A  

B  

SMT. PREM LATA AND ANR.  v.  

MIS ISHAR DASS CHAMAN LAL AND ORS.  

JANUARY 10, 1995  

[K. RAMASWAMY AND SUJATA V. MANOHAR, JJ.)  

Arliitration Ac~ 1940-Section 2(}-Reference to Arbitration provided  for in partnership deed of an unregistered finn-Suit under S.20 maintainable.  

C Partnership Ac~ 1939-Section 69(3 }-Not an embargo to reference of  disputes to arliitration, if such provision present in the partnership deed of an  unregistered jinn.  

One ID and his two sons by a partnership deed dated 13.12.65  .constituted an unregistered firm. With the death of the eldest son on 6.3.78  

D the partnership firm stood dissolved. The appellants, the widow and the  alleged son of the deceased, called upon the erstwhile partners, the respon·  dents herein, to render the aci:ounts of the firm. The respondents did not  render the accounts and the appellants invoked Clause 16 of the Partner·  ship Deed and called npon them to refer the dispute to the named Br·  

E bltrators. Since the respondents refused to refer the dispute the appellants ·  invoked the jurisdiction of the civil court under Section 20 of the Arbltra·  don Act, 1940.  

The Trial Court allowed the suit. 1n revision, the High Court held  that S.69(1)&(3) of the Partnership Act, 1939 excluded the application of  

F S.20 of the Arbitration Act and consequently the application under S.20  for reference to arbitration was not maintainable.  

In appeal to this Court, it was contended that S.69(3)(a) carved out  an exception to S.69(1), (2) and main (3). As a result there was 110  

G prohibition for the appellants to invoke Clause 16 or the partnership deed  to enforce their rights so their application/suit under S.20 of the Arbitra·  

don Act was maintainable.  

The respondents contended that 'to sue' as envisaged in S.69(1) and  main (3) Included an entitlement to enforce the right created under the  

H partnership deed and since the partnership firm was unregistered, the  168

PREM LATA v. I.D. CHAMAN LAI. 169  

rights under the deed, namely reference to arbitration nnder Clause 16, A  was not available. The suit under s.20 of the Arbitration Act was therefore  not maintainable.  

Allowing the appeal, this Conrt  

HELD : The alternate resolution forum agreed by the parties i.e. B  reference to private arbitration, was a mode of enforcing the rights given  under s.69(3)(a) of the Art and was an exception to sub-section (1) and (2)  and main part of (3) of s.69. The enforcement included right of reference  to arbitration in terms of Clause 16 of the partnership deed for disputes  and difference arising between the parties. There was no embargo for filing C  an application under s.20 of the Arbitration Act, 1940. The trial court is  directed to refer the dispute to the named arbitrator. (173-G]  

Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., (1964) 8 SCR  SO, relied on.  

D  CML APPELLATE JURISDICTION : Civil Appeal No. 5491 of  

1985.  

From the Judgment and Order dated 7.5.85 of the Punjab & Haryana  High Court in C.R. No. 660 of 1985.  

E  Dbruv Mehta, S.K. Mehta, Aman Vachber and P.N. Puri for the  

Appellants.  

Salish Chandra, K.B. Rohtagi, S.K. Dhingra and Ms. AparnaRohtagi  for the Respondents.  

The following Order of the Court was delivered :  

Application for substitution is allowed.  

F  

This appeal, by special leave, arises from the judgment of the learned  Single Judge of the Punjab and Haryana High Court in Civil Revision No. G  660/85, dated May 7, 1985.  

M/s. Ishar Das Chaman Lal - partnership firm consists of Ishar Das,  the father, Charnan Lal and Om Prakash, his sons. By a deed of partnership  dated 13.12.1%5, the aforesaid partnership firm was constituted but the  firm was not registered unders s. 69 of the Indian Partnership Act. Charnan H

170 SUPREME COURT REPORTS [1995] 1 S.C.R.  

A Lal, the eldest son died on 6.3.1978, by obvious reasons of which the  partnership stood dissolved. By the death of one of the members, it is no  longer possible to adhere to the original contract. The appellants - the  widow and alleged son of the deceased Chaman Lal - called upon the  respondents to render the accounts of the firm. Since they did not do so,  

B invoking Clause (16) of the partnership deed, the appellants had called  upon the respondents to refer the dispute to M/s. Tara Chand and Hans  Raj Jain, Income-tax practitioners, the named arbitrators in the contract,  to resolve the dispute, Since the respondents had refused to refer the  dispute, the appellants invoked the jurisdiction of the civil court under s.20  of the Arbitration Act, 1940, for short the Act. The respondents resisted  

C the claim contending that since the partnership firm was an unregistered  one, by operation of s.69 of the Partnership Act, the application under s.20  of the Act would not lie. The trial court negatived the contention of the  respondents. But, on appeal and in revision, ultimately, the High Court  held that sub-s. (1) of s.69 and main part of sub-s. (3) of s.69 exclude the  

D application of s.20 of the Act and consequently, the suit is not maintainable.  Thus, this appeal, by special leave.  

Shri Dhruv Mehta, the learned counsel appearing for the appellants  neatly contended that the appellants are only seeking to enforce the rights  

E of the parties arising from the dissolution of the firm for rendition of  accounts of the dissolved firm and to take the property or the rights therein  as per the terms of the contract to which Chaman Lal was entitled to.  Instead of filing a suit, they invoked the arbitration clause 16 for reference  to resolve the dispute by an alternative resolution forum created by the  parties. Since sub-s. 3(a) of s.69 of the Partnership Act carved out an  

F exception to the main part of sub-ss. (1) and (2) of s.69, there is no  prohibition for the appellants to invoke clause 16 of the partnership deed  and that thererfore, the suit filed unders s.20 of the Act is maintainable.  

Shri Satish Chandra, the learned Senior counsel for the respondents  G contended that "to sue", as envisaged in sub-s. (1) and main part of sub-s.  

(3) of s.69, includes entitlement to enforce the right created under the  contract. Since the partnership firm was an unregistered one, the rights  arising under the contract, namely, reference to the arbitration under  clause 16 of the contract itself is a right to sue under the contract and that  

H therefore, the suit under s.20 of the Act is not maintainable.

PREM LATAv. I.D. CHAMAN LAL 171  

The question, therefore, is whether the suit filed under s. 20 of the A  Act is maintainable to work out the rights given to the parties under clause  (a) to sub-s.(3) of s.69 of the Partnership Act? Section 20 of the Arbitration  Act provides that :  

"20. Application to file in Court arbitration agreement. - (1) Where  any persons have entered into an arbitration agreement before the B  institution of any suit with respect to- the subject-matter of tbe  agreement or any part of it, and where a difference has arisen to  which the agreement applies, tbey or any of them, instead of  proceeding under Chapter II, may apply to a Court having juris- diction in tbe matter to which the agreement relates, that the C  agreement be filed in court.  

(2) xxxxxxx  

(3) xx xx xx x  

( 4) x x x xx x x, tbe Court shall order the agreement to be filed,  and shall make an order of reference to the arbitrator appointed  by the parties, whetber in tbe agreement or otberwise, or, where  tbe parties cannot agree upon an arbitrator, to an arbitrator  appointed by the Court."  

Clause 16 of the partnership deed provides that :  

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E  

"16. That any dispute or question in connection with tbe partner- ship firm or this deed shall be referred to arbitration of Shri  Tarachand and Shri Hansraj Jain, Income-tax Practitioner, and F  they shall be the arbitrators on behalf of tbe parties under the  provision of the Indian Arbitration Act of 1940, or any statutory  modification or re-enactment thereof for the time being in force."  

The question, therefore, is whether s.69 prohibits tbe reference by G  the Court under s.20 of the Act? Section 69(3)(a) of tbe Partnership Act  reads tbus:  

"69. Effect of non-registration. -

(1) xx xx H

172  

A  

SUPREME COURT REPORTS [1995] 1 S.C.R.  

(2) xx xx  

(3) The provisions of sub-ss. (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 -

B (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 xx xx xx."  

Undoubtedly, s.69(1) prohitits laying the suit to enforce a right arising from  C a contract or conferred by the Act or on behalf of a person suing as a  

partner in the firm against the firm or any person alleged to be or to have  been a partner in the firm. This Court in Jagdish Chander Gupta v. Kajaria  Traders (India) :f-td., [1964] 8 SCR 50, considering the words 'other  proceedings' in sub-s. (3) of s.69, held that the doctrine of ejusdem generis  would not apply and the words 'other proceedings' include the right arising  

D under an arbitration agreement between the parties is a right arising under  the contract. The words 'otjier proceedings' in sub-s.(3) must receive their  full meaning untramelled by the words 'a claim of set off. The latter words  neither intend nor can be construed to cut down the generality of the words  'other proceedings'. In that case, since the parties sought to avail the  

E remedy under s.8 of the Act, this Court held that the words 'other  proceedings' include the proceedings under s.8 of the Act and that, there- fore, the application would not lie. However, this Court had expressly laid  thus:  

F  

G  

'In our judgment, the words 'other proceedings' in s.(3) must  receive their full meaning untramelled by the words 'a claim of  set-off. The latter words neither intend nor can be construed to  cut down the generality of the words 'other proceedings'. The  sub-section provides for the application of the provisions of sub-ss.  (1) and (2) to claims of set-off and also to other 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-s. (3) and sub-s. (4)."  

Thus this Court also had given effect to the exceptions carved out by sub-ss.  (3) and ( 4) of s.69 of the Partnership Act from the prohibition imposed by  

H suli-ss. (1) and (2) and main part of sub-s. (3) even though the firm was

PREM LATA v. l.D. CHAMAN LAL 173  

not registered under s.69. A  

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, <?f necessity, be interpreted to mean B  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.  

Indisputably the first appellant is the widow of Chaman Lal - one of C  the partners. Therefore, she steps into the shoes of the deceased partner  who had a right in the dissolved partnership firm. Sub-s. (3)(a) carves out  three exceptions to sub-ss. (1) and (2) of s. 69 and also to the main part  of sub-s. (3) of s. 69, namely, (1) the enforcement of any right to sue for  the dissolution of firm; (2) for accounts of the dissolved firm; and (3) any D  right or power to realise the property of the dissolved firm. Having ex- cluded from the embargo created by the main part of sub-s. (3) of sub- ss.(1) and (2) of s.69, the right to sue would not again to be construed to  engulf the exceptions carved out by sub-s. (3) or sub-s. (4) of s.69 of the  Act. Any construction otherwise would render the exceptions, legislature  advisedly has carved out in sub-ss. (3) and ( 4) of s.69, otiose. The object E  appears to be that the partnership having been dissolved or has come to a  terminus, the rights of the parties are to be worked out in terms of the  contract of the partnership entered by and between the partners and the  rights engrafted therein. The exceptions carved out by sub-s.(3) are to  enforce those rights including the rights to dissolution of the partnership F  despite the fact that the partnership firm was an unregistered one. Having  kept that object in view, we are of the considered opinion that the alterna- tive resolution forum agree~ by the parties, namely, reference to a private  arbitration is a mode of enforcing the rights given under clause (a) of  sub.s(3) of s.69 of the Act and gets excluded from the main.part of sub-s.  (3) and sub-ss. (1) and (2) of s.69. The enforcement of the right to sue for G  dis.<olution includes a right for reference to an arbitration in terms of the  agreement of the partnership by and between the parties. Therefore, there  is no embargo for filing a suit under s.20 of the Act.  

It is fairly stated by Shri Salish Chandra that the party can enforce H

174 SUPREME COURT REPORTS (1995) 1 S.C.R.  

A 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-s.(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  

B 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.  

The appeal is allowed with costs of Rs. 5,000.  

Since we have allowed the appeal, we direct the trial court to send  C the reference immediately to the named arbitrators and we do hope that  

the arbitrators would immediately enter upon the reference and decide the  dispute as exp~ditiously as possible within a period of 6 months from the  date of the receipt of this order as this is a matter pending for long time.  

D A.G. Appeal allowed.