IN THE HIGH COURT OF KERALA AT ERNAKULAM
Arb.A.No. 33 of 2007()
1. C.M.NARAYANAN, S/O C.V.MUTHUVELAN,
... Petitioner
2. C.N.MUTHUKRISHNAN, S/O C.M.NARAYANAN,
3. T.R.RAJANI, W/O C.M.NARAYANAN,
Vs
1. C.G.BABU, S/O LATE C.M.GANGADHARAN,
... Respondent
2. C.G.PRIVI, S/O LATE C.M.GANGADHARAN,
3. C.G.RAJEEV, S/O LATE C.M.GANGADHARAN,
4. P.S.SATHEEDEVI, W/O LATE C.M.GANGADHARAN
For Petitioner :SRI.T.KRISHNAN UNNI (SR.)
For Respondent :SRI.C.C.THOMAS (SR.)
The Hon'ble MR. Justice PIUS C.KURIAKOSE
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :04/05/2010
O R D E R
PIUS C. KURIAKOSE & C.K. ABDUL REHIM, JJ.
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Arb. Appeal Nos. 33 0f 2007 & 8 of 2008
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Dated this the 4th day of May, 2010
J U D G M E N T
Pius C. Kuriakose, J.
Both these appeals are directed against the order of
the District Court, Palakkad in OP. (Arb.) No. 29 of 2007.
Appeal No. 33 of 2007 is filed by the petitioners in the
Arbitration O.P. while Appeal No. 8 of 2008 is filed by the
respondents in the Arbitration O.P. For sake of
convenience we will refer to the appellants in Arb. Appeal
No. 33 of 2007 as the petitioners and the respondents in
that appeal as the respondents.
2. As found by the court below the facts are that the
petitioners and the respondents are partners of a
partnership firm by name and style Hotel Arathi which is
conducting a hotel and managing a shopping complex at
Vadakkumcherry in Palakkad District. The petitioners and
the respondents are partners of yet another partnership
Arb. Appeal. 33/07 & 8/08
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firm by name Savitha Bar which carries on business as retail
dealers of various varieties of Indian made foreign liquor at
Vadakkumcherry itself. The first respondent Sri. C.G.Babu
is the Managing Partner of both these firms. When disputes
arose between the petitioners and the respondents as
regards the business of the two firms for resolving those
disputes by arbitration, petitioners 2 and 3 filed AR. No. 20
of 2002 in respect of Savitha Bar and A.R. No. 21 of 2001 in
respect of Hotel Arathi before this Court. This court
appointed Mrs. Elizabeth Mathai Idiculla, former District and
Sessions Judge as Arbitrator under the provisions of the
Arbitration and Conciliation Act, 1996. The Arbitrator
passed an award in the two arbitration cases referred to her
on 12-6-2004. By the above award in arbitration request
No. 21/02 it was directed that the firm Hotel Arathi shall
stand dissolved and it was declared that the share of
petitioners 1 and 2 in the assets and liabilities of the firm
shall be 50%. , the remaining 50% being the share of
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respondents. By the award in A.R. No. 21 of 2002 it was
directed that the firm Savitha Bar will also stand dissolved
and it was declared that the share of petitioners 2 and 3 in
the assets and liabilities of the firm will be 50% while the
remaining 50% will be the share of the respondents. In the
award passed in AR. No. 21/02 the Arbitrator has left open
the dispute between the parties as regards the title of 40
cents of land wherein Hotel Arathi is situated on the ground
that the arbitration clause in the partnership deed does not
cover the said dispute. The Arbitrator has directed the
petitioners who are claimants in the A.R. to apply on the
execution side for valuation of only the movable assets of
the firms including the goodwill and the licence of the firms
Savitha Bar and Hotel Arathi which was found to be assets
of the firms.
3. The respondents filed Arb. O.P. No. 160 of 2004
under Section 34(2b)(i) of the Arbitration & Conciliation Act,
1996 for setting aside the award in AR. No. 20 of 2002 to
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the extent the same holds that the FL-3 Licence pertaining
to Savitha Bar is an asset of the firm. In that O.P. the
respondents filed IA. No. 1863 of 2004 for stay of all further
proceedings pursuant to the finding of the Arbitrator that
the FL-3 Licence is an asset of the firm and to permit the
first respondent o use the licence as per the Abkari Act. Stay
was sought for on the averment that unless the same is
granted, petitioners 2 and 3 will prevent the first respondent
from using the licence granted by the authorities to him in
his individual capacity. The District Court granted stay and
according to the petitioners, the respondents continued to
exploit the FL-3 Licence and even got the same renewed. It
is stated that the above stay was in force till O.P. No. 160 of
2004 was finally disposed of. According to the petitioners,
since the Arbitrator had left out the disputes regarding the
fixed assets (land and building) of the firm Hotel Arathi,
even though the firm stood dissolved by the award, the
petitioners were not in a position to have the assets and
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liabilities of the firm determined and quantified in execution
of the award. It is pointed out that under the provisions of
the Foreign Liquor Rules, an FL-3 Licence is limited and can
be exploited only in the premises described therein. The
award passed by the Arbitrator is therefore enforceable only
as regards the share of profits due to the petitioners in the
two businesses. The goodwill, licence and other movable
assets cannot be valued de hors the fixed assets.
4. According to the petitioners, the respondents were
utilising the fixed assets of the firm for exploiting FL-3
licence and the licensed premises without satisfying the
award and were continuing to deny the petitioners their
legitimate share of the income. Hence they filed O.P. No.
221 of 2004 before the District Court, Palakkad under
Section 9 of the Arbitration and Conciliation Act praying that
a receiver be appointed to take charge of hotel Arathi and
Savitha Bar or in the alternative to appoint either the
second petitioner or the first respondent as the receiver of
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the businesses. In O.P. No. 221 of 2004, the petitioners
offered to run Savitha Bar and Hotel Arathi as receivers and
to pay to the respondents a sum of Rs.1,75,000/- per
mensem. The prayer was that the above arrangement be
continued till winding up of the firms and distribution of the
assets of the firms by court. Since the hearing and disposal
of Arb. O.P. No. 221 of 2004 was getting delayed and the
respondents were taking steps to seek renewal of the FL-3
Licence without bothering to pay the petitioners their share
of profits for the periods prior to and after awards passed by
the Arbitrator, the petitioners filed IA. No. 507 of 2005 in
Arb. O.P. No. 221 of 2004 invoking various provisions for
an interim order restraining the respondents from carrying
on the hotel and bar business and from applying for and
obtaining renewal of the FL-3 licence for the period from 1-
4-2005. Section 53 of the Indian Partnership Act, 1932 was
one of the provisions was invoked and according to the
petitioner, the said provision will enable the petitioners to
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obtain the relief sought for in the IA. I.A. 507 of 2005 and
Arb. O.P. Nos. 221 of 2004 and 160 of 2004 were heard
together. The District Judge by common order dated 25-7-
2005 dismissed O.P. No. 160 of 2004 and confirmed the
finding of the Arbitrator in AR. No. 20 of 2002 that the FL-3
Licence is an asset of the firm. O.P. No. 221 of 2004 and
IA. No. 507 of 2005 were also dismissed by the District
Court. According to the petitioners, this was without
properly appreciating the reliefs sought for and on a wrong
understanding of the law on the point and without noticing
the significant fact that a winding up of the firms after
dissolution can be had only after the assets are ascertained,
valued and put up for sale.
5. Against the order dismissing the O.P. (Arb.) No. 220
of 2004, the petitioners filed Arb. Appeal No. 34 of 2005
before this Court. The respondents challenged the order in
Arb. O.P. No. 160 of 2004 by filing Arb. Appeal No. 35 of
2005. In that matter, this Court passed an interim order
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directing the respondents to pay the entire arrears ordered
by the Arbitrator and to continue to pay at the rate of
Rs.50,000/- per mensem to the petitioners till the disposal
of the appeals. Petitioners allege that though the arrears
ordered by the Arbitrator were paid, monthly payments
directed by this Court from the date of the award were not
made. Both the appeals were disposed of by this Court by
judgment dated 30-3-2006. By virtue of that judgment this
Court appointed the first respondent as party receiver for
conduct of the businesses. He was directed to submit
periodical reports before the District Court. It was also
directed that if any further direction is necessary, the
parties were free to move the District Court. It is pointed
out that though the above judgment was challenged before
the Supreme Court, the SLPs were dismissed confirming the
judgment of this Court. The petitioners submit that
pursuant to the appointment as receiver by this Court, the
first respondent is conducting the businesses. It is alleged
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that he is not making the monthly payment due to the
petitioners. It is pointed out that the quantification of the
shares of profits at Rs.50,000/- was made only as an an
interim measure by this Court. Even that amount is not
being paid from the date of the award onwards. Since this
court had directed the parties to approach the District Court
for further directions, the petitioners filed Arb. O.P. No. 29
of 2007 before the District Court praying that the first
respondent be removed from receivership and that the
second petitioner be appointed as receiver in his place and
also for a direction to the first respondent to deposit before
the court the entire profits from the two businesses which
may come to Rs.1,75,000/- per mensem, each from 12-6-
2004 onwards. In that O.P. the petitioners filed IA. No. 298
of 2007 seeking a temporary injunction restraining the first
respondent from getting the FL-3 licence relating to the Bar
renewed. The above IA was dismissed by the District Court.
However, the District Court directed payment of Rs.50,000/-
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per mensem to the petitioners towards the share of profits.
Subject to those conditions, the first respondent was
allowed to continue as receiver. Petitioners complain that
even after that order the first respondent did not deposit the
share of profits as directed by this Court and the District
Court. The first respondent has not cared to file any report
or accounts either before this Court or the District Court
with respect to the conduct of the business. Finally, when
O.P. No. 29 of 2007 came up for final hearing the District
Court dismissed the same by virtue of the impugned
judgment reiterating the direction to the first respondent to
deposit Rs.50,000/- per mensem towards the share of
profits.
6. In Arb. Appeal No. 33 of 2007 the order of the
District Court in the Arbitration O.P. No. 29 of 2007 is
challenged on various grounds. It is urged that in open
disobediance of the directions passed by this Court and by
the District Court, the first respondent receiver is
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appropriating the entire profits derived out of the businesses
without caring to deposit or pay even the amount of
Rs.50,000/- per mensem which is due to the petitioners. It
is urged that the quantum ofRs.50,000/- per mensem fixed
by this Court was only as an interim measure. The
Arbitrator in her award fixed the above amount on the basis
of an agreement between the parties entered into as early
as in 1999. Subsequently there has been substantial
increase in the volume of business and theprofits derived
out of the business during the last nine years. It is pointed
out that the consistent case of the petitioners is that the
respondents are earning net profit of Rs.3.6 lakhs per
mensem (Rs.12,000/- per day) from the date of the arbitral
award. The petitioners are admittedly entitled to 50% of
the actual profits derived. The petitioners offered before the
Court below that they are prepared to accept 1.75 lakhs per
mensem as their share of profits and prepared to pay so
much of amounts to the respondents if the management of
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the businesses is entrusted with them. The court below
fixed the quantum at Rs.50,000/- per mensem itself without
taking into consideration the subsequent increase of the
volume of business and profit derived out of the business.
It is urged that the court below went wrong in not taking
into consideration the conduct of the respondents in not
filing any report or accounts before any court regarding the
business conducted by him. It should have been noticed by
the Court below that he is not making payment of share of
profits and that the entire profit is being appropriated
without accounting to anybody. The court below should
have seen that a court receiver is not expected to function
in such a manner. It is urged that the court below went
wrong in thinking that no material is available to fix the
quantum of profits derived out of the business. The court
below should have accepted the offer of the petitioners that
they will conduct the business and pay Rs.1,75,000/- per
mensem to the respondents if they are appointed as
Arb. Appeal. 33/07 & 8/08
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receivers.
7. The grounds urged in Arb. Appeal No. 8 of 2008 filed
by the respondents are mostly founded on the plea of the
respondents that the FL-3 Licence is the exclusive private
property of the first respondent and that the ex-partners of
the dissolved firm cannot have any right whatsoever in the
businesses of the dissolved firm. The challenge is mostly
against the direction under the impugned order to the
respondent to deposit the amount of Rs.50,000/- per
mensem towards the share of the respondents. It is urged
in the appeal that the direction to the first respondent to
deposit the sum of Rs.50,000/- per mensem towards the
share of the petitioners is illegal and that the said direction
is passed without proper application of mind. It is urged
that the petitioners cannot have any right in the profits of
the business after the dissolution of the partnership firm.
Once the partnership firm is dissolved with effect from a
particular date the partners of the dissolved firm are entitled
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to claim settlement of accounts as on the date of
dissolution. The business under the FL-3 Licence issued
and renewed in the name of the first respondent is carried
on by him in his individual capacity and the ex-partners of
the dissolved firm cannot have any right. It is urged that
overlooking the above vital aspects that the impugned
direction is passed by the court below. It is urged that the
court below having found that the remedy of the
respondents to seek settlement of the accounts in
appropriate proceedings, the court below was not at all
justified in issuing the impugned direction. It is urged that
the remedy of the petitioner is to seek settlement of the
accounts in appropriate proceedings. It is urged that the
court below should have found that as far as the shares of
the petitioners are concerned execution petitions are
pending before the District Court, Palakkad. It is urged that
the finding that petitioners are entitled to share in the FL-3
Lincense carried on by the first respondent is illegal. As the
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first respondent is the holder of the licence which stands in
his name and as the firm is now dissolved with effect from
12-6-2004 the exploitation of the licence by the first
respondent is in his individual capacity nobody has any right
in it and can make any claim for share of profit. It is urged
that FL-3 licence in question is issued to
Sri.C.M.Gangadharan, father of respondents 1 to 3 and
husband of the 4th respondent. After the demise of
Sri.Gangadharan the licence was transferred into the name
of the first respondent on the basis of the no objection
certificate given by the other legal heirs. Even though the
licence was extracted by the firm illegally violating Rule 19
of the Foreign Liquor Rules, the said licence cannot be
conducted by any other person except the first respondent.
Reference is made to the judgment of this Court in
Narayanan & Co. v. Commissioner of Income Tax, 1996(1)
KLT 546, Joseph Francis v. Commissioner of Excise & others,
2005(2) KLJ 256, and also to the judgment of the Supreme
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Court in Joseph Joseph v. State of Kerala, 2002 (1) KLT 827
(SC) and it is argued that conduct of partnership business
by exploiting a licence which is issued in favour of a named
licensee is illegal and void in view of Section 23 of the
Indian Contract Act and that being so, the petitioners
cannot insist on any share of profit from the business now
carried on and their right can only be to get the accounts
settled with effect from 12-6-2004. It is urged that the
conduct of business by the partnership by exploiting an FL-3
Licence is without notice to the Excise Department and
hence the business was done in violation of Rule 19 of
Foreign Liquor Rules. The building where the business is
being carried on belongs absolutely to the respondents.
These aspects have not been taken into account by the
District Judge while passing the impugned order. It is urged
that the respondents are ready and willing for appointment
of an Arbitrator for settling the accounts of the firm as on
12-6-2004, the date of dissolution of the firms. The
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respondents have no objection in appointing the very same
Arbitrator for the purpose of settlement of accounts.
8. Very extensive arguments were addressed before us
by Sri.T.Krishnan Unni, learned senior counsel for the
appellants petitioners and by Sri. C.C. Thomas, learned
senior counsel for the respondents. The submissions of the
learned counsel were based on the basis of the grounds
raised in the respective appeal memos. Sri.C.C. Thomas in
support of his submissions placed reliance on the judgment
of a Full Bench of this Court in Narayanan & Co. v.
Commissioner of Income-tax, 1996(1) KLT 546 (FB) and on
the judgment of a Division Bench of this Court in State of
Kerala & others v. M/s. Panamoottil Investments and
others, 2010 (1) KHC 353 (DB). Sri.T. Krishnan Unni, per
contra drew my attention to the order of the District Court in
IA. 298/07 as well as to a judgment of this Court in
C.M.Appeal No. 110 of 1999.
9. Having anxiously considered the rival submissions
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addressed at the Bar in the light of the ratio emerging from
the precedents cited and having gone through the impugned
order as well as the other papers to which our attention was
drawn by the learned counsel, we are of the view that the
respondents (appellants in Arb. Appeal No. 8 of 2008)
cannot have no legitimate grievance about the order
impugned. At the same time, we find elements of
genuineness in the grievance voiced by the appellants in
Arb. Appeal No. 33 of 2007.
10. The award passed by the Arbitrator has become
final in the sense that the application filed by the appellants
in Arb. Appeal No. 8 of 2008 to the court under Section 34
(2b)(i) of Arbitration and Conciliation Act 1996 (OP. (Arb.)
No. 160 of 2004) was dismissed and Arb. Appeal No. 35 of
2005 preferred against the same to this Court was disposed
of without interfering with the finding that the FL-3 Licence
is an asset of the partnership firm. The Supreme Court also
dismissed the special leave petition preferred against the
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judgment of this Court in Arb. Appeal No. 35 of 2005. It is
therefore idle for the appellants in Arb. Appeal No. 8 of 2008
to contend that the FL-3 Licence is a private property
belonging to the first appellant therein and the appellants in
Arb. Appeal No. 33 of 2007 are not entitled to raise any
claim over the profits arising from the business carried on
the strength of the licence. The appointment of the first
appellant in Arb. Appeal No. 8 of 2008 as party receiver was
made by this Court by its judgment in Arb. Appeal Nos. 34
of 2005 and 35 of 2005. It was this court which directed him
to submit periodical reports before the District Court as is
expected to be done by any court receiver. As already
indicated, the common judgment of this Court in Arb.
Appeal Nos. 34 and 35 of 2005 has become final since the
special leave petitions filed against them before the
Supreme Court was dismissed by the Supreme Court.
Under the above facts situation it is not at all open to the
appellants in Arb. Appeal No. 8 of 2008 to dispute the
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liability of the first appellant therein to pay 50% of the
profits from the business to the appellants in Arb. Appeal
No. 33 of 2007. The argument of Mr.C.C.Thomas, learned
senior counsel for the appellant in Arb. Appeal No. 8 of 2008
on the basis of the Abkakri Law cannot be accepted in the
factual backdrop of the present appeals. The appellant in
Arb. Appeal No. 8 of 2008 need not have any apprehension
of being pulled up by any statutory authority for conducting
the bar in alleged violation of the conditions of licence since
his conduct of licence is not in his individual capacity but in
his capacity as receiver appointed by the court. In fact,
similar contentions appear to have been raised by the
appellant in CMA. No. 110 of 1999, a case decided by a
Division Bench of this Court on 10-4-2001. That was also a
case where a court receiver was appointed for the running
of business on the strength of a bar licence which stood in
the name of one of the parties to the case, a partnership
firm. It was argued on behalf of the appellants in that case
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that a liquor licence cannot be transferred without the prior
permission of the Excise Commissioner in terms of Rule 19
of Foreign Liquor Rules and in such a situation, the court
cannot appoint a receiver to exploit the liquor licence or to
run a bar sanctioned. This is what the Division Bench says
with reference to that argument.
” We are not, prima facie, in a position to accept such
an argument. After all, if it comes to that, the Court
can always call for the necessary permission by the
Excise Commissioner for the running of the business by
the receiver. Moreover, when the Court appoints a
Receiver, the court is only taking the business of the
firm into custodia legis and the Court is not even
“otherwise dealing with” the licence. It is only securing
the running of the business by the licensee, the firm,
to the best interest of the partners of the firm.
Therefore, we find no merit in the argument raised on
behalf of the appellants”.
11. Now the question is whether the appellant in Arb.
Appeal No. 33 of 2007 is entitled to ask for a change in the
conditions for appointment of receiver and the further
question is whether there is justification for making any
change in such conditions. The sum of Rs.50,000/- per
Arb. Appeal. 33/07 & 8/08
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mensem was directed to be paid to the appellants in Arb.
Appeal No. 33 of 2007 by this Court first through an interim
order passed in Arb. Appeal No. 34 of 2005. In the final
judgment in that appeal also the same amount is retained
by this Court. At the same time, it is clear that this court
left the issue to be decided by the District Court if any of the
parties approached that court for further directions. In the
interim order obviously this court became persuaded to fix
the sum of Rs.50,000/- in view of the award passed by the
Arbitrator, where the Arbitrator had fixed the above sum as
share of profits on the basis of the agreement between the
parties entered into way back in 1999. It cannot be in
dispute that during the 10 years thereafter there was
substantial increase in the volume of business and the
profits derived from the business also increased. The
appellants in Arb. Appeal No. 33 of 2007 have been
maintaining before the court below consistently that the
respondents in that appeal are earning profit ofRs.12,000/-
Arb. Appeal. 33/07 & 8/08
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per day which comes to Rs.3.6 lakhs per mensem. In fact,
there was an offer by the appellants that they will pay
Rs.1.75 lakhs to the respondents provided the management
of the business is given to them. We are of the view that
the court below was not justified in refusing to change the
amount payable monthly by the receiver on the technical
reason that no cogent evidence is available to determine as
to what is the correct monthly income. It should have been
noticed by the court below that documents reflecting the
correct monthly income from the business carried on by the
receiver can only be with the receiver and the receiver was
not enthusiastic in submitting even the regular reports
before the court much less produce documents pertaining to
the income derived. The offer of the appellants in Arb.
Appeal No. 33 of 2007 should have been taken seriously by
the court below. We are of the view that the receiver
should be directed to pay to the appellants in Arb. Appeal
No. 33 of 2007 at the rate of Rs.1,50,000/- for each month
Arb. Appeal. 33/07 & 8/08
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of business subject to the condition that on failure to make
such payment, the receivership given to first respondent in
the appeal will stand withdrawn and that the court below
will appoint either second appellant in Arb. Appeal No. 33
of2007 or a senior Advocate of the court having some
acquaintance with liquor business as new receiver.
12. The result of the above discussion is therefore as
follows:
Arbitration Appeal No. 8 of 2008 is dismissed.
Arbitration Appeal No. 33 of 2007 is allowed. The first
respondent receiver is directed to pay the amount due to
appellant in Arb. Appeal No. 33 of 2007 till 31-3-2010 at the
rate of Rs.50,000/- per mensem, less the amounts paid so
far, within two months from today. The order impugned is
modified. It is directed that the first respondent court
receiver shall pay at the rate of Rs.1,50,000/- per mensem
to the appellant in Arb. Appeal No. 33 of 2007 as their share
from the profits of the business of Hotel Arathi and Savitha
Arb. Appeal. 33/07 & 8/08
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Bar conducted on the strength of FL-3 Licence for each
month of business till such time as execution proceedings
stated to have initiated come to a final close. It is ordered
that in case the court receiver defaults payments as ordered
above, he will stand discharged as receiver and in such a
contingency the District Court will appoint a fresh receiver
on proper terms to be fixed by the court giving option to the
District Court to appoint second appellant in Arb. Appeal No.
33 of 2007 or any senior Advocate of the Court having
acquaintance with liquor business. Parties are directed to
suffer their respective costs.
PIUS C.KURIAKOSE, JUDGE
C.K. ABDUL REHIM, JUDGE
ksv/-