JUDGMENT
C.K. Thakker, J.
1. This appeal is filed against an order passed by the Second Joint Civil Judge (Senior Division), Palanpur on December 20, 1986 in Special Civil Suit No. 34 of 1984, By the said order the award passed by the sole arbitrator was set aside by the learned Judge on the ground of misconduct and/or being otherwise invalid.
2. Few relevant facts relating to the present litigation may now be stated :
The first respondent is original plaintiff, who filed Special Civil Suit No. 14 of 1982 in the court of the Civil Judge (Senior Division). Palanpur for winding up dissolved partnership firm and for taking accounts’. It was contested by the defendants. Pending the trial, Purshis Ext. 181 and 184 were jointly filed by the parties requesting the court to appoint one Shri N. T. Bachani as the sole arbitrator. The court passed an order appointing Shri Bachani as sole arbitrator who submitted the award on June 20, 1984 which was registered as Special Civil Suit No. 34 of 1984. Notices were issued to the parties and they were called upon to file objections if any, against the award. Article 119(b) of the Limitation Act, 1963 provides a period of 30 days for setting aside an award from the date of service of the notices of filing of an award. Pursuant to the notice, objections were raised mainly by the first respondent by filing objections at Ext. 14. Initially, it was contended on behalf of the appellants before the trial court that no application could be said to have been made in accordance with the provisions of Section 30 of the Arbitration Act, 1940, (hereinafter referred to as the “Arbitration Act”) for setting aside the award, however, in view of the decision of the Hon’ble Supreme Court in the case of Madan Lal v. Sunder Lal (AIR 1967 SC 1223), that objection was given up. In Madan Lal’s case (supra), the Hon’ble Supreme Court held that no special form of application for setting aside an award made by an Arbitrator has been prescribed by the Act and if a party wants to get an award set aside on any of the grounds mentioned in Section 30, it can apply within 30 days of the date of service of notice of filing of the award as provided in Article 119. Such application need not be a regular application in any set form, and in an appropriate case, an objection to award in the nature of a written statement can also be treated as application against the award, if it is filed within the period of limitation. In view of that settled legal position, Ext. 14 was treated as application as contemplated by Section 30 of the Act and the court proceeded to decide it on merits.
3. The main point raised in the objection was regarding interpretation and ambit of scope of Section 48 of the Indian Partnership Act, 1932 (hereinafter referred to as the “Partnership Act”). Chapter VI of the Partnership Act provides for dissolution of a firm. After dissolution of a firm, rights and liabilities of the partners inter se as well as of third parties are required to be determined in accordance with law. Section 46 empowers every partners or his representative on dissolution of a firm to have the business wound up after the dissolution of the firm. It also empowers all partners or their representatives to have the property of the firm applied in payment of debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights. Section 48 provides mode of settlement of accounts between partners and is material for the purpose of controversy raised in the present litigation and therefore, requires to be reproduced in extenso.
“48. In setting the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed :
(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, last, if necessary, by the partners individually in the proportions in which they were entitled to share profits;
(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order :
(i) In paying the debts of the firm to their parties;
(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.”
4. It was contended on behalf of the first respondent (applicant of Ext. 14) that the arbitrator did not apply his mind to the above provision and did not decide the question of settlement of accounts in accordance with law. The arbitrator, thus misconducted himself and proceedings as also the award was otherwise invalid within the meaning of Section 30 of the Arbitration Act.
5. It was not in dispute that during the pendency of the suit joint Purshis Ext. 181 and 184 were filed in Special Civil Suit No. 14 of 1982 by the parties. In Ext. 181 it was stated jointly by the parties that, it was agreed between the parties inter se that the parties have agreed to get settled all disputes raised in the suit by an arbitrator such as dissolution of the partnership firm, taking of accounts, determination of rights and liabilities of the firm etc. That application was made on 20th January, 1984. Since some of the defendants were not present on that day, the court adjourned the matter and the application was fixed for hearing on 23th January, 1984. On that day, the parties were present. They agreed and the court passed the following order :
ORDER
“The parties vide this application read with Purshis Ext. 184, request for appointment of Shri N. T. Bachani as sole arbitrator to resolve the dispute pending among them as disclosed in this application, as parties jointly move this court with their consent for appointment of the sole arbitrator as stated above. I hereby appoint Shri N. T. Bachani as the sole arbitrator to determine and dissolve the dispute among the parties, in terms of this application. The said arbitrator shall record necessary evidence and do all that is needful and necessary under the law and submit and award according to law within two months from now, parties shall in the first instance deposit Rs. 2,000/- towards remuneration of the arbitrator, necessary orders be conveyed to the arbitrator on deposit of the amount which shall be deposited within five days of today 23.1.1984 …”
6. From the above facts, one thing it amply clear that a reference to Arbitrator was made under Section 23 of the Arbitration Act by the court by referring the matter to him. In other words, the court has substituted domestic forum in its own place but did not give up supervision over the conduct of the reference. The arbitrator was therefore, bound to make award which must be in consonance with the order of reference passed by the court. It is equally clear that ambit and scope of the reference and the power and jurisdiction of the arbitrator should be decided on the basis of two applications, Ext, 181 and 184 and the orders passed thereon by the court on January 20, 1984 and January 23, 1984. The main question, therefore, before the court was whether or not the award made by the sole arbitrator Mr. Bachani was in consonance with the provisions of the Arbitrator Act Partnership Act and consistent with the order passed by the Court. The principal contention of the first respondent was that while making the award, the arbitrator acted contrary to the provisions of Section 48 of the Partnership Act and thus he had committed an error apparent on the face of the record and the award was required to be set aside under Section 30 of the Arbitration Act. It was contended that the mode of settlement of accounts between the partners has been specifically provided by the legislature in Section 48 of the Partnership Act. It was contended that the rules laid down in Section 48 can be given go by had the partners agreed to follow different method and mode. But subject to such agreement, the mode laid down under Section 48 was required to be followed by the arbitrator and by not doing so, the arbitrator had acted contrary to law and beyond jurisdiction and the award could not be said to be legal and lawful. Relying upon various clauses of the award, it was contended that even though there was no specific agreement between the parties providing different mode for settlement of account than the one laid down by the legislature in Section 48 of the Partnership Act, it has been ignored and the award was, therefore, unlawful and illegal. The operative part of the award of the arbitrator reads as under :
“(i) I hereby reward that the dissolution of the partnership shall be with effect from 30.4.1984 and the award shall be effective from 30.4.1984.
(ii) Till the date of distribution of assets and liabilities and till the completion of the formalities under this award, the court may appoint Shri Tekchand Mitharam, Ramchand Mitharam and Hemandas Mitharam as joint Administrators for executing and implementing the terms of the award.
The balance lying in the bank account and the amount deposited in the said bank account in pursuance of the amount received for and on behalf of the firm shall be used in dischargement of the liability of the firm. The said accounts shall be operated by the Administrators jointly.
(iii) The rent for the period upto 30.4.1984 shall be recovered from the tenants and shall be deposited in the bank accounts of the firm.
(iv) That all the income received and receivable either by rent from immovable property, interest if any, building materials lying on hand as on 30.4.1984 or any such incidental income arising shall be belonging to the firm or the partners in their respective profit sharing ratio.
I hereby direct that the furnitures, fixtures, building materials, lying on hand to be sold and the sale proceeds shall be deposited in the bank accounts of the firm.
(v) The liability for Municipal Tax for the period upto 30.4.1984 shall be the liability of the firm and shall be discharged by the firm.
(vi) The firm has taken loan from State Bank of India for construction of premises. The outstanding balance as on 30.4.1984 shall be paid out of rent receivable from Divisional Engineer, Telegraph who has to pay rent to the firm and the balance rent after discharging the bank liability shall be deposited in the bank accounts of the firm and shall be applied for liabilities of the firm.
(vii) The liability for the Income-tax determined for the payment of taxes under Section 140A of LT. Act, 1961, i.e. on self-assessment shall be the liability of the firm and shall be discharged out of the amounts lying with the partnership firm.
However, if there is any additional liability due to additions made or any penalties and interest leviable, the same shall be discharged by each partner in his profit sharing ratio.
(viii) The cost for representing the partnership firm before the Income-tax authorities and before any other authority for Income-tax Assessment, Appeal valuation and other proceedings shall be the expenditure of the firm shall be discharged by the firm out of the balance lying with the Bank. If such balance is not adequate, the same shall be paid by the partners in their profit sharing ratio.
(ix) The liabilities for salary for accountant, Telephone expenses and other Misc. expenses have been sanctioned and met by Hon’ble Court’s order and, therefore, any such liability or additional liability be sanctioned and paid by the Administrator jointly after taking into account amount previously sanctioned by the Hon’ble Court.
(x) The other assets and liabilities have been bifurcated between the partners as per Schedule ‘A’ to ‘G’ annexed hereto and forming part of this award and the said distribution of assets and liabilities shall be final and binding as part of the award. In the event, the liabilities to be discharged by each of the partner, the same will have charge over the immovable property or portion of immovable property received by them as mentioned in the respective schedules.
(xi) An amount of Rs. 10,000/- shall be set apart for a non-trading Association/Company/Society to be formed for administration of the property jointly owned by various partners. The expenditure relating to the properties either for maintenance, water supply electricity and other contingency expenditure shall be borne by either the tenants or owner in proportion to the area owned/occupied by them. If any further moneys are required the same shall be provided by the tenants/owners.
(xii) The firm owns a land admeasuring 3055 sq. mtrs. for which 6900 sq. ft. is yet not brought under construction since illegal hutments and trespassers have not vacated the land for which firm has filed Civil Suit. This area of open land 6900 sq. ft. have been given to the partners and they shall be the owners of the said land henceforth and they shall defend the suit at their cost and expenses.
--------------------------------------------------- Name of Person Area of Land --------------------------------------------------- (1) Tekchand Mitharam 3980 sq. ft. (2) Ramchand Mitharam and Shantaben Ramchand 2920 sq. ft. ---------------------------------------------------
(xiii) The administrators may jointly take a decision for appointing Tax Consultant, Accountant, Chartered Accountant, Lawyers, Advocates to represent their matter before the Income-tax Authorities, Municipal Authorities, Land Revenue Authorities or any such Central or State Government Authorities or Corporation for representing and discharging their obligation and representing the matters concerning the firm, business assets and immovable properties owned by the firm and allocated between the parties and their legal heirs. The expenses and professional fees payable for such services shall be jointly approved and the same shall be treated as expenditure for and on behalf of the firm.
(xiv) Municipal authorities have given consent for development of the property only upto second floor. The right of construction of future floors above second floor and the right of usage of terrace is to be divided between the parties in proportion to the area on second floor coming to the respective parties as per the allocation in Schedule ‘A’ to ‘G’, i.e., the area of second floor coming to each partner shall be vertically construed and be applied as norms for construction of third floor and above and the right of usage of terrace area as per the second floor area coming to each partner.
(xv) The assets and liabilities which are not covered by Schedules of Allocation of Assets and liabilities to the partners in Schedule ‘A’ to ‘G’ shall be taken over by the administrators and all the partners in their profit sharing ratio will have right, title, interest or duty to discharge the liabilities in the said proportion.
(xvi) Cost of Arbitrator and Arbitration expenditure is awarded by the Hon’ble Court will be paid out of Firms Bank account which will include the amount separately deposited in the court. A separate report is presented for the cost of Arbitration.”
7. Placing strong reliance on a decision of the High Court of Bombay in the case of Sherbanubai Jafferbhoy v. Hoosenbhoy Abdoolabhoy (50 BLR 89), it was contended that the award is illegal and requires to be quashed. In that case, it was held that there is a distinction between arbitration proceedings without an order of the court and reference made to an arbitrator by an order of the court. In the latter category of cases, the court undoubtedly substitutes domestic forum in its own place. It does not, however, give up the supervisory power over the conduct of the arbitrator. It is, therefore, incumbent upon the arbitrator acting under such an order of reference to strictly comply with the terms and conditions on which the reference was made and to make award consistent with the order of reference. The court also held that in such reference, even by consent of parties the arbitrator cannot exercise power not conferred on him by the court. It would amount to a new submission and there cannot be new submission without an order of the court. If the parties feel and desire that arbitrator should have wider powers than those originally conferred upon him by the order of the court, the proper procedure for the parties to follow is to go back to the court and get a fresh order of reference or get the original order of reference amended or altered, but the parties cannot by mere consent confer upon the arbitrator powers different from those which the court had originally conferred on him at the time when the reference was made. Since the arbitrator exercised power which had been conferred upon him under the reference, the exercise of power was held bad and the award was set aside by the High Court. In Sherbanubai’s case (supra) also, the provisions of Section 48 of the Partnership Act came to be interpreted by the High Court. A reference was made by the court with consent of the parties and while deciding the reference, the terms and conditions were sought to be altered with the consent of parties. In view of the alteration, ex-gratia payment was ordered by the arbitrator. The award was thereafter challenged on the ground that the arbitrator had misconduct himself and proceedings inasmuch as he had not followed the mode of settlement of accounts between the parties laid down in Section 48 of the Partnership Act. The contention was, however, negatived by a single Judge of the court and the validity of the award was upheld. The matter was then carried by the aggrieved party before the Division Bench by filing an appeal which came to be allowed by the Division Bench. Though both the Judges recorded separate reasons, they agreed that the arbitrator had no power, authority or jurisdiction to travel beyond the terms of reference, even with consent of the parties. The consent of the parties was altogether immaterial and of no avail, Since the statute (Section 48 of the Partnership Act) provided mode of settlement of account and at the time of making reference, no separate agreement was arrived at between the parties and no such power was conferred on the arbitrator at the time of making reference, the arbitrator had no jurisdiction to grant ex-gratia payment in favour of any partner, the action was contrary to law and the award was liable to be set aside under Section 30 of the Arbitration Act.
8. It was contended on behalf of the first respondent before the trial court that the ratio laid down by the High Court of Bombay in Sherbanubai’s case (supra) would apply with full force to the facts of the present case. In the instant case also, there was no contrary agreement arrived at between the parties but even if it is assumed that no objection was taken by any of looking to the provisions of Section 48 of the Partnership Act as also the order passed by the court below Purshis Ext. 181 and 184, the arbitrator had no jurisdiction to ignore or keep aside the mode laid down by the legislature in Section 48 of the Partnership Act. The trial court upheld the contention and applying the ratio in Sherbanubai’s case, declared the award as unlawful.
9. Mr. S. K. Zaveri, the learned Counsel for the appellant, however, contended that Section 46 of the Partnership Act must be read harmoniously with Section 48 of the Act and reading both the provisions together, it was open to the arbitrator to issue appropriate orders for the purpose of business being wound up after dissolution and any consequential directions could not be said to be inconsistent with the provision of Section 48 of the Partnership Act. I do not agree with Mr. Zaveri. In my opinion, the ambit and scope of Sections 46 and 48 of the Partnership Act are totally different. So far as the provisions of Section 46 are concerned, they provide that on dissolution of a firm a partner or his representative is entitled, as against all the other partners or their representatives to have the property of the firm applied in payment of the debts, etc. and the residue, if any, has to be distributed amongst the partners or their representatives, according to their rights. Section 48 on the other hand, provides for mode of settlement of accounts between partners and in absence of an agreement to the contrary between the partners, the rules laid down in that section must be adhered to. It enacts that the losses shall be paid first out of profits, then out of capital and lastly in case of necessity, by partners individually. It also provides that the assets of the firm shall be applied in a particular manner and in order and then it provides for payment of debt of the firm to third patties, then payment of advance made by the partner individually as distinguished from capital, then payment of capital and then profits. In my opinion, therefore, the contention raised by Mr. D. K. Acharya and upheld by the trial court is well founded and requires to be upheld.
10. Mr. Zaveri also submitted that the large scale has been given to the first respondent and in any view of the matter, he could not have challenged the award made by the arbitrator. For the said proposition, he relied upon a decision of the High Court of Culcutta in Pannalal Paul and others v. Smt. Padmabati Paul and others (AIR 1960 Cal 693). The Division Bench in that case held that it is well settled that a party who is not prejudiced by an erroneous award and who, on the contrary, has gained an advantage by it cannot move the court to set aside the award. Mr. Zaveri also submitted that the decision of the High Court of Bombay in Sherbanubai’s case (supra) has been distinguished by the High Court at Calcutta. I am of the opinion that reliance on Pannalal’s case (supra) by Mr. Zaveri is not well founded. In the instant case, it is the case of the first respondent which is established from the relevant extract of the award that he is seriously and prejudicially affected by the final direction issued by the arbitrator and, therefore, it cannot be said that he is not entitld to take objection against the award. It is no doubt true that the decision in Sherbanubai’s case (supra) has been distinguished, but Mr. Acharya is right in contending that the decision in Pannalal’s case (supra) helps the first respondent rather than the appellants. He submitted that the High Court of Calcutta held that the decision in (Sherbanubai’s case (supra) could not help the appellant in Pannalal’s case (supra) in view of the fact that in Sherbanubai’s case (supra) the partner was materially affected and substantially prejudiced. It was not the position in Pannalal’s case. Mr. Acharya, therefore, submitted that in fact the High Court of Calcutta followed the view taken by the High Court of Bombay, but in view of the fact that there was no prejudice to the appellant, the said decision could not help the appellant before the High Court of Calcutta. The submission of Mr. Acharya is well founded and requires to be accepted.
11. Mr. Zaveri than submitted that ambit and scope of interference by court against the award passed by the arbitrator is very much limited. It is not like appellate jurisdiction which is exercised by the appellate court. The court in such proceeding can only see whether the arbitrator has misconducted himself proceeding or the award is otherwise invalid and not whether on merits, the court is of the opinion that the award is not correct or that the court would have decided the matter otherwise. For the said proposition of law, Mr. Zaveri relied upon several decisions including the decision in Champsey Co. v. Jivraj Balloo Co. (AIR 1923 PC 66), Union of India v. Bungo Steel Furnitures, (AIR 1967 SC 1032) M/s. Allen Berry and Co. Pvt. v. Union of India (AIR 1971 SC 696), and Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir (1992 (4) SCC 217).
12. Ambit and scope of “error of law apparent on the face of the award” came to be interpreted in various decisions. In Champsey’s case (supra) their Lordships of the Privy Council interpreted the said connotation as the one which can be found in the award on 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 of the award and which you can then say is erroneous. The said principle of law laid down by the Privy Council was approved and applied in Bungo Steel Furnitures (P) Ltd.’s case (supra). In M/s. Allen Berry & Co. (P) Ltd.’s case (supra), again the Supreme Court reiterated the earlier view and held that if the parties choose their own arbitrator, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, if such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake. Again, the same view was reiterated in the case of N. Chellappan v. Secretary, Kerala State Electricity Board and another (AIR 1975 SC 230), wherein the umpire as the sole arbitrator awarded a sum to the contractor on account of certain claims made by the contractor after considering the argument of the Board for disallowing it, but without expressly adverting to the question of limitation. The court did not set aside the award holding that even if the umpire committed an error of law in granting amount; it could not be side to be a ground for challenging the validity of the award. The mistake may be the mistake of fact or of law. It is only an erroneous proposition of law stated in the award and which is the basis of the award that the award can be set aside or remitted on the ground of error of law apparent on the face of the record. In Hindustan Construction Co. Ltd. v. State of J. & K. (supra) also, the Supreme Court held that the interpretation, if any, made by the arbitrator, whether right or wrong, would be binding to the parties and no question of arbitrator having exceeded his jurisdiction or travelled beyond the agreement could be raised.
13. In my opinion, however, neither of the above cases would help the appellants in any manner. In the instant case, the contention of the first respondent was not whether the arbitrator committed an error of fact or of law, but the contention was that there was inherent lack of jurisdiction on the part of the arbitrator in ignoring the statutory provisions and the mode of settlement of accounts between the partners laid down in Section 48 of the Partnership Act. In my judgment, neither in Purshis Ext. 181 nor in Ext. 184 nor in any of the orders passed below those applications that any agreement or intention other than the one laid down in Section 48 of the Partnership Act has been mentioned. The legislative mandate is that in absence of such agreement, the mode laid down in that section must be followed. In view of the statutory provision, it was not open to the arbitrator to ignore the said mode and to pass an award which was not in consonance with the provisions of law.
14. Mr. Zaveri, however, submitted that there may be bona fide error on the part of the arbitrator in misconstruing the provisions of Section 48. Such an eventuality, however, does not render the award illegal or unlawful. In my opinion, this cannot be said to be an error in interpreting the provisions of law. The question, here is not of interpretation but of jurisdiction. If there was no contrary contract between the parties, there was no jurisdiction with the arbitrator to ignore the provisions of Section 48. In absence of agreement, even the court had no jurisdiction to keep aside a statutory provision. It seems to me absolutely clear that if the court could not ignore the mode of settlement of accounts between the partners as laid down in Section 48 of the Partnership Act, the arbitrator certainly could not have ignored that mode and by doing so, the arbitrator has acted without jurisdiction and the action was, therefore, de hors the Act, non est and cannot be upheld.
15. It was also argued by Mr. Zaveri that the law laid down in Sherbanubai’s case (supra) by the High Court of Bombay can no longer be said to be good law and as it was impliedly overruled in view of the decision of the Hon’ble Supreme Court in Bungo Steel Furniture’s case (supra) and N. Chellappan’s case (supra). In my opinion, however, the contention is ill-founded. The question arose before the High Court of Bombay was in one sense unique in nature. It directly related to Section 48 of the Partnership Act and the Division Bench of the High Court of Bombay in no uncertain terms held that in absence of any agreement to the contrary between the parties, the arbitrator was bound to follow the legislative direction issued in Section 48 of the Act. Therefore, the award passed by the arbitrator and confirmed by the single Judge of the High Court was set aside by the Division Bench. I am bound by the decision of the Division Bench of the High Court of Bombay rendered before May 1, 1960. Again, Mr. Acharya appears to be right that even today the law declared by the High Court of Bombay is good law and holds the field and is subsequently followed by the said High Court in the case of Chandrabhan Rupchand Daknale and others v. Birdichand Lalchand Vavlakha and others (1983 Mah LJ 1043). It was contended before a single Judge of the Bombay High Court in Chandrabhan’s case (supra) that in view of the decision of the Hon’ble Supreme Court in N. Chellappan’s case (supra) ruling of the Bombay High Court stood superseded. The argument was negatived and it was held that the arbitrator had no jurisdiction to ignore the provisions of Section 48 of the Partnership Act and neither the court nor the arbitrator can flout the provisions of the said section while disposing of the assets of the dissolved partnership firm. In view of the above settled legal position, I am of the view that the arbitrator was bound to act as per the order of reference made by the court. Similarly, he was also obliged to keep in mind and decide all the questions in the light of the provisions of Section 48 of the Partnership Act in absence of an agreement to the contrary between the parties. Since, there was no contrary agreement between the parties and since reference made by the court did not grant power to make an award or decide the questions otherwise than in accordance with the provisions of Section 48 of the Partnership Act, he could not have decided any issue nor made award contrary to it. The trial court in my opinion, considered all the points raised by the parties correctly and in a well reasoned order upheld the arguments of the first respondent and set aside the award.
16. In view of the aforesaid legal position, I am of the opinion that the order passed by the trial court is according to law and requires to be confirmed. I do not find any substance in any of the contentions raised by Mr. Zaveri to interfere with the order passed by the trial court and the appeal requires to be dismissed.
17. In view of the foregoing discussion and reasons, I pass the following order :
The appeal is dismissed with no order as to costs.
After the pronouncement of the judgment, learned Counsel for the appellant prays that interim relief granted in the manner may be continued for some time so as to enable the appellants to approach the Supreme Court. In the facts and circumstances of the case, interim relief granted earlier is ordered to continue till April 30, 1993.
18. Appeal dismissed.