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TMI Blog2023 (11) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... project-"Raghu Estates" in Alipore, Kolkata. The project had a developer's allocation of 16 flats of the total number of flats constructed for the project. The Certificate of Completion in respect of the project was granted on 19.1.2019. 3. The respondent no. 1 (claimant in the arbitration) is the son of one Pawan Kumar Churiwal, who was the single-largest share-holder and one of the three designated partners of the LLP holding 33.40% share in the LLP. Pawan Kumar Churiwal passed away on 12.1.2021. The respondent no. 1 sought to be inducted in the LLP pursuant to clause 22(v) of the LLP Agreement after the demise of Pawan Kumar Churiwal. The other partners (appellants before this Court) refused to induct the respondent no. 1/Gaurav Churiwal as the partner in the LLP. Gaurav Churiwal filed the statement of claim for an award including a direction on the respondents (appellants here) to induct Gaurav Churiwal in the LLP. The respondent no. 1/claimant also prayed for the financial statements which were unilaterally prepared by the appellants and for drawing up of a fresh account of profit and loss of the LLP after taking into account the sale proceeds of the inventories includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share of a deceased partner to the capital contribution of the former partner and the former partner's share in the accumulated profits of the LLP. Counsel further submits that the impugned order suffers from absence of reasons as to the basis of the direction on the appellant to set Rs. 6 crores apart and is also contrary to the arbitrator's findings in the 10th sitting. Counsel further submits that the claimant's conduct in the arbitration was inequitable and that the impugned order is patently illegal and perverse. Arguments of the respondent no. 1 : 8. Learned counsel appearing for the respondent no. 1 Gaurav Churiwal, who was the claimant in the arbitration and had applied for interim relief in the application filed under section 17(1), submits that the claimant's prayer in the arbitration was for induction as the partner in the LLP in place and stead of his father, Pawan Kumar Churiwal and that the section 17 application was hence for preserving the value of the claimant's share at the time of demise of his father/deceased partner of the LLP. 9. Counsel submits that the object and purpose of section 17 is to preserve the value of the share of the decea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct proceeds on the basis of "Cessation of Partnership Interest" and the recovery/consolidation of the outgoing partner's share-or the person entitled to his share in the LLP-in consequence of the death or insolvency of the former partner. 15. It is relevant to note that section 24(5) also requires taking into account the share of the value of the immovable assets of the LLP at the date of demise of the deceased partner particularly where the deceased partner was conferred right, title and interest over such asset under clause 22(i) of the LLP Agreement. The relevant portion of section 24(5) of the LLP Act, 2008 is set out below : "24(5). The fees to be paid to the Registrar in pursuance of sub-section (3) of Section 34 for filing the Statement of Account and Solvency shall be as mentioned in Annexure 'A'." 16. The above extract would show that section 24(5) does not have any manner of application to the present facts since respondent no. 1 was not seeking to exit the LLP under any circumstances but to continue in place of his deceased father under clause 22(v) of the LLP Agreement. The respondent no. 1 hence sought for re-drawing of the accounts of the LLP business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is wholly within the domain of the learned arbitrator and the powers conferred on the arbitrator under section 17(1)(ii)(a) to (e) of the Act. The pleadings disclosed as well as the Minutes of the Meeting justify moulding of the reliefs in view of the subsequent disclosures made by the appellant and the surviving partners with regard to alienation of assets/funds of the LLP. The disclosures admittedly came in driblets and not at one go. The arbitrator was hence fully justified in passing the impugned order to preserve and protect what was left of the LLP until the claim of the respondent no. 1 was finally decided. 22. A few instances which may have prompted passing of the impugned order are listed below : i) An order of disclosure on sale of flats after the demise of Pawan Kumar Churiwal was directed to be furnished by the appellant and the surviving partners in the third sitting on 10.3.2022. The affidavit-in-opposition (AO) to the section 17 application disclosed two flats post-demise of Pawan Kumar Churiwal. The respondent no. 1/ claimant controverted this disclosure as being insufficient and incorrect. ii) The appellant and the surviving partners filed a supplementary af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e figure of Rs. 6,41,73,413.00/-leading to the direction for keeping that amount aside as interim protection. 26. The third objection of absence of pleadings/prayer for securing the amount has been dealt above. An order passed under section 17(1) is not curtailed by the regime of The Code of Civil Procedure, 1908 and is in the nature of a residuary power for grant of interim measures of protection as may seem just and proper to the arbitrator. It is also not imperative to wait for actual diminution of the assets for passing of such orders since that may frustrate the arbitration altogether. Reliefs must hence be moulded in accordance with the facts and circumstances presented by the parties. The moulding of reliefs in this case was found to be necessary in view of the gradual (and forced) disclosure of alienation of assets and the funds of the LLP by the appellant and the surviving partners. 27. This Court is also not inclined to accept the argument that the impugned order does not contain reasons. The direction on the appellant and the other partners to set Rs. 6 crores apart is fully backed by evidence of the learned arbitrator having applied his mind to the facts before him. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 17(1) would be underscored by the last part thereof which is reproduced below:- "..........and the arbitral tribunal shall have the same power for making orders, as the court for the purpose of, and in relation to, any proceeding before it". ("Emboldened") 33. The object is reinforced in Section 17(2) which declares that any order issued by the arbitral tribunal under Section 17 shall be deemed to be an order of the court for all purposes and shall be enforceable under The Code of Civil Procedure, 1908 in the same manner as if it were an order of the court. 34. Therefore, the Act places the arbitral tribunal and the court at par in terms of the power to pass interim measures of protection. If this be the case, the Act does not envisage a party knocking at the doors of the Court at every turn of the arbitration proceeding. One of the salutary aims of the 1996 Act is to prevent multiplicity of disputes and stretching of the lis beyond reasonable limits. The Act contemplates giving unfettered power to the arbitral tribunal not only to pass interim orders but also to see the end of the lis before it. The section 37 court in appeal must therefore see an interim order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case? 38. The impugned order of the learned arbitrator is supported by the reasons stated therein. In other words, the direction on the appellants to keep Rs. 6 crores aside in a separate interest-bearing account can be traced to the reasons indicated by the learned arbitrator that the tribunal is only concerned with protecting the interest of the deceased (the father of the claimant/respondent no.1) and persons claiming under him. The arbitrator was of the view that there is a likelihood that the legal heirs of the claimant (the respondent no.1 herein) would remain embroiled in litigation and that the claimant is entitled to accounts and to share in the profits in the LLP in accordance with the LLP Agreement. The arbitrator also expressed concern of the claimant being left without a remedy in the event the right of the deceased partner in a running business is not protected considering the substantial profits made by the LLP after the demise of the deceased partner. 39. Most important, the respondents have only been directed to set apart a sum of Rs. 6 crore in an interest-bearing account as opposed to making over this amount to the claimant. Leaving everything els ..... X X X X Extracts X X X X X X X X Extracts X X X X
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