P L D 1977 Karachi 351 (PLP)

Date of hearing : 16th November 1976. This is an application under section 20 of the Arbitration Act, 1940 for an order directing the defendant to file in Court the agreement, namely, partnership deed dated 1st April 1971, which contains an arbitration clause. A further prayer is for appointment of an arbitrator and pending his award, a Receiver to take charge of the business and assets of the firm.

2. The application is opposed by the defendant on the ground that no sufficient cause has been shown for filing the agreement inasmuch as there is no dispute between the parties and the partnership deed is a sham document, designed to avoid the application of the Rent Ordinance to the real relationship between the parties which was that of the landlord and the tenant.

2. The first contention of Mr. Nasim Farooqui. the learned counsel for the plaintiff that there is no dispute will stand demolished by the very assertion that the partnership deed was a sham document for there is then quite obviously a serious dispute between the parties. It was alleged that prior to the filing of this application the plaintiff had continued to receive "his full share in all respects and there had been no occasion for him to have any grievance on this score." It is further alleged that the plaintiff never demanded rendition of accounts nor did the defendant postpone the same on one pretext or the other or refused to render the same. The partnership is admittedly at will and since apart from anything else, it is the plaintiff's desire to dissolve the firm, for according to him, it had become impossible to carry on the partnership business with advantage to the partners, and that in spite of interventions of relations and common friends in April 197t1, the defendant has failed to render accounts, there is also the allegation of secret profits and excess income declaration by the defendant of a ,large sum of money in his own name to which the reply is that this was with the common consent and full knowledge of the plaintiff and in any event the plaintiff has received his full share "in all respects". These allegations and counter‑allegations sufficiently demonstrate the existence of disputes between the parties which gave the plaintiff sufficient cause fop filing the present application.

3. Coming to the second contention of Mr. Nasim Farooqui, the learned counsel for the defendant that there was no partnership, the same is belied by the partnership deed admittedly executed by the parties. The Deed provides that the capital of the partnership shall be Rs. 30,000 which shall be provided by the two partners in equal shares of Rs. 15,000 each. The partnership business was to be carried on in Shops Nos. 54 and 59. situate at Group No. 5, Commercial Area, Liaquatabad, Karachi which was possessed by the plaintiff and in the event of the dissolution of the firm the shop together with its tenancy rights alongwith goodwill and furniture was to revert to the plaintiff and its vacant possession handed over ‑to the plaintiff.

4. The defendant's case is that in 1971 he was looking for a premises ‑for setting up his jewellery business when the plaintiff offered the existing premises alongwith paltry furniture for setting up the business; that as the plaintiff wanted to ensure that the premises would not be subject to rent laws he devised the present partnership deed and since he was his relation he agreed to this form of tenancy. It is, however, not denied that the plaintiff was to receive equal share in the profits of this business but it is alleged "strictly by way of compensation for the use and occupation of premises." As to the capital the defendant denies that the plaintiff contributed Rs. 15,000 but instead "contented himself with valuing tile goodwill at Rs. 8,000 and meagre furniture of Rs. 2,000 and himself contributing Rs. 5,000 as plaintiff's purported share in the capital." These assertions together with the defendant's admission that profits, both official and unofficial were being shared between the parties would itself establish existence of partnership. The three ingredients of partnership under section 4 of the Partnership Act are :‑ (i) There must be an agreement entered into by all the persons concerned. (ii) The agreement must be to share the profit of a business t (iii) The business must be carried on by all or any of the persons concerned, acting for all.

5. There is in the present case not only a deed of a partnership between ,the parties but actual sharing of profits and even if I were to assume that the consideration of sharing the profits was the premises owned by the plaintiff .and put at the disposal of the firm, that would far from detracting will go ,to establish a partnership. In relation to the third ingredient there is .q not even an allegation of lack of mutual agency. On the other hand clause in the deed of partnership that no partner shall mortgage, sell, assign o transfer his share in the business or the properties and assets of the firm or stand surety for any one or do or cause to be done anything whereby the property or assets of the firm may be attached or taken in execution, by implication accept mutual agency between the contracting parties.

6. Lastly, Mr. Nasim Farooqui, referred to the arbitration clause which ;provides that "in the event of any dispute between the partners the same shall be referred to the arbitration of arbitrators under the Arbitration Act as in force in Pakistan", and went on to argue that the clause was vague ,and indefinite for it neither provided for number of arbitrators to be appointed nor the mode of their appointment. The requirement of sub. section (i) of section 20 is existence of an arbitration agreement between the ,parties. Assuming that the arbitration agreement neither specified the number of arbitrators nor the mode of their appointment. the First Schedule to the Arbitration Act will become applicable to the arbitration agreement a .and under its rule (1) the reference shall be made to a sole arbitrator for there is nothing in the, partnership deed to exclude the First Schedule. The arbitration clause, therefore, in the agreement will take effect as an agreement for reference to a sole arbitrator to be appointed by consent of the parties or where the parties do not concur in making the appointment of the arbitrator, to be made by Court.

7. The result, therefore, is that the plaintiff's application under section 20 of the Arbitration Act is allowed and the matter will come up for bearing before me on December 7, 1976, for appointment of an arbitrator by Court if the parties are unable to agree.

8. This brings me to the plaintiff's second prayer for appointment of Receiver of the partnership business. In a partnership at will, particularly, when there are only two equal partners, receiver must follow automatically ; on dissolution, for no one partner can insist on its continuance particularly, when the allegations are that he is making secret profits, has failed t render accounts and seeks to exclude the other partner. In the present case the plaintiff's case is further advanced by denial by the defendant that there was no partnership and under the terms of the partnership the premise where the business was being carried on are to revert to the plaintiff and h will be entitled to both goodwill and furniture. It would, therefore, appear that appointment of receiver must in the present case follow as a matter of course. I, therefore, appoint Nazir of this Court as Receiver of the partnership firm of Sanghar Jewellers with full powers under Order XL, rule 1, C. P. C.

2. The plaintiff will be entitled to cost of these proceedings. S. A. H. Application allowed.