Sultan Singh, J. (Oral):— This is an application under Section 34 of the Arbitration Act for stay of suit. Three questions arise in this case:—
1. Whether a partner of a firm can enter into an agreement to submit disputes to arbitration on behalf of the firm without any authority from other partners?
2. Whether in an application under Section 34 of the Arbitration Act, it is necessary to mention the alleged disputes which the defendant was ready and willing to submit to arbitration at the time when the proceedings commenced?
3. Whether a partner of the firm is deemed to have taken steps in the proceedings when a request is made on behalf of the firm seeking time to file written statement?
2. The plaintiff filed the present suit for recovery of Rs. 1,05,462.57 p. on the allegations that defendant No. 1 is a partnership firm consisting of its partners defendants 2 to 9, that defendant No. 1 entered into a hire-purchase agreement dated 17th May, 1965 signed by defendant No. 5 only on behalf of the firm defendant No. 1. It is alleged that the defendants failed to pay the instalments and therefore the agreement was terminated by a notice dated 31st August, 1972. The present suit was filed on 25th May, 1973 and it came up before the Deputy Registrar on various dates. On 6th May, 1974, Mr. Y.K Sabharwal, Advocate appeared for defendants 1 and 2 and the following order was passed:—
“....................Defendants 1 and 2 shall file the written statement before that date” i.e 29th August, 1974.
3. On 29th August, 1974, Mr. Bikram Singh appeared for counsel for defendants 1 and 2 and the Deputy Registrar passed the following order:—
“........Defts. 1 and 2 are granted final opportunity to file written statement before the said date” i.e 15th October, 1974.
4. On 20th November, 1974, Mr. Y.K Sabharwal put in appearance on behalf of defendants 1 and 5 and filed an application (IA 152/75) under Section 34 of the Arbitration Act on behalf of defendant No. 5 alleging as under:—
“That the claim made by the plaintiff in the present suit is covered by the Arbitration Agreements; that the applicant has always been ready and willing to refer the matter to arbitration and was, at the time when the present proceedings were commenced and still is ready and willing to do all things necessary to the proper conduct of the arbitration.”
5. He prayed that the suit be stayed. The arbitration clause in the hire-purchase agreement dated 17th May, 1965 is as follows:—
“16. That any dispute or difference which may arise between the parties with regard to the constructions, meaning and effect of this deed or any part thereof or any other matter under this agreement shall be referred to the arbitration of two arbitrators one to be nominated by each party, and in case of difference of opinions between them by an umpire selected by them before they enter into the reference. Such proceedings and any legal proceedings arising out of them shall take place in the town where the owners registered office is situated. The provisions of Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules thereunder shall apply”.
6. The plaintiff filed its reply on 3rd February, 1977, alleging that the defendants have taken steps in the proceedings and have not availed of the arbitration clause, that the suit has become validly instituted against the defendants that proceedings cannot be stayed at the instance of one of defendants particularly when the other defendants have not joined defendant No. 5 in the present application. The other allegations in the said application are also denied by the plaintiff. Section 19 of the Indian Partnership Act, 1932 is as follows:—
“19. (1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm binds the firm. The authority of a partner to bind the firm conferred by this section is called his “implied authority”.
(2) In the absence of any usage or custom or trade to the contrary, the implied authority of a partner does not empower him to—
(a) ‘submit a dispute relating to the business of the firm to arbitration’.
(b) .......................
(c) .......................
(d) .......................
(e) .......................
(f) .......................
(g) .......................
(h) ........................ .
7. Under Section 19(2)(a) of the Indian Partnership Act a partner has no implied authority on behalf of the firm to submit dispute relating to the business of the partnership firm to arbitration. The argument is that the word submit in clause (a) of Section 19(2) of the Indian Partnership Act includes ‘agreement to refer’ besides ‘actual reference’. There cannot be any reference to arbitration in the absence of an agreement to refer.
8. The Learned counsel for the applicant defendant No. 5 on the other hand contends that the word ‘submit’ in clause 19(2) (a) does not relate to ‘agreement to refer’ but only to ‘actual reference’. I do not agree with this view. Without any agreement of reference there cannot be any arbitration. In Section 19(2)(a) of the Indian Partnership Act the word ‘submit’ therefore also includes ‘agreement to refer’. When the hire purchase agreement in question was executed all the partners of the firm defendant No. 1 did not agree to refer disputes to arbitration. In view of Section 19 of the Indian Partnership Act it is essential that all the partners agree to refer dispute to arbitration. The defendant No. 5 who alone admittedly signed the agreement in question was therefore not competent to agree to refer the disputes to the arbitration. The action of defendant No. 5 agree to refer to arbitration has not been ratified either expressly or impliedly at any subsequent time. There is also no allegation in the present application under Section 34 of the Arbitration Act that the agreement to refer was ever ratified by the other partners of the firm.
9. In the circumstances, it cannot be said that the agreement to refer, entered into by defendant No. 5 was ever ratified by the other partners. The firm, thus, never agreed to refer disputes to arbitration. The present application therefore has no merit and is liable to be dismissed on the short ground that all the partners of the firm never agree to refer to arbitration and this act of defendant No. 5 was never ratified by others.
10. Even if it is assumed that the firm agreed to refer disputes to arbitration or subsequently ratified such action of one partner, the applicant has not complied with requirements of Section 34 of the Arbitration Act which is as under:—
“Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceeding; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings”.
The word “that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration” are important.
11. The applicant must show not only that he is now but also that he was at the time of commencement of the proceedings ready and willing to do everything necessary for the proper conduct of arbitration. To stay a suit, there must be an existing dispute between the parties. If there was no dispute, there is nothing to arbitrate. It is for the applicant to plead that there was a dispute and that he was ready and willing at all relevant times to do all things necessary for the proper conduct of arbitration. For proper conduct of arbitration he has to allege the dispute or disputes which he was ready and willing to refer to arbitration. The suit cannot be stayed if there was no dispute between the parties, at the commencement of the proceedings. There is no allegation in the present application as to what dispute or difference was existing between the parties which the applicant was ready and willing to refer to arbitration at the time the suit was filed. The applicant has also not mentioned the dispute or difference which he is still ready and willing to refer to arbitration. In the absence of such allegations regarding the disputes it cannot be said that the applicant was ever ready and willing to do everything necessary for the proper conduct of arbitration. The suit, therefore, cannot be stayed.
12. Mr. Sabharwal, learned counsel for the defendants has contended that the plaintiff has not taken any such objection in his reply. It is correct but it is for the defendant to comply with Section 34 of the Arbitration Act in so far as it relates to his readiness and willingness to do all things necessary to the proper conduct of the Arbitration, before his prayer to stay suit can be granted. The onus is upon the defendant to allege and satisfy that he was entitled to claim stay of suit. Admittedly no disputes have been referred by the applicant in his application, and therefore there was nothing to arbitrate and no question of stay of suit. In support of this conclusion of mine, reference may also be made to Chiranjiv Lal and others v. The Tropical Insurance Company Ltd., 1951 (LIII) PLR 321(1), Dwarka Nath Kapur v. Rameshwar Nath amd others, 1966 (LXVIII) PLR (Del. Sec.) 91(2), Daman Anand and anothers v. Hira Lal and others, AIR 1974 Pb & H 232(3) and Manohar Lal and another v. Moti Lal and another, 1974 (LXXVI) PLR 251(4).
13. Lastly the hire-purchase agreement was entered into by the firm defendant No. 1 through defendant No. 5 a partner. The firm is not a legal entity, and it acts only through a partner. The act of a partner is binding on the firm unless his act is one of the acts mentioned in Section 19(2) of the Partnership Act, on 6th May, 1974, a request was made on behalf of defendant No. 1 through a partner seeking time to file written statements and therefore it was an act of all partners including the applicant. It amounts to taking steps in the proceedings by the firm i.e by all the partners of the firm. The order dated 6th May, 1974 implies that there was a request for the grant of time for filing the written statement. On 29th August, 1974 final opportunity was granted to file written statement. In this order also it is implied that there was a request on behalf of defendants 1 and 2 seeking further time to file written statement. By these orders dated 6th May, 1974 and 29th August, 1974 it is clear that steps have been taken in the proceedings by defendant No. 1 i.e by all the partners including the applicant and therefore the suit cannot be stayed under Section 34 of the Arbitration Act.
14. It is therefore held that there was no agreement of reference between the plaintiff and all the partners of the firm defendant No. 1, that the disputes were not mentioned in the application and as such the defendants cannot be said to be ready and willing to do all things necessary to the proper conduct of the arbitration when the proceedings were commenced and lastly the firm requested for time to file written statement which is deemed to be a step taken in the proceeding by the applicant.
15. The present application under Section 34 of the Arbitration Act therefore has no merit and is liable to be dismissed. The same is hereby dismissed with no order as to costs.
S.J Application dismissed.