2000 (4) TMI 758 - SC - Indian Laws

Whether the arbitrator was competent to entertain the counter-claim filed by the respondent No. 1 for dissolution of the firm V.H. Patel Company? Held that - Appeal dismissed. 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 between the partners to arbitration, arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. 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 different 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 the petitioner relied upon a passage of Pollock Mulla quoted earlier, that passage is only confined to the 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.

Issues Involved:
1. Validity of the Agreement dated 3-7-1987 and Retirement Deed dated 1-8-1987.
2. Jurisdiction of the Arbitrator to entertain the counter-claim for dissolution of the firm.
3. Use and ownership of the registered trademarks.
4. Enforcement and implications of the arbitration award.

Issue-wise Detailed Analysis:

1. Validity of the Agreement dated 3-7-1987 and Retirement Deed dated 1-8-1987:
The arbitrator declared the Agreement dated 3-7-1987 and Retirement Deed dated 1-8-1987 as "invalid, void, ineffective and not binding on the parties." This decision was upheld by the learned Single Judge of the High Court, confirming that these documents created no rights or obligations between the parties. Consequently, it was declared that respondent No. 1 had not retired under the said deed but continued as a partner of the firm V.H. Patel & Company from and after 1-8-1987.

2. Jurisdiction of the Arbitrator to entertain the counter-claim for dissolution of the firm:
The primary contention was whether the arbitrator was competent to entertain the counter-claim filed by respondent No. 1 for dissolution of the firm V.H. Patel & Company. The petitioners argued that the counter-claim for dissolution was not within the terms of reference made by the Court on 15-2-1991, which specifically referred to disputes arising out of the Agreement dated 3-7-1987, the Retirement Deed dated 1-8-1987, the use of the trademarks, and the determination of respondent No. 1's rights as a partner. The High Court, however, held that the arbitrator had jurisdiction to consider the dissolution of the firm as it could have been claimed in the civil suit, and all disputes in the suits were referred to arbitration. The Supreme Court agreed with the High Court, stating that the scope of reference should be understood in the spirit of settling all disputes between the parties, not confined to specific issues.

3. Use and ownership of the registered trademarks:
The arbitrator declared that the three registered trademarks continued to be the assets of the firm V.H. Patel & Company and that H.H. Patel & Company or its partners, including Hirubhai Himabhai Patel, had no right, title, or interest in the said trademarks. They were permanently restrained from using or exploiting the trademarks in any territory. The High Court confirmed this part of the award, ensuring that the trademarks remained with V.H. Patel & Company.

4. Enforcement and implications of the arbitration award:
The petitioners challenged the High Court's decision to remit the issue of the arbitrator's jurisdiction to entertain the counter-claim for de novo consideration. The Supreme Court upheld the High Court's decision, allowing the arbitrator to reconsider the counter-claim for dissolution. The Supreme Court emphasized that the arbitrator has the power to dissolve the partnership if the arbitration clause or order refers all matters in difference between the partners to arbitration. The Court dismissed the petitions, affirming the arbitrator's authority to address all disputes, including the dissolution of the partnership, based on the destruction of mutual trust and confidence between the partners.

Conclusion:
The Supreme Court upheld the High Court's decision, confirming the invalidity of the Agreement and Retirement Deed, the arbitrator's jurisdiction to entertain the counter-claim for dissolution, and the ownership of the trademarks by V.H. Patel & Company. The Court emphasized the broad scope of the arbitration reference to settle all disputes between the parties.

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