Whether court can grant permanent protection under S 9 of arbitration Act?

There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid 'down by this Court in M/s. Sundaram Finance Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In M/s. Sundaram Finance Ltd., itself the Court has said -- "It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings". Section 9 permits application being filed in the Court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word 'before' means, inter alia, "ahead of; in presence or sight of; under the consideration or cognizance of. The two events sought to be interconnected by use of the term 'before' must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or 'within sight' certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the Court that the arbitral proceedings are actually contemplated or manifestly intended (as M/s Sundaram Finance Ltd. puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of Interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9, read in the light of the Model Law and UNCITRAL Rules is to provide 'interim measures of protection'. The order passed by the Court should fall within the meaning of the expression 'an interim measure of protection' as distinguished from an all-time or permanent protection.
Citation: AIR2004SC1433, 2004(1)ARBLR141(SC), 2004 2 AWC(Supp)949SC, (2004)2CompLJ419(SC), 2004(2)CTC208, 2005(2)JLJ269(SC), JT2004(2)SC352, 2004(3)MhLj592, 2004(3)MhLJ592(SC), 2004(1)MPJR(SC)268, 2004MPLJ266(SC), (2004)137PLR526, 2004(1)SCALE297, (2004)3SCC155, [2004]50SCL224(SC), [2004]1SCR404

CASE NO.:

Appeal (civil)  131-132 of 2004

PETITIONER:

FIRM ASHOK TRADERS AND ANR. ETC.

RESPONDENT:

GURUMUKH DAS SALUJA AND ORS. ETC.

DATE OF JUDGMENT: 09/01/2004

BENCH:

R.C. LAHOTI & ASHOK BHAN

The following Order of the Court was delivered : Leave granted in both the

SLPs.

The dispute is among 12 persons who are, or are alleged to be, or claim to

be partners in the firm M/s Ashok Traders, the respondent no.l. These 12

private parties to the litigation can be grouped into three, for the sake

of convenience. Gurumukhk Das Saluja, Sanjay Chawla and Ajay Arora shall be

collectively referred to as Group "A". Bhagwati Prasad Kulharai, Badri

Prasad Jaiswal and Harprasad Jaiswal shall be referred to as Group "B".

Rajesh Jaiswal Ram Sewak Sharma, Baljeet Singh Bhatia, Rajendra Prasad

Jaiswal, Anil Kumar Shrivastava and Sushil Kumar Shrivastava shall be

referred to as Group "C".

M/s. Ashok Traders are in liquor trade. In the Dead of Partnership entered

into on 27.2.2002 there were 7 partners including Bhagwati Prasad Kulhara

and 6 others. The partnership firm was registered with Registrar of Firms.

Six partners (i.e. other than Bhagwati Prasad Kulkhara) retired from the

partnership and a new partnership came to be constituted on 5.3.2002

evidenced by a Deed of the even date wherein all the persons belonging to

Groups A, B and C are partners. However, the names of the new partners were

not communicated to the Registrar of Firms. The firm was awarded a liquor

contract licence for Bhopal for the year 2002-03 at a licence fee of Rs.

66.51 crores. The existence of these two Deeds of Partnership and the

factum of the first one being registered and the second one being not

registered with the Registrar of Firms are admitted facts. For convenience

sake, we would refer to the partnership dated 27.2.2002 as Partnership-I,

the Partnership dated 5.3.2002 are Partnership-II and the alleged

partnership dated 6.3.2003 as Partnership-Ill.

The business ran smoothly upto February 2003 and then differences and

disputes are alleged to have arisen amongst the partners. Clause 20 of the

Partnership Deed-II incorporates an Arbitration Clause. Group "B" alleges

the existence of yet another Deed of Partnership which is dated 6.3.2003

wherein the names of the members of Group "A" are not to be found mentioned

as partners. The partnership-IIl is also not registered.

On 6.3.2003 auction for IMFL and country-liqour shops (60 in number) for

the year 2003-04 was held at Bhopal. M/s Ashok Traders was declared to be

successful bidder for a licence fee of Rs. 73.25 crores. The shops are

running and have always remained operational even during the present

litigation.

Disputes arose giving rise to complaints by the members of Group "A"

complaining of the violation of their rights as partners at the hands of

Group "B", Group "A" complained of their being denied access to accounts,

of Group "B" indulging into mismanagement of affairs and siphoning off of

the funds and so on. Ajay Arora (of Group "A") filed a civil suit which was

held to be not-maintainable in view of Section 69 (3) of the Indian

Partnership Act, 1932; the name of Ajay Arora having not been shown in the

Register of Firms as a partner of the firm. According to Group "A", a

notice was issued on 2.6.2003 to the other partners invoking the

arbitration clause and calling upon them to join in the appointment of

arbitrator/s consistently with the arbitration clause so as to adjudicate

upon the disputes between the partners. The contesting respondents do not

admit the receipt of the notice. On 22.7.2003, Gurumukh Das Saluja of Group

"A" filed an application under Section 9 of the Arbitration and

Conciliation Act, 1996 wherein the principal relief sought for is the

appointment of a receiver under Section 9(ii)(d) of the Act to take charge

of the entire business of the firm. Other incidental injunctions are also

sought for. Group "B" contested the application on very many grounds and

mainly by submitting that the application was not maintainable in view of

the bar enacted by Section 69(3) of the Partnership Act as the name of the

applicant does not figure in the Register of Firms as partner of the firm.

The plea has prevailed with the learned Additional District Judge resulting

in dismissal of the application. Gurumukh Das Saluja preferred an appeal

before the High Court under Section 37(1)(a) of the A & C Act. During the

pendency of the appeal an application under Section 9 pleading similar

facts and seeking similar reliefs, as was done before the Trial Court, was

filed. Group "B" contested the application on all possible grounds. The

factum of Group "A" being partners of the firm so far as the contract for

the year 2003-04 is concerned was vehemently denied. It was reiterated that

the application was hit by Section 69(3) of the Partnership Act and hence

was liable to be dismissed. The High Court has allowed the appeal. It has

held that the applicability of Section 69(3) is not attracted to an

application under Section 9 of A & C Act. But on merits the High Court has

found substance in the grievance raised by Group "A". The High Court has

also held that the business in the year 2003-04 was continuing under the

Partnership Deed dated 5.3.2002, i.e., Partnership-II; and that prima facie

the existence of the Partnership Deed dated 6.3.2003 (Partnership-Ill) was

doubtful and accompanied by suspicious circumstants raising doubts about

the genuineness of any new partnership having come into existence on

6.3.2003 superseding the Partnership-II. The High Court seems to have made

efforts at resolving the controversy and finding out at least some such

solution as would take care of the disputes for the moment and protect the

interests of all the parties and then concluded as under-

"Various options were explored at the time of hearing of the appeal. It was

suggested that the Excise Commissioner may be appointed as a receiver. But

that does not appear to be feasible. Further, the running of liquor

business requires an expertise of its own and as such it would not be

proper to entrust the management of the business to third person who might

not be aware of its intricacies. Therefore, it would be proper that the

partners themselves should manage the business as receivers. It is found

that the contesting respondents No.2, 6 and 7 have run this business in

March, 2003 and also from 1.4.2003 and they are still doing so. The present

liquor contract is upto 31.3.2004. It would be proper to appoint the

respondents No.2, 6 and 7 to continue to run this business as receivers

subject to their complying with the provisions given in Order 40 rules 1 to

4 CPC. They shall submit their accounts the court in which the application

under section 9 of the Act was considered i.e. Court of Vth Additional

District Judge, Bhopal. Further, from 1.1.2004 it would be just and

equitable to entrust the management and running of the business by the

appellant* and the respondents No,8 and 9* who together have 20% share in

the firm. Therefore, they are appointed as receivers from 1.1.2004 to

31.3.2004 and they will take over the management of the business of this

firm as receivers from that date. The other respondents will hand over the

management of the business of this firm to them from 1.1.2004. The

appellant and respondents No.8 and 9 will submit full accounts to the court

of Vth Additional District, Judge Bhopal every month and will abide by the

Order 40 Rules 1 to 4 CPC. In case of any difficulty the parties will be

free to approach the court of Vth Additional District Judge, Bhopal for

necessary orders. The Court of Vth Additional District Judge, Bhopal will

monitor the functioning of the receivers and issue necessary directions

from time to time. This direction is as per decision of the Supreme Court

in V. T. Slpahimalani v. Kanta, AIR (2000) SC 1848. The Applicant will take

steps for the appointment of arbitrator as early as possible. This

directions is being given as per decision of Supreme court in M/s Sundaram

Finance Ltd. v. M/s NEPC India Ltd., AIR (1999) SC 565.

*(N.B.-'Appellant' in High Court was Gurumukh Das Saluja and respondent

nos. 8 and 9 were Sanjay Chawla and Ajay Arora; Hence Group "A")

We have heard all the learned counsel appearing for Groups "A", "B" and

"C". The submissions made by the learned counsel for the parties have

centered around two questions: one, effect of the bar created by Section

69(3) of the Partnership Act on maintainability of an application under

Section 9 of the A & C Act, 1996; and two, in the event of the question of

maintainability being decided for Group "A", what interim arrangement,

whether by way of appointment of receiver or otherwise, would meet the ends

of justice?

On the question of maintainability of application under Section 9 of A &C

Act ever by a partner of an unregistered firm or by a person not shown as a

partner in the Register of Firms, the High Court has, for upholding the

maintainability, relied on the decision of this Court in Kamal Pushpa

Enterprises v. Dr. Construction Company, AIR (2000) SC 2676. The learned

counsel for Group "B" have placed forceful reliance on Jagdish Chandra v.

Kajaria Traders (Ind.) Ltd., AIR (1964) SC 1882. The decision of this Court

in M/s. Shreeram Finance Corporation Ltd. v. Vasin Khan and Ors., [1989] 3

SCC and Delhi Development Authority v. Kochhar Construction Work and Anr.,

[1998] 8 SCC 559 were also referred to.

Section 9 of A & C Act, 1966 and Section 69 of Partnership Act, 1932

(relevant part thereof) provide as under:

Arbitration and Conciliation Act, 1996

9. Interim measures by Court etc.-A party may, before or during arbitral

proceedings or at any time after the making of the arbitral award but

before it is enforced in accordance with section 36, apply to a court-

(I)     for the appointment of a guardian for a minor or a person of

unsound mind for the purposes of arbitral proceedings; or

(II)   for an interim measure of protection in respect of any of the

following matters, namely:-

(a)    the preservation interim custody or sale of any goods which are the

subject-matter of the arbitration agreement;

(b)    securing the amount in dispute in the arbitration;

(c)    the detention, preservation or inspection of any property or thing

which is the subject-matter of the dispute in arbitration, or as to which

any question may arise therein and authorizing for any of the aforesaid

purposes any person to enter upon any land or building in the possession of

any party, or authorizing any samples to be taken or any observation to be

made, or experiment to be tried, which may be necessary or expedient for

the purpose of obtaining full information or evidence;

(d)    interim injunction or the appointment of a receiver;

(e)    such other interim measure of protection as may appear to the court

to be just and convenient, and the Court shall have the same power for

making orders as it has for the purpose of and in relation to, any

proceedings before it.

Indian Partnership Act, 1932

69. Effect of non-registration.-(1) No suit to enforce a right arising from

a contract or conferred by this Act shall be instituted in any Court by or

on behalf of any person suing as a partner in a firm against the firm or

any person alleged to be or to have been a partner in the firm unless the

firm is registered and the person suing is or has been shown in the

Register of Firms as a partner in the firm.

(2)  No suit to enforce a right arising from a contract shall be instituted

in any Court by or on behalf of a firm against any third party unless the

firm is registered and the persons suing are or have been shown in the

Register of Firms as partners in the firm.

(3) 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 a contract, but

shall not affect-

(a) xxx       xxx         xxx

(b) xxx      xxx         xxx (4) xxx      xxx         xxx

To begin with, for the controversy centering around the abovesaid two

provisions we told the learned counsel for the parties that we are not

inclined to go in-depth in the issue inasmuch as a prolonged hearing on the

issue and decision thereon may take time and that would have devastating

effect on the rights of the parties. The learned counsel for the parties

agreed that de hors the issue, the Court may proceed to determine the

appeal on merits. Yet, we feel duty-bound to record at least our prima

facie opinion on the issue, lest we should be misunderstood as having side-

tracked the same.

Sub-Sections (1) and (2) of Section 69 of Partnership Act strike at the

very root of the jurisdiction of the Court to entertain a suit to enforce a

right arising from a contract, if the applicability of Section 69 is

attracted. By virtue of sub-Section (3), the bar enacted by sub-Sections

(1) and (2) applies also to a claim of set-off or 'other proceedings to

enforce a right arising from a contract' which, in the submission made by

the learned counsel for Groups "B" and "C", includes a proceeding

commencing on an application under Section 9 of the A & C Act.

In our opinion, which we would term as prima facie, the bar enacted by

Section 69 of the Partnership Act does not affect the maintainability of an

application under Section 9 of A & C Act.

A & C Act, 1996 is a long leap in the direction of alternate dispute

resolution systems. It is based on UNCITRAL Model. The decided cases under

the preceding Act of 1940 have to be applied with caution for determining

the issues arising for decision under the new Act. An application under

Section 9 under the scheme of A & C Act is to a suit. Undoubtedly, such

application results in initiation of civil proceedings but can it be said

that a party filling an application under Section 9 of the Act is enforcing

a right arising from a contract? "Party" is defined in Clause (h) of sub-

Section (1) of Section 2 of A & C Act to mean 'a party to an arbitration

agreement'. So, the right conferred by Section 9 is on' a party to an

arbitration agreement. The time or the stage for invoking the jurisdiction

of Court under Section 9 can be (i) before, or (ii) during arbitral

proceeding, or (iii) at any time after the making of the arbitral award but

before it is enforced in accordance with Section 36. With the pronouncement

of this Court in M/s Sundarum Finance Ltd. v. M/s NEPC India Ltd., AIR

(1999) SC 565 the doubts stand cleared and set at rest and it is not

necessary that arbitral proceeding must be pending or at least a notice

invoking arbitration clause must have been issued before an application

under Section 9 is filed. A little later we will revert again to this

topic. For the moment suffice it to say that the right conferred by Section

9 cannot be said to be one arising out of a contract. The qualification

which the person invoking jurisdiction of the Court under Section 9 must

possess is of being a party to an arbitration agreement A person not party

to an arbitration agreement cannot enter the Court for protection under

Section 9. This has relevance only to his locus standi as an applicant.

This has nothing to do with the relief which is sought for from the Court

or the right which is sought to be canvassed in support of the relief. The

reliefs which the Court may allow to a party under clauses (i) and (ii) of

Section 9 flow from the power vesting in the Court exercisable by reference

to 'contemplated', 'pending' or 'completed' arbitral proceedings. The Court

is conferred with the same power for making the specified orders as it has

for the purpose of and in relation to any proceedings before it though the

venue of the proceedings in relation to which the power under Section 9 is

sought to be exercised is the arbitral tribunal. Under the scheme of A & C

Act, the arbitration clause is separable from other clauses of the

Partnership Deed. The arbitration clause constitutes an agreement by

itself. In short, filing of an application by a party by virtue of its

being a party to an arbitration agreement is for securing a relief which

the Court has power to grant before, during or after arbitral proceedings

by virtue of Section 9 of the A & C Act. The relief sought for in an

application under Section 9 of A & C Act is neither in a suit nor a right

arising from a contract. The right arising from the partnership deed or

conferred by the Partnership Act is being enforced in the arbitral

tribunal; the Court under Section 9 is only formulating interim measures so

as to protect the right under adjudication before the arbitral tribunal

from being frustrated. Section 69 of the Partnership Act has no bearing on

the right of a party to an arbitration clause to file an application under

Section 9 of A & C Act.

In Jagdish Chandra Gupta's case (supra) Constitution Bench approved of a

liberal and full meaning being assigned to the phrase 'other proceedings'

in sub-Section (3) of Section 69 of the Partnership Act untramelled by the

preceding words 'a claim of set-off. The Court refused to countenance the

plea for interpreting the words 'other proceedings' ejusdem generis with

the preceding words 'a claim of set-off. M/s. Shreeram Finance Corporation.

(supra) calls for the effect of bar created by Section 69 being determined

by reference to the date of institution of the suit and not by reference to

any subsequent event. In Delhi Development Authority's case, this Court

held Section 69 of Partnership Act applicable to an application under

Section 20 of the Arbitration Act, 1940 as such an application (under the

scheme of that Act) would be included within the meaning of 'other

proceedings' in Section 69(3) of Partnership Act. In Kamal Pushpa

Enterprises, this Court held that the bar under Section 69 of Partnership

Act is not applicable at the stage of enforcement of the award by passing a

decree in terms thereof because the award crystallises the rights of the

parties and what is being enforced at that stage is not any right arising

from the objectionable contract. None of the cases throws any direct light

on the issue at hand. Rather, the undercurrent of dictum in Kamal Pushpa

Enterprises lends support to the view we are tentatively taking herein. We

leave the matter at that and proceed to examine the merits of the appeal as

agreed to by all the learned counsel appearing.

The most basic principle governing the discretion of the Court in

appointing a receiver is whether it is 'just and convenient' to do so. A

few factors are of relevance which we proceed to record dispensing with the

need of delving into any detailed discussion. On the own showing of Group

"A", they have 20% share in the partnership business and Group "B" has 18%

share. The stand taken by Group 'C', which according to Group "A" holds 62%

share, was not known before the High Court, and therefore, so far as the

High Court is concerned the tussle was between the holders of 20% interest

(Group "A") and holders of 18% interest (Group "B"). In this appeal, Group

'C' is represented and has vocally supported Group "B" standing by its

side. Before us it is a case of holders of 20% interest claiming against

the holders of 80% interest.

The finding recorded by the High Court is that it was Group "B" which was

running business upto the date of passing of the order by it and was found

entitled to continue the same upto 31.12.2003, meaning thereby, for nine

months out of the total twelve months' period for which the business is to

run, it is Group "B" which has been running the business. Excepting bald

and general allegations of mismanagement and siphoning off of the fund

nothing concrete has been alleged muchless demonstrated to give real colour

to the averments made. The High Court has thought it proper to appoint

Group "A" as captain of the ship, which is the running business, to sail

for the remaining period of three months. We fail to understand the logic

behind such a change. It is a serious matter to appoint a receiver, on a

running business. The High Court in spite of having formed an opinion in

favour of directing the appointment or receiver has rightly observed that

retail liquor trade is an intricate and tricky trade and hence cannot be

entrusted to a third party. If that be so, we fail to appreciate the

justification behind turning out the persons in actual management of

business and passing on the reins in the hands of those who were not

holding the same for nine months out of the twelve. We do not say that such

a course has any prohibition in law on being followed. But we do not think

a case oppression of minority by majority- the sense in which their term is

understood in law-having been made out on the material available in the

present case. A better course would have been to allow the conduct of the

business continuing in the hands of persons who were doing so still now but

at the same time issuing such directions and/or devising such arrangement

as would protect and take care of the interest of those who are not

actually running the business and that is what we propose to do.

There are two other factors which are weighing heavily with us and which we

proceed to record. As per the law laid down by this Court in M/ s. Sundaram

Finance Ltd an application under Section 9 seeking interim relief is

maintainable even before commencement of arbitral proceedings. What does

that mean? In M/s. Sundaram Finance Ltd., itself the Court has said-"It is

true that when an application under Section 9 is filed before the

commencement of the arbitral proceedings there has to be manifest intention

on the part of the applicant to take recourse to the arbitral proceedings".

Section 9 permits application being filed in the Court before the

commencement of the arbitral proceedings but the provision does not give

any indication of how much before. The word 'before' means inter alia,

'ahead of; in presence or sight of; under the consideration or cognizance

of. The two events sought to be interconnected by use of the term 'before'

must have proximity of relationship by reference to occurrence; the later

event proximately following the preceding event as a foreseeable or 'within

sight' certainty. The party invoking Section 9 may not have actually

commenced the arbitral proceedings but must be able to satisfy the Court

that the arbitral proceedings are actually contemplated or manifestly

intended (as M/s Sundaram Finance Ltd. puts it) and are positively going to

commence within a reasonable time. What is a reasonable time will depend on

the facts and circumstances of each case and the nature of interim relief

sought for would itself give an indication thereof. The distance of time

must not be such as would destroy the proximity of relationship of the two

events between which it exists and elapses. The purposes of enacting

Section 9, read in the light of the Model Law and UNCITRAL Rules is to

provide 'interim measures of protection'. The order passed by the Court

should fall within the meaning of the expression 'an interim measure of

protection' as distinguished from an all-time or permanent protection.

Under the A & C Act 1996, unlike the predecessor Act of 1940, the arbitral

tribunal is empowered by Section 17 of the Act to make orders amounting to

interim measures. The need for Section 9, in spite of Section 17 having

been enacted, is that Section 17 would operate only during the existence of

the arbitral tribunal and its being functional. During that period, the

power conferred on the arbitral tribunal under Section 17 and the power

conferred by the Court under Section 9 may overlap to some extent but so

far as the period pre and post the arbitral proceedings is concerned the

party requiring an interim measure of protection shall have to approach

only the Court. The party having succeeded in securing an interim measure

of protection before arbitral proceedings cannot afford to sit and sleep

over the relief, conveniently forgetting the 'proximately contemplated' or

'manifesty intended' arbitral proceedings itself. If arbitral proceedings

are not commenced within a reasonable time of an order under Section 9, the

relationship between the order under Section 9 and the arbitral proceedings

would stand snapped and the relief allowed to the party shall cease to be

an order made 'before' i.e. in contemplation of arbitral proceedings. The

Court, approached by a party with an application under Section 9, is

justified in asking the party and being told how and when the party

approaching the Court proposes to commence the arbitral proceedings.

Rather, the scheme in which Section 9 is placed obligates the Court to do

so. The Court may also while passing an order under Section 9 put the party

on terms and may recall the order if the party commits breach of the terms.

During the course of hearing, we asked the learned counsel for Group "A"

what steps have they taken for initiation of arbitral proceedings ever

since 2.6.2003 the date on which they claim to have invoked arbitration

clause, or since 22.7.2003 the date on which the application under Section

9 was filed? We were told that Group "A" was awaiting for the orders of the

Court under Section 9 of the Act. This is hardly an explanation.

Commencement of arbitral proceedings is not dependent on the interim relief

being allowed or denied. It was expected of Group "A" to have post-haste

sought for the appointment of arbitrator under Section 11 of the Act if the

partners noticed had failed to respond to the demand of Group "A" for

arbitration. This, by itself, in our opinion would have been enough to deny

relief to Group "A". However, in the facts and circumstanes of the case, as

we find the High court having felt convinced of the need for appointment of

receiver and as we are inclined only to suitably modify the order, we do

not deem it proper to dismiss the application under Section 9 in its

entirety and for this reason alone. We direct the applicant under Section

9, to take steps for appointment of arbitrator/s, without any further loss

of time. The other factor centers around the very factum of existence of

partnership. The Deed dated 5.3.2002 relating to Partnership-II is a fixed

term partnership agreed to stand terminate at the close of the year as on

31st March, 2003. The High Court has proceeded on the premises that in

spite of the term of the partnership coming to an end by expiry of the

contracted term if the partners have continued the business beyond the

expiry of the terms limited by the contract and without having expressly

entered into a partnership agreement afresh, the relationship shall

continue to exist and govern the parties so long as the business continues.

It is not necessary for us, for the present, to pronounce upon the

correctness of the view so taken. Suffice it to observe that in the liquor

trade involving heavy investments and heavy stakes it appears highly

improbable that the people in trade would continue as partners without

entering into a fresh contract though fully aware of the expiry of the term

limited by the previous contract, more so, when they are called upon to

deal as a partnership firm with the State Government. No reason has been

assigned as to why a fresh Deed of Partnership was not entered into. If the

members of Group "A" have allowed the liquor business to proceed without

entering into a formal Deed of Partnership for the year 2003-04 and thereby

allowed the members of Groups "B" and "C" to bring into existence a Deed of

Partnership excluding the members of Group "A" and filing it on the record

of the State Government (or substituting the same, as Group "A" alleges)

they have to thank themselves for the misadventure which they have indulged

into. Their lack of alertness in vigilantly protecting their rights tells

adversely on the availability of strong prima facie case in their favour

which only can persuade the Court to direct appointment of receiver over

the business and in particular entrust the actual conduct of business in

their hands, may be as receivers.

During the course of hearing, we asked the learned counsel for the parties

of either of them could suggest a practically feasible mechanism which

would work and also effectively protect the interest of the parties kept

away from the actual running of the business but no concrete suggestion

came forward. On behalf of Group "A", a suggestion was mooted that l/5th of

the shops may be allowed to be run by them and remaining 4/5th may be

allowed to be run by Group "B" and identical precautionary or protective

mechanism may be introduced as cross-checks. But, what would be the

mechanism, none has been able to propound and project.

As a result, the order under appeal is modified. Though the order of the

High Court appointing a receiver on the partnership business is maintained,

the rest of the order is set aside and substituted by the following

directions;-

(1)    The business shall run as before under the actual management and

control of Group "B" but as receivers.

(2)    The Commissioner of Excise, Madhya Pradesh shall appoint an official

who has been associated with the excise department of Madhya Pradesh,

preferably a retired person, who shall act as an observer. The observer

shall keep a watch on the business of M/s. Ashok Traders generally and in

particular to see:

(i) that the business is run by receivers without any hindrance by any of

the partners;

(ii) that the accounts are properly, truly and correctly maintained, (iii)

that the receipts and payments are properly vouched.

(iv) that the sale proceeds are properly accounted for and no part of the

proceeds is siphoned off and/or carried away unaccounted by anyone.

(3)    All the sale proceeds shall be deposited day to day in a bank

account to be opened in a nationalised bank in the name of the 'Firms M/s

Ashok Traders (under orders of the Court)'. Any amounts to be withdrawn

shall be only under the joint signatures of at least one members of Group

"B" or "C" and the observer, for the purpose of making payments to the

State Government, and on account of rent/licence fee of the shops, salary

of the staff, transport charges and other necessary expenses required for

running day to day business.

(4)    Though the conduct of the business is being allowed to be continued

by Group "B" but that is in their capacity of receivers as appointed by the

Court. They must truly and strictly perform their duties as receivers. Any

deviation would be viewed seriously.

(5)    The members of Group "A" and/or their representative/s, authorized

in writing, shall have a reasonable right to visit the shops during

business hours and watch the activities going on but without interfering

with the business activities run by the receivers.

(6)    The observer shall be paid such monthly remuneration and reimbursed

such expenses, as may be considered reasonable and appointed by the

Commissioner of Excise subject to overall directions of the Trial Court.

(7)  This arrangement shall continue till 31st March 2004 and also for such

further period as may be necessary for winding up of the business as per

terms of the license of the State Government (Excise Department).

(8)  On finalization of the accounts duly audited by Chartered Accounts the

net profit or loss, if any, shall be distributed in accordance with the

award given by the arbitrator or decision by any competent forum.

(9)  The receivers and observers shall be under the control of the trial

Court. In case of any difficulty in carrying out this order, the parties,

the observer and the Excise Commissioner of Madhya Pradesh or any officer

subordinate to him shall be at liberty to seek directions from the trial

Court.

Before parting we would like to clarify that whatever has been stated

hereinabove in this order is not in any manner intended to be a reflection,

much less a finding, on the merits of the case of either party which shall

be available to be determined on evidence and material brought on record in

any duly constituted legal proceedings, whether before the arbitral

tribunal or before the Court or any other forum. All that has been said

hereinabove is by way of prima facie observations confined to the disposal

of the present appeals.

The appeals stand disposed of. No order as to the costs.

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