Mr. (Sic)Qassim Mohd. Yousuf ... vs Smt. Sultana Abdul Ahad Narvel, ...
2003 Latest Caselaw 407 Bom

JUDGMENT

F.I. Rebello, J.

1. Heard both the parties.

2. The Petitioners have filed the present Petition under Section 9 of the Arbitration and Conciliation Act, 1996. it is the contention of the Petitioners that they are a registered partnership firm, which is at Will. The Petitioners have dissolved the partnership by their counsel's letter dated 7th October, 2002. Once the partnership is at Will and has been dissolved, considering the law laid down by the Apex Court to protect the property of the partnership firm, the Court should appoint Receiver for the partnership's assets. Learned counsel for the Petitioners has drawn my attention to the documents on record and the averments made in the Petition.

3. On the other hand, on behalf of the Respondents, learned counsel contends that this Court would have no jurisdiction to entertain the Petition under Section 9 of the Act, 1996. It is contended that the Petitioners claims to be partners alongwith Petitioner Nos. 2 and 3, now transposed as Respondents, who are sued have been shown as partners, in the Deed of Partnership dated 8th December, 1995. That partnership is not admittedly registered. Therefore, the dissolution sought for by the Petitioners was in respect of a partnership which ceased to exist consequent on a new partnership coming into existence by induction of additional partners whose names are not registered with the Register of Firms. The earlier Partnership had Petitioner No. 1 and Respondent No. 1 as partners. The partnership of the year 1990 was registered on 28th May, 1990. This has been so pointed out, considering Section 69 of the Indian Partnership Act as amended in the State of Maharashtra. It is contended that this Court would have no jurisdiction to hear and entertain the present Petition. If that be so, reliefs as sought ought to be rejected. In the alternative, it is contended that if this Court comes to the conclusion that this Court has jurisdiction, then the admitted position is that the Petitioners along with the newly added Respondent Nos. 5 and 6 have never been incharge of the assets of the partnership. The business of a hotel was being conducted by Respondent Nos. 1 to 4. The hotel is a running concern, Petitioner No. 1 and Respondent Nos. 5 and 6 are abroad. In the circumstances, if Receiver is to be appointed, the Respondents should be appointed as agents of the Receiver considering that there is a running business of a hotel.

4. The first issue, therefore, with which we are concerned, is whether an Application under Section 9 of the Act of 1996 is maintainable considering Section 69 of the Indian Partnership Act, 1996. The partnership agreement contains a clause for arbitration. The Petitioners herein have not moved this Court or judicial forum for referring the disputes to arbitration. The Petitioners have come before this Court to protect the assets of the partnership pending decision by the arbitral tribunal consequent upon dissolution of the partnership. The arbitral clause was invoked by legal notice dated 1st November, 2002. It is, therefore, necessary to understand the nature of the challenge which can be summarized in the following words.

"Where there is an existing firm registered under the Partnership Act and now (SIC) inducted, the old firm ceases to exist and an altogether new firm comes into existence from the date of induction of a new partner. This new firm must be registered and its partners suing have to be shown in the Register of Firm in terms of Section 69 of the Partnership Act as existing in the State of Maharashtra."

If it is held that the old partnership subsists then what is to be dissolved will be the old registered partnership to which the Respondents are not parties. What the Petitioners have terminated and further invoked the arbitral clause is of a partnership which has subsequently come into existence by Partnership Deed dated 8th December, 1995. This is he sum and substance of the argument.

The corollary to that is, that, once that be the position, no civil court or judicial authority considering Section 69 in such a dispute can grant any reliefs as it cannot direct the parties to arbitration.

5. We may now deal with the submissions considering the arguments advanced. The partnership was registered with the Registrar of Firms on 26th April, 1990 and the date of entry is shown as 28th May, 1990. The names of the partners, as shown in the Certificate issued, are the Petitioners and Respondent No. 1 and some others. Those others have purportedly retired from the partnership.

Section 69 of the Partnership Act, amended in the State of Maharashtra, provides that no suit to enforce a right arising from a contract or conferred by the Act shall be instituted in any Court by or on a behalf of any person suing as a partner in a firm against the firm 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. I need not refer to the proviso, Sub-section (2A) of Section 69, as introduced in the State of Maharashtra, further provides that no suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or nay right or power to realise the property of a dissolved firm 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 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. Proviso again need not be adverted to. This section, as amended in the State of Maharashtra, came up for consideration before the Apex Court in Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr., . The very argument advanced on behalf of the Respondents herein was also advanced before the Apex Court as can be reflected from paragraphs 4 to 6 of the said argument. On consideration of the sections and the previous authorities of the Apex Court itself as also other Courts, the Apex court has held that there is a well recognized distinction between the case of legal concept of dissolution and the case of reconstitution of a firm. Considering the argument for institution of a suit by a registered firm, the Apex court held that dissolution of the firm brings the partnership to an end, whereas, a reconstitution means continuation of the partnership under altered circumstances. See Commissioner of Income Tax, West Bengal-III v. Pigot Champan & Co., . The Court noted further that the partnership firm after dissolution is a new partnership firm and not a continuation of an old partnership which is the position in a case of reconstitution. In that context, the issue of registration was decided by the Court observing as under:

"In other words, a person, who is not shown in the Register of Firm by induction after registration even though the firm is registered, cannot file a suit for dissolution or accounts. This does not in any way mean that the registration given to the firm earlier will cease. In this case, the firm was registered and there was only a reconstitution of the firm and the first Respondent, the Plaintiff in this case, is a person whose name is shown in the Register of Firms along with names of the appellants and, therefore, there is compliance of Section 69(2A)......

In respect of a person who was admitted as partner and whose name was not shown in the Register of Firms maintained by the Registrar of Firms, at the highest may incur certain disabilities. This is what the Apex Court observed:

"..... The name of the newly introduced partner, of course, does not find a place in the Register of Firms. That means the person whose name does not find in a place in the Register of Firms may incur certain disabilities and that will not disable the plaintiff to press the suit against the firm, which was registered against the persons whose names find a place in the Register of Firms. We are not called upon to decide what are the disabilities of the person.....".

It may also be noted over here that on the facts of that case, on the death of a partner, the firm was reconstitute under a Deed of 6th May, 1986. Yet again, on 3rd November, 1992, another partnership Deed was brought into existence in respect of all these facts. The Apex Court has observed that if there was no dissolution of the firm but only admission of partners, and if the old firm was registered, it would at least mean in respect of the partners whose name are shown in the partnership they could maintain the suit against other partners whose names are shown in the original Deed of Partnership. On the facts of the case, at least, the Petitioners and Respondent No. 1 were the partners whose names were shown in the original Deed of Partnership. At this stage, the Court is not called upon to decide what will be the effect of there being partners as parties to the suit whose names are not registered with the Registrar of Firms. That would be a question left open for consideration before the arbitral tribunal. This view taken by the Apex Court was reiterated in Gwalior Oil Mills v. Supreme Industries, . This judgment was sought to differentiate by learned counsel for the Petitioners to contend, that the judgment would show that it was not reconstituted firm what was dissolved but the old firm. From the aforementioned two judgments of the Apex Court, therefore, it would be clear, that the bar of Section 69, would not apply as long as there is only reconstitution by admission of the additional partners and the firm as originally constituted continues to be registered and at least one of the Plaintiffs/Petitioners and at least one amongst the Defendants/Respondents are partners whose names are shown in the Register of Firms in respect of Deed of Partnership of the registered Firm what relief can be granted is another matter. Once that be the case, an objection raised on behalf of Respondent Nos. 1 to 4, on that count, must be rejected.

6. On rejection of this contention, a consequential contention, which arises will have also to be decided, considering the arbitral clause and that Petitioner No. 1 and Respondent No. 1 are the partners in the registered Partnership. The Deed of Partnership, as noted earlier, contains a clause for arbitration and under the Agreement, the parties have agreed to refer disputes which may arise to arbitration without proceeding under the normal judicial forum. Such an agreement is not prohibited or contrary to law. See Section 28 of the Indian Contract Act. What is contended is that considering the bar of Section Indian Contract Act. What , it will not be open for this Court considering the provisions of the Act to refer the parties to arbitration. If it could not have so done, then the question of granting any relief including by way of Section 9 of the Arbitration and Conciliation Act, 1996 would not arise. In the instant case, in so far as the Petitioners are concerned, there is no relief sought by the Petitioners for referring the dispute to arbitration. Under the clause in the Agreement, the parties can proceed without intervention of the Court or judicial authority to nominate an arbitral tribunal by invocation of the arbitral clause. If any party to the Agreement choses not to concur in the appointment of the Arbitration, recourse can be had to Section 11 of the Act, 1996. The nature of the power exercised by the Learned Chief Justice or his designate under Section 11 is no longer res integra. The issue stands concluded by the judgment of the Apex Court in Konkan Railway Corporation Ltd. Anr. v. Rani Construction Pvt. Ltd., 2002 (1) Scale 465, the Apex Court has held that power under Section 11 is not adjudicatory but administrative in character. In other words, on invocation of Section 11, it is for an authority conferred with the power under Section 11 to constitute the tribunal. This Court had occasion to constitute the tribunal. This Court had occasion to deal with a reference without intervention of the Court in the case of Charkop Priya Co-op. Housing Society Ltd. v. Trade Well Construction, . Considering the Bar of Section 69, this Court took the view that the bar of Section 69 would arise in the proceedings before a court and not in the case of arbitration without intervention of the Court. Subsequent without intervention of the Court. Subsequent thereto, a Division Bench of this Court in Ram Nandan Prasad Sinha v. K.M. Consultants, , has reiterated the same view. It is, therefore, clear that, that issue need not be gone into by this Court as it is for the parties seeking invocation of the arbitral clause, to move under the machinery available to them under the Act. The Arbitral Tribunal constituted is competent to decide issues of jurisdiction as also arbitrability of the claims under Section 16 of the Act of 1996. In the instant case, under Section 8, the Respondents could have raised the plea that there is an arbitral clause and consequently to direct that matter be referred to arbitration. Ordinarily the judicial authority would be bound to so direct if the other procedural requirements are met. However, Section 9 is a power in the Court to grant interim relief even before constitution of the arbitral tribunal, in the course of the proceedings and till the award becomes executable. Thus, Section 8 even if invoked will not apply to proceedings under Section 9 of the Act of 1996.

7. The short issue now is that, considering that this Court has held that the Petition by the Petitioners is maintainable,what is the relief, that can be granted. The Deed of Partnership recites and refers to the original Deed of Partnership dated 15th June, 1992. The Deed also mentioned that on retirement of the earlier partners, the Petitioners and Respondent No. 1 have been taken over as a going concern with all assets and liabilities including trade name and goowill in the business of the Firm as from 1st April, 1995. Clause (4) specifically sets out that the partnership has been reconstituted from 1st April, 1995 and the duration of the partnership is at Will. By way of reconstitution, Respondent Nos. 2 to 6 have been admitted as partners. It is only the shares that have been re-distributed in terms of Clause (6) of the Deed of Partnership. The business and assets remain the same. The Deed of the Partnership of 15th June, 1992 forms an annexure to the Affidavit of Respondent No. 3. The business of the partnership is described as that of the hotel, both lodging and boarding, and any other business as may be carried out. The shares of the partnership was set out in Clause (6). In Clause (4) also, it has been set out that the variations in the terms and conditions of Partnership shall be effective from 1st April, 1992 and the duration of the partnership shall be at Will. Factually, therefore, it is clear that the Partnership continues and this is a case of induction only of a new partner in respect of the same business. In the normal course of the dissolution of the partnership, the consequences are that Receiver is to be appointed as a matter of course. Considering the contentions raised or advanced on behalf of Respondent Nos. 1 to 4, is it possible for this Court to take a different view on the facts of the present case. The fact that the Petitioners and Respondent Nos. 5 and 6 are residing abroad, to my mind, is immaterial. Once the partnership is dissolved, the assets will have to be realised for the purpose of distribution amongst the partners. The business therefore does not continue and a Receiver is appointed for taking accounts and realizing the assets of the firm to be distributed between the partners. The correspondence or record would show that there are serious dispute between the parties in respect of the firm. Under these circumstances, it will be difficult for this Court to hold that the Respondents should be singled out for being appointed as Receiver pending accounts and distribution of assets and/or final award of the arbitrators.

8. In the light of the above, the following order:

Petition is made absolute in terms of prayer Clause (a) but without the power to sell till passing of the arbitral award. It will be open to the arbitral tribunal to pass directions regarding sale and realization of assets. In the first instance, Receiver to invite bid from any of the erstwhile partners to act as Agents on behalf of the Receiver, if they desire to do so, within a period of four weeks from the date of Receiver calling on the parties. The Receiver will appoint the highest bidder as agent of the Receiver on usual terms. If they chose not to act as agents of the Receiver, the Receiver to appoint any third party as agent of the Receiver by inviting bids. It is made clear that, insofar as the persons residing as tenants/licensees, they will not be dispossessed during the period of their tenancy agreement or licence period. However, all such persons to deposit rent/compensation payable to the Receiver. Receiver from the amount received to first spend the amounts towards payment of taxes and other local dues as also for maintenance, if required. Pending Receiver taking possession, there will be an interim relief in terms of prayer Clause (b)(iv) except the words bracketed in red. Purely as an interim arrangement, Respondent No. 3 is permitted to continue with the business for a period of two weeks from today so as to provide the services to those who are already in the premises and for the booking done and to render the account for this period to the Receiver.

Learned counsel for Respondent Nos. 1 to 4 prays for stay of this order and submits that effect may not be given to for a period of two weeks from today. The operation of the order is stayed for a period of six weeks from today, however, subject to the condition that Respondent Nos. 1 to 4 shall not sell, convey, transfer, alienate and/or create any third party right in any of the assets of the suit partnership and/or open a new bank account in the name of dissolved firm.

Parties to act on an ordinary copy of this order duly authenticated by the Personal Secretary/Associate of this Court.