Sheo Narain Jaiswal vs Prabhu Shankar Jaiswal and Others

Aftab Alam, J.—This revision application is directed against an order, dated 27.4.1993, passed by Subordinate Judge, IV, Ranchi in Misc. Case No. 11 of 1992. By the order under revision the learned court below has rejected the petitioner''s objection that a petition filed by opposite party no. 1 (applicant in the court below) u/s 8of the Arbitration Act, 1940 was hit by the bar of section 69, Partnership Act, and was therefore not maintainable. The facts of the case are simple and can be stated thus : It appears that opp. party no. 1 and the petitioner who are own brothers, were in partnership along with their other brothers under an unregistered deed of partnership. It is the case of opp. party no. 1 that the partnership business, under the name and style of M/s. Lakshmi Narayan and Sons, used to be carried on mainly by the petitioner, who was the eldest amongst the brothers. It is alleged that his misconduct as a partner seriously prejudiced the partnership business and greatly undermined the interests of the other individual partners. It is also the case of opp. party no. 1 that the petitioner''s misconduct as a partner compelled the other partners to hold a meeting on 4.6.1988 from which the petitioner abstained himself. By a resolution adopted by all the members present in this meeting, the petitioner was retired from the partnership as a result of which the partnership firm M/s. Lakshmi Narayan and Sons stood dissolved with effect from 4.6.1988. It is further stated that in any event the partnership firm stood dissolved following a notice, dated 1.8.1988, given by the petitioner himself purporting to dissolve the firm with effect from 5.8.1988. It is also said that later the petitioner himself had instituted Title Suit No. 71 of 1991 in the court of Subordinate Judge, Ranchi praying, inter alia, for a declaration that the partnership firm in question stood dissolved with effect from 5.8.1988 and also for rendition of accounts and appointment of receiver etc. Opp. party no. 1 also gave details of some of the withdrawals made by the petitioner and mis-appropriations allegedly committed by him in respect of the partnership money. It was further the case of opp. party no. 1 that the partnership having stood dissolved either with effect from 4.6.1988 following the resolution adopted by the partners in the meeting held on that date or with effect from 5.8.1988 following the notice given by the petitioner himself, opp. party no. 1 had caused a notice, dated 19.10.1991, to be served on the petitioner in terms of the arbitration clause contained in the partnership deed appointing one Sri Sanwar Mal Budhiya as the sole arbitrator with regard to the disputes and differences mentioned in the said notice. Failing to get any response to that notice, the petitioner finally filed an application u/s 8of the Arbitration Act before the court below. In this application, a prayer was made that the court may confirm the appointment of either Sri Sanwar Mal Budhiya or anyone else from amongst the several persons listed in the petition (all retired High Court Judges) as the sole arbitrator with regard to the disputes and differences (specified in the petition) between the erstwhile partners.

The petitioner (defendant no. 1 in the court below) filed a very brief petition by way of rejoinder. In this petition an objection was taken that the petition u/s 8, Arbitration Act was barred in terms of section 69of the Partnership Act inasmuch as the partnership dated 4-11-1967 which brought the firm M/s. Lakshmi Narayan & Sons into existence was not registered under the provisions of the Indian Partnership Act.

The court below by an earlier order, dated 7.11.1992, tentatively found the application maintainable but left it open to the petitioner to raise his objection regarding the maintainability of the proceeding at a later stage. The aforesaid order, dated 7.11.1992, was challenged before this Court in C. R. No. 513 of 1992 (R) which was disposed of by order, dated 3.2.1993. this Court while disposing of the earlier civil revision application directed that the matter regarding the maintainability of the application should be reheard and decided finally. On remand the learned court below, by the impugned order, has admitted the application u/s 8 (1) of the Arbitration Act as maintainable and has directed the petitioner to file his show cause on merits by the next date.

Mr. Kameshwar Prasad, Learned Counsel appearing on behalf of the petitioner, contended that the petition filed by opp. party no. 1 was barred by the provisions of section 69of the Partnership Act and the court below had committed an error of jurisdiction in holding otherwise. At this stage it will be useful to take a look at section 69dealing with the effect of non- registration of a partnership firm. Section 69is in the following terms.

Effect of non-registration.- (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) 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 partner in the firm.

(3) The provision of 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-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply-

(a) to firms or to partners in firms which have no place of business in (the territories to which this Act extends), or whose places of business in (the said territories) are situated in areas to which, by notification under (Section 56), this Chapter does not apply, or

(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19of the Presidency Small Cause Courts Act, 1882, or, outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

From a perusal of the afore-quoted provisions, it appears that clause (a) to sub-section (3) contains the exceptions to the general bar imposed by the preceding sub-sections (1) to (3). It is manifest that the enforcement of any right to sue (1) for the dissolution of a firm or (ii) for the accounts of a dissolved firm or (iii) for the realisation of the property of a dissolved firm are exempted from the bar envisaged under sub-section (1) and (2) and part of sub-section (3) and it is on these exceptions as contained in clause (a) to sub-section (3) of section 69that Mr. Chatterjee, Learned Counsel for opp. party no. 1 (applicant in the court below) squarely relied. Mr. Chatterjee pointed out that the disputes which were sought to be referred for arbitration were not unspecified but were clearly spelled out and were enumerated in an annexure forming part of the application, u/s 8, Arbitration Act. He further pointed out that the disputes primarily related to the rendition of accounts of the dissolved firm and the realisation of the properly of the dissolved firm. The disputes of this nature, according to Mr. Chatterjee, were specifically exempted from the general bar of section 69by virtue of clause (a) to sub-section (3) of that section.

At first glance, the arguments advanced by Mr. Chatterjee appear attractive; on a closure examination, however, these are found to be far away from the real import and meaning of section 69of the Partnership Act. It is to be noted that the bar envisaged under sub-sections (1), (2) and (3) of section 69is two fold. On the one hand it relates to the nature of the rights that might have been enforcible but for the bar and on the other it relates to the for a which may be approached for the enforcement of those rights. Sub-section (1) and (2) declare that no suits can be instituted; sub-section (3) further bars other proceeding in addition to the suit. In the exemption provision clause (a) to sub-section (3), the bar is lifted only in respect of a suit. Clause (a) to sub-section (3) reads, "the enforcement of any right to sue.....". It has been held by Courts that the expression ''to sue'' in the context relates to a suit filed in a Civil Court. It is further to be noted that the expression "other proceeding" in sub-section (3) which extends the bar beyond a suit imposed by sub-sections (1) and (2) to other proceedings like an arbitration proceedings is conspicuous by its absence in the exemption provision as contained in Clause (a) to sub-section (3). In other words, the three rights, the enforcement of which is exempted under clause (a) can only be enforced by filing a suit and not by any other proceeding such as an arbitration proceeding.

As regards the nature of the enforcible rights, the submissions of Mr. Chatterjee overlook the fact that the application filed u/s 8of the Arbitration Act for reference of the disputes to arbitration is not for the enforcement of any of three rights exempted under clause (a). The application is first and foremost for making a reference to an Arbitrator. Now, the right to gel dispute referred to arbitration is not an inherent right but is a creature of a contract. Hence, this right too arises from the contract as much as any other right envisaged by the expression ''a right arising from a contract'' used in sub-section (1) and (2). Thus, the right to get disputes referred to arbitration was also created under the un-registered partnership deed and it is actually for the enforcement of that right that the application u/s 8has been filed. The right to get a dispute referred for arbitration is certainly not covered in terms of clause (a) of sub-section (3) but belongs to the category of ''a right arising from a contract'' to which the bar under sub-sections (1), (2), and (3) fully apply. It is, thus, apparent to me that the application filed u/s 8, Arbitration Act is not saved by clause (a) to sub-section (3) and is hit by the general bar of section 69of the Partnership Act.

Mr. Kameshwar Prasad, Learned Counsel for the petitioner, in support of this submission, has placed reliance on a decision by a five Judges bench of the Supreme Court in the case of Jagdish Chander Gupta Vs. Kajaria Traders (India) Ltd., . In this case one of the partners, acting on the basis of a condition in the partnership agreement which provided for settlement of disputes by arbitration, moved an application u/s 8, Arbitration Act to get an arbitrator appointed for settlement of the disputes between the parties. The application was resisted on the ground that it was not maintainable being hit by the bar of section 69of the Indian Partnership Act because the partnership was not registered. After taking into consideration the language used in section 69of the Partnership Act, the Supreme Court held that the proceedings arising out of section 8, Arbitration Act were covered by the expression ''other proceeding'' contained in sub-section (3) of section 69. It was further held that the proceedings were to enforce a right arising from a contract of the parties.

Mr. Chatterjee sought to argue that this decision did not apply in the facts of the present case and pointed out that in Jagdish Chandra Gupta''s case, the Supreme Court was considering the question as to whether the words ''other proceeding'' in sub-section (3) of section 69of the Partnership Act should receive their full meaning untramelled by the words, ''a claim to set-of'' or the meaning of the former words should be cut down and curbed by the later words. The Supreme Court held that the words, ''other proceeding must receive their full meaning untramelled by the word ''a claim to set-of.'' He further pointed out that in para 9 of the judgment while formulating the findings, the Supreme Court also look note of the exceptions to the general bar as contained in sub-sections (3) and (4).

The significance of the Supreme Court decision, to my mind, lies in the fact that it specifically over ruled a division Bench decision of this Court in the case of Mahendra vrs. Guru Dyal, AIR 1951 Pat 196 which, on facts, was quite similar to the case in hand and which was decided by this Court on the same lines as argued by Mr. Chatterjee. In the case of Mahendra Lal Kushiary AIR 1951 Pat 196 one of the partners to an unregistered partnership firm after giving a notice of dissolution filed a title suit in the court of the Munsif, Hazaribagh. The other partner filed an application before the Subordinate Judge, for referring the matter in dispute to arbitration u/s 8, Arbitration Act on the basis of a condition of the partnership agreement that in case of any dispute or difference between the parties, the matter would be referred to arbitration. The Subordinate Judge allowed the application and decided to refer the matter to arbitration and the parties were called upon to suggest names of arbitrators and the suit filed by the other partner pending before the Munsif was stayed. When the matter came to this Court on the question of the bar of section 69, Partnership Act to an application u/s 8of the Arbitration Act, a division Bench of this Court held as follows :

It is, therefore, clear on the authority of this division Bench judgment that even a suit for dissolution of partnership and accounting is not barred under the provisions of section 69, Partnership Act. The present case, however, stands on a better fooling inasmuch as no suit had been filed in this case but an application was made to the court below under the provisions of section 8, Indian Arbitration Act. In my opinion, therefore, section 69of the Act was no bar to the application for sending the matter in dispute to arbitration.

In Jagdish Chandra''s case, the Supreme Court specifically took note of the Patna decision and overruled it in the following words :

Similarly, Mahendra vrs. Guru Dyal, ILR 30 Patna 109: A. I. R. 1951 Pat 196) which lays down that section 69does not bar partner of an unregistered firm from applying to the court u/s 8of the Act for referring the dispute between the parties to arbitrator as provided in the condition of their agreement, cannot be accepted as sound. The reason given by the division Bench that as section 69allows dissolution and accounts of unregistered partnership, it cannot bar such an application appears to us to be not quite in point.

Mr. Prasad also relied upon a division Bench decision in the case of Iqbal Singh and Others Vs. Ram Narain and Others, . In that decision, an application was made u/s 20of the Arbitration Act (but that would hardly make any difference to the question under consideration). Following the Supreme Court decision in the case of Jagdish Chandra (supra) and some earlier decisions of the Allahabad High Court, the division Bench held as follows :

9................. As already stated earlier sub-ss. (1) and (2) of S. 69, the legislature only made applicable the provisions of sub-ss. (1) and (2) of S. 69 to a claim of set-off or other proceedings. The legislature then proceeded to say that nothing contained in sub-ss. (1) and (2) shall affect the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm. In the juxtaposition in which sub-s. (3) has been placed by the legislature, it is clear that the expression ''to sue'' contained in Cl. (a) of sub-s. (3) of S. 69 has to be read in the context of the provisions contained in sub-ss. (1) and (2). In other words, the expression ''to sue'' contained in Cl. (a) of sub-s. (3) takes colour from the word ''suit'' used in sub-ss. (1) and (2). Clause (a) of sub-s. (3), in our opinion, only excludes, from the ambit of sub-s. (3) of S. 69, suits for the dissolution of a firm or for accounts of a dissolution of a firm or for accounts of a dissolved firm. Clause (a) would not, in our opinion, protect from the bar of S. 69 proceedings other than suits.

But even assuming for a moment that the expression ''to sue'' in clause (a) of sub-s. (3) shall include proceedings other than suits those proceedings should be for the dissolution of a firm or for the accounts of a dissolved firm. The application under S. 20 of the Arbitration Act in the instant case neither for the dissolution of a firm nor for the accounts of a dissolved firm. It was only for the enforcement of the right of getting the dispute settled by arbitration. The matter of dissolution or accounting lay within the powers of the arbitrator after one was appointed.

I find myself in respectful agreement with the legal position as stated in the above quotation.

Mr. Kameshwar Prasad also relied upon decisions reported in Smt. Rampa Devi and Others Vs. Bishambhar Nath Puri and Others, , Basant Lal Jain and Others Vs. Union of India(UOI) and Others, , Iqbalnath Premnath Anand Vs. Rameshwarnath Premnath Anand and Another, ; 1983 B.B.C.J. 455. The Allahabad decision Smt. Rampa Devi and Others Vs. Bishambhar Nath Puri and Others, appears to be to the point and supports Mr. Prasad''s contention. The other decisions cited, in my opinion, have no bearing on the point in question.

Mr. Chatterjee, Learned Counsel appearing on behalf of opp. party no. 1 has relied upon the case of Vishwanath Pd. Murarka vrs. Yamuna Prasad, 1990 (1) Civil L. J. 759. In that decision, a learned single Judge of this Court held that an application made u/s 8(1), Arbitration Act was not hit by the bar of section 69of the Partnership Act on the ground that the dispute related to the dissolution of partnership business. It is a very brief judgment and unfortunately does not undertake any discussion of the reasons and, therefore, does not provide any guidelines as a precedent. The learned Single Judge of course noted the Supreme Court decision in the case of Jagdish Chandra Gupta (supra) but held it to be inapplicable on the ground that in that case, the proceedings were not for dissolution of the partnership. It appears that it was not brought to the notice of the learned Single Judge that the Patna decision in the case of Mahendra Lal Kushiary vrs. Guru Dyal Singh (supra) which was over ruled by the Supreme Court decision, related to a dissolved firm. It further appears that the reasons assigned in the Allahabad judgment were also not brought to the notice of the learned Single Judge. For all these reasons, with great respect, I find myself unable to follow the decision in Vishwanath Prasad Mururka''s case.

To be fair to opp. party no. 1, I may also take note of a contrary view taken by a learned Single Judge of Delhi High Court in the case of Jagat Mittar Saigal vs. Kailash Chandra Saigal and others, AIR 1983 De 134. The Delhi decision has indeed noted both the Allahabad decision, Iqbal Singh and Others Vs. Ram Narain and Others, and Smt. Rampa Devi and Others Vs. Bishambhar Nath Puri and Others, as also the Supreme Court decision Jagdish Chander Gupta Vs. Kajaria Traders (India) Ltd., . The learned Judge read the Supreme Court decision differently and disagreed with the view taken in the two Allahabad decisions. With respect, I find it difficult to follow the Delhi decision as I am unable to overlook the fact that a division Bench of Patna High Court, directly on the point, was over ruled by the Supreme Court in Jagdish Chandra Gupta''s case.

For the reasons stated above, I am of the considered opinion that the petition u/s 8, Arbitration Act filed by opp. party no. 1 in the court below for making a reference to arbitrator was hit by section 69of the Partnership Act and was not maintainable. I accordingly allow this civil revision application, set aside the order passed by the learned Subordinate Judge and dismiss the application filed u/s 8(1) of the Arbitration Act. Before, parting with the records of this case, I may observe that if opp. party no. 1 chooses to file a suit for the same reliefs, that will not be hit by the provision of section 69, Partnership Act and shall proceed on its own merit.