliation, mediation, Court proceeding, and awards are also the ways in which a dispute can
be settled. Out of all the settlements“methods”arbitration is the best“method and evidence to
support this statement are already provided in the project with the help of various case laws
where arbitration settled the disputes arising”in partnership.
Thus it is“concluded that the present trend is solving dispute through arbitration method as it
is fast, less time consuming and easy, time and cost saving: Any“technique”used under ADR
18 | P a g e
process can be more cost and time effective and Any of the technique mentioned under ADR
and used by the parties to dispute, will always remain”strictly confidential.
BIBLOGRAPHY
S.NO STATUES
1. Indian Contract Act, 1872
2. Indian Partnership Act, 1932
3. Arbitration Act, 1996
S.No LINKS
1. http://www.legalserviceindia.com/legal/article-1364
2. www.upcounsel.com
3. sol.du.ac.in/mod/book/view.php?id=1569&chapterid=1553
4. www.the-laws.com
5. lawzilla.in
19 | P a g e
20 | P a g e