Contractual valuation limits in partnership arbitration: award set aside where the arbitrator added items beyond the deed.

Where a partnership deed prescribes a mandatory method for valuing a retiring partner's share, the arbitrator must stay within that contractual limit. The deed here required goodwill to be based on five years' net profits, outstandings at 85% of book value, movable property at book value, and immovable property at purchase price or book value as recorded. By adding depreciation and appreciation of property, dead-stock and dues beyond that scheme, the arbitrator acted outside the reference. As the excess was built into the lump-sum valuation, the invalid portion was not severable and the award was liable to be set aside.

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Issues: Whether the arbitrator exceeded the scope of the reference by including depreciation and appreciation of property, dead-stock and dues in valuing the firm for settling the retiring partners' accounts.

Analysis: The reference required the final accounts of the retiring partners to be taken, as far as possible, according to and taking into consideration the terms of the partnership agreement. The partnership agreement itself prescribed a mandatory mode of valuation: goodwill was to be measured by the net profits of the last five years, outstandings were to be taken at 85% of book value, raw materials and other movable property were to be taken at book value, and immovable property at purchase price or book value as entered in the books. On that scheme, the arbitrator had no authority to substitute any independent valuation or to add depreciation and appreciation beyond what the agreement permitted. The award expressly stated that Rs. 32 lakhs included depreciation and appreciation of property, dead-stock and dues to be recovered, and that recital showed an assumption of power not conferred by the reference. Since the excess was embedded in the lump-sum valuation, the invalid part could not be severed.

Conclusion: The arbitrator exceeded his jurisdiction and the award was liable to be set aside.

Ratio Decidendi: Where a reference incorporates a partnership deed that prescribes a mandatory method of valuation, the arbitrator must adhere to that contractual limit, and an award is invalid if it shows on its face that the arbitrator included matters beyond the authority conferred by the reference.

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