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Petitioner: FARID VIRANI and anothers VS Respondent: FEROZ VIRANI
Court Name: Sindh High Court Judge(s): Muhammad Ali Mazhar Title: FARID VIRANI and anothers vs FEROZ VIRANI Case No.: Suit No,438 and C.M.A. No,4582 of 2012 Date of Judgment:2013-03-20 Reported As: PLD 2013 Sindh 386, 2013 CLD 1361 Result: Application dismissed
Judgment ORDER ' MUHAMMAD ALI MAZHAR, J.---This order will dispose of C.M.A. No,4582 of 2012 filed by the defendant under section 34 of the Arbitration Act. The plaintiffs have filed this suit for accounts and appointment of receiver of a dissolved firm, permanent injunction and damages. 2. The brief facts of the case are that the plaintiff No,1 is nephew of plaintiff No,2 and the defendant is the real brother of plaintiff No,1 and the nephew of plaintiff No,2. The plaintiffs and defendant are partners in the firm namely "Agha's Super. Market". The partnership deed was registered on 27-7- 1978, which was further amended on 20-6-1996. Certain differences arose between the parties and the defendant through his letter made some allegations against the plaintiffs inter alia that the plaintiffs are attempting to create liabilities on Agha's Super Market partnership firm and without their knowledge and consent an agreement to lease for a new premises was executed. 3. In response to the letter, the plaintiffs informed the defendant that they will not sign any agreement creating encumbrance on the partnership firm. Since the matter could not be resolved the plaintiffs again wrote a letter to the defendant with few options for distribution of assets and the dissolution of partnership firm in an amicable manner. It is also the case of the plaintiffs that since defendant was not responding or not agreeable to discuss the matter, therefore, the plaintiffs through their counsel written a letter dated 14-11-2011 whereby they dissolved the partnership firm. They also called the defendant to settle the accounts. In paragraph 11 of the plaint and earlier also the plaintiffs placed following options to the defendant. (1) The assets of the partnership firm i.e, the existing shop with all the furniture, fixtures and equipment plus the warehouses and stocks be valuated and be sold to a third party on a mutually agreed valuation.
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(2) If the defendant wishes to continue with carrying on the business at the present premises, he may acquire the shop with all the furniture, fixtures and equipment plus the warehouses and stocks on the mutually agreed valuation by making the payment to the plaintiffs for their respective shares in those assets. Similarly, if the defendant does not wish to continue with the business, then the plaintiffs would have the option to acquire all the assets as mentioned above by making the payment to the defendant for his share in the assets, on the mutually agreed valuation. (3) The assets of the firm be valuated separately for example; the shop, furniture, fixture and equipment, warehouses and the stocks and all the assets be sold separately to a third party or be acquired by either the defendant by making the payment to the plaintiffs for their respective shares or be acquired by the plaintiffs by making the payment to the defendant for his share in the respective assets. ' Since the plaintiffs communicated their decision for dissolving the partnership firm, the plaintiff No, I intended to start \new business. It is further stated that the defendant requested the plaintiffs to include him in the new business and due to' intervention of common friends a meeting was convened between the plaintiffs and defendant on 23-2-2012 in which it was agreed that the defendant will be given 25% shareholding in the new company, and the mutually agreed terms and conditions were reduced in writing which are as under:-- "As on February 23rd 2012 it is hereby agreed as follows between Mr. Anver All Virani, Mr. Feroze Virani and Farid Virani: (1) The 3 above Ex-Partners of Agha's Supermarket will each have 25% each of the shareholding in the new company which is already formed. These will be voting shares. (2) One nominee of Feroz Virani and two nominees each of Anver Virani and Farid Virani will all have 5% shareholding. This 5% shareholding each is being given to the five nominees as sweat equity which will vest in 5 years. The financial benefits will be given to them from day one i.e,, the beginning. (3) The voting rights of the nominees' 25% shareholding will vest in Anver Virani and Farid Virani. (4) All the assets (Lock, stock and Barrel) will be taken over/assumed by the new company. (5) The company's assets can and will be mortgaged with the bank for financing purpose. (6) Feroz, Farid and Anver will each put in 50 million as equity. 4. It is further contended that despite agreeing the aforesaid terms and conditions the defendant again approached the plaintiffs to modify the agreed arrangement to the following effect:-- (a) That the main location of the dissolved partnership firm i.e, Uzma Court DC-3, Block-8, Clifton, Karachi will not be assumed/taken over by the new company and will remain the private property of the three ex-partners. (b) Furthermore, the property i.e, the shop in Uzma Court DC-3, Block-8, Clifton, Karachi will not be mortgaged with the banks for any financing that may be required by the new company. 5. It was further averred that the defendant counsel sent a letter to the plaintiffs and further correspondence were exchanged between the parties. Ultimately, the defendant resiled from his commitment and stated that he signed the agreement under influence, duress and coercion and he repudiated the agreement. The plaintiffs have also 'attached the copy of draft of shareholders agreement that they allegedly forwarded to the defendant for signature. In paragraph 25 of the plaint the plaintiffs have alleged that'the defendant severely hampered the business of partnership firm and caused colossal loss to the plaintiffs and the firm was subsequently dissolved by the plaintiffs and it was done so only after unprofessional, indecisive, whimsical and irrational actions of the defendant, who caused irreparable loss.To worstwhile 'partnership business and the goodwill of the firm as 'well as the professional reputation of. The plaintiffs. Plaintiffs in paragraph 26 of the plaint have mentioned assets of the partnership firm namely Agha's Supermarket and prayed for appointment of receiver in respect of the partnership firm. It is also prayed that accounts of the
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firm be prepared and assets of the partnership firm be distributed amongst partners Inter alia selling of stock and valuation of name and goodwill of Agha's Supermarket. 6. The defendant has filed this application under section 34 of the Arbitration Act for staying the proceedings and appointment of arbitrator in terms of Clause 13 of the partnership deed dated 27- 7-1978. 7. The plaintiff No,1 has filed counter affidavit in which the partnership deed was not denied but it was submitted that the plaintiff and defendant were partners of Agha's Supermarket wherein the defendant was holding 33% shares. It was further stated that the partnership firm was dissolved on 14-11-2011, therefore, the plaintiff and defendant are no more partners. It was further averred that since partnership firm has been dissolved, therefore, there no question arises for referring any dispute to the arbitrator. The defendant has himself filed Suit No,1198 of 2012 in this court for declaration, permanent injunction and damages hence it is clear that the defendant himself submitted to the jurisdiction of this court. 8. The learned counsel for the defendant argued that the partnership deed contends various clauses which are condition precedent for its dissolution. It was argued that neither the firm has been dissolved nor it has stopped its business, but Agha's Supermarket is continuing to operate by mutual consent of the plaintiffs and the defendants and its regular purchases and sales are being made on regular basis. In the event of the dissolution it will immediately stop and cessation of business activity and locking up of the business, warehouses and godowns. It was further averred that in view 'of the Clause 13 of the partnership deed the partnership firm cannot be dissolved unless the matter is referred to the arbitrator hence the present suit is liable to be stayed under section 34 of the Arbitration Act. The plaintiffs recently attempted to create liabilities without defendant's knowledge and consent which was required to be taken first under the terms of partnership deed. It was further contended that the plaintiffs without knowledge of the defendant signed the agreement of lease of the property situated at Khayaban-e-Iqbal, Block-9, Clifton Karachi and this was done without taking the consent of the defendant, who has 1/3 share of the business. Learned counsel argued that the act of the plaintiffs was against the Clauses 10 and 11 of the partnership deed. Since all such actions were not approved by the defendant, he expressed his displeasure and reservation, therefore, the plaintiffs sent a letter to the defendant in which they threatened for dissolution of partnership firm. Learned counsel also referred to various correspondences exchanged between the parties and argued that the defendant., still wanted to continue the partnership as well as the partnership business. So far. As the option given by the plaintiffs for the dissolution of partnership firm is concerned, learned counsel argued that the defendant is still willing to discuss the possibility of expansion of business and running the business of Agha's Supermarket at the present site and location in which three partners have equal shares. So far as the handwritten documents is concerned, the learned counsel argued that the plaintiffs made certain misrepresentation during the course of negotiation and they did not record the defendant's views, and the document was signed under duress, coercion, misrepresentation which was repudiated by the defendant through his letter dated 17-4-2012. 9. So far as the Suit No,1198 of 2012 is concerned, the learned counsel argued that due to various illegal acts of the plaintiffs, the defendant was compelled to file the suit, whichis without prejudice to this application. Learned counsel also referred to reply dated 21-1-2012, in which it was stated that the defendant does not want to take any positive step and neither he wants to buy the plaintiffs' share for the dissolution of firm nor want to sell his share to the plaintiffs nor want to sell all the assets to any third party and due to this inability to take decision in the matter, the settlement of accounts distribution of assets is being. Delayed. In the same letter, the plaintiffs' counsel communicated to the defendant that if he feels that the matter be referred to the arbitrator in pursuance of clause 13 of the partnership agreement dated 27-7-1978 the plaintiffs are
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willing to consider the same. Learned counsel argued that the dispute can only be resolved through arbitration. In support of his arguments learned counsel for the defendant relied upon the following case-laws: -- (1) [1896] 1.Ch 166 (Vawdrey v. Simpson). Where articles of partnership contain a clause referring all matters in difference between the partners to arbitration, an arbitrator has power to decide whether or not the partnership shall be dissolved, and to award a dissolution, though the judge has full discretion to determine, on a motion to stay proceedings under the Arbitration Act, 1889." Walmsley v White (40 W.R. 675) followed. Joplin v. Postlethwaite (61 L.T.(N.S) 629] explained. (2) [1892] L.T. 433 (Walmsley v. White). The articles of partnership entered into between the plaintiff and The defendant provided that, if during the continuance of the partnership, or at any time afterwards, any difference should arise between the partners, should be referred to arbitration. Held, that the arbitration clause in the articles on its true construction was sufficient to cover a question of dissolution; and that, on a reference under that clause, the arbitrators could, if they, thought fit, award a dissolution. (3) [1893] 1.Ch 521 (Befield v. Bourne). The arbitration clause in partnership articles provided for the reference to arbitration of any difference between the partners as to the construction of any, of the articles, "or as to any division, act or thing to be made or done in pursuance thereof, or to any other matter or thing relating to the said partnership or the affairs thereof." Held, that the arbitrators would have power, under a reference, to award a dissolution of the partnership, and therefore, the proper terms of such dissolution, including if necessary the return of the premium; and consequently that the proceedings in the action ought to be stayed. 10. Mr. Arshad Tayebally, learned counsel for the plaintiffs argued that the partnership between the parties is partnership at will and the same could be dissolved through notice of dissolution as envisaged under sections 7 and 43 of the Partnership Act. Learned counsel referred to a notice given by him on behalf of his client to the defendant on 14-11-2011 and argued that the proper notice of dissolution of partnership was served with further intention to discuss best possible ways for winding up the affairs of the Agha's Supermarket. It is further contended that the plaintiffs and the defendant all are owners of the partnership's assets and the entire assets of the dissolved firm: are required to be distributed amongst the partners hence, for that reason, the plaintiffs has filed the suit for accounts and appointment of receiver of the dissolved firm, permanent injunction and damages. However, he further argued that notwithstanding the dissolution, the business of Agha's Supermarket continues to operate as there are perishable items/stocks to dispose of and the defendant has not yet agreed to various options given by the plaintiffs for settlement of accounts and distribution of assets. Learned counsel referred to the plaint and argued that the plaintiffs have already given three options, which are best to resolve the issue of distribution of assets between the partners. He further argued that despite giving fair and reasonable options, the defendant has failed to agree hence, the plaintiffs had no option but to file this suit. Learned counsel further argued that after dissolution of firm there is no question of settlement of dispute between the partners of a dissolved firm through an arbitrator. It was further contended that no one can be forced to continue the working relation with another against his will. So far as the application under Section 34 of the Arbitration Act is concerned, learned counsel argued that the defendant has already filed written statement and subsequently he himself has filed a Suit No,1198 of 2012 .In this court against the plaintiffs in relation to the dissolved partnership firm which amounts to taking steps in the proceedings. In support of his arguments the learned counsel relied upon the following case-laws:- (I) AIR 1952 Bombay 337 (Dhulia-Amalner M.T. v. Raychand Rupsi Dharamsi). A statutory notice as contemplated by section 43 is totally different thing from a resolution which is merely a record of the deliberations and the result of the said deliberations arrived at by a majority of votes at a
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particular meeting. The notice must express a final intention to dissolve the partnership. It should be explicit and should be precise. Evan a mistake in date would invalidate the notice. In fact, the degree of precision which is required of a notice would require the expression of an intention to dissolve with effect from a particular point of time. (2) AIR 1924 Privy Council 2 (Ram Singh v. Ram Chand). Partnership at will is entitled to dissolution. In a partnership at will a partner is entitled to dissolution. It is not an equitable right but it is a legal right. (3) AIR 1927 Privy Council 70. (Sathappa v. Subrahmanyan). Dissolution. Filing plaint in a suit for dissolution by one partner is enough of itself to put an end to a partnership at will. (4) PLD 1959 (W.P) Karachi 452 (Ali Mohamedbhai v. Sadruddin). If the notice is valid, then the partnership stands dissolved and the consequence should be the appointment of a receiver as a matter of course. (5) [1959] 2 All E.R. 220 (Olver v. Hillier). Partnership deed providing for reference of disputes to arbitration. Action for dissolution started by partner. Application for receiver and manager. Claim that dissolution "just and equitable". Whether action would be stayed pending arbitration. Held: in the exercise of its discretion the court would permit the action to continue, having regard especially to the facts that (i) the action claimed dissolution of the partnership on the ground that it was just and equitable to dissolve it, the power of deciding which was expressly conferred on the court by section 35(f) of the Act of 1890; and (ii) the appointment of a receiver and manager was sought. Joplin v. Postlethwaite [(1889), 61 L.T. 629] applied. Vawdrey v. Simpson [(1896) 1 Ch. 166) distinguished]. (6) 1988 .CLC Karachi 570 (Sh. Khursheed Anwar ,v. Kaiser Arts and Crafts and 2 others). Section 34 Arbitrator, appointment of. Appointment of arbitrator sought within scope of arbitration clause in partnership deed. Justification for. Where cause of action arose to plaintiff subsequent to dissolution of partnership firm, dispute between parties, held, could not fall within scope of arbitration clause contained in partnership deed. Even if such dispute was held to be falling within scope of arbitration clause. Court would decline stay of proceedings and referring matter to arbitrator where quite serious and complicated questions of law and accountancy were involved in suit. (7) AIR 1971 Calcutta 317 -(V 58 C 65) (Ganesh Chandra v. Kamal Kumar). Arbitration Act (1940), section 34. .In a suit for dissolution of partnership on the ground that it is just and ' equitable, the dispute relating to dissolution should be decided by the Court. It should exercise its discretion in not 'staying the suit in spite of the arbitration clause. (1959) 2 All ER 220 & AIR 1967 Mad 201 & ILR (1951) 2 Cal 140. 11. Heard the arguments. Section 34 of the Arbitration Act relates to stay of proceedings brought before the court in the subsistence of valid agreement of arbitration. This section aims' at to make arbitration agreement effective and to prevent a party from going to court contrary to his own agreement. Where the provisions of this section are attracted the court may stay the proceedings requiring the matter to be referred to the arbitrator. In order to stay the legal proceedings it is necessary that the proceedings must have been commenced by a party to arbitration agreement against any other party to the agreement, the legal proceedings which is sought to be stayed must be in respect of a matter agreed to be referred, the applicant for stay must be a party to the legal. Proceedings, the applicant must have taken no steps in the proceedings after appearance, the applicant must also satisfy that he was not only at the time when the proceedings were commenced but still ready and willing to do everything necessary for the proper conduct of the arbitration and the court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration. Mere existence of an arbitration clause in the agreement does not bar jurisdiction of civil court but such clause only provides that where a party to an agreement
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commences legal proceedings against another party to the agreement, then such a party before filing a written statement or taking any other legal step in the proceedings may apply to the court to stay the proceedings. 12. The court has jurisdiction to entertain the suit, however, the court in its discretion may stay_ the suit but the court has to consider whether discretion should be exercised in a particular case or not. Section 34 does not make it obligatory on the court to necessarily refer the dispute to arbitration and may exercise the discretion to stay the proceedings if it is satisfied that there is no sufficient reason why the matter should not be referred" to in accordance with the arbitration agreement. 13. Now, I would like to discuss clause 13 of the partnership agreement dated 27-7-1978 which reads as under:-- "13 That whenever any differences or disputes shall arise among the partners whether relating to the interpretation of these presents or I elation to any other matter whatsoever touching and concerning the partnership affairs, it shall be referred to an Arbitrator to be appointed by the partners and the Award of the said Arbitrator shall be final and binding on all the partners". ' The above clause of the partnership deed relates to the resolution of disputes or differences among the partners but in the same deed of partnership clause 14 is also relevant which is reproduced as under:-- "14 That any matter not provided in this deed shall be governed by the Partnership Act, 1932, or the then statutory modification thereof." 14. The aforesaid clauses and the intention of parties which may be gathered from the wordings of both clauses unequivocally show that under clause 13 they agreed to resolve the differences or disputes relating to the interpretation of partnership deed or in relation to any other matter touching and concerning the partnership affairs, the matter shall be referred to arbitrator to be appointed by partners and the award of the said arbitrator shall be final and binding on all partners. In the arbitration clause there is no specific condition mentioned that in the case of ' dissolution of firm also the matter will be referred to the arbitrator. There may be many differences or disputes between the partners which could be resolved through the arbitration but each and every dispute does not lead to the dissolution of firm. In clause 14 of the same deed the partners agreed that any matter not provided in the partnership deed shall be governed by Partnership Act. 15. The plain reading of the arbitration clause does not show specifically that the dissolution of firm is also covered. At this juncture, I would like to refer to the case of Erach F. D.Metha Case (reported in AIR 1971 S.C. 1653) in which this aspect was considered for proper construction of partnership deed as well as the arbitration clause. In the case supra it was agreed between the partners in the partnership agreement to refer to the arbitration 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 or liabilities. The learned court held that the dissolution of partnership firm is covered in the arbitration clause. In the present case no specific condition relating to dissolution of firm is mentioned but broadly it was agreed that any difference or dispute shall arise among the partners or to the interpretation of the deed or any other matter touching or F concerning affairs shall be referred to arbitrator and under clause 14 overriding effect was given that the' matter not covered under the partnership deed shall be governed by the Partnership Act. 16. There is no dispute that the partnership in question was a partnership at will. Section 7 of the Partnership Act 1932 deals with partnership at will which reads as under:- "7. Partnership at will.---Where no provision is made by contract between the partners for the duration of their partnership or for the determination of their partnership, the partnership is "partnership at will".
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' The partnership is deemed to be at partnership at will when no fixed period has been agreed upon for the duration of partnership and there is no provision made as to the determination of the partnership in any other way. This section may be read with section 43 which relates to the dissolution of partnership at will. The essence of the partnership at will is that it is open to any of the partners to dissolve the partnership by giving notice of dissolution. Section 43 of the Partnership Act is reproduced as under:_ "43. Dissolution by notice of partnership at (1) Where the partnership is at will, the firm may be dissolved by , any partner giving notice in writing to all the other partners of his intention to dissolve the firm. (2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice. 17. As I observed earlier that section 7 lays down that where no provision is made by contract between the partners for the duration of their partnership or for determination thereof, such partnership may be terminated at…
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