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Sanganer Dal And Flour Mill v. F.C.I And Others
Factual and Procedural Background
The appellant is a partnership firm consisting of nine partners, one of whom is Satya Narain. On July 25, 1973 Satya Narain submitted a tender to the respondent-corporation to supply 1,000 quintals of gram dal at Rs 185 per bag. The corporation accepted the offer on August 28, 1973, which the firm confirmed on August 31, 1973. Alleging breach of this contract by the appellant, the respondents invoked the arbitration clause and filed an application under Section 20 of the Arbitration Act, 1940 before the District Court.
The Additional District Judge, after considering evidence and objections, referred the dispute to arbitration. The High Court of Rajasthan, by order dated July 7, 1983, affirmed the reference. The appellant obtained special leave to appeal under Article 136 of the Constitution, challenging the High Court’s order.
Legal Issues Presented
- Whether Satya Narain, one partner of the appellant firm, had implied authority to bind the firm to a contract containing an arbitration clause.
- Consequently, whether the court-ordered reference to arbitration under Section 20 of the Arbitration Act, 1940 was without jurisdiction because of Section 19(2)(a) of the Indian Partnership Act, 1932, which restricts a partner’s implied authority to submit disputes to arbitration.
Arguments of the Parties
Appellant’s Arguments
- Invoked Section 19(2)(a) of the Indian Partnership Act to contend that a partner lacks implied authority to submit disputes to arbitration; therefore, Satya Narain’s actions and the resulting judicial reference were without jurisdiction.
- Asserted that the contract allegedly breached was void and, hence, any arbitration clause contained therein could not bind the firm or its other partners.
The opinion does not contain a detailed account of the respondents’ legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gopal Das v. Baij Nath, AIR 1926 All 238 | Not elaborated in the opinion. | Cited by appellant; held to be of little assistance. |
| Firm Radha Kishen Chuni Lal v. Firm Asha Mal Ishar Das, AIR 1926 Lah 91 | Not elaborated in the opinion. | Cited by appellant; held to be of little assistance. |
| Rajendra Prosad v. Panna Lal Champa Lal, AIR 1932 Cal 343 | Not elaborated in the opinion. | Cited by appellant; held to be of little assistance. |
| Mansabdar Khan v. Mt. Allah Dei, AIR 1934 Lah 485 | Not elaborated in the opinion. | Cited by appellant; held to be of little assistance. |
| Sohan Lal v. Firm Madho Ram Banwari Lal, AIR 1952 Punj 240 | Not elaborated in the opinion. | Cited by appellant; held to be of little assistance. |
| Alagappa Cotton Mills v. Indo Burmah Trading Corporation, AIR 1976 Mad 79 | A reference to arbitration based on a separate letter (not in the original contract) does not bind non-consenting partners. | Distinguished: unlike that case, the present contract itself contained an arbitration clause accepted by all partners, expressly or by ratification. |
Court's Reasoning and Analysis
The Court affirmed the High Court’s factual finding that none of the nine partners denied the validity of the contract or objected to Satya Narain signing the tender. Their silence and the corporation’s appropriation of the firm’s security deposit constituted ratification of the contract by all partners.
Referring to Sections 18 and 19(1) of the Partnership Act, the Court observed that a partner is an agent of the firm for the purposes of its business and that acts done in the usual course of such business bind the firm. Although Section 19(2)(a) carves out an exception denying implied authority to submit disputes to arbitration, that limitation operates only “in the absence of any usage or custom of trade to the contrary.” In the present case, Satya Narain’s authority to contract for supply of gram dal fell squarely within the firm’s ordinary business, and the contract itself—never repudiated—expressly contained an arbitration clause. Consequently, the partners were bound by that clause.
The Court thus concluded that the District Judge’s reference to arbitration under Section 20 of the Arbitration Act was valid and within jurisdiction. The precedents cited by the appellant were distinguished or found irrelevant because they involved materially different facts, particularly the absence of an arbitration clause in the original contract.
Holding and Implications
APPEAL DISMISSED.
The Supreme Court upheld the High Court’s order confirming the reference to arbitration and found no illegality warranting interference. The immediate consequence is that the dispute will proceed to arbitration in accordance with the contract. The judgment reiterates that partners who ratify a contract containing an arbitration clause cannot later evade arbitration on the ground of lack of explicit authority, but it does not establish a new legal precedent beyond applying settled principles.
Order
1. This appeal by special leave under Article 136 of the Constitution is against the order of the High Court of Rajasthan dated July 7, 1983. The appellant a partnership firm consists of nine partners of which Satya Narain is one of the partners. On July 25, 1973 Satya Narain submitted a tender to the respondents offering to supply 1000 quintals of gram dal at the rate of Rs 185 per bag. This was accepted by the respondents by letter dated August 28, 1973 followed by confirmation letter by the firm on August 31, 1973. It is the case of the respondents that the appellant committed breach of the contract and as a result, the respondents filed an application under Section 20 of the Arbitration Act, 1940 (for short as the ‘Act’) before the District Court for making reference for arbitration in terms of the contract. The Additional District Judge after considering the evidence and the objections allowed the application and referred the dispute for arbitration. Against that order, the appeal was filed and the High Court confirmed the order of the Additional District Judge.
2. The contention raised by Sri Sushil Kumar Jain, learned counsel for the appellant is that by operation of Section 19(2)(a) of the Indian Partnership Act, 1932 (for short as the ‘Partnership Act’) there is no implied authority given to one of the partners to refer the dispute relating to the business of the firm for arbitration and therefore the reference made by the court, pursuant to a contract entered into by Satya Narain on behalf of the firm, is without jurisdiction. The High Court found as a fact that none of the partners have entered into the witness box to deny the validity of the contract nor raised any objection that they had not authorised Satya Narain to enter into the contract nor that they were bound by any acts done by him. It is also found that Satya Narain signed the tender and at that time no other partners raised objection regarding the signing of the tender by Satya Narain on behalf of the firm. In view of these facts it is clear that they ratified the contract. It is also further to be noted that in terms of the contract, the corporation had appropriated the security deposit made by the appellant-firm and that was not objected to at any time. This itself would fortify the conclusion that the firm had entered into a binding contract with the corporation and contract contained the arbitration clause which binds the partners. The contention raised that the contract is void and that in terms of the contract, making a reference is without jurisdiction bears no substance.
3. The High Court found that Satya Narain has implied power to conduct business on behalf of the partnership firm and the implied authority binds all the partners. Section 18 of the Partnership Act postulates that “subject to the provisions of the Act a partner is the agent of the firm for the purposes of the business of the firm”. Section 19(1) adumbrates that “subject to the provisions of Section 22 the act of the partners which is done to carry on in the usual way the business of the kind carried on by the firm, binds the firm. Thus, Satya Narain has implied authority to enter into the contract with the corporation to supply the dal of 1000 quintals at the contracted rate which is the usual course of the business of the appellant. But it is settled law that the operation of Sections 18 and 19(1) is subject to the exceptions engrafted in sub-section (2) of Section 19. Section 19(2)(a) provides that in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration. Satya Narain has power to do business on behalf of the firm and in exercise thereof he entered into the contract with the corporation during the usual course of business to supply the dal. The crucial question is whether a valid contract which was not repudiated as per law, binds the other partners? Our answer is yes. It is not in dispute that the contract engrafts an arbitration clause and in terms thereof the dispute is to be referred to the arbitration. Therefore, the reference made by the Additional District Judge under Section 20 of the Arbitration Act is perfectly within the jurisdiction and in terms of the contract. It is not the case of the partners that the firm is not carrying on the business of the supply of dal and that Satya Narain, as found by the trial court, was authorised to do business on behalf of the firm.
4. Under those circumstances, the reference is clearly valid. We do not find any illegality to interfere with the order of the High Court.
5. In this view, the decisions in Gopal Das v. Baij Nath AIR 1926 All 238, Firm Radha Kishen Chuni Lal v. Firm Asha Mal Ishar Das AIR 1926 Lah 91, Rajendra Prosad v. Panna Lal Champa Lal AIR 1932 Cal 343, Mansabdar Khan v. Mt. Allah Dei AIR 1934 Lah 485, Sohan Lal v. Firm Madho Ram Banwari Lal AIR 1952 Punj 240 and Alagappa Cotton Mills v. Indo Burmah Trading Corporation AIR 1976 Mad 79 cited by learned counsel are of little assistance to the appellant. In Alagappa Cotton Mills case AIR 1976 Mad 79 the original contract did not contain arbitration clause. In a separate letter with a rubber stamp (facsimile) of the firm one of the partners agreed for reference to arbitration. On those facts it was held that the reference does not bind the other partners. The appeal is accordingly dismissed. Since we do not call upon the respondents to argue, there will be no order as to costs.
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