Smt. Prem Lata Kapoor vs Shri Y.N. Kapoor
2001 Latest Caselaw 622 Del

ORDER

J.D. Kapoor, J.

1. This is a petition under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator. The relevant facts in brief are as under:-

The husband of the applicant and the respondent were real brothers and were carrying on a partnership business in the name and style of M/s. Radha Kishan Sri Kishan Das from their property no. 4978, Rui Mandi, Sadar Bazar, Delhi. The suit property devolved upon the above tow brothers/partners and jointly used as partnership property for the aforesaid partnership business. On the sudden demise of Shri R.C. Kapoor, the plaintiff was admitted and substituted as a partner and a partnership deed dated 23rd December, 1996 was executed between her and the respondent.

2. However at the time of execution of the said partnership deed between the parties, final balance sheet and profit and loss account of the dissolved firm as on 16th December, 1996 was prepared and accepted as correct by both the parties. The credit balance standing in the name of the deceased Mr. R.C. Kapoor was transferred to the account of the applicant. But no copy of the accounts has ever been given by the respondent to the applicant.

3. It is alleged that due to the limitation of the applicant who is a widow and has only a daughter and there is no male member in the family to look after her affairs, the respondent has taken undue advantage and command of the business activities of the partnership firm. The partnership firm is duly registered under the Local and Central Sales Tax Act with Delhi Sales Tax Authorities. Since the applicant/plaintiff is not aware of the position of the debit and credit balance against different heads which existed in the profit and loss account or the balance sheet of the firm as on 16th December, 1996 and is also not aware of the position of lab assets and liabilities of the dissolved firm and the respondent has not paid the salary of the applicant since formation of the newly constituted firm till now nor has given any money on account of the share of the profit of the applicant in the firm. The respondent has also secretly applied for sales tax registration of his individual proprietorship business in the name and style of M/s. R.S. Metals from the partnership property. It is alleged that for the last two months, whenever the applicant asks the respondent to give accounts of the firm or discuss with her the details of position of the partnership business, the respondent looses his tamper and behaves very aggressively with the applicant.

4. Clause 12 of the Agreement is arbitration clause and is as under:

"Dispute if any, arising between the parties to this deed with regard to their mutual fights and obligations and the terms and conditions incorporated in this partnership deed shall be settled by Arbitrator as provided under the Indian Arbitration Act, 1940 as in force from time to time."

5. According to the learned counsel for the respondent, without dissolution of the firm the petition for appointment of Arbitrator or for the purpose of rendition of accounts, is barred under Section 69 of the Indian Partnership Act, which is as under:-

Effect of non-registration -(1) No suit no 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 form 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 nay 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 5], 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 Cause Courts Act, 1882(5 of 1882), or, outside t he Presidency-towns, is to 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.

6. However, learned counsel for the applicant/petitioner has referred tot he notice dated 4th April, 2001 given by the respondent to the applicant showing her intention to dissolve the side firm with effect from 1st April, 2001. However according to the learned counsel for the respondent the date of dissolution mentioned as 1st April, 2001 was duly corrected an the firm was to be dissolved with effect from 4th June, 2001 as per clause 10 of the Agreement. Clause 10 of the Agreement provides that either party can dissolve the firm by giving 60 days notice. Learned counsel for the respondent contends that since 60 days' notice was necessary so the question of dissolving the firm with effect form 1st April, 2001 by virtue of notice dated 4th April 2001 did not arise. It is pertinent to mention that this notice was given b the respondent during the pendency of the petition.

7. While canvassing that Section 69 of Partnership Act places embargo on the maintainability of the petition under Section 11 of the Arbitration and Conciliation Act, learned counsel for the respondent placed reliance upon Prabhu Singh Jaiswal Vs. Sri Sheo Narain Jaiswal & others, wherin the following view was taken:

"Under Section 69(1), a suit, inter alia, to enforce a right arising form a contract cannot be filed by a person suing as a partner in a firm against the other partners of the firm unless the firm is registered. Under Sub-section (3) any other proceeding to enforce a right arising from a contract by a person suing a s a partner against the other partners of an unregistered firm is also barred. Since the right to resort to arbitration flows from the contract between the parties contained int he partnership deed, a suit or any other proceeding by a partner to enforce this term in the contract against the other partners would, therefore, normally be barred under the first part of sub-section(3) of Section 69."

8. It was further observed that under Sub-section (3) (a) this bar will not affect 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.

9. To fortify this view reliance was also placed on Jagdish Chandrda Gupta Vs. Kajaria Traders(India) Limited, wherein a view was taken that the word 'proceedings' in the first part of sub-section (3) must be widely construed to include proceedings in arbitration.

10. However while distinguishing the ratio in Prabhu Singh Jaiswal's case the learned counsel for the applicant has contended that earlier a suit was require to be filed for referring the disputes to the Arbitrator but under the new provisions of law under Section 11 no such suit is required to be filed. In Smt. Premlata & Another Vs. M/s.Ishar Das Chaman Lab & Ors. the Hon'ble Supreme Court took the view that the object of Section 69 appears to be that the partnership having been dissolved or a having come to a terminus the rights of the parties are to be ascertained in terms of the contract of the partnership and the rights engrafted therein.

11. In the instant case not only the partnership for practical purposes has come to a terminus but also the intention of the respondent to dissolve t he firm by way of notice dated 4th April, 2001 tantamount to dissolution of the firm and now to ask the petitioner to wait till June 2001 and re-initiate the proceedings thereafter would be highly uncalled for and farfetched. T he limit of 60 days is no more applicable as the partnership was at will and therefore, to say that the partnership stands dissolved vide notice dated 4th April, 2001 is neither correct in the eyes of law nor in terms so clause 10 of the agreement.

12. The learned counsel for the petitioner has contended that the firm stood dissolved by way of notice dated 20th June, 2000 served by the petitioner wherein she had levelled allegations against the respondent that the respondent was not giving the accounts of the income and expenses of the partnership firm nor was he paying her the monthly salary nor was he maintaining accounts and whenever she inquired about this he threatened he not to interfere in the business. She also made it clear that on receipt of this letter all the dispute regarding the accounts etc. of the firm shall be referable to the Arbitrator.

13. In respect of an unregistered firm it is the intention of the parties that is paramount. If the communications exchanged between the parties project that the parties are no more interested in continuing with the partnership, the partnership for all practical purposes is deemed to have come to a terminuses. In the instant case the parties filed police complaints against each other. The letter dated 20th June, 2000 is replete with allegations made by the applicant/petitioner that the respondent was not complying with the terms of the partnership and had kept her completely out from the partnership business and, therefore, there was not other option left with her than to refer all the disputes to the Arbitrator, tantamount to dissolution of the firm for all practical purposes.

14. Again, if nay subsequent event takes place during the pendency of the proceedings it has to be taken into consideration if it can resolve the disputes between the parties once for all and not to relegate the parties to the original position merely because the aggrieved partner has not used the words while giving a notice for referring the disputes to the arbitrator that the "firm stands dissolved" though for all intents and purposes the said notice tantamount to a notice for dissolution of the firm as the facts and allegations contained therein manifestly demonstrated that the partnership has come to a terminus. A contrary view will not only breed the multiplicity of litigation between the parties but also will amount to exploitation of miseries of the petitioner by the respondent.

15. The view projected by the counsel for the respondent was neither the object of the law of arbitration nor is the object of Section 69 of the Partnership Act. Attempt to construe the notice, should be to minimise the litigation and to infer the intention of the parties. To say that the notice for dissolution has to necessarily mention therein the words "the firm stands dissolved" irrespective of the fact that for all intents and purposes the partnership has come to a terminus is to take a most hyper-technical view so far as the mode for dissolution of the unregistered partnership firm is concerned.

16. The conspectus of the aforesaid facts and circumstances and overall view of the dispute between the parties demonstrate that the firm for all practical purposes came to an end in June 2000 when the applicant served a notice upon the respondent for referring the disputes to the arbitrator as this notice was also a notice for dissolving the firm as the affairs of a partnership firm had come to a terminus.

17. In view of the foregoing reasons it would be fallacious to dismiss the petition and ask the petitioner to firs t wait ill June, 2001, the date when according to the respondent, firm shall stand dissolved which even otherwise is not the correct perception of law nor the correct perception of the agreement and then ask her to move the instant petition for seeking the redressal of the dispute by way of arbitration. It is nothing but embroiling the petitioner in imbroglio of legal wrangling.

18. Since the letter dated 20th June, 2000 apart from being an act of dissolution of the firm is also a notice of demand for appointment of the Arbitrator, the objection of the respondent that the petition is not maintainable because of non-service of the notice for appointment of the Arbitrator is groundless and without any substance. Petition is allowed. Mr. Justice A.K.Srivastava, Retired Judge of this court is appointed as Arbitrator to adjudicate upon t he disputes between the parties. The parties shall appear before the Arbitrator on 30th May, 2001 who shall fix his own fee.

19. However as regards the application under Section 9 of the arbitration Act the respondent shall be restrained from creating any third party interest or alienating or transferring the partnership property till the arbitral proceedings are over as the main allegation of the applicant is that the business is being run exclusively by the respondent from the premises in question which happen to be the HUF property.