# JIVARAJBHAI UJAMSHI SHETH AND OTHERS Nov.19 v. CHINTAMANRAO BALAJI AND OTHERS

- **Citation:** [1964] 5 S.C.R. 480
- **Court:** Supreme Court of India
- **Decided:** 1962-04-30
- **Case number:** Civil Appeal Chintamanrao No. 717 of 1963
- **Bench:** A.K. Sarkar, M. Hidayatullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jivarajbhai-ujamshi-sheth-and-others-nov-19-v-chintamanrao-balaji-and-others-2988
- **Pages:** 29

## Headnote

Arbitration-Partnership Agreement-Arbitration clause-Formula of valuation on dissolution-Arbitrator appointed by deed of
reference-Validity of award questioned-Grounds on which award
can be set aside-Error apparent on the face of 1he recordsArbitrator exceeding jurisdiction-Validity of Award-SeverabilityIndian Arbitration Act, 1940 (X of 1940), s. 30.
The appellants and the respondents entered into a partnership
in the business of manufacturing bidis. Under the agreement
a partner was entitled to retire after giving notice of six months
to all partners. It contained a clause for reference of disputes
between the partners relating to the business or dissolution of
the firm to arbitration. It also contained a clause providing how
four items including goodwill should be valued.
According
to this clause goodwill was equal to five years net profits for, debts
due to the firm were to be taken not at their book value but at
85 % of that value, stocks of raw materials were to be valued at
book value and immovable properties were to be valued at their
purchase price or their book value. About two years later the
appellants desired to retire from the partnership and a deed
of reference was executed and a sole arbitrator was appointed.
This provided that the remaining partners shall continue the firm
and they shall make full payment to the retiring partners of such
amounts in such manner and on such conditions as shall be decided upon by the arbitrator. The arbitrator gave the award.
He fixed the value of the goodwill of the firm at Rs.32 lakhs including
in that amount the "depreciation and appreciation of the property,
dead stock and dues to be recovered." The award was filed in
the Court under s. 14(2) of the Indian Arbitration Act, 1940.
"
I
..
SS.C.R.
SUPREME COURT REPORTS
481
The respondents applied for an order setting aside the award
on diverse grounds, two out of which survived for consideration
in the present appeal. The first was that the arbitrator in making
this award exceeded his jurisdiction because in fixing Rs. 32 lt khs
as the value of t.he devisable assets of the firm he included therein
the depreciation and appreciation of the property dead stock
1963
Jivara}bhai
Ujamshi Sheth
and others
and outstandings; secondly that the .arbitrator was guilty of misv.
conduct. The trial court upheld these and certain other objections Chintamanrao
and set aside the award. The High Court confirmed the decision Balaji and otherJ
of the trial court insofar as it related to the two contentions. The
present appeal is on a certificate granted by the High Court.
Held:
(i) An award made by an arbitrator is conclusive as
a judgment between the parties and the court is entitled to set
aside an award if the arbitrator has misconducted himself in the
proceeding or when the award has been made after the issue of
an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under s. 35 of the Arbitration Act or where an award has been improperly procured or
is otherwise invalid under s. 30 of the Act. An award may be
set aside by the Court on the ground of error on the face of the
award, but an award is not invalid merely because by a process
of inference and argument it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
Champsey Bhara and Company v. Jivraj Balloo Spinning and
Weaving Company Ltd., L.R. 50 I.A. 324 and Cruikshank and
others v. Sutherland and others,
(1923)
92
L.J. Ch.
136,
distinguished.
(ii) It is not open to the Court to speculate, where no reasons
are given by the arbitrator, as to what impelled the arbitrator to
arrive at his conclusions.
(iii) In the present case the arbitrator ·had included depreciation and appreciation of certain assets in the value of the goodwill
which he was incompetent to include by virtue of the limits placed
upon his authority by the deed of reference. This was not a case
in which the arbitrator has committed an e

## Text

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1963
R.P. Kapur
Y.
Union of India
and Anr.
480
SUPREME COURT REPORTS
[1964]
I would therefore dismiss the appeal.
ORDER
In accordance with the opinion of the majority
the appeal is allowed with costs in this Court and
in the High Court.
1963
JIVARAJBHAI UJAMSHI SHETH AND OTHERS
Nov.19
v.
CHINTAMANRAO BALAJI AND OTHERS
(A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.)
Arbitration-Partnership Agreement-Arbitration clause-Formula of valuation on dissolution-Arbitrator appointed by deed of
reference-Validity of award questioned-Grounds on which award
can be set aside-Error apparent on the face of 1he recordsArbitrator exceeding jurisdiction-Validity of Award-SeverabilityIndian Arbitration Act, 1940 (X of 1940), s. 30.
The appellants and the respondents entered into a partnership
in the business of manufacturing bidis. Under the agreement
a partner was entitled to retire after giving notice of six months
to all partners. It contained a clause for reference of disputes
between the partners relating to the business or dissolution of
the firm to arbitration. It also contained a clause providing how
four items including goodwill should be valued.
According
to this clause goodwill was equal to five years net profits for, debts
due to the firm were to be taken not at their book value but at
85 % of that value, stocks of raw materials were to be valued at
book value and immovable properties were to be valued at their
purchase price or their book value. About two years later the
appellants desired to retire from the partnership and a deed
of reference was executed and a sole arbitrator was appointed.
This provided that the remaining partners shall continue the firm
and they shall make full payment to the retiring partners of such
amounts in such manner and on such conditions as shall be decided upon by the arbitrator. The arbitrator gave the award.
He fixed the value of the goodwill of the firm at Rs.32 lakhs including
in that amount the "depreciation and appreciation of the property,
dead stock and dues to be recovered." The award was filed in
the Court under s. 14(2) of the Indian Arbitration Act, 1940.
"
I
..
SS.C.R.
SUPREME COURT REPORTS
481
The respondents applied for an order setting aside the award
on diverse grounds, two out of which survived for consideration
in the present appeal. The first was that the arbitrator in making
this award exceeded his jurisdiction because in fixing Rs. 32 lt khs
as the value of t.he devisable assets of the firm he included therein
the depreciation and appreciation of the property dead stock
1963
Jivara}bhai
Ujamshi Sheth
and others
and outstandings; secondly that the .arbitrator was guilty of misv.
conduct. The trial court upheld these and certain other objections Chintamanrao
and set aside the award. The High Court confirmed the decision Balaji and otherJ
of the trial court insofar as it related to the two contentions. The
present appeal is on a certificate granted by the High Court.
Held:
(i) An award made by an arbitrator is conclusive as
a judgment between the parties and the court is entitled to set
aside an award if the arbitrator has misconducted himself in the
proceeding or when the award has been made after the issue of
an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under s. 35 of the Arbitration Act or where an award has been improperly procured or
is otherwise invalid under s. 30 of the Act. An award may be
set aside by the Court on the ground of error on the face of the
award, but an award is not invalid merely because by a process
of inference and argument it may be demonstrated that the arbitrator has committed some mistake in arriving at his conclusion.
Champsey Bhara and Company v. Jivraj Balloo Spinning and
Weaving Company Ltd., L.R. 50 I.A. 324 and Cruikshank and
others v. Sutherland and others,
(1923)
92
L.J. Ch.
136,
distinguished.
(ii) It is not open to the Court to speculate, where no reasons
are given by the arbitrator, as to what impelled the arbitrator to
arrive at his conclusions.
(iii) In the present case the arbitrator ·had included depreciation and appreciation of certain assets in the value of the goodwill
which he was incompetent to include by virtue of the limits placed
upon his authority by the deed of reference. This was not a case
in which the arbitrator has committed an error of fact or law in
reaching his conclusions on the disputed questions submitted
for adjudication. It was a case of assumption of jurisdiction not
possessed by him and that rendered the award to the extent to
which it was beyond the arbitrators' jurisdiction, invalid. It
is, however, impossible to sever from the valuation madf by the
arbitrator the value of the. depreciation and appreciation included
by the arbitrator. The award must therefore fail in its entirety.
Per Hidayatullah, J.-(i) If the parties set limits to action by
the arbitrator, then the arbitrator had to follow the limits set for
him and the court can find that he exceeded his jurisdiction on
proof of such excess.
(ii) In the present case the arbitrator in working out net
profits for four years took into account depreciation of immovablo
lfSCif64-31
1963
Jivarajbhai
Ujamshi Sheth
and others
482
SUPREME COURT REPORTS
[1964]
property.
For this reason he must be held to have exceeded
his jurisdiction and it is not a question of his having merely interpreted the partnership agreement for himself as to which the
Civil Court could have had no say, unless there was an error of
law on the face of the award.
v.
CIVIL APPELLATE JURISDICTION:
Civil
Appeal
Chintamanrao No. 717 of 1963.
Balaji and others
Shah J.
Appeal from the judgment and order dated
April 30, 1962, of the Madhya Pradesh High Court
at Jabalpur in Misc. Appeal No. 75 of 1961.
S.T. Desai and l.N. Shroff, for the appellants.
G.S. Pathak and Remeshwar Nath, for respondents
Nos. I to 3.
A. V. Viswanatha Sastri and Remeshwar Nath,
for respondents nos. 4 and 5.
November 19, 1963.
The Judgment of A.K.
Sarkar and J.C. Shah, JJ. was delivered by Shah, J.
M. Hidayatullah, J. delivered a separate Opinion.
SHAH, J.-Vrajlal Manila! & Company, a firm
consisting originally of four partners (1) Manila!
Anandji, (2) Jivrajbhai Ujamshi Sheth, (3) Punjabhai
S. Patel, and ( 4) Chintamanrao, has been doing
business of manufacturing bidis at Sagar and Delhi
since 1944. From time to time fresh partnership
deeds were executed readjusting the shares of the
partners admitting new partners and adjusting the
shares of the partners. Jn 1954 Manila! Anandji
retired from the firm and on January 27, 1955, Punjabhai
S. Patel died.
On February 16, 1956, a fresh deed of partnership
was executed. The firm then consisted of eight
partners_:.Jivraj and his two sons being entitled in
the aggregate to annas -/4/3 share in a rupee in the
profits, Chintamanrao and his two sons to annas
-/7/6 share in a rupee, and the two sons of Punjabhai
S. Patel to the remaining annas -/4/3 share. By
paragraph-7 the books of account were to be maintained
by the managing partner, the financial year of the firm
!
SS.C.R.
SUPREME COURT REPORTS
483
1963
being from Diwali to Diwali, and profits and losses
were to be ascertained at the close of the year and
a copy of the balance-sheet with profits and loss
Jivarajbhai
statement was to be supplied to each partner, and Ujamshi Sheth
if no objection regarding the accounts was raised
and others
within four months from the end of the year, the
. v.
accounts were to be deemed conclusive and binding Chmtamanrao
unless vitiated by fraud.
By paragraph-12 it wasBalaii and others
stipulated that a partner desiring to retire from the
partnership may, unless the other partners agreed to
his retirement otherwise, do so after giving six months
notice to all the partners in writing terminable at the
end of the year i.e., the Diwali immediately following
the date of the notice. Paragraph-13 provided:
"In case of retirement of any partner the valuation of the Firm will be made on the following
basis for the purpose of settling the account
of the retiring partner:-
"(a) Goodwill of the Firm:·-That is, right to
use the trade marks, trade labels and the
name of the Firm.
In making the valuation of the above the
net profits of the last five years will be taken
as the value of the Goodwill of the Firm.
(b) Outstandings, Udhari (Recoveries) :-That
is, loans and debts
outstanding against
~
persons other than partner will be calculated at 85 % of the book value of the Firm.
(c) Stock of Raw Materials :-That is, tobacco,
bidis, bidi leaves, labels and other moveable
property will be valued at the book value
of these in the books of the Firm and all
such stock and moveables, thus valued shall
be given to the remaining partners.
(d) Immoveable Property:-Such as buildings,
godowns, gardens, lands etc. will be valued
at the purchase price or their book value
in the books of the Firm as the case may be,
and all these shall be given to the remaining
partners."
Shah J.
1963
Jivarajbhai
Ujamshi Sheth
484
SUPREME COURT REPORTS
[1964]
Paragraph-16 incorporated a clause for reference of
disputes between the partners relating to the business or
dissolution of the firm to arbitration.
and others
In April 1958 Jivraj and his two sons --appellants
v.
in this appeal desired to retire from the partnership,
Chintamanrao and a deed of reference was executed on April 16,
Ba/aji and othas 1958, appointing Ambalal Ashabhai, Becharbhai Soma-
-
bhai and Chaturbhuj Jasani as arbitrators to decide
Shah J.
the dispute. It was recited in the deed of reference
that since Jivraj and his two sons had expressed a
desire· to retire and the remaining five partners had
agreed to take over the entire business of the firm,
it was "necessary to effect the final account of the
retiring partners with regard to the matters mentioned
below, as far possible, according to and taking into
consideration the terms and conditions of the Partnership Agreement.
!. Goodwill of Trade Mark.
2.
Property.
3.
Credits (Udhari)
4.
Dead-stock.
5.
Stock-in-trade i.e. the raw material or the
finished goods invested in the business.
6. Other matters connected with these transactions.
7. Profit and Loss Account.
8. The Receipt ond Payments account of the
amounts of the partners.
By paragraph 6 it was provided that the firm shall
be continued by the remainin6 five partners and that
those five partners shall make full payment to the
retiring partners Jivraj and his two sons of such amounts, in such manner, and on such conditions, as
shall be decided upon by the arbitrators. Paragraph
7 set out the powers exercisab'e by the arbitrators in
the matter of calling for production of account books
and documents and other information from the parties.
The deed of reference was subsequently modified, and the parties agreed that the reference be
(.
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•
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'
5 S.C.R.
SUPREME COURT REPORTS
485
"carried out by the sole arbitrator Shri Jasani".
1963
Pursuant to this modified agreement, J asani entered
upon the reference, and made his award on January
Jivarajbhai
9, 1959.
By his award he fixed the value of the good- Ujamshi Sheth
will of the entire firm at Rs. 32 lakhs including in
and others
that amount the "depreciation and appreciation of
. v.
the property, dead-stock and dues to be recovered". Chz~tamanrao
He also fixed the profits for the broken period of Ba/OJz and others
Samvat year 2014 from the commencement of the
-
year till April 19, 1958 at Rs. 2,80,000 and after adShah 1·
justing the personal accounts of the three retiring
partners awarded to Jivraj Rs. 3,46,223.58 nP. to
Amritlal son of Jivraj Rs. 4,04,519.99 nP. and to
Bhagwandas son of Jlvraj Rs. 3,86,019.14 nP, and
directed that the ownership over the assets of the
firm i.e. property-moveable and immoveable,-Trade
mark, labels, stock-in-trade, long-term leases and
contracts etc. shall remain with the remaining partners, subject to the liabilities of the firm, the retiring
partners not being responsible for the liabilities of
the firm, nor having any interest in the firm or its
business. This award was filed in the Court of the
Additional District Judge, Sagar, under s. 14(2)
of the Indian Arbitration Act, 1940.
Chintamanrao and his sons then applied for an
order setting aside the award on diverse grounds.
In this appeal by the retiring partners, two heads
of objections only ,survive for determination and we
propose to refer only to those two heads, viz:
(I) That the arbitrator in making his award
travelled outside his jurisdiction delimited
by the agreement of reference in that in
fixing Rs. 32 lakhs as the value of the divisible assets of the firm he included therein
the depreciation and appreciation of the
property, dead-stock and outstandings, which
he was by the terms of the reference incompetent to include.
(2) That the arbitrator was guilty of legal misconduct in that he had in the course of
arbitration proceedings admitted in his record
1963
Jivarajbhai
Ujamshi Sheth
and others
486
SUPREME COURT REPORTS
[1964]
a statement of account prepared by Jivraj
and his sons without the knowledge of the
other partners and without giving them
an opportunity to make their submissions
thereto.
Ch. 1v.
The retiring partners resisted the petition to set
B 1
'.~ a~an;;
0 aside the award and submitted that they were entitled
a a1z an ° ers to have the assets of the firm in which they had a
Shah J.
share, fixed at an amount much in excess of Rs. 32
lakhs and that the arbitrator had not overstepped
his jurisdiction in fixing the value of the goodwill
at Rs. 32 lakhs, and that the statement of account
referred to by the applicants was prepared under
the directions of the arbitrator and in his presence
and it was admitted in the record of the arbitrator
to the knowledge of the remaining partners who had
assented thereto.
The Trial Court upheld these and certain other
objections, and set aside the award. The High
Court confirmed the decision of the Trial Court,
insofar as it related to the two objections hereinbefore set out.
The question which we propose to consider
first is: whether in making the "valuation of the firm"
,
for determining the share to be paid to the retiring
partners, did the arbitrator overstep the limits of his
~··
authority under the agreement of reference? It may
,..
be recalled that by cl. 6 of the arbitration agreement
1
the remaining partners had to "make full payment to
the retiring partners of such amount as may be decided"
by the arbitrator. But in determining the amounts
to be awarded to the retiring partners, the authority
of the arbitrator was restricted. He had, in determining the amounts due to the retiring partners, to take
"final accounts with regard to the matters" set out
in cl. 4, "as far as possible, according to and taking
into consideration the terms and conditions of the
Partnership agreement". By this direction the clauses
of the partnership agreement were incorporated in
the agreement of reference. The "final account"
1
of the retiring partners with regard to the eight matters
•
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•.
5 S.C.R.
SUPREME COURT REPORTS
487
1963
specified in cl. 4 was undoubtedly to be made, as
far as possible, according to and taking into consideration the terms and conditions of the partnership
Jivarajbhai
agreement. The language used in the deed of re- Ujamshi Sheth
ference is of compulsion, not of option: it means
and others
that if there be in the partnership agreement any term
v ·
or condition, which deals with any particular matter Chintamanrao
of which an account was to be taken under cl. 4 of the Ba/aji and others
agreement of reference, it has to be strictly followed.
Use of the expression "as far as possible" did not
confer any discretion upon the arbitrator to ignore
the terms and conditions of the partnership agreement.
In paragraph-13 of the partnership agreement, in
making "valuation of the firm" for the purpose of
settling accounts, the value of the goodwill, the outstandings,
stock of raw material and moveable
and immoveable property had to be taken as directed
therein. In the matter of valuation of the goodwill
of the firm, therefore, no discretion was left to the
arbitrator: the value of the goodwill had to be the
aggregate of the net profits of the last five years. Debts
due to the firm from persons other than partners
had to be "calculated at 85 % of the book value of
the firm". In respect of the stock of raw materials
and other moveable property the "book value in
the books of the firm" had to be accepted by the arbitrator and in the case of immoveable property
such as buildings, godowns, gardens, lands etc. "the
book value in the books of the firm" was to be accepted
and if none such was available the purchase price
as mentioned in the books was to be accepted. In
all these matters the arbitrator had by cl. 4 of the
arbitration agreement to make the final account of
the retiring partners according to and taking into
consideration the terms and conditions of the partnership agreement and had no option.
It is necessary to remember that the partnership
agreement does not grant to a retiring partner a share
in the aggregate of the four items mentioned in els.
(a), (b), (c) & (d) of paragraph-13 i.e., goodwill of
the firm, outstandings, stock of raw materials including
Shah J.
488
SUPREME COURT REPORTS
[1964]
1963
moveable and immoveable property. The partnership
agreement merely provides that the "valuation of the
Jivarajbhai
firm" shall be made as set out therein for the purpose
Ujamshi Sheth of settling the account of the retiring partners i.e.,
and others
in ascertaining the amount due to the retiring partners
v.
valuation of the assets in els. (a) to (d) ofparagraph-13
Chintamanrao shall be made in the manner set out therein. The
Balaji and others arbitrator was therefore bound to adopt the valuation prescribed by the partnership agreement, but
Shah 1·,
that is not to say that the retiring partner was entitled
to a share equal to the aggregate of the values of the
four items mentioned in paragraph-13. It is necessary to emphasize this matter because on behalf of
the retiring partners a considerable argument was advanced before us on the assumption that they were
entitled to a share equal to the aggregate of the values
of the four items of property mentioned in paragraph-13
of the partnership agreement, and that by the method
of valuation adopted by the arbitrator they were
awarded much less than what they were under the
partnership agreement entitled to. Paragraph-13 merely prescribes the valuation in respect of four out of
the items which had to be considered in ascertaining
the "valuation of the firm". The phraseology used
in paragraph-13 in the opening part of the paragraph
makes it clear beyond all doubt that the valuation
of the firm had to be made on the basis specified
for the purpose of settling the account of the retiring
partner.
The specific items in paragraph-13 do
not prescribe any method of valuation of the debts
and liabilities of the firm, but the debts and liabilities
must be taken into account in assessing the value of
the share of the retiring partners. The arbitrator
had to make a valuation of the firm i.e. of all the assets
of the firm and of the debts due by the firm and thereafter to settle the account of the retiring partners.
We may now turn to the award made by the
arbitrator. The dispute between the farties has to
be resolved on a true interpretation o the following
clause:
"I assess the value of the goodwill at Rs. 32 lakhs.
•
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,•
•
5S.C.R.
SUPREME COURT REPORTS
489
This
amount includes the depreciation
and
appreciation of the property, dead-stock and
dues to be recovered."
(We have taken this as the correct rendering into
English of the original award which is in Hindi.
It is accepted by both the parties before us as a true
rendering.)
The arbitrator has, as he has observed in his
award, taken only the value of the goodwill, in determining the amounts to be allotted to the retiring
partners, and has not expressly referred to the valuation of the three other items, viz., the outstandings,
the stock-in-trade and moveables and the immoveable
property mentioned in paragraph-13 of the partnership agreement. Counsel for the retiring partners
urged that on the admission made by Chintamanrao,
the value of the goodwill alone was Rs. 21,70,650/10/-
and if the value of the immoveables, stock-in-trade
etc. and outstandings be added thereto, the aggregate
would considerably exceed Rs. 32 lakhs. But this
argument is founded on the fallacious assumption that
the debts and Uabilities of the firm have to be ignored
in determining the shares of the retiring partners.
Counsel for the respondent submitted that in substance
the goodwill had alone to be valued by the arbitrator
for the property, moveable and immoveable, stockin-trade and the outstandings of the firm were approximately equal to the aggregate of the debts and
obligations of the firm.
Reliance in thfa behalf
was placed upon a balance-sheet Ext. A-13 of the
assets and liabilities of the firm, showing the financial
position of the firm on April 16, 1958, and the value of
the tangible assets, such as the stock of raw-materials,
moveable and immoveable property and outstandings,
according to the balance-sheet, was approximately
equal to the debts and liabilities of the firm.
But It is not necessary for us to decide whether
the submission of the respondents is correct. The
arbitrator has in his award stated that Rs. 32 lakhs is
the value of the goodwill alone, and for some reason
not disclosed by him he has not valued the other
1963
Ji varajbhai
Ujamshi Sheth
and others
v.
Chintamanrao
Ba/aji and other
Shah J.
490
SUPREME COURT REPORTS
[1964]
1963
assets. He has also not disclosed in his award how
he has arrived at the valuation of Rs. 32 lakhs. One
Jivarajbhai
thing, however, stands out prominently in the award,
r.Jjamshi Sheth that in assessing the value of the goodwill, he has
and others
included the
depreciation and appreciation of the
v.
property,
dead-stock and the outstandings. The
Chintamanrao arbitrator could undoubtedly make a lump-sum valuaBalaji and others tion of the firm in the award made by him. He
was not obliged in the absence of a direction in that
Shah J.
behalf to set out in his award the valuation of the
different components which aggregated to the lumpsum. The arbitrator had to "value the firm", and
in doing so to abide by the specific directions, but
he was not obliged to set out in the award separate
valuations of all or any of the items mentioned in
para 4 of the deed of reference, or in paragraph-13
of the partnership agreement, nor to set out the extent
of the debts and obligations assessed by him.
What then is the effect of the inclusion by the
arbitrator in the valuation of Rs. 32 lakhs, of the
depreciation and appreciation of the property, deadstock and dues to be recovered? Diverse arguments
were submitted by counsel for the appellants in support
of the plea that the inclusion of what is called the
depreciation and appreciation in respect of the various
items does not amount to overstepping the limits
of the jurisdiction of the arbitrator. It may be reiterated that the powers of the arbitrator were, by the
terms of cl. 4 of the deed of reference, clearly restricted. He was "to take final account of the retiring
partners with regard to the matters mentioned therein,
as far as possible, according to and taking into consideration the terms and conditions of the partnership
agreement''. Restriction on the power of the arbitrator in valuing the property, dead-stock and outstandings was explicit. He could not therefore adopt
any valuation different from the valuation prescribed
by paragraph-13 of the partnership agreement. But
the arbitrator has, as he has himself stated, in valuing
the goodwill at Rs. 32 lakhs included in that amount
the value of the depreciation and appreciation of
the property, dead-stock and dues to be recovered.
•
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....
5S.C.R.
SUPREME COURT REPORTS
491
1963
Counsel for the appellant submitted that reduction of outstandings of the firm by 15 % in respect
of the dues from persons other than the partners
Jivarajbhai
was a mode of ascertaining the depreciation in resU}amshi Sheth
pect of that item provided by cl. (b) of paragraph-13
and others
of the partnership agreement, and the arbitrator in
v.
taking into consideration that depreciation has not Chintamanrao
acted outside his jurisdiction. It would be difficultBa/aji and others.
to regard the method of valuation as prescribed in
respect of the outstandings as "including depreciation".
Even assuming that the reduction of the outstandings
of the firm from persons other than the partners by 15 %
as directed in cl. (b) of paragraph-13 of the partnership agreement be regarded as depreciation of
the assets, inclusion of depreciation and appreciation
in respect of the other assets was not permitted by
the deed of partnership. In valuing the moveable
property including the stock of raw materials, the
arbitrator could not adopt any valuation other than
that mentioned in cl. (c) of paragraph -13 of the
partnership agreement, namely, the book value as
given in the books of the firm.
Similarly, in the
valuation of immoveables such as buildings, godowns,
gardens, lands etc., he had to accept the book value
as mentioned in the books of account of the firm
and if no book value
was available the purchase
price as mentioned in the books was to be accepted.
The arbitrator had no power to make any adjustment in respect of those items by including depreciation or appreciation in their value.
The principle of Cruikshank and others v. Sutherland and others <1J on which reliance was placed
by counsel for the retiring partners, has, in our judgment
no application to this case, because in that case though
there was an article of the partnership providing that
the share of a deceased partner in the assets of the
partnership should be ascertained by reference to
the annual account made up on April 30 next after
the death, the articles were wholly silent as to the
(1) [1923] 92 L.J. Ch. 136
Shah J.
492
SUPREME COURT REPORTS
(1964]
1963
principle to be adopted in preparing a full and general
account of the property. There was no usage or
JivaraJbhai
course of dealings between the partners from which
UJamshi Sheth an inference could be drawn that on the death of
and others
a partner his share shall be paid out on the footing
v.
of book value. The executors of the deceased partner
Chintamanrao claimed that his· share be determined "at the· fair
Ba/aji and others value of the firm". At p. 138 it was observed by
Shah J.
Lord Wrenbury.
"Even if there were a usage to state an account
for one purpose in one way, that is not a usage
to state it for another purpose in the same way.
There is a passage in Blisset v. Daniel (10 Hare,
at p. 515) which is useful reading in this connection. An account stated for one purpose is
not necessarily stated for another purpose. The
fact is, that in this partnership an account has
never been stated with a view to fitting the case of
a retiring partner, or a deceased partner, or a
senior partner who is going to exercise an option
of taking over all the assets. The partners have
never had any such event in view in making the
account which they have made. There has never
been an account prepared which was intended to
meet all the various contingencies of events such
as these.
In the case before us there is no dispute that the duty
of the arbitrator was to make "valuation of the firm"
subject to paragraph-13 of the partnership agreement
and it may even be granted that in arriving at that
valuation he was not bound by paragraph-7, but on
this question we express no opinion. But the values
as mentioned in the different clauses had to be accepted
in making up the partnership account in respect
of the four matters specifically enumerated. The
principle of Cruikshank's case <1> did not apply, because the · partnership agreement in this case itself
provides that the book value in the books of the
firm shall be accepted.
(!) [1923] 92 L.J. Ch. 136.
•
5 S.C.R.
SUPREME COURT REPORTS
493
1963
The expression "book
value" in the context
in which it occurs in the partnership agreement means,
the value entered in the books of account. Adoption
Jivarajbhai
of the book value is therefore obligatory and there U}amshi Sheth
is no scope of any adjustment in the value in the
and others
light of any depreciation or appreciation of the prov.
perty, outstandings, stock-in-trade or dead-stock, apart Chintamanrao
from what may a~tually be included in the book value Bala}i and others
in the books.
It is the book value alone which has
to be taken. If the depreciation or appreciation has
been taken into account by the partners in assessing
the book value, that was evidently part of the book
value as entered in the books of account. If there
was no book value entered in respect of any immoveable property, the decisive value was to be the
purchase price .
It was then urged that it was for the arbitrator
to adjudicate upon the true meaning of the partnership
agreement and to give effect thereto, and if in making
a "valuation of the firm" he was of the opinion that
depreciation and appreciation in respect of certain
items of assets should be included for the purpose
of making up the account of the partners, the Court had
no jurisdiction to set aside the award on that account,
merely because the Court took a different view as to
the true meaning of the arbitration agreement. But
if the partnership agreement was incorporated in the
deed of reference, the limits of the jurisdiction of the
arbitrator must be determined by the Court and not
by the arbitrator. By assuming that he was entitled
to include, beside the value of the four items as mentioned in paragraph-13, some amount by way of
appreciation in the value of those items, the arbitrator
purported to set at naught the specific directions
given in that behalf.
An award made by an arbitrator is conclusive as a
judgment between the parties and the Court is entitled to set aside an award if the arbitrator has misconducted himself in the proceedings or when the
award has been made after the issue of an order
by the Court superseding the arbitration or after
Shah J.
1963
Jivarajbhai
Ujamshi Sheth
and others
494
SUPREME COURT REPORTS
[1964]
arbitration proceedings have become invalid under
s. 35 of the Arbitration Act or where an award has
been improperly procured or is otherwise invalid:
s. 30 of the Arbitration Act. An award may be set
aside by the Court on the ground 'of error on the face
.
v.
of the award, but an award is, not invalid merely
Chr~tamanrao because by a process of inference and argument it
Ba/aJI and others may be demonstrated that the arbitrator has comShah J.
mitted some mistake in arriving at his conclusion.
As observed in Chempsey Bhara and Company v.
Jivraj Balloo Spinning and Weaving Company Ltd. cii
at p. 331:
"An error in law on the face of the award means,
in their Lordships' view, that you can find in
the award or 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.
It does not mean that if in a'narrative a reference
is made to a contention of one party, that opens
the door to seeing first what that contention is, and
then going to the contract qn which the parties'
rights depend to see if that contention is sound."
The Court in dealing with an application to set aside
an award has not to consider whether the view of
the arbitrator on the evidence is justified.
The
arbitrator's adjudication is generally considered binding
between the parties, for he is a tribunal selected by
the parties and the power of the Court to set aside
the award is restricted to cases set out in s. 30. It
is not open to the Court to speculate, where no reasons
are given by the arbitrator, as to what impelled the
arbitrator to arrive at his conclusion. On the assumption that the arbitrator must have arrived at his
conclusion by a certain process of reasoning, the
Court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the Court
to attempt to probe the mental process by which
the arbitrator has reached his conclusion where it
(!) L.R. 50 I.A. 324.
..
•
I
5 S.C.R.
SUPREME COURT REPORTS
495
1963
is not disclosed by the terms of his award. But
the arbitrator has in the present case expressly stated
in his award that in arriving at his valuation, he has
Jivarajbhai
included the depreciation and appreciation of the Ujamshi Sheth
property, outstandings and dead-stock, and in so
and others
doing in our judgment the arbitrator has travelled
v.
outside his jurisdiction and the award is on that Chintamanrao
account liable to be set aside. The question is not Balaji and others
one of interpretation of paragraph-13 of the partnership agreement but of ascertaining the limits of his
jurisdiction. The primary duty of the arbitrator
under the deed of reference in which was incorporated
the partnership agreement, was to value the net assets
of the firm and to award to the retiring partners
a share therein. In making the "valuation of the
firm", his jurisdiction was restricted in the manner
provided by paragraph-13 of the partnership agreement.
It was next urged that the depreciation or appreciation which had been entered in the assessment
of the book value were "other matters connected
with" the "transactions" mentioned in the deed of
reference. But manifestly those other matters were
apart from the valuation of the goodwill, property,
outstandings and the dead-stock.
It was then urged that when the arbitrator stated
that he had included depreciation and appreciation of
certain assets in the value of the goodwill in the
award, he merely meant that such depreciation
and appreciation was
included as was in the
circumstances permissible. But that would be ignoring
the express recital in the award. In fact under the
scheme of valuation envisaged by the partnership
agreement and therefore the deed of reference, there
was no scope for including in the valuation, appreciation of the assets. Again to argue, as was sought
to be done, that even though the arbitrator stated
that he had included in the amount of Rs. 32 lakhs
"the depreciation and appreciation" of the property,
dead-stock and dues, there being no power to include
appreciation, appreciation in the property and the
Shah J.
496
SUPREME COURT REPORTS
[1964)
1963
dead-stock could not have been included amounts
to reaching a conclusion from an assumed premise
Jivarajbhai
of which the conclusion was a component.
Ujamshi Sheth
and others
It was also urged that the expression depreciation
v
and appreciation had no such meaning as decrease
Chinta~anrao or increase in the market value of the property,
Ba/aji and others dead-stock and outstandings, and the clause merely
meant tl;iat in fixing the valuation such depreciation
Shah J.
or appreciation as had gone into the assessment
of the book value of the different items was taken
into consideration. But the arbitrator has not said that
he merely took into consideration the depreciation
and appreciation which went into the book value
assigned by the partners to the assets in the account:
he has clearly stated that he had included the depreciation and appreciation in those assets in the valuation of the goodwill.
Finally it was urged that the recital about the
inclusion of depreciation or appreciation was a mere
surplusage and should be discarded. But it would
be difficult to regard a statement made by the arbitrator relating to what he says he had included in the
valuation of the goodwill, as a mere surplusage,
especially having regard to the orders made by him
insisting upon the production of documentary evidence and certain books of account from Chintamanrao. It may be pointed out that by cl. 7 of the deed
of reference very wide powers were conferred upon
the arbitrator to call upon the disputing parties to
produce the accounts etc. which the arbitrator desired
and to produce any other papers or documents which
the arbitrator would like to inspect, and to reply
to any enquiry verbal or written of any sort or in
any connection and in any form the arbitrator wanted.
The orders passed by the arbitrator in exercise of
these powers tend to indicate that in his view he
was competent to ascertain and include in the valuation
of the firm the depreciation and appreciation on
the various items which were taken into account
in arriving at the valuation. By order dated September 16, 1958, the arbitrator gave direction, amongst
•
)
5 S.C.R.
SUPREME COURT REPORTS
497
1963
others, to Chintamanrao to file a statement of houses
etc. of immoveable property, valuation of the same
as shown in the books of account, i.e. figures regarding
Jivarajbhai
it, and "also the approximate value statement as Ujamshi Sheth
it existed" at the date of demand according to the
and others
estimate of Chintamanrao. In the note to the order,
v.
it was stated that Chintamanrao had produced certain Chintamanrao
papers but they were incomplete, and therefore he Balaji and others
was ordered to bring copies of the incomplete papers
and also those papers which were not sent by him.
On October 10, 1958, Chintamanrao produced a
statement of the net profits of the five years preceding
the date of dissolution-which he called the price
of the goodwill--for Samvat years 2009 to 2013.
The aggregate of the net profits was Rs. 21,70,650/10/-
which he called "price of the goodwill". He then
submitted a statement of the outstandings of the
different shops aggregating to Rs. 9,16,366/-
and
the value of the goods
purchased,
and other
property, and submitted that the total value of the
goodwill of the firm by taking into account the profits
of the firm for the last five years "as per the statement
filed was Rs. 21,70,650/10/3 and deducting therefrom 15 % of the outstandings of the firm considered
as irrecoverable, the balance was Rs. 20,33,295/12/9",
and that this was the amount from which the shares
of the retiring partners were to be computed.
On
December 2, 1958, an application was filed by Chintamanrao inviting the attention of the arbitrator to
the agreement of reference and to the terms of the deed
of partnership, especially paragraphs 7 and 13, and submitting that the book values of items (2) to (5) in paragraph-4 of the agreement of reference were already in
the books of account and could be easily found without
any detailed or elaborate examination of the books
of account, it was unnecessary to enter upon any
detailed inspection of the various entries. On this
application an order was passed on December 5,
1958, by the arbitrator that the inspection of the
books of account do start on December 21, 1958,
in his presence at Sagar in the office of Messrs Virajlal
Mannilal and Company and that Chintamanrao do
l SCl/64-32
ShahJ.
498
SUPREME COURT REPORTS
[1964)
~
1963
make arrangements for giving inspection of all the
books of account. On December 22, 1958, another
Jivarajbhai
application was submitted by Chintamanrao stating
Ujamshi Sheth that it was not necessary to produce certain registers
and others
and manufacturing accounts and that the orders
v.
in that behalf were beyond the jurisdiction of the
Chintamanrao arbitrator and that he was unable to produce the
Balaji and others documents demanded. It was submitted by that
Shah J.
application that the kind of inspection claimed and
granted amounted to re-opening of the accounts
for the last five years which were closed with the
consent and to the knowledge of all the partners
and which could not in law be re-opened.