Holding

An arbitrator, when the arbitration clause refers all disputes between partners, may decide a claim for dissolution of the partnership.

Summary

The partnership firm V.H. Patel & Co. and its members sued former partner H.H. Patel for declaration that a retirement deed was void and for injunction against his use of three trademarks. The parties entered a consent order referring all disputes arising from the partnership agreement, retirement deed, trademark use and the partner's rights to a sole arbitrator. The arbitrator declared the retirement deed void but refused to hear the partner’s counter‑claim for dissolution of the firm, saying it was beyond the scope of reference. The High Court set aside that finding and remitted the dissolution issue to the arbitrator for fresh consideration. The Supreme Court held that, where the partnership deed contains an arbitration clause covering all disputes, the arbitrator has authority to decide a claim for dissolution, and the scope of reference must be read broadly to include such a claim. Consequently, the Court dismissed the Special Leave Petitions, upholding the High Court’s remand.

Issues considered

The arbitrator’s jurisdiction to entertain a counter‑claim for dissolution of a partnership under the arbitration reference.
Whether the scope of reference to arbitration includes disputes concerning dissolution of the partnership.
Whether an appeal under Section 39 of the Arbitration Act, 1940, lies against the High Court’s order remitting the issue to arbitration.

Legislation cited

Arbitration Act, 1940s. 18, s. 39
Indian Partnership Act, 1932s. 44(c), s. 44(d), s. 44(e), s. 44(f)
Trade and Merchandise Marks Act, 1958

Subjects

ArbitrationPartnership dissolutionScope of referenceArbitration Act 1940Partnership Act 1932Trademark disputeCounterclaim jurisdiction

Judgment

V.H. PATEL AND COMPANY AND ORS. A
v.
HIRUBHAI HIMABHAI PATEL AND ORS.

- APRIL 18, 2000

[S. RAJENDRA BABU AND S.N. PHUK.AN, JJ.] B

Arbitration Act, 1940:

Arbitration-Reference of disputes-Scope of~Parties filed claims be-
fore Arbitrator in pursuance to consent order passed by Supreme Court-But
one parly filed a counter claim seeking dissolution of partners/zip finn-Such
c
a dispute not specifically within the scope ofthe said consent order-Arbitrator
gave the award on all issues except issue ofdissolution on the gmund that it was
beyond his jurisdiction~orrectness of-Held: As there was strained relation-
s/zip between the partners it is certainly open to them to claim dissolution-Idea
is to settle disputes and not confine the same to one or the other issues-Hence, D
High Court rightly remitted the issue of dissolution to Arbitrator for decision
afresh.

Arbitration-Power of Arbitrator-To dissolve partnership finn-Part-
nership deed pmvided for arbitration in respect of disputes regarding partner-
ship-Held: Under these circumstances Arbitrator has such power. E

Section 39-Appeal-Single Judge remitted an issue to arbitration for
decision afresh-Appeal to Division Bench of High Court-Whether lies-
Question left open.

Partnership Act, 1932: F

Section 39-Dissolution offinn-Due to breach of agreement and con-
duct destructive of mutual confidence-Held : Such conduct gives rise to a
ground for dissolution of partnership.

Respondent No. 1 and his three brothers constituted a partnership G
* I .
firm, which was engaged in the business of manufacture, storage, sales and
marketing of different variety of tobacco and tobacco preparations. The
. partnership deed contained an arbitration clause in respect of disputes
concerning the partnership. The said firm had three registered trade-
marks. As disputes arose between the partners an 'Agreement of Mutual H
113
114 SUPREME COURT REPORTS (2000) 3 S.C.R.
A Understanding' was executed between them stating that the trademarks
were to be owned by all the partners. However, the trademarks were to be
used separately by the partners only in the territories allotted to them
under the agreement.

Thereafter, a Deed of Retirement was executed by all the partners of
B the firm providing for retirement of respondent No. 1 as a partner. Subse-
quently, respondent No. 1 filed a Civil Suit for a declaration that the said
retirement deed was ineffective, inoperative, unenforceable, null and void
and that he continued to be the partner of the firm. The petitioners also
filed a suit under the Trade and Merchandise Marks Act, 1958 for injunc-
c tion against respondent No. 1 and his two sons not to use and exploit the
three trademarks, which belonged to the partnership firm. The trial court
passed an order of injunction against respondent No. 1. However, the High
Court allowed the appeal and the petitioners filed a Special Leave Petition
(SLP) before this Court against the order of the High Court.

D This Court in that SLP passed a consent order stating that the parties
had agreed to have their disputes resolved through sole arbitration of a
retired High Court Judge. The consent-terms provided that all the disputes
raised in the pleadings of the Declaratory and Injunction suits be referred
to the sole arbitrator.
E Claims were preferred before the sole arbitrator by all parties. The
arbitrator made an award, which declared that (i) the agreement of mutual
understanding and the retirement deed were invalid, void and not binding
on the parties; (ii) respondent No. 1 had not retired but continued as a
partner subject to his paying a certain sum and (iii) the three registered
F trademarks continued to be the assets of the partnership firm and that no
other person or firni including that of respondent No. 1 had any right, title
or interest in the trademarks. However, the arbitrator did not entertain the
counterclaim ofrespondentNo.1 seeking for dissolution of the partnership
firm on the ground that it was beyond the scope of reference.

G The award was filed in the High Court. Respondent No. 1 filed
objections to certain parts of the award and prayed for partial decree in
terms of the accepted part of the award. A Single Judge of the High Court
confirmed the award of the sole arbitrator so far as the declaration relating
to the agreement and the retirement deed was concerned and set aside the
H finding that the arbitrator did not have jurisdiction to entertain the coon-
V.H. PATEL AND CO. v. H.H. PATEL 115
ter claim of respondent No. 1 for dissolution of the firm and remitted the A
-t issue to the arbitrator for decision afresh. Hence this Special Leave Peti-
tion.

On behalf of the petitioners it was contended that the counter claim
made by respondent No. 1 for dissolution of the firm was not within the
terms of reference either expressly or impliedly; that the pleadings in the B
suits did not include any claim for dissolution of the firm; that a new plea in
this regard could not be raised by way of an amendment; that the parties
had not referred all disputes between them to arbitration; that the terms of
the partnership did not contemplate dissolution of the firm "at will" but by
"mutual agreement"; that dissolution of the firm could only be ordered by c
the court on just and equitable grounds in its inherent jurisdiction and,
therefore, the arbitrator had no jurisdiction to entertain the counter claim
of dissolution of the firm; and that an appeal to the Division Bench of the
.), High Court would lie from the judgment of Single Judge and, therefore, a
special leave petition should not be entertained by this Court.
D
On behalf of the respondents it was contended that under the
Arbitration Act, 1940 an appeal would lie only in respect of those cases to
which specific reference was made in Section 39.

Dismissing the petition, this Court
E
HELD : 1.1. In the suit filed before the court it is no doubt true that
one party, respondent No. 1, was seeking to establish that he had not retired
from the partnership and, therefore, there is justification in the criticism
that the prayer for dissolution of the firm is inconsistent with such a claim.
But that is not the end of the matter. Even if he had not retired pursuant to
the terms of the agreement entered into between the parties, it is certainly F
~
permissible for him when disputes had arisen between the parties to ask for
dissolution of the partnership and when that was not possible by mutual
consent a dispute could certainly arise thereto and such a dispute could

- have been referred to arbitration as provided in the Partnership Deed. H
that was permissible, such contention could be raised in the suit filed by the
parties. Merely because the disputes between the parties have been referred
G

* . to arbitration, he is not prevented from raising such a question or the
arbitrator is prevented from deciding such a matter. (124-C-F]

1.2. Though the disputes between the parties originated on. the basis
whether one or the other partner had not retired form partnership or as to H

•
116 SUPREME COURT REPORTS [2000] 3 S.C.R.
A the rights arising in relation to trademarks or otherwise, still when there is
no mutual trust between the parties and the relationship became so strained
that it is impossible to carry on the business as partners, it wa:s certainly
open to them to claim dissolution and such a question could be adjudicated.
The scope of reference cannot be understood on the actual wordings used in
the course of the order made by this Court or the concerned memorandum
B
filed before this Court, but it should be looked from the angle as to what
was the spirit behind the reference to the arbitration. The idea was to settle
all the disputes between the parties and not to confine the same to any one
or the other issue arising thereunder. [124F-H; 125-A]
2.1. If there has been breach of agreement and conduct is destructive
c of mutual confidence certainly such conduct can give rise to a ground for
dissolution of partnership. While mere disagreement or quarrel arising
from impropriety of partners is not sufficient ground for dissolution, inter-
ference should not be refused where it is shown to the satisfaction of the
adjudicating authority that the conduct of a partner has been such that it is
D not reasonably practicable for other partners to carry on the business in
partnership. For instance, dissolution should be ordered ifit is shown that
the conduct of a partner has resulted in destruction of mutual trust or
confidence which is the very basis for proper conduct of partnership.
Dissolution will arise where it appears that the state of feelings and conduct
of the partners have been such that business cannot be continued with
E
advantage to either party. (125-E-G]
2.2. So far as the power of the arbitrator to dissolve the partnership is
concerned, the law is clear that where there is a clause in the Articles of
Partnership or agreement or order referring all the matters in difference
F between the partners to arbitration, arbitrator has power to decide whether
or not partnership shall the dissolved and to award its dissolution.
[125-H; 126-A]

Phoenix v. Pope, (1974) 1 All ER 512, referred to.

G
2.3. The power of the arbitrator will primarily depend upon the arbi-
tration clause and the reference made by the court to it. If under terms of the
-
reference all disputes and differences arising between the parties have been
referred to arbitration, the arbitrator will, in general, be able to deal with all
matters, including dissolution. There is no principle oflaw or any provision
which bars an arbitrator to examine such a question. It is permissible for the
H court to refer to arbitration a dispute in relation to dissolution as well on
V.H. PATEL AND CO. v. R.H. PATEL [RAJENDRA BABU, J.] 117
grounds such as destruction of mutual trust and confidence between the A
-t- partners which is the foundation therefor. (126-B-D]

01issa Mining Corporation Ltd. v. Pamnath Vishwanath Rawlley, Am
(1977) SC 2014 and Rehmatunnissa Begum v. Price, Am (1917) PC 116, held
inapplicable.
B
Indian Oil Corporation Ltd. v. Amritsar Gas Service, (1991) SCC 533
and Mulla: Indian Partnership Act 5th Edn. p. 147, referred to.

3. It is unnecessary to go into the question whether an appeal could
have been preferred to the Division Bench in the High Court or not,
particularly when a notice had already been ordered by this Court and the c
matter has been finally heard. (122-F-G]

!ftikhar Ahmed v. Syed Meharban Al4 [1974) 2 SCC 151; Union ofIndia
.+: v. Mahindra Supply Company, [1962) 3 SCR 497; State of West Bengal v.
Gourangalal Chatterjee, [1993) 3 SCC 1 and Orma lmpex Pvt. l.Jd. v. Nissai
Asb Pte l.Jd., [1999) 2 SCC 541, referred to.
D

CIVIL APPELLATE JURISDICTION : Special Leave Petitions (C)
Nos. 17010-12 of 1999.

~ From the Judgment and Order dated 25/26.10.99 of the Bombay High
Court in Arbitration Petition Nos. 175/99, 188/99 and 208 of 1999. E

T.R. Andhyarujina, Vinod A. Bobde, R.F. Nariman, V.A. Mohta, S.M.
Jadhav, B.T. Seth, N.D. Talele, W.S. Kane, D.M. Nargolkar, Shakil Ahamad
Syed for the appearing parties.

The Judgment of the Court was delivered by

RAJENDRA BABU, J. A partnership firm, Mis V. H. Patel & Company,
.-
was constituted consisting of four brothers, namely, Jamnadas Himabhai Patel,
Vallabhbhai Himabhai Patel, Gordhandas Himabhai Patel and Hirubhai
Himabhai Patel, all sons of Dineshbhai Hirubhai Patel. On the death of
G
Jamnadas Himabhai Patel the partnership was reconstituted with Gordhandas
Himabhai Patel, Vallabhbhai Himabhai Patel, Hirubhai Himabhai Patel,
Parmanand Jamnadas Patel and, Jatin Paimanand Patel and Akashya Parmanand
Patel, sons of Parmanand Jamnadas Patel. The said firm is engaged in the
business of manufacture, storage and sales of marketing of different variety
of tobacco, tobacco preparations, zarda and allied products. It has three H
118 SUPREME COURT REPORTS [2000] 3 S.C.R.
A registered trade marks, (i) Surya Chhap Zarda, (ii) Surya Chhap Tobacco and
(iii) Pan Chhap 12 Number Zarda. Disputes having arisen relating to the
business of the partnership firm, an 'Agreement of Mutual Understanding' was
executed by stating that all the said trade marks owned by the firm were to
cease to be of one ownership but had to be owned by all the partners thereof.
Respondent No. 1 and other partners were to use the said trade marks
B
separately only in the territories allotted to them thereunder as per agreement
with each of the partners having a percentage in the share of profits and losses
under the then existing deed of partnership dated April 21, 1986. On August
1, 1987 a Deed of Retirement was executed by all the partners of the firm
providing for retirement of respondent No. 1 as partner thereof on certain
c terms and conditions. On July 28, 1989 a suit was filed by respondent No. 1
in Civil Suit No. 186/89 in the court of the Civil Judge, Senior Division.
Chalisgaon, for a declaration that the retirement deed dated August 1, 1987
was ineffective, inoperative, unenforceable, null and void and that he continued
to be the partner of the firm. On September 14, 1989 another suit was filed
by the petitioners in the District Court, Chalisgaon, under the Trade and
D
Merchandise Marks Act, 1958 for injunction against respondent No. 1
Hirubhai Himabhai Patel and his two sons Praveen Hirubhai Patel and Dinesh
Hirubhai Patel and their partnership firm not to use and exploit the aforesaid
three trade marks under the name of Mis H.H. Patel and Company and for
other incidental reliefs. On the basis of the pleadings raised, the District Judge,
E Chalisgaon, passed an order of injunction against respondent No. 1 Hirubhai
Himabhai Patel and others restraining them from using and exploiting the three
trade marks. Against the said order of injunction an appeal was preferred in
the High Court which was allowed and injunction granted by the trial court
was vacated. Thereafter, a Special Leave Petition No. 11533 of 1990 was
F preferred before this Court against the order of the High Court. This Court
passed an order on February 15, 1991 disposing of the matter in the following
terms :

"On 16.1.1991 when this petition came up for hearing before us, we
had suggested to the parties that having regard to their close relation-
G ship and the nature of the dispute it would .be desirable to explore the
possibility of settlement or have the dispute resolved through arbitra-
tion. The parties have now arrived at a consent order which is signed
and presented by the learned advocates for the Petitioner and the
Respondents, which we take on record. According to the consent
terms the parties have agreed to have their dispute resolved through
H
V.H. PATEL AND CO. v. H.H. PATEL [RAJENDRA BABU, J.] 119

t sole arbitration of Mr. Justice D.M. Rege (Retd.) of Bombay High A
Court. We direct an order to be drawn up in terms of consent terms.
The Special Leave Petition will stand disposed of in terms of the
consent terms."

The crucial part of the Consent Terms is also extracted hereunder which
is contained in para No. 2 thereof : B

"Both the parties agree that disputes relating to the rights and
obligations of the parties arising out of the agreement dated 3.7.1987
and retirement deed dated 1.8.1987 and to the user of the trade marks
in question and determination of the rights of respondent No.1 as a
partner of the Petitioner firm as per the pleadings of the parties in suit
c
No. 5 of 1989 and No. 186 of 1989 pending in the court of District
Judge, Jalgaon and in the court of Senior Division Judge, Chalisgaon
respectively be referred to the sole arbitrator of Shri D.M. Rege,
Retired Judge, Bombay High Court. The arbitrator will file the award
in the Bombay High Court in accordance with the provisions of the D
Arbitration Act."

Thus the disputes between the parties which arose in the suit stood

,,. • referred to sole arbitration of Justice D.M. Rege. Claims were preferred before
the sole arbitrator by all parties. The arbitrator made an award on January 25,
1999. He declared that the writing/agreement dated July 3, 1987 and retire- E
ment deed dated August 1, 1987 is invalid, void, ineffective and not binding
on the parties and created no rights or obligations between the parties thereto.
He further declared that respondent No. 1 had not retired under the aforesaid
deed but continued as a partner of the firm Mis V.H. Patel and Company from
and after August 1, 1987. This relief was, however, to operate in favour of F
respondent No. 1 only on his paying a sum of Rs. 5, 17,927 .17 to the firm and
it was also declared that the three registered trade marks continued to be the
assetS of the firm Mis V.H. Patel and Company and Mis R.H. Patel and
Company or its partners including Hirubhai Himabhai Patel or any other
person has no right, title and interest in the said trade marks and they were
permanently restrained from using and/or exploiting in the course of trade or G
.._ otherwise any of the three registered trade marks in any territory. The
arbitrator did not entertain the counter claim of the respondents seeking for
dissolution of the firm Mis V.H. Patel and Company on the ground that it was
beyond the scope of reference. On February 15, 1999 the partners of Mis V.H.
Patel and Company assigned the three trade marks in favour of V.H. Patel H
120 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Tobacco Private Limited, a private limited company owned by close relatives
of the partners of Mis V.H. Patel and Company for Rs. 65 lakhs. The award
was filed in the Bombay High Court. Respondent No. l filed an arbitration
petition challenging the said award and prayed for setting aside the findings
of the arbitrator on certain issues. The petitioners also filed an arbitration
petition under Section 18 of the Arbitration Act, 1940 for interim relief of
's injunction and, another arbitration petition was filed by respondent No. l for
partial decree in terms of the accepted part of the award, namely, in terms of
(b) and (c) of the operative part of the order and for status quo ante as on
January 25, 1989 by setting aside the assignment deed dated February 18,
1999. The learned Single Judge of the High Court confirmed the award of the
c sole arbitrator so far as the declaration that the agreement dated July 3, 1987
and the retirement deed dated August l, 1987 are ineffective, unenforceable
and not binding 'on the parties. The learned Single Judge set aside the finding
on issue No. 17, that is, whether the arbitrator has jurisdiction to entertain the
counter claim by which counter claim respondent No. 1 had sought for
dissolution of the firm of Mis V.H. Patel and Company and remitted the issue
D
back to the arbitrator for de nova consideration and decision in accordance
with law. The learned Single Judge directed that till the arbitrator makes a
fresh award, arrangement in relation to the business as was in existence while
the proceedings were pending before the arbitrator should continue to operate
for a period of four weeks after the award was made. It was also made clear
E that the assignment of trade marks shall have no effect and the private limited
company to whom the trade marks have been assigned shall not be entitled
to do the business on the basis of those trade marks. This order of the learned
Single Judge of the High Court that is in challenge before us.

The learned counsel for the petitioners Shri T.R. Andbyarujina and Shri
F
Vmod A Bobde, the learned senior advocates, submitted that the principal
question is whether the arbitrator was competent to entertain the counter claim
filed by respondent No. 1 for dissolution of the firm Mis V.H. Patel and
Company and falls within the scope of the temis of reference made by this
Court on February 15, 1991; that the counter claim made by the respondent
G for dissolution of the firm was not within the terms of reference either
expressly or impliedly and the parties did not refer the disputes relating to the
firm to the arbitrator; that on the contrary, para 2 of the Consent Terms, which
is. extracted above, referred to the arbitrator specific disputes relating to the
rights and obligations of the parties, (i) arising out of the agreement dated July
3, 1987, (ii) retirement deed dated August 1, 1987, (iii) to the user of the trade
H
V.H. PATEL AND CO. v. H.H. PATEL [RAJENDRA BABU, J.] 121
marks in question, and (iv) to the determination of the rights of respondent No. A
1 as a partner of the firm as per the pleadings of the parties in the pending
suits; that the pleadings of the parties in the suits did not include any claim
by any partner for dissolution of the firm Mis V.H. Patel & Company; that
there is no scope for raising a new plea by way of an amendment as to
dissolution of the firm; and, that the arbitrator is bound strictly by the terms
B
of the arbitration and cannot travel beyond it. In this regard, reliance is placed
on the decision of this Court in .Orissa Mining Corporation Ltd. v. Mis
Prannath Vishwanath Rawlley, AIR (1977) SC 2014. Much stress is also laid
on the fact that the parties have not referred all disputes between them or
relating to or arising under the partnership for reference to the arbitrator so as
to bring within it any future disputes which could arise between the parties. c
Therefore, it is submitted that the view of the High Court that "it is open to
the respondent to claim a decree for dissolution of the firm in exercise of his
rights as a partner of the firm which he could have made by amending his
pleadings in the civil suit which was capable of being made" is incorrect. It
is pointed out that reliance placed on the decision in Indian Oil Corporation
D
Ltd. v. Amritsar Gas Service and Ors, [1991] 1 SCC 533, is wrong. It is
submitted that in that case there was scope for fresh pleading as the reference
to arbitrator was made by the court in an appeal arising out of refusal to stay
the suit under Section 34 of the Arbitration Act and the reference was made
of all the disputes between the parties in the suit and, therefore, the occasion
to make a counter claim in the written statement could arise only after the E
order of reference. Another ground is raised in support of this contention that
the terms of partnership do not contemplate dissolution of the finn "at will"
but by "mutual agreement". Therefore, it is pointed out that dissolution of the
firm is based only on just and equitable ground and, therefore, partners' claim
for a decree for dissolution of the finn rests in its origin not on contract but F
on the inherent right to invoke the courts' jurisdiction on equitable grounds
in spite of the terms in which the right and obligation of the parties may have
been regulated and defined by the partnership contract.. Our attention is drawn
to a decision in Rehmatunnissa Begum & Ors. v. Price & Ors., AIR (1917)
P.C. 116, and the commentary made by Pollock and Mulla in 5th Edition at
page 147 which reads as follows:- G

"Although the arbitration clause in a partnership agreement may be
sufficiently wide to include the question whether the partnership
should be dissolved, the Court in its discretion may not stay a suit for
dissolution, if dissolution is sought under Section 44(g)(e). In the
H
122 SUPREME COURT REPORTS [2000] 3 S.C.R.
A undermentioned cases the view taken is that whenever dissolution of ~
partnership is sought under Section 44(g), then it is for the court to
decide, whether it would be just and equitable to dissolve the
partnership or not and such a matter cannot be left to be gone into
and decided by the arbitrator in pursuance of the arbitration clause
contained in the partnership deed."
B
In that view of the matter it is submitted that the parties could not have
intended to have referred a claim for dissolution of the partnership under the "ft-.
inherent powers of the court and an intention to act consistently within the law
and practice relating to arbitration slJ.ould be attributed to the parties when they
c entered into the consent order before this Court.

Shri RF. Nariman and Shri V.A. Mohta, the leaned senior advocates for
the respondents, submitted that an appeal to the Division Bench of the High
Court would lie from the judgment of the learned Single Judge and a special 4-
leave petition should not be entertained by us. In answer to this contention the
D learned counsel for petitioners pointed out that under the Indian Arbitration
Act, 1940 an appeal from a judgment remitting the award to the arbitrator for
reconsideration does not lie and it is only in respect of appeals to which
specific reference is made in Section 39 an appeal would lie. Shri Mohta,
however, placed reliance on the decisions of this Court in Iftikhar Ahmed & )lit
Ors. v. Syed Meharban Ali & Ors., [1974] 2 SCC 151, Union of India v.
E
Mahindra Supply Company, [1962] 3 SCR 497, and State of West Bengal v.
Mis Gourangalal Chatterjee, [1993] 3 SCC 1. The learned counsel for the
respondents further drew our attention to a decision of this Court in Orma
Jmpex Pvt. ud. v. Nissai Asb Pte. /Jd., [1999] 2 SCC 541, wherein it is stated
that a question of similar nature has been referred to a Bench of Five Judges.
F
Inasmuch as we have beard the learned counsel on either side on the
merits of the matter, it is unnecessacy to go into the question whether an appeal
could have been preferred to the Division Bench in the High Court or not,
particularly when a notice had already been ordered by this Court and the
matter has been fmally heard. We leave open this question to be raised in an
G appropriate proceeding. So far as the present case is concerned, it is suffice
to say that we examine the merits of the matter as put forth before us and ~·

decide the case.

The contention of the learned counsel for the petitioners in this case
H pertains to the scope of reference to arbitration which turns around the terms
V.H. PATEL AND CO. v. H.H. PATEL [RAJENDRA BABU, J.] 123

,... ... of the order made by this Court on February 15, 1991 in Special Leave No.
11533 of 1990 and the Consent Terms on which the said order is based. It is
A

no doubt true that in the two suits that had been filed there is no specific prayer
for dissolution of the firm. The Consent Terms indicate that disputes relating
to the rights and obligations of the parties arising out of the agreement dated
July 3, 1987 and retirement deed dated August 1, 1987 and to the user of the
B
trade marks in question were indeed referred to the arbitrator. The High Court
is conscious of the question that the relief for dissolution of the firm was not
__.,..
one of the matters on which there was a dispute which was referred to
arbitrator. However, the High Court is of the view that though in the plaint
there is no prayer for dissolution of firm it was possible for the respondent to
claim that relief in the civil suit and as the civil suit was withdrawn pursuant c
to the agreement reached before this Court, such a prayer is, therefore, made
before the arbitrator as all the disputes between the parties in the suits filed
by the parties were referred to the arbitrator. The High Court placed strong
reliance upon the decision of this Court in Orissa Mining Corporation Ltd. v.
Mis Prannath Vishwanath Rawlley (supra). Distinction is sought to be made
D
between the aforesaid case and the present case on the basis that the reference
was made of all the disputes between the parties, a counter claim in the written
statement could arise only_ after the order of reference and in those circum-
stances, the reference would cover all disputes between the parties, including
one raised in the counter claim. In answer to this aspect it is noticed that the
first respondent filed a suit as partner of the firrn Mis. V.H. Patel & Company E
for enforcing some of his rights as a partner and seeking dissolution of the firrn
is also a right of a partner and had the suit remained pending, it was possible
for him to amend his plaint ~eeking an order for dissolution of the firrn, the
cause of action for seeking such relief would be the same on which his claim
in the suit was based. Cause of action for a counter claim can be different from F
the cause of action for the suit and. therefore, it would be perrnissible to hold
that a claim which is based on the same cause of action on which the suit is
based cannot be considered. The High Court is of the view that once the matter
is referred to the arbitrator his jurisdiction to consider all questions raised
before him by the parties which relate to the dispute could be considered and
driving a party to a separate litigation for the relief which relates to the dispute G
referred to the arbitrator would not be proper. Therefore, the High Court held
--J-
that it is open to respondent No. I to claim a decree for dissolution of the finn
in exercise of his rights as a partner of the firm which he could have made
by amending his pleadings in the civil "suit and. therefore, it is within the
jurisdiction of the arbitrator to consider that question. It is further to be seen H
124 SUPREME COURT REPORTS [2000] 3 S.C.R.
A that the parties are from the same family, there were disputes between them,
they tried to resolve the disputes by entering into an arrangement which
ultimately failed.

We asked the parties to appreciate the matter in the proper perspective
to produce the Partnership Deed and the Partllership Deed dated April 21,
B 1986 is produced before us. Clause 5 provides that "the partnership is
commenced on and from the 2nd day of April 1986 and shall continue for a
term of period until the parties herein before mentioned mutually agree to
dissolve". Clause 11 thereto' provid(!s that "all disputes and questions in
connection with the partnership or with this Deed existing between the parties
c shall be referred to Arbitration uµder the provisions of the Indian Arbitration
Act. 1940, or any Sta1utory mQdification or re-enactment thereof for the time
being in force." In the suit fjf~ before the court it is no doubt true that one
party, respondent No. l, was seeking to establish that he had not retired from
the partnership and, therefore, there is justification in the criticism levelled b~
the learned counsel for the petitioner that the prayer for dissolution of the firm
D is inconsistent with such a claim. But that is not the end of the matter. Even
if he had not retired pursuant to the terms of the agreement entered into
between the parties, it is certainly permissible for him when disputes had
arisen between the parties to ask for dissoluti')n of the partnership and when
that was not possible by mutual consent a dispute could certainly arise thereto
E and such a dispute could have been referred tQ arbitration as provided in clause
11 of the Partnership Deed. If that was permissible, such a contention could
be raised in the suit filed by the parties. Merely because the disputes between
the parties have been referred to arbitration, he is not prevented from raising
such a question or the arbitrator is prevented from deciding such a matter.
Therefore, agreeing with the view expressed by the High Court, we reject the
F
contention raised on behalf of the petitioner that it was not permissible for the
arbitrator to enter upon the question of dissolution of the partnership. Though
the disputes between the parties originated on the basis whether one or the
other partner had not retired from partnership or as to the rights arising in
relation to trade marks or otherwise, still when there is no mutual trust between
G the parties and the relationship became so strained that it is impossible to carry
on the business as partners, it was certainly open to them to claim dissolution
and such a question could be adjudicated. The scope of reference cannot be
understood on the actual wording used in the course of the order made by this
Court or the concerned memorandum filed before this Court, but it should be
looked from the angle as to what was the spirit behind the reference to the
H
V.H. PATEL AND CO. v. H.H. PATEL [RAJENDRA BABU, J.] 125

+ arbitration. The idea was to settle all the disputes between the parties and not A
~· to confine the same to any one or the other issue arising thereunder. In that
view of the matter, the contention addressed to the contrary is untenable.

We asked the learned counsel as to whether the acceptance of the
finding recorded by the arbitrator would put to an end all the disputes between
the parties, it was frankly stated that it was not so. Therefore, still disputes B
would exist and even those disputes have to be resolved in one or the other
proceeding. We fail to understand as to how the parties could not have raised
appropriate pleadings in relation to disputes and get them resolved in the very
suits that were already pending by appropriate modification of the pleadings.
If that was permissible, certainly the present course adopted by the High Court c
is also permissible.

A contention has been raised before us that the arbitrator has no power
to dissolve a partnership firm, especially on a ground that such dissolution is
based on a ground or any other ground which renders it just and equitable to
dissolve and that is the power of the court. It was pointed out that mere D
strained relationship between the partners would not be enough to dissolve a
partnership. It is not necessary for us to examine this contention in this case
when the partners sought for dissolution of the partnership on various grounds
enumerated in Section 44(c) to (f) may also be sufficient and may not be
necessary to invoke the inherent jurisdiction of a court such as dissolution is
E
just and equitable. If there has been breach of agreement and conduct is
destructive of mutual confidence certainly such conduct can give rise to a
ground for dissolution of the partnership. While mere disagreement or quarrel
arising from impropriety of pa,rtners is not sufficient ground for dissolution,
interference should not lJe refused where it is shown to the satisfaction of the
adjudicating authority that the conduct of a partner has been such that it is not F
reasonably practicable for other partners to carry on the business in partner-
ship. For instance, dissolution should be ordered if it is shown that the conduct
of a partner has resulted in destruction of mutual trust or confidence which is
the very basis for proper conduct of partnership. It is not necessary for us to
go into or seek for an explanation of the reasons which may have induced the G
disputes between the partners. Dissolution will arise where it appears that the
-+ state of feelings and conduct of the partners have been such that business
cannot be continued with advantage to either party.

So far as the power of the arbitrator to dissolve the partnership is
concerned, the law is clear that where there is a clause in the Articles of H
126 SUPREME COURT REPORTS (2000] 3 S.C.R.
A Partnership or agreement or order referring all the matters in difference
between the partners to arbitration, arbitrator has power to decide whether or
not the partnership ~hall be dissolved and to award its dissolution .. [See:
Phoenix v. Pope & Ors., (1974) 1 All E.R. 512]. Power of the arbitrator will
primarily depend upon the arbitration clause and the reference made by the
court to it. If under the terms of the reference all disputes and differences
B
arising between the parties have been referred to arbitration, the arbitrator will,
in general, be able to deal with all matters, including dissolution. There is no
principle of law or any provision which bars an arbitrator to examine such a
question; Although the learned counsel for tl:ie petitioner relied upon a passage
of Pollock & Mulla, quoted earlier, that passage is only confined to the
c inherent powers of the court as to whether dissolution of partnership is just
and equitable, but we have demonstrated in the course of our order that it is
permissible for the court to refer to arbitration a dispute in relation to
dissolution as well on grounds such as destruction of mutual trust and
confidence between the partners which is the foundation therefor.
D· For the aforegoing reasons, we fmd no merit in these petitions and the
same stand dismissed.

v.s.s. Petitions dismissed.