Case Note & Summary
The dispute arose from an unregistered partnership firm, M/s. Ishar Das Chaman Lal, constituted by a father and his two sons under a partnership deed dated 13 December 1965. The firm was never registered under Section 69 of the Indian Partnership Act, 1932. The eldest son, Chaman Lal, died on 6 March 1978, which dissolved the partnership under the general law. The appellants, being the widow and alleged son of the deceased Chaman Lal, called upon the surviving partners (respondents) to render the accounts of the dissolved firm. When the respondents failed to do so, the appellants invoked clause 16 of the partnership deed, which provided for arbitration by two named arbitrators, and requested reference of the dispute. The respondents refused to refer the dispute to arbitration, compelling the appellants to invoke the jurisdiction of the civil court under Section 20 of the Arbitration Act, 1940, seeking filing of the arbitration agreement and reference to arbitration. The trial court allowed the suit, but the High Court, in revision, held that Section 69(1) and the main part of Section 69(3) of the Partnership Act excluded the application of Section 20 of the Arbitration Act, making the suit not maintainable. The appellants then appealed to the Supreme Court by special leave. The core legal issue was whether Section 69 of the Partnership Act barred a suit under Section 20 of the Arbitration Act for reference of disputes to arbitration when the firm was unregistered, particularly when the dispute related to accounts of a dissolved firm and fell under the exception in Section 69(3)(a). The appellants argued that Section 69(3)(a) carved out an exception to the general bar under Section 69(1) and (2) and the main part of Section 69(3), and that enforcement of rights for dissolution or accounts of a dissolved firm included the right to invoke the arbitration clause. The respondents contended that the phrase "to sue" in Section 69(1) and the main part of Section 69(3) included the entitlement to enforce any right under the contract, including the arbitration clause, and therefore the bar applied. The Supreme Court examined Section 20 of the Arbitration Act and clause 16 of the partnership deed, as well as Section 69(3)(a) of the Partnership Act. The court relied on Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964) 8 SCR 50, which held that the words "other proceedings" in Section 69(3) include arbitration proceedings and must be given full meaning without applying the doctrine of ejusdem generis. However, that case was distinguished because it involved a proceeding under Section 8 of the Arbitration Act, not falling under the exception. The court held that the alternate dispute resolution forum agreed by the parties, i.e., reference to private arbitration, was a mode of enforcing the rights given under Section 69(3)(a), which is an exception to sub-sections (1) and (2) and the main part of sub-section (3) of Section 69. The enforcement of such rights included the right of reference to arbitration under clause 16 of the partnership deed for disputes arising between the parties. There was no embargo on filing an application under Section 20 of the Arbitration Act, 1940. Accordingly, the appeal was allowed, the High Court's order was set aside, and the trial court was directed to refer the dispute to the named arbitrator as per clause 16 of the partnership deed.
Headnote
A) Arbitration - Reference to Arbitration in Unregistered Firm - Section 20 of Arbitration Act, 1940 and Section 69(3)(a) of Indian Partnership Act, 1932 - A suit under Section 20 of Arbitration Act for reference of disputes to arbitration is maintainable for enforcement of rights falling under Section 69(3)(a) despite non-registration of partnership firm. The appellants, as widow and alleged son of deceased partner, invoked clause 16 of partnership deed to refer dispute over accounts of dissolved firm; the court held that the alternate resolution forum agreed by the parties is a mode of enforcing rights under Section 69(3)(a), which is an exception to Section 69(1) and (2) and main part of (3). Held that there was no embargo for filing an application under Section 20. (Paras 168-172) B) Partnership - Bar of Non-Registration - Section 69(1), 69(2), 69(3) Indian Partnership Act, 1932 - The bar under Section 69(1) prohibits enforcing rights arising from a contract by an unregistered firm, but Section 69(3)(a) carves out an exception for enforcement of right to sue for dissolution of firm or for accounts of a dissolved firm. The court considered that the enforcement of such rights includes reference to arbitration in terms of clause 16 of the partnership deed. Held that Section 69(3)(a) is not an embargo to reference of disputes to arbitration if such provision present in partnership deed of unregistered firm. (Paras 168-172) C) Interpretation - "Other Proceedings" and Ejusdem Generis - Section 69(3) Indian Partnership Act, 1932 - The words "other proceedings" in Section 69(3) include arbitration proceedings and must receive full meaning untrammeled by "a claim of set-off"; doctrine of ejusdem generis does not apply. The court relied on Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964) 8 SCR 50, where it was held that application under Section 8 of Arbitration Act would not lie due to bar, but distinguished because present case falls under exception (3)(a). Held that the exception under Section 69(3)(a) permits arbitration reference. (Paras 168-172)
Issue of Consideration
Whether a suit under Section 20 of the Arbitration Act, 1940 for reference of disputes to arbitration is maintainable when the partnership firm is unregistered, considering Section 69 of the Indian Partnership Act, 1932, especially the exception in Section 69(3)(a) for accounts of dissolved firm.
Final Decision
Appeal allowed. The Supreme Court held that the suit under Section 20 of the Arbitration Act, 1940 was maintainable despite the partnership firm being unregistered. The Court directed the trial court to refer the dispute to the named arbitrator as per Clause 16 of the partnership deed.
Law Points
- Section 69(3)(a) Indian Partnership Act is an exception to bar under Section 69(1) and (2)
- Enforcement of right to sue for dissolution or accounts of dissolved firm includes right to invoke arbitration clause
- Words 'other proceedings' in Section 69(3) include arbitration proceedings and not limited by ejusdem generis
- Alternate dispute resolution forum agreed by parties is mode of enforcing rights under Section 69(3)(a)
- Suit under Section 20 Arbitration Act maintainable.
