Libertatem Magazine

The Bombay High Court Dismisses the Petition and Holds That the Court Need Not Adopt Different Reasoning Merely Because Such an Alternative Is Possible

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The petition sought to assail the order passed under Section 17 by a Sole Arbitrator where the Sole Arbitrator declined to grant the relief sought in the application under Section 17. The matter involved a dispute between the partners of the firm regarding the contribution of funds from personal sources to the firm and the Court upheld the order by Sole Arbitrator. 

Brief Facts of the Case

The petition was filed under Section 37 of the Arbitration and Conciliation Act. According to the facts of the matter, both the Petitioner and the Respondent were partners of M/s Rajlaxmi Developers and they shared the profits and losses equally and both contributed 50% to the capital. The Petitioners pleaded before the Court that the Respondent should be directed to contribute further funds as required for meeting the firm’s obligation. According to Clause 12.1 of the partnership deed, the funds should be made available by availing external borrowing from a bank or financial institution and the partners ought to give their respective personal guarantee but shall not be obliged to create the mortgage on their premise or residence. While on the other hand Clause 12.2 stated that in the circumstance where the firm was not able to get funds from an external source, then the partners had to bring funds from their sources. 

Petitioners Arguments

The learned Counsel for the Petitioners submitted that the Petitioner and Respondent agreed upon ‘Understanding for Expenses’ which stated that all the future project expenses including expenses pertaining to obtaining any approvals and related to the title of the firm to the project land would be shared in the respective Profit-Sharing Ratio and so the Respondent was obliged to contribute the amount as required for carrying out the business. Further, according to Clause 4 of the partnership deed, the partnership would continue till the completion of development work undertaken by them. It was contended that the learned Arbitrator erroneously concluded that Clause 12.2 was only an alternative to Clause 12.1 and therefore, the impugned order by the Arbitrator should be set aside. 

Respondents Arguments

The learned Counsel appearing on behalf of the Respondent stated that Clause 12.2 would only be an alternative as held by the Arbitrator. Also, the ‘Understanding of Expenses’ was only signed by 4 partners and hence no merits could be found on the same. The Respondents also presented an instance before the Court where the Petitioners had fallen short of the required amounts and that the Petitioners were insisting that the Respondents bring in further contributions and therefore, there was no strength in evidence and documents presented by the Petitioners. 


Court’s Observation

The Court observed the findings of the Arbitrator and noted that the Petitioners had overlooked the fact that Clause 12.2 was subject to failure of the provisions of Clause 12.1. which stated that the principal source of funding was through borrowings and it was therefore clear that the funding was to be external and would be repaid from the income generated by the firm. Although as per Clause 12.1 every partner was required to give their guarantees, it also clarified that none of the partners would be obliged to mortgage their respective personal properties to secure such debt. Thus, the debt of the firm should be paid through income generated. In the present matter, since the Petitioner was not able to establish that the firm was not able to secure any borrowings, the Respondent would not be obliged to pay through his source. Hence, the Court believed that the findings of the Arbitral Tribunal were reasonable and there was no fault in the same. 

Court’s Decision

Finally, the Court was of the view that under Section 37 of the Arbitration and Conciliation Act, it was not open for the Court to re-assess all the material that had been placed before the Tribunal and to adopt different reasoning merely because such an alternative was possible. Hence, the Court dismissed the petition and held that the order given by the sole Arbitrator was a reasonable one and did not need any interference.  

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