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Thereafter on January 9, 1959, the arbitrator made his award. Ratio |
The insistence 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... |
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. Ratio |
499 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. Ratio |
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. Ratio |
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 arbitrator 's jurisdiction, invalid. Ratio |
It is, however, impossible to sever from the valuation made by the arbitrator the value of the depreciation and appreciation included by the arbitrator. Ratio |
The award must, therefore, fail in its entirety. Ratio |
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 ex... |
It was the case of Chintamanrao that these documents were prepared and handed over to the arbitrator without giving any notice to him. Ratio |
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. Ratio |
For the reasons set out by us in dealing with the first plea for 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. Ratio |
We accordingly hold that the award was properly set aside by the Courts below. Ratio |
Counsel for the retiring partners submitted that on the view taken by us, the award should be remitted to the arbitrator under section 16 of the . Ratio |
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 500 acceding to that request. Ratio |
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 section 16 to remit the award to the arbitrator. Ratio |
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 section 19. Ratio |
We have, therefore, refrained from considering that question also. Ratio |
The appeal fails and is dismissed with costs in one set. RPC |
HIDAYATULLAH, J. RPC |
This appeal arises out of an arbitration award which was set aside by the Additional District Judge, Sagar on the objection of the respondents. Ratio |
The judgment of the Additional District Judge was confirmed on appeal by the High Court and the present appeal has been filed on a certificate granted by the High Court under article 133 (1)(c) of the Constitution. Ratio |
The arbitration was without the intervention of the Court. Ratio |
Previously it proceeded before three arbitrators but the authority of two of the arbitrators was revoked by the Additional District Judge, Sagar, at the agreed request of the parties to the reference. Ratio |
It then proceeded before one Chaturbhuj V. Jasani who gave his award on January 9, 1959. Ratio |
The arbitration proceedings were necessary because of the retirement of the appellants from a firm called Virajlal Mannilal & Co. which at that time consisted of eight partners in three groups. Ratio |
These groups were the three appellants (Jivraj and his two sons) owning /4/3 share, respondents Nos.1 3 (Chintamanrao and his two sons) owning /7/6 share and the two remaining respondents, who are brothers, owning the balance. Ratio |
By agreement this retirement was to take place on April 15, 1958. Ratio |
In revoking the award the High Court, in concurrence with the court below, has upheld two objections (a) that the arbitrator exceeded his jurisdiction and (b) that he was guilty of misconduct in receiving some evidence behind the back of Chintamanrao. Ratio |
501 The firm of which the several parties here were partners had a written deed of partnership executed on February 16, 1956. Ratio |
This deed replaced earlier deeds to which reference is not necessary. Ratio |
The partnership kept its accounts from Diwali to Diwali and every year it drew up a balance sheet and a profit and loss account, copies of which documents were given to all the partners. Ratio |
The accounts so stated were subject to objection but if none was made, they were conclusive and binding on the partners. Ratio |
All this was provided in the deed of partnership which also provided for the retirement of partners and its 13th paragraph laid down special terms as follows: "In case of retirement of any partner the valuation of the Firm will be made on the following basis for the purpose of settling the account of the retiring partn... |
In making the valuation of the above, the net profits of the last five years will be taken as the value of the Goodwill of the Firm. Ratio |
(b) Outstandings, Udhari (Recoveries): That is, loans and debts outstanding against persons other than partner will be calculated at 85 % of the book value of the Firm. Ratio |
(c) Stock of Raw Materials: That is, tobacco, bidis, bidi leaves, labels and other moveable property will be valued at the book value of these in the books of the Firm and all such stocks and moveables, thus valued shall be given to the following partners. Ratio |
(d) Immovable Property: Such as buildings, godowns, gardens, lands etc. Ratio |
will be valued at the purchase price or their book value in the books of the firm as the case may be, and all these shall be given to the re maining partners. Ratio |
" 502 As a result of an arrangement reached aliunde by which the businesses of these partners, which were in different firm names and various places, were to be divided between the appellants on the one hand and the respondents on the other, the parties desired an arbitration to separate the shares of the appellants as... |
After the usual recitals, it provided that a final account of the partners should be taken with regard to eight matters as far as possible according to and taking into consideration the terms and conditions of the partnership agreement. Ratio |
" The eight matters were: 1.Goodwill of Trade Mark.Property. 3.Credits (Udhari).Dead Stock.Stock in trade i.e., the raw material or the finished goods invested in the business.Other matters connected with these transactions.Profit and Loss Account. The Receipt and Payments account of the amounts of the partners. Ratio |
It was further provided that the firm Virajlal Mannilal was to continue with the respondents after the appellants had retired therefrom and the appellants were to be. Ratio |
paid an amount to be determined by the arbitrator and in such a manner and on such conditions as he might direct. Ratio |
The arbitrator having filed the award in Court, the respondents filed objections, only two of which noticed above succeeded and the award was set aside. Ratio |
I shall therefore proceed straight to those objections of which only the first was fully argued before us. Ratio |
In making his award the arbitrator gave the appellants a 14/3 share from a lump amount of Rs.32 lacs which he described as "goodwill" of the firm, adjusting, in the respective shares of the three appellants in that sum, all amounts standing to their credit 503 or debit, as the case may be, in the account books of the f... |
He also assessed the "goodwill" for the period from Diwali to the date of retirement and made suitable additions. Ratio |
His real decision is contained in three or four lines in the award which of course contains other matters and his exact words in Hindi have given rise to some difference because they have been translated in two different ways on the record of the case. Ratio |
The two translations are (1) The value of the goodwill of the whole firm 1 assess at Rs. 32,000,00, (Rupees thirtytwo lacs). Ratio |
In this sum property, dead stock and depreciation and appreciation of Udhari are also included; (2) The value of the goodwill of the whole firm 1 assess at Rs. 32,000,00/ (Rupees thirtytwo lacs). Ratio |
In this sum the depreciation and appreciation of property, dead stock and Udhari is also included. Ratio |
" The second translation is probably more accurate than the first, but to my mind it is not a matter of mere words but of what the arbitrator has done. Ratio |
The award is in Hindi and the two words "appreciation" and "depreciation" are in English. Ratio |
They might well have been used to still all controversy about issues which the parties had raised before him relating to these matters. Ratio |
The arbitrator might, in other words, have used these words loosely without meaning anything except to show that he had looked into everything which the parties desired him to see. Ratio |
The dispute is thus whether the arbitrator exceeded his jurisdiction by adding back depreciation amounts to the book value and/or allowing for appreciation of property which was successfully claimed by the respondents in the High Court and the Court below to be not open to him? In this appeal it was contended on behalf... |
Reliance is placed upon the observations of the Judicial Committee in the well known case of Chamsey Bhara & Co. vs Jivraj Balloo Spg. ARG |
& Wvg.Co.(1) where it was observed: "An error in law on the face of the award means, in their Lordships ' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis o... |
It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties ' rights depend to see if that contention is sound. Ratio |
Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. Ratio |
The only way that the learned judges have arrived at finding what the mistake was is by saying; "inasmuch as the arbitrators awarded so and so, and inasmuch as the letter shows that the buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Rule 52". Ratio |
But they were entitled to give their own interpretation to Rule 52 or any other Article, and the award will stand unless, on the face of it, they have tied themselves .down to some special legal proposition which then, when examined, appears to be unsound." Mr. Desai contends that the arbitrator might have interpreted ... |
The other side contends, as has so far been held in the case, that the reference, read with the partnership deed, created an area of (1) I.L.R. at 586. Ratio |
505 jurisdiction which the arbitrator has outstepped. Ratio |
The first point is therefore to decide what were the limits of the arbitrator 's action as disclosed by the reference and the deed of partnership and then to see what the arbitrator has actually done and not what be may have stated loosely in his award. Ratio |
This is the only way in which the excess of jurisdiction can be found If the interpretation of the deed of partnership lies with the arbitrator, then there is no question of sitting in appeal over his interpretation, in view of the passage quoted above from Champsey 's case but if the parties set limits to action by th... |
The arbitrator derived his authority from the reference and we must turn to its terms in the first instance. Ratio |
The material portion has been quoted and it shows that in view of the retirement of Jivraj and his sons, parties considered it necessary "to effect the final account of the retiring partners with regard to the matters mentioned below as. ' far possible according to and taking into consideration the terms and conditions... |
The words underlined are in the recitals but they do show that the parties desired a division in accordance with the terms of the partnership agreement. Ratio |
The words "as far possible" show some latitude in one sense, but the force of those words is to be discovered with the aid of the other words "according to and taking to consideration etc." which lay down that the terms of the partnership agreement must prevail over personal opinion. Ratio |
The partners appointed the arbitrators to decide the eight matters and to enable them to give their decision undertook by cl. 7 of the reference to furnish all accounts, documents and information which the arbitrators might require of them. Ratio |
Now the deed of partnership which was to prevail as far as its terms were applicable provided that to settle the final account of the retiring partners 506 four items of assets should be valued in a particular way. Ratio |
These directions were contained in cl. ' 13 of the deed already set out earlier. Ratio |
Thus goodwill was equal to five years ' net profits; debts due to the firm were to be taken not at their book value but at 85 % of that value; stocks of raw materials were to be valued at book value; and immovable properties at purchase price or their book value in the books of the firm as the case may be. Ratio |
The goodwill took no account of anything but the net profits. Ratio |
Admittedly, the net profits of the preceding five years were Rs. 21,70,650/ 10/ . Ratio |
This set at rest sub clause (a) of cl. 13 of the partnership agreement. Ratio |
Admittedly also the outstandings (Udhari) came to Rs. 9,16,366/ at their book value and 15% thereof came to Rs. 137,354/13/6. Ratio |
The net Udhari therefore was Rs. 7,79,011/2/6. Ratio |
Differences really arose in the matter of valuation of raw materials and immovable properties and in this connection. Ratio |
the appellants asked to see an account of gross profits for the past five years which the arbitrator ordered Chintamanrao to produce. Ratio |
According to the appellants the value of properties given by Chintamanrao was the written down value and the right figure according to the agreement was not Rs. 6,24,369/ as stated by Chintamanrao but Rs. 16,57,000/ . Ratio |
In reply Chintamanrao stated that it was not the practice of the firm to prepare an account of gross profits but he added that gross profits could be calculated from the account books by the other side or by the arbitrator and he offered the services of an accountant to prepare such an account. Ratio |
The documents which the arbitrator is said to have received behind the back of Chintamanrao (though not some of the other respondents) are the abstracts which show the gross profits and what was excluded to reach the net profits. Ratio |
The net profits in these accounts and the net profits given by Chintamanrao agree. Ratio |
I do not refer to the dispute about the production of the documents since that part of the case was not argued before us, but these accounts prime facie do show that in working out net profits for the five years, depreciation of immovable property and goods was taken 507 into account. Ratio |
The same depreciation appears to have been taken into account in the balance sheet while valuing the assets against the liabilities. Ratio |
In other words depreciation of immovable properties and goods over the five years for which the goodwill was to be calculated appeared to have been taken twice over. Ratio |
I would have persuaded myself to go into this matter more deeply but for the fact that such depreciation does not altogether account for the difference between 21 lacs and 32 lacs. Ratio |
The balance sheets show a very slender difference between the assets and liabilities over the five years and it may be taken that the value of Udhari, raw materials and immovable properties is offset by the liabilities. Ratio |
Nothing remains except a very petty sum as profit to be carried over for addition to the goodwill. Ratio |
The duplicated depreciation does not in fact account for the increase from Rs. 21 lacs to Rs. 32 lacs. Ratio |
The conclusion is therefore inescapable that the arbitrator meant what he said when he spoke of including appreciation and depreciation in the valuation of the properties etc. Ratio |
For this reason he must be held to have exceeded his jurisdiction and it is not a question of his having merely interpreted the partnership agreement for himself as to which the Civil Court on authority could have had no say, unless there was an error of law on the face of the award. Ratio |
Reliance is placed upon the case of Cruickshank and others vs Suiherland and others ' " that if accounts in the past were not prepared to meet the contingency of retiring partners, the accounts must be recast for this special purpose and the arbitrator must necessarily have freedom to value property in his own way and ... |
The intention here was that the arbitrator should prepare the final accounts as the partners would themselves have done under the partnership agreement, and the arbitrator had to follow cl. 13 of the partnership agreement which was binding on (1) 508 the partners and therefore on him. Ratio |
The partnership agreement did not speak of market value or fair value. Ratio |
It stated that the purchase price or the book value as the case may be alone could be taken into account. Ratio |
This meant that the book value where available and the purchase price in other cases only were to enter in the calculations. Ratio |
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