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Om Prakash v. Usha Rani
Factual and Procedural Background
Om Prakash filed a civil suit for dissolution of a partnership and rendition of accounts. It was admitted in the plaint that the partnership firm was not registered. The plaint also stated there was no arbitration clause in the partnership (though the record also indicates that an arbitration agreement between the parties existed and parties disputed appointment of an arbitrator). Defendants refused to concur in appointment of an arbitrator.
In response, the defendant Brij Bhushan filed IA 5826/93 invoking Section 34 of the Arbitration Act seeking a stay of the proceedings. The pleadings indicate contested positions on whether an application under Section 20 (and more generally Sections 8 and 20) of the Arbitration Act would be maintainable when brought by a partner of an unregistered firm, and whether arbitration without court intervention remained available.
The court framed the legal controversy as whether an application under the Arbitration Act (variously referenced as Section 20/8/29 in the opinion) could be maintained by a partner of an unregistered firm in view of Section 69 of the Partnership Act, 1932. The matter proceeded by way of the application IA 5826/93 and related interlocutory steps; the court heard authorities and submissions before delivering the order recorded in the opinion.
Legal Issues Presented
- Whether an application under Section 20 of the Arbitration Act (and, as framed for this controversy, Sections 8 and 20) is maintainable by a partner of an unregistered firm in view of Section 69 of the Partnership Act, 1932.
- Whether proceedings under the Arbitration Act to enforce an arbitration agreement (for appointment of an arbitrator or to compel arbitration) constitute a "suit" or "other proceeding" that fall within the ambit of Section 69 of the Partnership Act.
- Whether arbitration can be enforced without court intervention where the parties (or one party) refuse to concur in the appointment of an arbitrator in the context of an unregistered firm.
Arguments of the Parties
Applicant / Respondent (party seeking arbitration)
- Relied on the decision in Jagat Mittar Saigal v. Kailash Chander Saigal & Anr., AIR 1983 Delhi 134 to argue that an application under Section 20 can be maintainable (particularly where relief for rendition of accounts is sought and earlier reference to arbitration had been made without prior objection to non-registration).
- Asserted that there is an arbitration agreement between the parties and that arbitration could proceed even assuming Section 69 of the Partnership Act was relevant, because arbitration can sometimes be enforced without court intervention.
Opposing Party / Respondent to the application (defendant who filed IA 5826/93)
- Contended that the partnership is unregistered and, therefore, petition/application under Section 20 of the Arbitration Act is not maintainable by a partner (relying on the bar in Section 69 of the Partnership Act).
- Asserted that the applicant/respondent has not agreed to the appointment of an arbitrator, and so there was no basis to direct an arbitrator's appointment by the court; therefore, no grounds to stay the suit or order arbitration.
- Contended that the petition under Section 20 was barred by Section 69 and that disputes were not properly specified in the application.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jagat Mittar Saigal v. Kailash Chander Saigal & Anr., AIR 1983 Delhi 134 | Held that after dissolution a partner of an unregistered firm can maintain proceedings for rendition of accounts as saved by Clause (a) of sub-section (3) of Section 69; the words "to sue for accounts of a dissolved firm" were interpreted broadly to include proceedings under Section 20 of the Arbitration Act. | The court distinguished this decision as based on its peculiar facts (notably an earlier uncontested reference to arbitration) and concluded that its ratio did not support the applicant's broad plea in the present matter. |
| M/s. Paras Ram Darshan Lal v. Union of India & Anr., AIR 1979 Delhi 135 | Held that a petition under Sections 8 and 20 of the Arbitration Act constitutes a proceeding to enforce a right arising out of contract and therefore the rigour of Section 69 of the Partnership Act would apply. | The court relied on this decision to support the view that proceedings under Sections 8/20 are caught by sub-section (3) of Section 69 and hence are barred for unregistered firms. |
| J.C. Gupta v. Kajaria Traders India Ltd., AIR 1964 SC 1882 | Held that proceedings under Section 8 of the Arbitration Act are covered by sub-section (3) to Section 69 of the Partnership Act. | The court cited this Supreme Court authority as reinforcing that arbitration-related proceedings can fall within Section 69 and be barred for unregistered firms. |
| Patrambull Rameshwar v. Fulchand Kanahiyalal & Co., AIR 1964 Calcutta 452 | Considered the phrase "right arising from a contract" and "other proceeding" in sub-section (3) of Section 69; held expressions are not unrestricted and construed in a narrower sense to exclude some applications. | The opinion records this Calcutta High Court view as supporting the position that some arbitration applications might not be barred; the court noted the existence of this contrary line of authority but placed reliance on higher court rulings. |
| Kajaria Traders (India) Ltd. v. M/s Foreign Import and Export Association, AIR 1961 Bombay 65 | Held that such arbitration applications might not be barred by Section 69 (a view similar to the Calcutta High Court decision). | The court noted this Bombay High Court view but recorded that it had been overruled by the Supreme Court in J.C. Gupta (supra). |
| Syed Wahid Hussain v. Maharajkumar Mahmud Hasan Khan & Ors., AIR 1961 Allahabad 409 | Held that an application under Section 20 of the Arbitration Act to enforce a right arising from a contract was barred because the firm was unregistered; Section 69 applied. | The court referenced this Allahabad High Court decision as supporting the position that Section 20 applications are barred for unregistered firms. |
| Iqbal Singh & Ors. v. Ram Narain & Ors., AIR 1977 Allahabad 352 (Division Bench) | Expressed the same view as Syed Wahid Hussain, reiterating that arbitration petitions could be barred under Section 69 when brought by partners of unregistered firms. | The court recorded this authority as consistent with the conclusion that Section 69 bars such proceedings in the context of unregistered firms. |
| Ramji Dass & Ors. v. Durga Dass, 1979 Punjab Law Reporter 673 | Held that in view of sub-sections (2) and (3) of Section 69 an application under Section 20 of the Arbitration Act in the case of an unregistered firm by a partner would not be maintainable. | The court cited this Punjab High Court finding as further authority supporting the non-maintainability of Section 20 applications by partners of unregistered firms. |
| Smt. Rampa Devi & Ors. v. Bishambhar Hath Puri & Ors., AIR 1976 Allahabad 19 | Held that an unregistered firm cannot, under Section 20 of the Arbitration Act, move the court to enforce the arbitration clause; non-registration barred the remedy though the arbitration agreement itself was not declared void. | The court cited this decision to reinforce the position that remedies under Section 20 may be unavailable to partners of unregistered firms. |
Court's Reasoning and Analysis
The court began by setting out the text and legislative background of Section 69 of the Partnership Act, 1932, including subsections (1) to (4), and emphasized that the provisions were "clear and unambiguous" (paras 2–3 of the opinion). The statutory thrust extracted from Section 69 was:
- Sub‑section (1) bars suits by or on behalf of a person suing as a partner against the firm unless the firm is registered and the person is shown in the register.
- Sub‑section (2) bars suits by or on behalf of a firm against third parties unless the firm is registered.
- Sub‑section (3) applies the provisions of sub‑sections (1) and (2) to "a claim of set‑off or other proceeding to enforce a right arising from a contract" while expressly saving certain rights (e.g., suits for dissolution or accounts of a dissolved firm under clause (a)).
The court identified the principal legal question as whether an application under Section 20 (and by extension Sections 8 and 20) of the Arbitration Act amounted to a "proceeding to enforce a right arising from a contract" for purposes of Section 69 and thus whether it would be barred where the firm was unregistered (paras 6 and 11).
The court reviewed the authorities:
- It distinguished Jagat Mittar Saigal (AIR 1983 Delhi 134) on the basis that that decision turned on peculiar facts — earlier reference to arbitration had been made and no objection to non‑registration had been taken at that earlier stage — and therefore its ratio did not support the applicant before the court (para 16–17).
- It relied on M/s. Paras Ram Darshan Lal (AIR 1979 Delhi 135) and the Supreme Court decision in J.C. Gupta v. Kajaria Traders India Ltd. (AIR 1964 SC 1882) to hold that petitions under Sections 8 and 20 are proceedings to enforce rights arising out of contract and are thus within the ambit of sub‑section (3) of Section 69 (paras 18–20).
- The court surveyed High Court decisions: while some High Court decisions (Calcutta, Bombay) had taken a narrower view and held that certain arbitration applications would not be barred, the Supreme Court's ruling in J.C. Gupta curtailed that position; several other High Courts (Allahabad, Punjab, Lucknow Bench) had adopted the view that Section 69 barred Section 20 applications by partners of unregistered firms (paras 20–28).
On the statutory construction, the court held that if an application under Section 20 is treated as a suit or as a proceeding to enforce contractual rights, the strict provisions of Section 69 must apply. Accordingly, when a partner seeks to enforce contractual rights (e.g., asking a court to appoint an arbitrator or to enforce an arbitration agreement), the partnership should be registered before such an application under Section 20 will be maintainable. If such an application is not maintainable due to non‑registration, the litigant's appropriate remedy is to file the substantive suit (for dissolution and rendition of accounts) (paras 14–15, 29).
The court also addressed the contention that arbitration might proceed without court intervention. It observed that while strictly true that arbitration can proceed without court intervention, in the present case the pleadings asserted that parties were not agreeable on appointment of a common arbitrator; because mutual agreement on an arbitrator could not be achieved, the court found it unnecessary to elaborate further on that argument (para 15).
Holding and Implications
Holding: The court dismissed IA 5826/93 (the application under Section 34 of the Arbitration Act) and held that an application under Section 20 of the Arbitration Act filed by a partner of an unregistered firm would not be maintainable in the circumstances described (paras 16–16, 29–31). The dismissal of IA 5826/93 was directed on the basis that Section 69 of the Partnership Act bars such proceedings where the firm is unregistered and no mutual agreement on appointment of an arbitrator existed (para 31).
Implications and direct consequences:
- The immediate procedural consequence ordered by the court: the Section 34 application (IA 5826/93) was dismissed (para 31).
- The court directed that a written statement be filed within four weeks with an advance copy to the plaintiff's counsel; replication, if any, be filed within the next four weeks (para 31).
- The matter (Suit No. 1037/93) was listed for admission/denial before the JR on 27th February, 2002 (para 17 / 33).
The opinion reasons that, in general, where an application under Section 20 is a suit or a proceeding to enforce contractual rights, Section 69 will apply; the court relied on precedent, including Supreme Court authority, to reach this conclusion. The opinion does not purport to lay down a new constitutional or Supreme Court precedent but applies existing statutory interpretation and case law to the facts before it.
V.S Aggarwal, J.— The report of the Special Committee on basis of which the Partnership Act, 1932 was passed later in paragraph 17 noticed:
“The outlines of the scheme are briefly as follows. The English precedent in so far as it makes registration compulsory and imposes a penalty for non-registration has not been followed, as it is considered that this step would be too drastic for a beginning in India, and would introduce all the difficulties connected with small or ephemeral undertakings. Instead, it is proposed that registration should live entirely within the discretion of the firm or partner concerned; but, following the English precedent, any firm which is not registered will be unable to enforce its claim against third parties in the civil Court; and any partner who is not registered will be unable to enforce his claims either against third parties or against fellow partners.”
2. The above extract refers to the English precedent which is partly followed and party not enacted in Section 69 of the Indian Partnership Act. Section 69 of the Partnership Act unfolds in the following words:—
“69. 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 has been shown in the Register of Firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set of 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 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 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 1 (the territories to which this Act extends), or whose places of business in 2(the said territories), are situated in areas to which, by notification under 3(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 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or, outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.”
3. The provisions are clear and unambiguous. Sub-section (1) to Section 69 of the Partnership Act in so many words state that no suit to enforce a right arising from a contract or conferred by Partnership Act can be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm unless the same is registered and the person suing is shown as one of the partners in the said register. Sub-section (2) to Section 69 further prescribes that no suit to enforce a right arising from a contract can be instituted in any court by or on behalf of the firm against any third person unless the firm is registered. Sub-section (3) to Section 69 also cannot be ignored and in so many words state that provisions of sub-section (1) and (2) shall also apply to a claim of set off or other proceedings to enforce a right arising from a contract but notwithstanding sub-section (1) and (2) shall affect enforcement of any right but issue for dissolution of a firm or for accounts of a dissolved firms or any right to realise property of a dissolved firm. In this backdrop one has to consider the controversy as to whether an application under Section 20/8 of the Arbitration Act, 1940 would be maintainable by a partner of a firm which is not registered.
4. This question arises as a result of the following facts.
5. Om Prakash has filed a civil suit for dissolution of partnership and rendition of accounts. Admittedly, the partnership is not registered. It is admitted in the plaint that there is no arbitration clause in the partnership but since the firm is not registered petition under Section 20 of the Arbitration Act is not maintainable and that defendants have refused to concur in the appointment of the arbitrator. In pursuance of the notice having been issued the defendant Brij Bhushan filed IA 5826/93 invoking Section 34 of the Arbitration Act seeking stay of the proceedings. It has been pleaded that written statement as yet has not been fiied.
There is an arbitration agreement between the parties to refer the disputes to the arbitrator and in any case even assuming that Section 69 of the Partnership Act appears institution of an application Under Section 20 of the Arbitration Act there is no bar for arbitration without the intervention of the court. It was accordingly prayed that proceedings may be stayed. Needless to state that in the reply filed the application as such has been contested. It is reiterated that there is an arbitration agreement but since it is a an unregistered partnership firm application under Section 20 of the Arbitration Act is not maintainable and that the applicant/respondent has not agreed to the appointment of an arbitrator. It is in these circumstances that it was prayed that it was prayed that there is no ground to stay the proceedings and further that even the disputes have not been mentioned in the application.
6. As has already been mentioned above and re-mentioned at the risk of repetition, the sole question that craves for an answer is as to if when there is an unregistered partnership concern, an application under Section 29 of the Arbitration Act could be filed or not. During the course of submissions it had not been disputed that for purposes of the present controversy application under Section 20 of the Arbitration Act can be taken to be a suit.
7. Learned counsel for the applicant/respondent strongly relied upon the decision of this court in the case of Jagat Mittar Saigal v. Kailash Chander Saigal & Anr., AIR 1983 Delhi 134 to urge that such an application has been held to be maintainable. To appreciate the true ratio decidendi of the decision in the case of Jagat Mittar the facts can be taken note of. The parties thereto were brothers and sister. They had entered into a partnership agreement to carry on the business. The agreement had been reduced into writing to be called a partnership deed and it contained an arbitration clause, according to which the disputes had to be referred between the parties. Certain disputes arose between the parties in carrying on the business of the firm and its accounting. One of the partners challenged action of the other and demand maintenance of true and proper accounts of the partnership. On failure of the other partner to do so disputes arose between them which one of the partners claimed should be. referred to arbitration. A petition under Section 20 of the Arbitration Act was filed for directing the arbitration agreement to be filed and for appointment of an arbitrator. It is interesting to mention that petition was allowed on 20th August, 1977. A former Judge of this Court was appointed as the sole arbitrator. After some time the arbitrator had not wished to proceed further in the matter. An application was filed for appointment of an arbitrator It is in the second application for appointment of the arbitrator that objection was taken that the partnership was not registered and therefore petition was not maintainable. This Court held that the partner was asking for rendition of accounts in accordance with the arbitration agreement and most important fact was that arbitration agreement was directed to be filed earlier when reference had been made to a former Judge of this Court as the sole arbitrator. At that time no objection to the non-registration of the firm was taken. This prompted this Court to record that the application was maintainable. These facts cajoled from the judgment rendered by this Court clearly reveal that it was based on the peculiar facts that were relevant for decision of that matter and therefore decision is distinguishable. In fact the ratio decidendi and other part of the discussion certainly does not support the plea of the applicant/respondent. It was held:
“……In other words, although a partner of unregistered firm has no right to bring a suit for enforcement of a right arising out of the contract, yet, after the dissolution of such a firm, a suit or arbitration proceedings for the relief of the rendition of accounts is maintainable as it is expressly saved by Clause (a) of sub-section (3) of Section 69. The words “to sue for accounts of a dissolved firm” are used in the widest sense and would inevitably include the proceedings under Section 20 of the Act for the enforcement of the right of accounting of a dissolved firm.”
8. In fact the controversy in the present matter is more clearly to the decision rendered by this Court in the case of M/s. Paras Ram Darshan Lal v. Union of India & Anr., AIR 1979 Delhi 135. It was held that a petition under Sections 8 and 20 of the Arbitration Act is a proceeding to enforce a right arising out of the contract and therefore rigour of Section 69 of the Partnership Act would apply. This Court held:
“……..The words other proceedings' used in sub-section (3) mean proceedings of any kind which can properly be said to be for enforcement of any right arising from contract except those expressly mentioned as exceptions in sub-sections (3) and (4). The petition under Sections 8 and 20 of the Arbitration Act is a proceedings to enforce filing of Arbitration Agreement and appointment of Arbitrator; a right arising out of the contract. The petition under the Arbitration Act is thus a proceeding to enforce right arising out of contract within the meaning of sub-section (3) of Section 69 of the Act…….”
9. Not only that reference can well be made to the decision of the Supreme Court in the case of J.C Gupta v. Kajaria Traders India Ltd., AIR 1964 SC 1882 **. It was held that proceedings under Section 8 of the Arbitration Act are covered by sub-section 3 to Section 69 of the Partnership Act.
10. Similar is the ratio decidendi of various precedents on the subject. The Calcutta High Court in the case of Patrambull Rameshwar v. Fulchand Kanahiyalal & Co., AIR 1964 Calcutta 452. The Calcutta High Court was concerned with the question as to what it meant by right arising from a contract and the expression “other proceeding” occurring in Sub-section (3) to Section 69 of the Partnership Act. It was held that expressions are not unrestricted but is restricted to if there is a right that is being enforced arising out of a contract necessarily refers to Section 69 would not apply. In other words, the Calcutta High Court felt that such an application would not be barred. This view gets support from the decision of the Bombay High Court in the case of Kajaria Traders (India) Ltd. v. M/s Foreign Import and Export Association, AIR 1961 Bombay 65. However it has been over ruled by the Supreme Court in the case of J.C Gupta (supra). But the consistent view otherwise as already referred to above is to the contrary. The Allahabad High Court considered this controversy in the case of Syed Wahid Hussain v. Maharajkumar Mahmud Hasan Khan & Ors., AIR 1961 Allahabad 409. Therein an application under Section 20 of the Arbitration Act had been filed to enforce the right arising from a contract. The firm was unregistered. It was held that the same would be barred because of Section 69 of the Partnership Act. The findings of the court in this regard are:
“The argument that if the Legislature had intended that a “proceedings to enforce a right arising from a contract' was barred then the words, “other proceedings” should have found a mention immediately after the words “no suit”, in sub-sections (1) and (2) of Section 69 does not ap-peal to us; for had that been so, the exceptions in Clauses (a) and (b) would have applied also to suits and not only to “other proceedings”. It appears to us that the intention clearly was that the exceptions in clauses(a) and (b) of sub-section (3) will not apply to suits but will apply only to other proceeding.”
We have also not found any justification in the language used for the contention that the terms of sub-section (3) are restricted to written statements. It is certainly a little tempting to hold that sub-sections (1) and (2) of Section 69 apply to plaints and similar applications claiming any particular relief in the nature of a decree and to restrict sub-section (3) to written statements. We are, however, of opinion on a consideration of the language of sub-section (3) that it is clear that it was not the intention of the Legislature to restrict the operation of sub-section (3) only to set off or other similar claims to be made in a written statement.
11. A Division Bench of the same Court in the case of Iqbal Singh & Ors. v. Ram Narain & Ors., AIR 1977 Allahabad 352 expressed the same view reiterating what has already been referred to above.
12. The Punjab High Court in the case of Ramji Dass & Ors. v. Durga Dass, 1979 Punjab Law Reporter 673 while considering the same question held that in view of sub-section (2) and Section (3) of Section 69 of the Partnership Act application under Section 20 of the Arbitration Act in the case of an unregistered firm by a partner would not be maintainable. The findings recorded by the Court are:—
“……What Ch. Roop Chand relies on is some lines in para 8 which do cause some confusion while reading the same but in view of the clear verdict in paras 7 and—that application for arbitration under Sections 8 and 20 of the Arbitration Act is not competent with regard to an unregistered Partnership in view of sub-sections (2) and (3) of Section 69 of the Partnership Act, I have no option but to hold in this case as well that the application under Section 20 of the Arbitration Act filed by the respondent was not maintainable as the partnership was not registered.”
13. The Lucknow Bench in the case of reported as Smt. Rampa Devi & Ors. v. Bishambhar Hath Puri & Ors., AIR 1976 Allahabad 19 also held that an unregistered firm cannot under Section 20 of the Arbitration Act move the Court to enforce the arbitration clause. The said Court had written the following findings.
“It was next contended that the plaintiffs had filed an application under Section 20 of the Arbitration Act before instituting the present suit and as the defendants had resisted that application, it was not necessary for the plaintiffs to give another notice for arbitration before filing the present suit. This contention, in our view, is also meritless. True it is that the plaintiffs had commenced an action under Section 20 of the Arbitration Act in which they failed mainly on the ground that the petition was barred by the provisions of Section 69 of the Partnership Act, bit it was nowhere laid down that the arbitration agreement was void. It was merely held that because of the non-registration of the partnership deed the remedy to file a petition under Section 20 of the Arbitration Act to enforce the arbitration agreement was not available……”
14. Once it is taken that it was a suit that has to be filed under Section 20 of the Arbitration Act the necessary corollary and the finding would be that strict provisions of Section 69 of the Partnership Act would always come into play. When a partner has to enforce the right against the other arising out of the contract which had been reduced into writing necessarily there is no option for the Court but to state that the partnership should have been registered before any such application under Section 20 of the Arbitration Act would be maintainable. Once such an application is not maintainable, the petitioner had no option except, but to file the suit for rendition of accounts and dissolution of partnership. In that view of the matter the export “other proceedings to enforce a right” would include the application/suit that has to be filed. Application under Section 20 of the Arbitration Act would not be maintainable.
15. It had also been placed in the application under Section 34 of the Arbitration Act that still there is no bar for the enforcement of the arbitration agreement without filing any application in Court. In strict sense it may be true but it has already come in the plaint and the petition that parties were not agreeable for appointment of an arbitrator by mutual agreement. Keeping in view of these assertions and counter assertions, it becomes unnecessary to ponder further with this particular argument because even during the course of submissions the suggestions for a common arbitrator to be mutually agreed could not be agreed upon.
16. As a result of these reasons it must follow that application under Section 34 (IA 5826/93) must fail and it dismissed. It is directed that written statement should be filed within four weeks with an advance copy to the plaintiff's counsel who will prefer replication, if any, within next four weeks.
Suit No. 1037/93
17. List it before the JR for admission/denial on 27th February, 2002.
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