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Mulakh Raj & Anr v. Shashi Rani & Others
Factual and Procedural Background
This writ petition challenged an order of the learned Additional District Judge dismissing the petitioner's application under Section 11 of the Arbitration & Conciliation Act, 1996. The trial court rejected the application on the ground that the firm of which "the husband of the respondent and petitioner were partners" was an unregistered firm, and held that the disability in Section 69 of the Partnership Act barred the petitioner from maintaining an application under Section 11. The respondent raised a preliminary objection that a writ petition was not an available remedy. The trial court had relied on a Single Judge judgment (Usha Rani). The petitioner contended that that Single Judge decision had been set aside by a Division Bench. The present Court considered these contentions, statutory provisions (Section 69 of the Partnership Act), and authorities, and ultimately set aside the impugned order and appointed an arbitrator.
Legal Issues Presented
- Whether a partner (or a person suing as a partner) can maintain an application under Section 11 of the Arbitration & Conciliation Act, 1996 when the firm is unregistered, having regard to the disability in Section 69 of the Partnership Act.
- Whether a writ petition under Articles 226/227 of the Constitution is a permissible remedy to challenge an order under Section 11 when no appeal lies from a designated authority's order to appoint an arbitrator.
- Whether precedents relied upon by the parties (including Single Judge and Division Bench decisions and Supreme Court authorities) dictate that non-registration of a firm bars invocation of arbitration or appointment of an arbitrator by a partner.
Arguments of the Parties
Respondent's Arguments
- Preliminary objection: the remedy of a writ petition is not available to the petitioner (i.e., the petitioner cannot maintain a writ challenging the Section 11 order).
- Relied on U.P. State Sugar Corpn. Ltd. v. Jain Construction Co. & Anr. (2004 (4) CCC 51) to contend that the petition is not maintainable; implicitly, that the disability of non-registration applies.
Petitioner's Arguments
- Challenged the preliminary objection by relying on Konkan Railways Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201 that an order passed by a designated authority to appoint an arbitrator is an administrative order and, because no appeal lies, the remedy is by writ under Articles 226/227.
- Contended that the Single Judge decision in Usha Rani's case (which held non-registration barred maintenance of an application under Section 11/Section 20) was set aside by the Division Bench (FAO 556/2001), based on the Supreme Court decision in Prabhu Shankar Jaiswal v. Sheo Narain Jaiswal & Ors (1996) 11 SCC 225.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Konkan Railways Corporation Ltd. v. Mehul Construction Co., (2000) 7 SCC 201 | Order passed by a designated authority to appoint an arbitrator is an administrative order. | The Court relied on this authority to reject the respondent's preliminary objection and to hold that since no appeal lies against such an order, the appropriate remedy is by writ under Articles 226/227. |
| Om Prakash v. Usha Rani & Ors (Usha Rani) — 96 (2002) DLT 35 (Single Judge) | Held that non-registration of the firm is a bar to maintaining an application under Section 11 (and Section 20 was treated similarly). | The trial court had placed reliance on this Single Judge decision; the present Court noted this position but also noted that the Single Judge judgment had been set aside by a Division Bench on appeal. |
| Prabhu Shankar Jaiswal v. Sheo Narain Jaiswal & Ors, (1996) 11 SCC 225 | Supreme Court authority relied upon in the Division Bench that set aside Usha Rani's Single Judge decision. | The Court observed that the Division Bench set aside the Single Judge decision in view of this Supreme Court decision; this undermined the trial court's reliance on the Single Judge ruling. |
| Smt. Premlata & Anr. v. Ishar Dass Chaman Lal & Ors, AIR 1995 SC 714 | Interprets exceptions in Section 69(3) of the Partnership Act to permit enforcement of rights relating to dissolution/accounts/realisation of property of a dissolved firm, and recognises that an arbitration clause may be invoked in such contexts. | The Court relied on this authority to explain that the exceptions in Section 69(3) allow a partner to enforce rights (including by invoking arbitration) in respect of dissolution or accounts of a dissolved firm, supporting the proposition that Section 69's disability does not automatically bar a partner from invoking arbitration under Section 11. |
| U.P. State Sugar Corpn. Ltd. v. Jain Construction Co. & Anr., 2004 (4) CCC 51 | Deals with the disability of an unregistered firm qua third parties (and concerned a petition filed by a firm, not a partner). | The Court held this authority was not applicable to the present controversy because it dealt with a firm suing third parties and not with a partner enforcing rights; therefore it did not support the respondent's contention. |
Court's Reasoning and Analysis
The Court proceeded in a stepwise manner:
- Preliminary remedy question: The Court rejected the respondent's preliminary objection that a writ petition was unavailable. It relied on Konkan Railways to treat an order under Section 11 (appointment of an arbitrator by a designated authority) as administrative and observed that because no appeal lies from such an order, the appropriate remedy is a writ under Articles 226/227.
- Assessment of trial court reliance on Usha Rani: The Court examined the trial court's reliance on a Single Judge decision (Usha Rani) which held that non-registration barred applications under Section 11/Section 20. The Court noted that that Single Judge decision had been set aside by the Division Bench on appeal (FAO 556/2001) in view of the Supreme Court decision in Prabhu Shankar Jaiswal.
- Statutory interpretation of Section 69 Partnership Act: The Court reproduced Section 69 and observed that sub-section (3) creates exceptions to the disability in sub-sections (1) and (2). The Court identified three exceptions: (a) enforcement of any right to sue for dissolution of a firm; (b) for accounts of a dissolved firm or any right to realise property of a dissolved firm; and (c) powers of insolvency officials. The Court analysed that these exceptions are intended for situations where a partner brings proceedings to enforce rights relating to dissolution/accounts/realisation.
- Application of Premlata: The Court relied on Smt. Premlata to support the view that the right "to sue" for dissolution or for accounts includes the right to enforce an arbitration clause concerning disputes of a dissolved firm. Thus, invoking an arbitration clause (and seeking appointment of an arbitrator under the Arbitration Act) can be a permissible method to enforce such rights even if the firm is unregistered.
- Distinguishing U.P. State Sugar Corporation: The Court found the U.P. State Sugar Corporation authority cited by the respondent inapplicable, since that case involved a firm prosecuting rights qua third parties and not a partner enforcing rights; accordingly, it did not control the present situation.
- Relief granted: In view of the statutory exceptions, the precedents (particularly Premlata and the Division Bench treatment of Usha Rani in light of Prabhu Shankar Jaiswal), and the procedural availability of writ remedy, the Court set aside the impugned order and appointed an arbitrator to decide the matter in accordance with law.
Holding and Implications
Holding: The writ petition was allowed; the impugned order of the Additional District Judge dismissing the application under Section 11 was set aside and Mr. S.P. Sabharwal, a retired District & Sessions Judge of Delhi, was appointed as arbitrator. The arbitrator was directed to fix his own fees and decide the matter in accordance with law. Registry was directed to inform parties of the appointment and the parties were directed to appear before the arbitrator on 4.4.2005 at 4:00 p.m.
Implications:
- Direct effect: The immediate consequence is that the petitioner's application under Section 11 proceeds; an arbitrator has been appointed and the arbitration will be conducted in accordance with law.
- On the legal issue whether non-registration of a firm bars a partner from invoking arbitration: the Court applied statutory exceptions in Section 69(3) and Supreme Court authority (Smt. Premlata) to conclude that the disability under Section 69 does not automatically prevent a partner from invoking arbitration for dissolution/accounts/realisation-related rights. The Court distinguished authorities concerning suits by a firm against third parties.
- No claim was made by the Court to have established a novel precedent; the Court disposed of the writ by applying existing statutory provisions and authorities and set aside the trial court's order.
Vijender Jain, J. (Oral):— This petition has been filed to challenge the impugned order passed by the learned Additional District Judge dismissing the petitioner's application under section 11 of the arbitration & conciliation act, 1996. The ground of rejection of the application for non-supply of the vacancy of an arbitrator was that the firm of which the husband of the respondent and petitioner were partners, was an unregistered firm. Therefore, it was held by the learned Additional District. Judge that in view of the disability envisaged under Section 69 of Partnership Act, the petitioner could not maintain an application under section 11 of the arbitration & conciliation act.
2. As a preliminary objection, learned counsel for the respondent has submitted that the remedy of writ petition is not available to the petitioner. We see no force in the objection of the learned counsel. In Konkan Railways Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201, the Supreme Court of India has opined that order passed by a designated authority to appoint arbitrator is an administrative order.
3. Since no appeal would lie as there is no adjudicatory order passed by the designated authority while exercising jurisdiction under section 11 of the arbitration & conciliation act, 1996, therefore, the only remedy available would be to file a writ petition under Articles 226/227 of the Constitution of India.
4. We have perused the order passed by the trial court placing reliance on a judgment of learned Single Judge of this Court in Om Prakash.Plaintiff; v. Usha Rani & Orsdefendants.. 96 (2002) DLT 35. It was held that non-registration of the firm was a bar for maintaining an application under section 11 of the arbitration & conciliation act. Learned counsel appearing for the petitioner has contended that against the decision in the case of Usha Rani (supra) decided by the learned Single Judge, an appeal (FAO 556/2001) was preferred and by an order dated 12th August, 2002, the said judgment of Usha Rani's case (supra) was set aside by the Division Bench of this Court.
5. On the other hand, learned counsel for the respondent has contended that the petition is not maintainable. In support of his contention he has relied upon a judgment of Supreme Court in the case of U.P State Sugar Corpn. Ltd. v. Jain Construction Co. & Anr. 2004 (4) CCC 51.
6. We have given our careful consideration to the arguments advanced by learned counsel for both the parties. A learned Single Judge of this Court in Usha Rani's case took the following view:—
“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 these 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 word “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.”
7. In the appeal that judgment was set aside in view of the decision of the Supreme Court in Prabhu Shankar Jaiswal v. Sheo Narain Jaiswal & Ors. (1996) 11 SCC 225.
8. Section 69 of the Partnership Act is as follows:
“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 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 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.”
9. From the plain language of Section 69 (3) of the Partnership Act, it is clear that three exceptions have been made where the disability under Section 69 will not operate, i.e the enforcement of any right to sue for the dissolution of a firm; secondly, for account of a dissolved firm or any right; thirdly, power to realise the property of a dissolved firm.
10. These exceptions are basicly carved out to meet such kind of exigencies where a partner of an unregistered firm files certain proceedings for enforcement of any right to sue for the dissolution of the firm or for accounts of a dissolved firm or any proceedings to realise the property of a dissolved firm. The legislature in its wisdom has created these exceptions because the disability which will operate qua an outsider or third party will not operate with regard to the filing of a suit to enforce a right arising from a contract 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. Therefore, the application for arbitration invoking arbitration and appointment of an arbitrator in terms of Section 11 would be an application for dissolution of the firm or for having his share from the assets of the firm. Similar is the view taken by Supreme Court in Smt. Premlata & Anr. v. Ishar Dass Chaman Lal & Ors. AIR 1995 SC 714, which is reproduced hereunder:—
“Para 8. It is seen that with the demise of the partners, ipso facto, the partnership stood dissolved. What the legal representatives of the deceased partner is seeking to enforce is for accounts of a dissolved firm or any right or power to realise the property of the dissolved firm. The right ‘to sue’ for the dissolution of the firm must, of necessity, be interpreted to mean the right to enforce the arbitration clause for resolution of the disputes relating to dissolved firm or for rendition of accounts or any right or power to realise the property of the dissolved firm………..
Para 10. It is fairly stated by Shri Satish Chandra that the party can enforce the right by a suit for rendering accounts and for realisation of the property of the dissolved firm pro rata. When that is permissible by an exception carved out by sub-section (3)(a) to S. 69, we are of the view that there is no prohibition to invoke arbitration clause under the deed of partnership, agreed to by and between the parties to invoke S.20 of the Act. Thus considered, we are of the view that the suit under S. 20 of the Act is maintainable. The High Court has, therefore, committed manifest error of law in holding otherwise.”
11. The Authority of U.P State Sugar Corpn. Ltd.'s case (supra) cited by the learned counsel for the respondent is not an authority on this point as that authority deals with the disability of a firm which is unregistered qua third parties and that petition was filed by a firm and not by a partner. Therefore, we set aside the impugned order and appoint Mr. S.P Sabharwal, a retired District & Sessions Judge of Delhi to act as an arbitrator. The arbitrator shall fix his own fees and will decide the matter in accordance with the law. Registry is directed to send the information of the appointment of the arbitrator forthwith. Parties to appear before the arbitrator on 4.4.2005 at 4.00 p.m
12. With these directions, writ petition stands disposed of.
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