Ram Nandan Prasad Sinha vs K.M. Consultants
2001 Latest Caselaw 864 Bom

JUDGMENT

A.P. Shah, J.

1. The appellant was a member of the Bombay Stock Exchange and had appointed the respondent-firm as one of his sub-brokers. The respondent filed a complaint with the Investors Service Cell of the Stock Exchange, Mumbai, against the appellant claiming certain amounts. However, thereafter the respondent withdrew its complaint and referred the dispute to arbitration under the bye-laws of the Stock Exchange without intervention of the Court. The respondent appointed Mr. Justice D. B. Deshpande (Retd.) as arbitrator whereas the appellant appointed Mr. Dinesh J. Shah, member of the Stock Exchange. An award was made on 17-5-1999 by the arbitrators. Under the award, the arbitrators have awarded an amount of Rs. 2,11,446.73 with interest to the respondent. The principal ground on which the award was challenged before the learned single Judge was that the respondent was not a registered firm and, in any event, was not registered under the Indian Partnership Act at the material time and, therefore, could not make any claim in the arbitration proceedings and, therefore, the reference as well as the award are void. It was also contended that one of the arbitrators, viz.. Mr. Justice D. B. Deshpande was not a member of the Stock Exchange and under the relevant bye-laws of the Stock Exchange, a non-member could not have been an arbitrator and, therefore, the award was invalid. A contention was also raised that the claim which was referred to the arbitration was barred by time. The learned single Judge rejected all these contentions and upheld the award.

2. Mr. Thakkar, learned counsel appearing for the appellant, has contended that the effect of non-registration is fatal to the validity of the reference and the award. The contention is based on Section 69 of the Indian Partnership Act as amended by the State of Maharashtra. The provisions of Section 69 are set out below :--

"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.   
 

 (4) This Section shall not apply - 
   

 (a)    to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which, by notification under 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 Causes 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. Mr. Thakkar contends that the reference to the arbitration of the Bombay Stock Exchange constitute "other proceeding" under Section 69(3) of the Partnership Act. According to him, in view of Sub-sections (1), (2) and (3) of Section 69, no suit or proceeding 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 under the Partnership Act. Mr. Thakkar relied upon the decisions of the Supreme Court in Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., , and Delhi Development Authority v. Kochhar Construction Work, . He also relied upon the decision of the Division Bench of this Court in Hemendra V. Shah v. The Stock Exchange, Bombay, .

4. The short question which fails for determination is whether reference to arbitration without recourse to Court is barred by Section 69(3) of the Partnership Act. Section 69 makes registration of a firm compulsory and the said Section forbids the institution of certain suits and proceedings in respect of the partnership which has not been registered under the Act. Under Sub-section (1), a partner cannot institute a suit to enforce a right arising from a

contract or conferred by the Act against the firm or his co-partner unless the firm is registered. Sub-section (2) lays down that the firm which has been registered shall not be competent to institute a suit by or on behalf of a firm against any third-party unless the registration of the firm is effected. Subsection (3) extends the provisions of Sub-sections (1) and (2) to claim of set-off or other proceedings to enforce the right arising from the contract. The question is can the bar be extended to the case of an unregistered firm which claims reference to arbitration without intervention of the Court. In our view, the word 'proceeding' in Section 69(3) means something in the nature of a suit that is a proceeding which is instituted or initiated in a Court. This is clear from the language of Sub-section (3) which extends the provision of Sub-sections (1) and (2) to a claim of set-off or other proceedings to enforce a right arising from a contract. Sub-sections (1) and (2) merely bar the institution of certain suits in any Court. Therefore, applying the provisions in those sub-sections to a case covered by Sub-section (3), the penalty or disqualification that the non-registration of a firm entails is that it is debarred from instituting proceedings in any Court. In our view, the word 'proceeding' in Section 69(3) does not cover a reference to arbitration aliunde the Court. This would be clear from the provisions of Section 69 itself that proceedings contemplated by it are proceedings in Court. Proceedings covered by Sub-sections (1) and (2) are proceedings in the Court. Sub-section (3) deals with reference to the provisions of Sub-sections (1) and (2) and say that it shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract. Therefore, it is implicit that proceedings contemplated by Sub-section (3) are also proceedings filed in Court and the reference to arbitration without intervention of the Court is not prohibited by the section.

5. This issue was considered by the Calcutta High Court in Babulal v. Gauttam and Co., , wherein the learned single Judge of the Calcutta High Court has held that Section 69 cannot preclude a party from making a reference to arbitration without the intervention of the Court and the word proceedings in Section 69(3) does not cover a reference to arbitration aliunde to Court. The learned Judge observed:--

"(24) A word like proceeding may have several or different meanings and its exact meaning can be determined by its association with other words. The language used is not very clear and in case of any doubt or obscurity the right of a person under a valid and binding contract to resort to a private forum for the determination of his disputes should not be taken away and a new obligation or penalty ought not to be imposed on him so as to bar the exercise of his right in the absence of explicit language in me Statute compelling the Court to decide against such reference to arbitration."

6. In Meghraj v. Raghunath and Son, , the view taken by the learned single Judge was approved by the Division Bench of the Calcutta High Court. Chakravartti, C. J. speaking for the Bench observed :--

"(8) Quite apart from the reasons given by the learned Judge, it appears to me to be implicit in the terms of Section 69 itself that the proceedings contemplated by it are proceedings in Court. Those contemplated by Sub-sections (1) and (2) are expressly so. Subsection (3) begins with a reference to the provisions of Sub-sections (1) and (2) and says significantly that they "shall apply also to a claim to set-off or other proceeding to enforce a right arising from a contract." It appears to me than when Sub-section (3) draws in the provisions of Sub-sections (1) and (2), it draws in the whole of those provisions, including the reference to proceedings in Court, and when it says that the provisions of the earlier two-sections shall apply "also" to a claim of set-off or other proceeding, it seems to make it abundantly clear that the proceedings it is contemplating are of the same class as the proceedings contemplated in Sub-sections (1) and (2). That limitation also appears from the provisions of Sub-section (4)(b) which mentions certain proceedings to which the Section shall not apply. It is laid down that the Section shall not apply "to any suit or claim of set-off not exceeding one hundred rupees in value" etc. It will be noticed that the proceedings from which the application of the Section is excluded are all proceedings in Court. ..... As I have said, it seems to me to be implicit in the various sub-sections of the Section that the bar contained in it is intended to apply only to proceedings in Court and that so far as contracts themselves are concerned or so far as private forums for the decision of disputes are concerned, the liberty of contract or proceeding is in no way restricted by the imposition of a requirement of registration."

7. Our attention was also drawn to the judgment of the Division Bench of the Allahabad High Court in Rampa Devi v. B. N. Puri, wherein the Division Bench observed :--

"But, this did not mean that the plaintiffs and the defendants could not refer the dispute to arbitration without the intervention of the court. They had agreed that "in case of any dispute between the partners relating to partnership, the matter shall be referred to arbitration and the award of the arbitrator will be binding on all the partners". In terms of this agreement the parties thereto could appoint an arbitrator and refer the dispute to him. This they could do outside the court and without seeking any help of the court. The defendants pleaded in their application under Section 34 of the Arbitration Act that "even at the time of the commencement of the proceedings in the above noted suit and also at present the applicants are ready and willing to settle the

dispute or disputes, if any, through arbitration as laid in the partnership agreement dated 23-10-1952". The plaintiffs having failed to give any notice to the defendants to appoint an arbitrator and to refer to the dispute to an arbitrator so appointed, could not, in our view, resist the claim set up under Section 34 of the Arbitration Act by the defendants."

8. In the light of the above, it is clearly seen that the bar under Section 69 is not attracted to arbitration proceedings without intervention of the Court and the reference and the award cannot be impinged on the ground of nonregistration of the firm.

9. The cases relied upon by Mr. Thakkar have no assistance since the question as to whether the reference to arbitration without intervention of the Court is hit by Section 69 does not call for consideration in those cases. In the case of Jagadish Chandra Gupta v. Kajaria Traders (India) Ltd. (supra), the Supreme Court was dealing with an application under Section 8 of the Arbitration Act, 1940. The Court observed that Sub-section (3) of Section 69 provides for the application of the provisions of Sub-sections (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-section (3) and Sub-section (4). It was held that the expression 'other proceeding' which follow must, therefore, receive their full meaning untrammelled 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 proceeding'. Where, therefore, a partner of an unregistered partnership applies under Section 8(2) of the Arbitration Act to enforce a right arising from a contract between the partners, the proceedings are barred by Section 69(3) of the Partnership Act. The next decision cited by Mr. Thakkar i.e. Delhi Development Authority v. Kochhar Construction Work (supra) is equally inapplicable to the facts of the present case. In that case, the Supreme Court held that an application filed by an unregistered firm under Section 20 of the Arbitration Act would also be treated as a suit and would be hit by Section 69(2) if the firm filing the application was not registered with the Registrar of Firms. It was observed that the fact that it is an application to be registered and numbered as a suit would not make any difference for the obvious reason that though Sub-sections (1) and (2) of Section 69 of the Partnership Act refer to a suit, Sub-section (3) thereof makes those Sub-sections applicable even to other proceedings which would include an application registered and numbered as a suit under Section 20 of the Arbitration Act. Similar is the view taken by the Division Bench in Chandulal Hathibhai Shah v. Champaklal Parikh, . None of these decisions deals with the issue as to whether subsection (3) of Section 69 of the Partnership Act prohibits reference to arbitration without recourse to the Court. We have, therefore, no hesitation in

rejecting the submission of Mr. Thakkar based on Section 69(3) of the Partnership Act.

10. Mr. Thakkar urged that under the relevant bye-laws of the Stock Exchange which were applicable at the material time, a non-member could not be appointed as a member of an arbitral Tribunal. The argument is stated only to be rejected. The bye-laws were amended in 1993 and under the amended bye-laws, a non-member can be a member of the Arbitral Tribunal.

11. In the result, the appeal is dismissed with costs.

12. Copy of this order duly authenticated by the Associate/Personal Secretary of this Court be supplied to the parties.

13. Appeal dismissed.