Short facts

This appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”) was filed against the order dated 14.03.2024 passed in COPN No.82 of 2023 by the District. Judge, for the Adjudication and Settlement of Commercial Disputes, at Hyderabad, whereby the respondent no.1, namely the Managing Partner of M/s.Cafe Bahar Restaurant, was judicially appointed.

The parents of the appellant and respondent no.1 to 3 and the deceased respondent no.4 constituted a partnership firm, namely M/s.Cafe Bahar and Restaurant (hereinafter referred to as “the Firm”), which is engaged in the business. to run an Iranian restaurant and bakery since 1999. After the death of the appellant’s parents, respondent no. 1 to 3 and deceased respondent no. 4, the Company was reconstituted and a Deed of Reconstitution dated 01.10.2020 was executed . The appellant holds a 14% share in the Company.

After the execution of the Deed of Reconstitution, disputes arose between the appellants and the respondents. According to the appellant, the respondents did not pay her the rightful share of the Company’s profit from January 2021, i.e. for 3 years and 9 months, and she was paid only an amount of 1,00,000 lei/- monthly.

Respondent no. 1 to 3, then, initiated an arbitration procedure in order to dissolve the Company. The arbitrator by a Decision of 22.09.2023 allowed the withdrawal of the claims, while preserving the rights and claims of the appellant.

The appellant filed an application under Section 9 of the 1996 Act seeking the appointment of a receiver to take over the business of the firm. The Commercial Court, by order of 13.02.2024 issued in COP No. 82 of 2023, admitted the aforementioned request made by the appellants.

Therefore, the Commercial Court appointed respondent no.1, namely the Management of the Company as Administrator to manage the day-to-day affairs of the business, subject to the terms and conditions listed therein. Being injured, the appellant filed this appeal.

Appeals

The appellant submitted that it was wholly improper to appoint the respondent no.1 as receiver and to allow him 6 to run the business in the same manner as he was doing before the dissolution of the Company.

• That the conduct of the respondent no. 1 disqualifies him from being appointed as a judicial administrator, and his appointment is detrimental to the interest of the appellant, as it would facilitate the embezzlement of the Company’s funds and assets.
• That the Commercial Court erred in relying on the decision of the Supreme Court in the case of Firm Ashok Traders Vs. Gurumukh Das 7 Saluja1 and Motilal Vs. Badri Nath2 for the contention that the nature of the business warrants the appointment of the partner as receiver. It was argued that the aforementioned decisions do not apply to the facts of the present case, as the above-mentioned decision involved the issue of partnership/joint family business.
• That in the facts and circumstances of the case, the Commercial Court should have appointed a third party as receiver and the appellant has no objection to this.

On the contrary, the respondent argued The order passed by the Commercial Court is just and proper and while ordering the appointment of respondent no.1 as receiver, the Commercial Court relied on the decision of the Supreme Court in Firm Ashok Traders (supra) which is directly applicable and the facts of the case.

• That the amounts which were withdrawn by the respondents no.1 and 3 were due to the salary of the employees of the Company and due to the interference of the appellant in the operation of the Cafe, the Tribunal was unable to run the restaurant and the same. was closed with effect from 10.10.2023. It was further argued that the third party does not have any experience in managing the family and hence cannot be appointed as administrator and cannot run the Café effectively.

The Court’s analysis

The court discussed early on the qualities of a receiver and observed that impartiality is an essential attribute of a receiver. Therefore, one of the parties to a list should not normally be appointed as administrator without the consent of the other parties, unless a very special case is established.

The court further observed that therefore normally when the relationship between the parties is strained and there is a trust deficit and allegations and counter allegations are made against each other, under such circumstances a party in lis should not be named judicial administrator.

Based on the above, the court held that, in this case, the relationship between the parties is tense, as the appellant accused the respondent of embezzling frim funds, while the respondent denied the accusations and claimed that the funds were withdrawn to pay the employees’ salaries . The court also held that the facts mentioned above clearly show that the relationship between the parties is strained and there is a lack of trust in each other.

The court further disagreed with the reliance placed by the respondent on the judgment of the supreme court in Firm Ashok Traders (supra) and observed that the Supreme Court did not deal with a partnership, the duration of which was at will.

The court also held that in the aforementioned decision, in the facts and circumstances of the case, it was held that the Company’s activity must be allowed to continue in the hands of the people who managed it until now. The above decision is no authority for the proposition that a party may be appointed receiver where relations are highly strained and there is a lack of trust between them. The aforesaid decision is of no help to the respondents.

The court concluded that, for the reasons mentioned above, the order of 14.03.2024 issued in COP No. 82 of 2023 by the Commercial Court cannot be supported to the extent that it orders the appointment of the Company’s Director as a judicial administrator. Accordingly, it is set aside.

Accordingly, the present appeal was admitted.

Case title: Ms. Bibi Hajjar Dashti vs. Mr. Syed Ali Asghar Bolooki

Citation: COMMERCIAL COURT APPEAL NO. 14 OF 2024

Judgment Date: 28/10/2024

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