A.M. Prembhushan vs N.S. Thulasidas

Thomas P. Joseph, J.—Petitioner and respondent entered into Ext.P1, unregistered partnership deed on 11.03.2005 with the object of carrying out business in partnership. But on 15.06.2007, as petitioner would contend the partners decided to stop the business and dissolve the partnership firm as per Ext.P2, agreement. It is the case of petitioner that at the time of dissolution respondent accepted his share value and value of machineries and acknowledged that no further amount is due to him. While so, petitioner got Ext.P3, notice dated 05.07.2007 on behalf of respondent seeking reference of the dispute to the Arbitrator. Petitioner gave Ext.P4, reply dated 09.07.2007 claiming that no dispute is involved since dues of the respondent has been paid and that was acknowledged by him. Later, this Court passed Ext.P5, order appointing Advocate K. Padmanabhan as the Arbitrator and referring the dispute to the Arbitrator. Petitioner, claiming that the said order was passed without notice to him filed R.P. No. 357 of 2008. In the Review Petition it was contended that since Ext.P1, partnership agreement is not registered no question of arbitration would arise in view of Sub-sections (2) and (3) of Section 69 of the Indian Partnership Act, 1932 (for short, "the Act"). This Court passed Ext.P6, order dated 25.06.2008 directing that the said contention of petitioner shall be decided by the Arbitrator as a first issue before proceeding further in the matter. Accordingly the Arbitrator has passed Ext.P7, interim award rejecting the contention of petitioner that in the absence of registration of partnership agreement, no arbitration as contemplated in Ext.P1, agreement is possible. Petitioner challenged that order before the learned District Judge in O.P. No. 333 of 2008 but, the challenge failed. Learned District Judge passed Ext.P8, order upholding Ext.P7, interim award passed by the Arbitrator. Hence this Writ Petition at the instance of petitioner urging that learned District Judge and the Arbitrator are not correct in holding that even in the absence of registration, dispute between the parties could be referred to the Arbitrator. It is contended by learned Counsel for petitioner that there was no dispute involved between the parties in the light of payment of amount due to the respondent and the latter acknowledging that no further amount is due to him. Learned Counsel has placed reliance on the decision of the Supreme Court in Seth Loonkaran Sethiya and Others Vs. Mr. Ivan E. John and Others, .

It is not disputed that Ext.P1, agreement between the parties is not registered. The relevant clause in Ext.P1, agreement relating to "arbitration" reads as under:

If during the continuance of partnership or at any time afterwards any disputes, differences, or question shall arise between the partners or any of them or any of the representatives touching the partnership or the accounts or transactions thereof or dissolution or winding up thereof or the construction, meaning or effects of this deed or anything contained therein or the rights and liabilities of the partners or the representatives under this deed or otherwise in relation to the partners, then every such disputes, differences, or question shall be referred to a sole Arbitrator pursuant to the Arbitration and Conciliation Ordinance, 1996 or any statutory modification or re enactment thereof for the time being in force.

Contention advanced is that in so far as Ext.P1, agreement is not registered, question of referring the dispute if any to the Arbitrator as per the above clause did not arise. For that purpose reliance is placed on Sub-sections (2) and (3) of Section 69 of the Act. Sub-Section (2) states that "no suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm". Sub-section (3) says that the provisions Sub-sections (1) and (2) shall apply also to a claim of set off or other proceeding to enforce a right arising from a contract, but shall not affect the claims referred to in clauses (a) and (b) of that sub-section. By virtue of the said provisions it is contended that non registration of partnership firm will affect maintainability of the "other proceeding to enforce a right arising from a contract" and according to the learned Counsel for petitioner here is a case where attempt is made by petitioner to enforce the arbitration clause in Ext.P1, agreement before the Arbitrator which must be treated as "other proceeding" to enforce a right arising from a contract and hence the reference of the arbitration is invalid.

True that in Loonkaran Sethia v. Ivan E. John and Ors. (supra) in paragraph No. 21 it has been held that a suit filed by plaintiff as partner of existing or dissolved firm is not maintainable if the partnership firm is not registered. That decision has been distinguished by the Gujarat High Court in Gujarat Water Supply and Severage Board, Gandhinagar Vs. Sundardas Hukumatram Shivanani, paragraph No. 28 where it has been held that Supreme court was considering a case which was for enforcement of an agreement entered into by the plaintiff as partner of the firm and that it was a suit "for the benefit of the firm" and consequently a suit filed on behalf of the firm. In other words the decision of the Supreme court in the case referred supra though concerned a dissolved firm, was one filed by or on behalf of the firm for the benefit of the firm and hence it squarely applied Section 69(2) of the Act. That however is not the situation in the present case since Arbitration at the instance of respondent is not something made by, on behalf or for benefit of the partnership firm. Learned Counsel for petitioner contends that respondent is not admitting dissolution of partnership firm. Still, it is not as if the reference of dispute to the Arbitrator is made by or on behalf of or for benefit of the firm but, at the instance of respondent personally.

In the court below, reference was made to the decision of the Supreme Court in Jagdish Chander Gupta Vs. Kajaria Traders (India) Ltd., . Learned District Judge observed that the said decision has been distinguished in Smt. Premlata and another Vs. M/s. Ishar Dass Chaman Lal and others, where in paragraph No. 9 it was held as follows:

...Having kept that object in view, we are of the considered opinion that the alternative resolution forum agreed by the parties, namely, reference to a private arbitration is a mode of enforcing the rights given under clause (a) of Sub-section (3) of Section 69 of the Act and gets excluded from the main part of Sub-section (3) and Sub-sections (1) and (2) of Section 69. The enforcement of the right to sue for dissolution includes a right for reference to arbitration in terms of the agreement of the partnership by and between the parties....

The Supreme Court, again in M/s. Krishna Motor Service by its Partners Vs. H.B. Vittala Kamath, considered the issue and held that when dispute arose as to settlement of account or right or power to realize the property of dissolved firm (unregistered) reference to arbitration is valid as there is no dispute as regards rights arising from the contract of firm. In Prabhu Shankar Jaiswal Vs. Sheo Narain Jaiswal and Others, it was held that arbitration clause in a partnership deed (unregistered) can be enforced for the purpose of securing, inter alia, a dissolution and accounts of the partnership or for enforcing any right or power for obtaining property of a dissolved firm. In the light of the above authoritative and binding pronouncements it is no more open to the petitioner to contend that since Ext.P1, partnership agreement is not registered, arbitration invoking the arbitration clause in Ext.P1, agreement as regards the dispute involved is not sustainable. Learned District Judge has correctly concluded that reference of the dispute to the Arbitrator is valid notwithstanding that Ext.P1 is not registered. No interference is warranted.

It is contended by learned Counsel that petitioner has disputed that any amount is due to the respondent in the light of Ext.P2, agreement dated 15.06.2007 and the acknowledgment allegedly made by the respondent that no further amount is due to him. It is seen from the clause for arbitration in Ext.P1, extracted above that it takes any dispute, difference or question arising between the parties during the continuance of the partnership or, at any time afterwards. Hence, the clause for arbitration is wide enough to take in any dispute even after alleged dissolution of the partnership. The question whether any amount is due to the respondent as claimed by him and whether the dispute itself is arbitrarable are matters coming within the purview of the Arbitrator in view of the relevant clause in Ext.P1 extracted above. It is therefore open to the petitioner to contend so before the Arbitrator at the appropriate stage.

In the light of what I have stated above the Writ Petition is without merit and it is accordingly dismissed.