Shri Mulakh Raj, S/O Shri Wadhaya ... vs Smt. Shashi Rani, W/O Late Shri ...
2005 Latest Caselaw 311 Del

JUDGMENT

Vijender Jain, J.

1. 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. Vs. Mehul Construction Co. , 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 Vs. Usha Rani and Ors. . 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 Corporation Ltd. Vs. Jain Construction Co. and 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 Vs. Sheo Narain Jaiswal and Ors. .

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 and Anr. Vs. Ishar Dass Chaman Lal and Ors. , 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.