Venkataraman, J.:— This Appeal is filed by the petitioner in A.C No. 2 of 1984, on the file of the Principal Civil Judge, Shimoga, against his order dated 20th November, 1985 allowing his application in part and referring only one of the four points raised by him for arbitration and declining to refer the other three points.
2. The parties will be referred to by the rank they held in the lower Court.
It is undisputed that the petitioner and respondents entered into a partnership to carry on business with effect from 1.7.1973 and the terms and conditions of the Partnership Agreement were reduced into writing as per Ex. R. 3 dated 6.10.1973 The partnership was one at will. It is also undisputed that the respondents issued a notice dated 10.5.1984 dissolving the firm with effect from 10.5.1984 Clause 17 of the terms and conditions of the partnership agreement Ex. R. 3 contemplates reference to arbitration of any dispute that may arise between the parties and it reads as hereunder:—
“17. If at any time here after, either during the continuance of the partnership or after the dissolution or termination thereof otherwise, any dispute or difference shall arise between the partners or their respective heirs with regard to the construction or interpretation of any term or provision hereof or regarding the accounts, profits or losses of the partnership business of the rights or liabilities of any of the parties hereto or dissolution or winding up of the partnership business or any other matter or thing relating to the partnership or its assets or business or touching or arising out of this agreement the same shall be referred to the arbitration and the provisions of the Arbitration Act, 1940 and the statutory amendments, modifications or re-enactments thereon for the time being inforce shall apply of [to] such arbitration.”
In view of the above Arbitration Agreement, the petitioner wants the claims put forward by him in view of the dissolution of the Firm to be referred to arbitration. According to the petitioner, even after the dissolution the respondents have continued the business in the name of the erstwhile Firm and have misused and misapplied the properties of the Firm and as such he is entitled not only to have the accounts of the firm up to the date of dissolution taken but also to have the accounts subsequent to the date of dissolution examined and to have his share of profits till settlement of account, including a share in the value of the good-will of the Firm awarded to him. He has also alleged in the Petition that his erstwhile employer Sri P.R Naik had sold a bus bearing No. MYS. 5676 in his favour for a nominal price and that he had entrusted that vehicle in 1971 to the 2nd respondent who had a permit to run a bus and that the bus is still in good and running condition and that 2nd respondent is liable to return that vehicle to him with reasonable compensation. The petitioner has therefore sought the following four points of dispute to be referred for arbitration:
1) taking out the true and correct account of the profit and loss of erstwhile firm with the help of competent persons and carve out the share of the petitioner as per the agreement of partnership deed dated 6.10.1973;
2) if the respondents are willing to continue the firm in the name and style of the erstwhile firm namely Sri Krishna Motor Service, without taking the petitioner as partner, the quantum of goodwill and compensation payable to the petitioner, as out going partner;
3) to decide in respect of the vehicle bearing No. MYS. 5676 and to deliver the vehicle to the petitioner, with reasonable compensation for the use of the said vehicle; and
4) to find out the changes made in the accounts and the transactions carried out in the name of the erstwhile firm after the dissolution of the firm by notice dated 10.5.1984 to determine the profit and loss of the petitioner or such other reliefs that the Court may deem fit in the circumstances of the case.
2. The respondents have alleged that actually the petitioner himself was incharge of the business and was maintaining accounts; that he has fraudulently misappropriated the funds of the firm and acquired vehicle in his own name; that he has over drawn amounts from the account of the firm and that the petitioner had neglected the business of the firm etc. They have also denied the allegation that the petitioner purchased the bus MYS. 5676 or that he gave the vehicle to the 2nd respondent for running it or that it was in good condition. According to them the vehicle was originally a truck and it was purchased by their Firm Krishna Motor Service which was in existence even earlier and that it was subsequently converted to a bus. They have contended that as a matter of grace and gratitude the vehicle was registered in the jont names of 2nd respondent and the petitioner, who is related to them and who had been employed by them. They contended that in view of the serious controversies between the parties and also in view of the serious allegations made by them against the petitioner, a Petition for arbitration was not maintainable.
3. It is seen from the records of the lower-Court that both the sides have adduced elaborate evidence regarding the merits of the claim which was wholly unnecessary. The learned Civil Judge after holding that the respondents had not shown sufficient cause for not filing the Arbitration Agreement has allowed the Petition partly, referring only the 1st point raised by the petitioner for arbitration. He has declined to refer the other three points for arbitration after holding that the petitioner is not entitled to those reliefs in view of the evidence on record.
4. In this Appeal the learned Counsel for the petitioner/appellant, contended that the learned Civil Judge seriously erred in going into the merits of the petitioner's claim and not referring the other three points of dispute for arbitration. According to him, the other three claims arise out of the dissolution of the firm and they also have to be referred for arbitration.
5. The learned Counsel for the respondents did not contend that the respondents had made out any sufficient cause for not filing the Arbitration Agreement or for referring the disputes between the parties for arbitration. He mainly contended that as the Firm was not registered, the application under Section 20 of the Arbitration Act was itself barred in view of the provisions of Section 69 of the Partnership act, 1932. He relied upon the Decision of the Supreme Court in Jagadish Chandra Gupta v. Kajaria Traders (India) Ltd. . AIR 1964 SC 1882. and the Decisions of the Allahabad High Court in Smt. Rampa Devi v. Bishambhar Nath Puri . AIR 1976 Allahabad 19. and in Iqbal Singh v. Ram Narain . AIR 1977 Allahabad 352., in support of his contention. Though this objection has not been taken by the respondents in the lower-Court, as the fact that the Firm was not registered was conceded by the learned Counsel for the respondent, the respondents' Counsel has been permitted to raise this legal objection at this stage.
6. Countering the above objection the learned Counsel for the petitioner contended that as a Reference for Arbitration is sought for taking accounts in respect of a dissolved firm, the case comes under Proviso (a) to Section 69 of the Indian Partnership Act, and that the application is therefore, maintainable.
7. The relevant provisions of Section 69 of the Indian Partnership Act, 1932 are as hereunder:
“69(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 partners in the firm.
(3) The provisions 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 account of a dissolved firm, or any right or power to realise the property of a dissolved firm, or
(b) xxxxxxxxx
(4) xxxxxxxxx”
It is seen from the above provisions that the bar contained in sub-sections (1) to (3) would not affect the enforcement of any right of a partner to sue for dissolution of the firm or for accounts of a dissolved firm or right to realise the property of a dissolved firm.
8. In the present case, as admittedly the Firm is dissolved the petitioner has a right to sue for accounts of the dissolved firm. He has filed the application under Section 20 of the Arbitration Act for filing of the Arbitration Agreement and for referring his claim for accounts of the dissolved Firm for arbitration. The Point that arises for determination is:
Whether the proceeding before the Court should be construed as one for enforcement of petitioner's right to sue for accounts of the dissolved firm or as only a proceeding to enforce a mere right to proceed to arbitration?
If the former view is taken then the bar under Section 69 of the Indian Partnership Act would not affect the proceedings. On the other hand, if the latter view is taken, then the proceedings would be hit by the bar under Section 69.
9. The learned Counsel for the respondent, strongly relied on the Decision of the Supreme Court in Jagadish Chandra's case to contend that the bar under Section 69 applies even to an application seeking a Reference to Arbitration. According to him the proceeding before Court in the present case, is only a proceeding to enforce the right to go for arbitration and it cannot be construed as a proceeding for enforcement of his right to sue for accounts of the dissolved firm.
In Jagadish Chandra's case one of the partners of an unregistered firm filed an application for appointment of an arbitrator under Section 8(2) of the Arbitration Act for referring their dispute about the non-performance of an agreement by the other partner, for Arbitration. Two questions that arose for consideration before the Supreme Court, were: (1) whether the expression ‘other proceeding’ found in sub-section (3) of Section 69 should be taken to mean other proceeding of any kind or whether its meaning should be cut down in the light of the words ‘a claim for set off’ which precede it; (2) whether an application under Section 8(2) of the Arbitration Act can be regarded as a proceeding to enforce a right arising from a contract.
With regard to the first point, the Supreme Court has held that the expression ‘other proceeding’ should be given its full meaning untrammelled by the words ‘a claim of set off’ and that the bar under Section 69(1) and (2) would apply to any proceeding to enforce a right arising from the contract.
With regard to the second point, the Supreme Court has held that the proceeding under Section 8(2) of the Arbitration Act has its genesis in the arbitration clause of the agreement and as such, it is a proceeding to enforce a right arising from the contract.
It may be noted that in the above case, the matter to be referred for arbitration was neither for dissolution of the firm nor for accounts of a dissolved firm. The appointment of an arbitrator was sought to resolve a dispute regarding a breach of the agreement stated to have been committed by the other partner. The question whether a proceeding under Section 20 of the Arbitration Act for Reference to Arbitration the claim of one of the partners for accounts of the dissolved firm would be saved from the bar under Section 69 of the Indian Partnership Act by virtue of the Proviso had not arisen for consideration before the Supreme Court. As such we do not think that on the authority of the Decision in Jagadish Chandra's case the proceeding in the present case can straight away be held to be barred under Section 69 of the Indian Partnership Act.
Coming to the two Decisions of the Allahabad High Court, in Smt. Rampa Devi's case, before filing a suit for rendition of accounts and in the alternative for dissolution of the firm, the plaintiff had filed an application under Section 20 of the Arbitration Act for appointment of an arbitrator in terms of the Arbitration Agreement. That application had been rejected on the ground that the firm was unregistered. That order had been upheld by the High Court. In that subsequent suit the defendants filed an application for stay under Section 34 of the Arbitration Act alleging that they were ready for arbitration as per the terms of the Arbitration Agreement. That application was allowed by the lower Court. The High Court held that though the arbitration clause could not be enforced on account of non registration, there was no bar for the parties themselves referring the dispute to arbitration and upheld the order of the lower Court staying the suit. It is not clear from the Judgment as to for what relief arbitration had been sought in the application under Section 20 of the Arbitration Act. If the application under Section 20 of the Arbitration Act had been filed only for rendition of accounts without the firm being dissolved, then obviously the Proviso would not be attracted and the application would be barred. This Decision does not directly deal with the point at issue in this case.
10. In Iqbal Singh's case the respondents gave notice to the appellants determining the partnership and asking for appointment of arbitrators. That having been proved abortive, the plaintiffs/appellants filed an application under Section 20 of the Arbitration Act. That application was resisted by the respondents on the ground that the partnership being unregistered, the application was barred by Section 69 of the Indian Partnership Act. Dealing with this question the Allahabad High Court has held as hereunder:
“The expression ‘to sue’ contained in Clause (a) of sub-section (3) takes colour from the word ‘suit’ used in sub-sections (1) and (2). Clause (a) of sub-section (3) only excludes from the ambit of sub-section (3) of Section 69, suits for the dissolution of a firm or for accounts of a dissolved firm. Clause (a) would not, protect from the bar of Section 69 proceedings other than suits. But even assuming for a moment that the expression ‘to sue’ in Clause (a) of sub-sections (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.
Where, therefore, an application under Section 20 of the Arbitration Act by a party to an agreement for unregistered partnership business was neither for the dissolution of a firm nor for the accounts of a dissolved firm but it was only for the enforcement of the right of getting the dispute settled by arbitration, the application under Section 20 of Arbitration Act was not maintainable in view of Section 69(3) of Partnership Act… …”
11. The Decision in Iqbal Singh's case no doubt supports the contention raised by the learned Counsel for the respondent. It is difficult to accept the proposition in the above Decision that the Proviso to Section 69 would apply only for a suit for dissolution of the firm or for accounts of a dissolved firm. If it was intended to save only suits for dissolution of firm or for accounts of a dissolved firm, from the bar under Section 69(1) and (2) it could have been stated that the provisions of sub-sections (1) and (2) would not affect such suits. But what is sought to be saved from the bar under the Proviso is the enforcement of a right to seek the relief mentioned therein. The expression ‘right to sue’ cannot be construed as a right to file a suit. That expression means a right to litigate or to take action. If a proceeding other than the suit can be initiated for seeking the relief of dissolution of the Firm or for accounts of a dissolved Firm, the Proviso would apply even to such proceedings.
12. The point to be next considered is whether a proceeding under Section 20 of the Arbitration Act seeking Reference of the claim for accounts of a dissolved firm to Arbitration can be said to be in enforcement of the right to sue for accounts of the dissolved firm or whether it is only in enforcement of a right of getting the dispute settled by arbitration, as held by the Allahabad High Court.
13. Arbitration is one mode by which a party can seek redressal of his grievances. It is a method of settling a dispute in quasi-judicial manner. In the case of arbitration the dispute between the parties is not submitted for decision to the ordinary Courts but to a domestic Tribunal. When there is an Arbitration Agreement between the parties, the right to relief can be enforced by the party not by filing a suit but by a Reference of the claim to Arbitration. A Reference to Arbitration can be made either by the parties themselves without intervention of the Court or by the intervention of the Court. When a party seeks intervention of the Court to refer his claim for arbitration, he is virtually enforcing his right to secure the relief sought for by him through Arbitration. A right to seek Reference to Arbitration cannot be independent of the relief which is sought to be secured by Arbitration. The Court will have to find out whether the dispute between the parties is one to which Arbitration Agreement applies and only if it is found to apply, the Court can make a Reference of the dispute for Arbitration. As such when a party files an application under Section 20 of the Arbitration Act for a Reference of his claim for accounts of the dissolved Firm, he must be deemed to be enforcing his right to sue for accounts of the dissolved Firm, through Arbitration.
14. The object of the Proviso to Section 69 of the Indian Partnership Act is to exempt the right of the partners to litigate for dissolution of the firm or for accounts of the dissolved firm from the ban imposed under sub-sections (1) and (2). It is therefore reasonable and logical to conclude that the bar would not be applicable to any proceeding taken by a partner to secure the above reliefs. The proceeding under Section 20 of the Arbitration Act is the first step taken by the party to have his claim for dissolution of the firm or for accounts of the dissolved firm settled through arbitration. It could never have been the intention of the Legislature to permit a partner of an unregistered firm to enforce his right for dissolution of the firm or to seek accounts of the dissolved firm only by filing a suit and not by arbitration through the intervention of the Court, where there is Arbitration Agreement. We therefore, respectfully disagree with the view of the Allahabad High Court in Iqbal Singh's case. An application filed by a partner under Section 20 of the Arbitration Act for filing of the Arbitration Agreement and for referring the petitioner's claim for accounts of the dissolved Firm to Arbitration will have to be treated as a proceeding to enforce the petitioner's right to sue for accounts of the dissolved Firm and such a proceeding is exempted from bar under Section 69 of the Indian Partnership Act.
15. The Delhi and Madhya Pradesh High Courts have taken a view similar to the view taken by us.
In Jagat Mittar Saigal v. Kailash Chander Saigal . AIR 1983 Delhi 134., it has been held as hereunder:
“The Legislature in its wisdom has provided in clauses (a) and (b) of sub-section (3) of Section 69 of the Partnership Act that the rights of the partners of an unregistered firm in regard to the dissolution of the partnership, its accounting and the realisation of the property of a dissolved firm are to remain unaffected by the provisions of sub-sections (1) and (2) of Section 69 of the Partnership Act. Clause (a) and (b) of sub-section (3) of Section 69 engraft an exception upon the provisions contained in sub-sections (1) and (2) of Section 69. It is equally applicable to the enforcement of a right arising from a contract by way of a suit or in other proceedings including a petition under Section 20 read with Section 8 of the Arbitration Act. The right to proceed to arbitration is a right arising out of the contract between the parties. If the right to claim the relief is restricted to the accounts of a dissolved firm or any right or power to realise the property of a dissolved firm, then the non-registration of the firm is no bar to the petition for referring the matter in dispute to arbitration.”
In Ram Kumar Agarwal v. Ramkishan Tayal Fouji . AIR 1991 Madhya Pradesh 188., it has been held as hereunder:
“10. If the Legislature has chosen to specifically save the enforcement of any right to sue for the dissolution of a firm or for account of a dissolved firm or any right or power to realise the property of a dissolved firm from the rigour of the disability attaching with non-registration, it is difficult to conceive that the Legislature would have intended the disability to operate if one mode of enforcement of right was pursued but not when any other mode was pursued. Ordinarily, the parties approach the Court for enforcement of their rights and whenever they have a right to sue. However, when two persons agree to have their differences settled through arbitration, what they really mean is that the actual decision of the dispute will rest with a third person called an arbitrator. Still, the Court may have to intervene to regulate the arbitration proceedings or to give the award of the arbitrator sanction of law. The Law of Arbitration results in withdrawal of the dispute from the ordinary Courts enabling the parties to substitute a domestic Tribunal. Nevertheless, the award has to be made a rule of the Court followed by a decree to be enforceable. When the proceedings are initiated under Section 20 of the Arbitration Act, they begin with the intervention of the Court and they end with the intervention of the Court when the arbitration award is made a rule of the Court. When the end result sought to be achieved is the dissolution of a firm or account of a dissolved firm or realisation of the property of a dissolved firm, even if the proceedings have been initiated under Section 20 of the Arbitration Act on account of an arbitration agreement being available between the parties, the party is in substance enforcing his right to sue for achieving the end result.”
We respectfully agree with the view taken by the Delhi and Madhya Pradesh High Courts in the above two Decisions. Consequently, the contention of the learned Counsel for the respondent that the application under Section 20 of the Arbitration Act filed by the petitioner is not maintainable, cannot be sustained.
16. Coming to the merits of the Appeal, we can straight away point out that the learned Civil Judge committed a serious mistake in going to the merits of the petitioner's claim covered by points 2 to 4 and declining to refer them for arbitration on the ground that those claims are not sustainable. In the proceedings before the lower-Court all that the Court had to find out was whether there was an Arbitration Agreement between the parties; whether differences which are stated to have arisen including the claim made by the petitioner are matters to which the Arbitration Agreement applies and whether the respondents had shown sufficient cause for not referring the matter for arbitration. In this case, the existence of Arbitration agreement is not disputed. Except making vague allegations that the petitioner had misappropriated the funds of the firm and that he neglected the business, the respondents have not shown any good cause against making a Reference. In fact the learned Civil Judge has directed a Reference to be made in respect of the first point and that finding of the learned Civil Judge is not challenged by the respondents. The second claim made by the petitioner is with regard to the goodwill of the firm. The 4th claim is with regard to the income derived by the respondents after the date of dissolution by the alleged using of the assets of the firm without settlement of accounts. So far as the first claim regarding the goodwill is concerned, it would come under Section 55 of the Indian Partnership Act and the claim covered by point No. 4 would come under Section 37 of the Indian Partnership Act. Both these claims are made as a consequence of the dissolution of the firm and they come within the ambit of the Arbitration Agreement. The question whether the petitioner is actually entitled to those claims under the terms of the Partnership Deed in the light of the evidence adduced by the parties, is not required to be dealt with by the Court in these proceedings. That question will have to be dealt with by the Arbitrator. The learned Civil Judge was not correct in declining to refer these points namely points 2 and 4 for arbitration. So far as the 3rd point that is sought to be referred for arbitration, it may be noted that it deals with the right of the petitioner to the vehicle bearing No. MYS. 5676. In the Petition the petitioner in para 4 has alleged that his erstwhile employer Sri B.R Naik had sold the bus for a nominal value considering his past services; that at that time he was not having any route to run his bus; that the 2nd respondent requested him to provide the bus to run the same in a route sanctioned in his favour; and that he gave the bus to him in 1971. The petitioner after referring to the notice issued by Respondents 2 to 5 with regard to the dissolution of the firm, has stated as hereunder in Para 7:
“7. But, the 2nd respondent has not said anything about the vehicle bearing No. MYS. 5676, which was provided to him in a personal capacity, and still making profit out of the said vehicle..”
The above averments in the Petition clearly show that according to the petitioner the bus was handed over to the 2nd respondent in his personal capacity in 1971, much before he became a partner of the firm. It is also clear that according to the petitioner the bus was given to the 2nd respondent in his personal capacity. It is not the petitioner's case as disclosed in the Petition that he provided the bus for the use of the Firm as his contribution. The petitioner's claim with regard to the bus is against the 2nd respondent personally and not against the Firm or against the 2nd respondent as a partner of the Firm. Consequently this claim of the petitioner would not come within the purview of the Arbitration Agreement. Hence his request to refer this point to arbitration cannot be granted.
17. For the above reasons this Appeal is allowed in part and the order of the learned Prl. Civil Judge, Shimoga, is modified by directing that a Reference for Arbitration be made even in respect of points 2 and 4 raised by the petitioner in addition to point No. 1. The parties shall bear their own costs in this appeal.