Case Note & Summary
The appeal before the Supreme Court arose from a dispute among partners of an unregistered partnership firm. The appellant and respondents 1 to 5 were partners in M/s Lakshmi Narain a Sons under a partnership deed dated 4/6.11.1967 which contained an arbitration clause. The first respondent had filed Title Suit No.71 of 1991 in the Court of the Sub-Judge, Ranchi, seeking dissolution of the partnership firm and accounts. The appellant applied under Section 34 of the Arbitration Act for stay of the suit, which was granted by the Sub-Judge and upheld by the High Court in Misc. Appeal No.13 of 1992. Subsequently, the appellant filed Misc. Case No.11 of 1992 under Section 8 of the Arbitration Act for appointment of an arbitrator. The first respondent raised a preliminary objection that the partnership firm was unregistered and therefore, by reason of Section 69 of the Indian Partnership Act, a petition under Section 8 was not maintainable. The Sub-Judge held the petition maintainable, but the High Court in Civil Revision No.190 of 1993 reversed that order, holding that the petition was barred by Section 69. The appellant then appealed to the Supreme Court. The core legal issue was whether Section 69 of the Indian Partnership Act barred a petition under Section 8 of the Arbitration Act for appointment of an arbitrator when the partnership firm was unregistered, particularly when the relief sought related to dissolution and accounts. The appellant contended that the exception under Section 69(3)(a) allowed enforcement of the right to sue for dissolution and accounts, and that the arbitration clause could be enforced for that purpose. The first respondent argued that Section 69 barred any proceeding to enforce a right arising from a contract, including arbitration proceedings. The Supreme Court analyzed Section 69(1), (2) and (3). It noted that the first part of Section 69(3) bars 'other proceeding' to enforce a right arising from a contract by a person suing as a partner against other partners of an unregistered firm. However, sub-section (3)(a) carves out an exception for enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm or to realise the property of a dissolved firm. The Court held that the words 'to sue' in Section 69(3)(a) cannot be construed narrowly and must include arbitration proceedings and other proceedings, not merely suits. It referred to Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., where the word 'proceedings' was widely construed to include arbitration, though that case did not involve dissolution or accounts. It followed Prem Lata v. Ishar Dass Chaman, where the Court had held that a suit under Section 20 of the Arbitration Act was maintainable under Section 69(3)(a). Consequently, the Supreme Court held that an arbitration clause in a partnership deed of an unregistered partnership can be enforced for dissolution and accounts, and therefore the petition under Section 8 of the Arbitration Act was maintainable. The appeal was allowed, the High Court order dated 6.8.1993 was set aside, and costs were awarded to the appellant.
Headnote
A) Arbitration - Maintainability of Proceedings - Section 8, Arbitration Act, 1940; Section 69, Indian Partnership Act, 1932 - Bar of unregistered firm and exception for dissolution and accounts - A partner of an unregistered firm cannot enforce an arbitration clause generally due to the bar in the first part of Section 69(3), but a petition under Section 8 for appointment of an arbitrator to secure dissolution and accounts falls within the exception under Section 69(3)(a). The Supreme Court held that the arbitration clause in the partnership deed can be enforced for dissolution and accounts, and the petition was maintainable. B) Statutory Interpretation - Scope of Exception Under Section 69(3)(a) - Indian Partnership Act, 1932, Section 69(3)(a) - Words 'to sue' include arbitration and other proceedings - The exception in Section 69(3)(a) applies not only to suits under subsections (1) and (2) but also to the first part of subsection (3) covering proceedings other than suits. The court held that the phrase 'to sue' must be broadly construed to encompass arbitration proceedings, enabling partners of an unregistered firm to enforce dissolution and accounts through arbitration. C) Precedent - Application of Prior Case Law - Section 69, Indian Partnership Act, 1932; Sections 8 and 20, Arbitration Act, 1940 - Jagdish Chandra Gupta distinguished; Prem Lata followed - In Jagdish Chandra Gupta, the dispute did not relate to dissolution or accounts, so the exception was not considered; in Prem Lata, the court held a suit under Section 20 of the Arbitration Act maintainable under Section 69(3)(a). The present case followed Prem Lata and held that the appellant's application under Section 8 for arbitration concerning dissolution and accounts was maintainable. D) Relief - Appeal Allowed - High Court order dated 6.8.1993 set aside - The Supreme Court set aside the High Court's order and held the petition under Section 8 maintainable, allowing the appeal with costs.
Issue of Consideration
Whether a petition under Section 8 of the Arbitration Act for appointment of an arbitrator, filed by a partner of an unregistered partnership firm to enforce an arbitration clause for dissolution and accounts, is maintainable despite Section 69 of the Indian Partnership Act.
Final Decision
Appeal allowed; judgment and order of High Court dated 6.8.1993 set aside; petition under Section 8 of Arbitration Act held maintainable; costs awarded.
Law Points
- Section 69(3) of Indian Partnership Act bars other proceedings to enforce contract rights by partners of unregistered firm
- Exception under Section 69(3)(a) permits enforcement of right to sue for dissolution and accounts
- Words 'to sue' include arbitration proceedings and other proceedings
- Arbitration clause in unregistered partnership deed can be enforced for dissolution and accounts
- Petition under Section 8 Arbitration Act maintainable for dissolution and accounts
