Delhi High Court
Columbia Holdings Private ... vs Ssp Developers Pvt. Ltd. on 11 August, 2016
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on May 13, 2016
Judgment delivered on August 11, 2016
+ ARB.P. 212/2016, IAs 6012-6013/2016
COLUMBIA HOLDINGS PRIVATE LIMITED
..... Petitioner
Through: Mr. Harish Malhotra, Sr. Adv. with Mr.
Anil Sharma, Mr. N.S. Bajwa, Mr. Pramod
Saigal, Mr. Shikhar Sareen & Mr.
Jaskaran, Advs.
versus
SSP DEVELOPERS PVT. LTD.
..... Respondent
Through: Mr. Ravi Gupta, Sr. Adv. with Mrs. Shally
Bhasin, Mr. Raghav Pandey, Ms. Bhoomija
Verma,
Mr. Yudhishthir Singh & Mr. Lakshmeesh
Kamath, Advs. for R-1 to 3
AND
+ ARB.P. 213/2016, IAs 6014-6015/2016
COLUMBIA HOLDINGS PRIVATE LIMITED
..... Petitioner
Through: Mr. Harish Malhotra, Sr. Adv. with Mr.
Anil Sharma, Mr. N.S. Bajwa, Mr. Pramod
Saigal, Mr. Shikhar Sareen & Mr.
Jaskaran, Advs.
Versus
SSP DEVELOPERS PVT. LTD.
..... Respondent
Through: Mr. Ravi Gupta, Sr. Adv. with Mrs. Shally
Bhasin, Mr. Raghav Pandey, Ms. Bhoomija
Verma,
Arb.P. 212/2016 and connected matter Page 1 of 32
Mr. Yudhishthir Singh & Mr. Lakshmeesh
Kamath, Advs. for R-1 to 3
AND
+ O.M.P.(I) (COMM.) 94/2016, IAs 5957-5958/2016
M/ S COLUMBIA HOLDINGS PRIVATE LIMITED
..... Petitioner
Through: Mr. Sudhir Nandrajog, Sr. Adv. with Mr.
Anil Sharma, Mr. N.S. Bajwa, Mr. Pramod
Saigal, Mr. Shikhar Sareen & Mr.
Jaskaran, Advs.
versus
M/ S SSP DEVELOPERS PVT. LTD.
..... Respondent
Through: Mr. Ravi Gupta, Sr. Adv. with Mrs. Shally
Bhasin, Mr. Raghav Pandey, Ms. Bhoomija
Verma,
Mr. Yudhishthir Singh & Mr. Lakshmeesh
Kamath, Advs. for R-1 to 3
AND
+ O.M.P.(I) (COMM.) 96/2016, IAs 5959-5960/2016
COLUMBIA HOLDINGS PRIVATE LIMITED
..... Petitioner
Through: Mr. Sudhir Nandrajog, Sr. Adv. with Mr.
Anil Sharma, Mr. N.S. Bajwa, Mr. Pramod
Saigal, Mr. Shikhar Sareen & Mr.
Jaskaran, Advs.
versus
SSP DEVELOPERS PVT. LTD.
..... Respondent
Through: Mr. Ravi Gupta, Sr. Adv. with Mrs. Shally
Bhasin, Mr. Raghav Pandey, Ms. Bhoomija
Verma, Mr. Yudhishthir Singh & Mr.
Lakshmeesh Kamath, Advs. for R-1 to 3
Arb.P. 212/2016 and connected matter Page 2 of 32
CORAM:
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J.
1. By this order, I shall decide a preliminary objection taken by the
respondents on the maintainability of the four petitions which have been filed by
the petitioner under Section 11 (5) and 11 (6) of the Arbitration and Conciliation
Act, 1996 („Act of 1996‟ in short) being Arbitration Petitions No. 212/2016 and
213/2016 and Petition under Section 9 of the Act of 1996 being OMP (I)
(COMM) Nos. 94/2016 and 96/2016 on the ground that the petitions are hit by
Section 69 (3) of the Partnership Act, 1932 („Partnership Act‟ in short).
2. The Arbitration Petition 212/2016 and OMP (I) (COMM) 96/2016, the
relevant facts are, a fresh partnership deed dated April 1, 2005 was signed
between MGF Development Ltd. and Columbia Holdings Pvt. Ltd in the
partnership firm of MGF Mall Management to share the profits and losses as
under:-
M/s MGF Development Ltd- 50%
M/s Columbia Holdings Pvt. Ltd.- 50%
Thereafter, on 6th June, 2012 M/s SSP Developers Pvt Ltd. respondent No.1
through its Director Mr. Siddharth Gupta was introduced in the partnership firm
and the profits and losses under new partnership were agreed to be shared as
under with effect from October 1, 2009.
M/s MGF Development Ltd- 25%
M/s Columbia Holdings Pvt. Ltd.- 50%
M/s SSP Developers Pvt. Ltd.- 25%
Similar is the position in Arbitration Petition No.213/2016 and OMP (I) (COMM)
No.94/2016. In the said cases, the partnership firm is MGF Event Management.
3. It is the case of the petitioner that, the petitioner sought disbursal of profits
and the amount lying in the capital account vide legal notice dated 31st March,
2015 to the respondents. It is stated by the petitioner, a reply dated 14th April,
2015 was sent by the respondents through their lawyer. A counter-reply dated
28th April, 2015 was sent by the petitioner to the aforesaid reply of the
respondents. A further counter-reply was given by the respondents dated 14th
May, 2015 which also resulted in a further reply on behalf of the petitioner dated
2nd June, 2015. It is the case of the petitioner that the petitioner through its
advocate got issued legal notice dated 26th October, 2015 called upon the
respondents to make a reference to the disputes arising out of and in relation to
the business of the partnership firm M/s MGF Event Management through
anyone of the suggested persons named in the said notice. Identical are the facts
in Arbitration Petition No.212/2016 and OMP (I) (COMM) No.96/2016. The
firm being MGF Mall Management.
Submissions:-
4. Mr. Ravi Gupta, learned Sr. Counsel for the respondents would submit the
following facts needs to be considered for appreciating the aforesaid issue:
31st March, 2015 - Notice given by the petitioner seeking
rendition of accounts and return of his capital.
14th April, 2015 - Reply given by the petitioner inter alia denying
the contention of the petitioner in the aforesaid notice.
28th April, 2015 - A rejoinder notice given by the petitioner
inter alia reiterating its earlier stand.
14th May, 2015 - The facts again denied by the respondents.
2nd June, 2015 - Another notice issued by the petitioner.
26th October, 2015 - Again a notice issued by the petitioner inter
alia seeking appointment of an Arbitrator.
5. It is his submission that the aforesaid correspondence/notices exchanged
show that the petitioner has throughout been asking for rendition of accounts, its
share of profits and return of its capital. The firm has never been dissolved nor
any intention to dissolve the firm has ever been made. The petitioner cannot now
claim that they were praying for the dissolution of the partnership firm. Such a
contention is misconceived and merely an afterthought. Reference is made to
Iqbalnath Premnath Anand Vs. Rameshwarnath Premnath Anand & Anr.(AIR
1976 Bom 405) wherein the Supreme Court held : "The partnership being at will
..... "was sufficient to disclose to the court the intention of the parties that the
partnership constituted by the deed of 4th December, 1967 was a partnership at
will within the meaning of the Act and that in view of such an express declaration
by the parties there would be no question of a contrary implication."
6. The present petitions under Sections 9 and 11 of the Act of 1996 having
been filed in the month of March, 2016, i.e., after nearly a year of the first notice
of 31st March, 2015 also do not whisper of any dissolution of the firm. It is
evident that the petitioner was never interested in dissolution of the firm and has
never intended to do so. If the relationship between the parties was so bitter, the
petitioner ought to seek the relief of dissolution in the present proceedings.
However, its intention is not to dissolve the firm but to see that the firm in
question continues with its business. The present claim of the petitioner is to
retire from the business and not to dissolve the same. This fact is evident from
the bare reading of the petitions whereby the petitioner has specifically averred
that he wants to retire from the firm after taking its capital account. Thus, it is
nobody‟s case that the firm should dissolve. Reference is made to various
averments made in the petitions and more specifically Paragraph No. 7.36 of Arb.
Pet. No. 212 of 2016 and 7.37 of Arb. Pet. No. 213 of 2016 under Section 11 of
the Act and Paragraph No. 7.41 of OMP (I) (COMM) No. 94/2016 and 7.44 of
OMP (I) (COMM) No. 96/2016 under Section 9 of the Act, whereby the
petitioner has pleaded cause of action of December, 2014 when it desired to retire
from the partnership firm. Thus, in the present facts and circumstances, it is not a
case of dissolution of partnership firm and hence all the petitions under Section 9
and 11 are hit by Section 69 (3) of the Partnership Act. The proviso of Section 69
(3) of the Act is of no help to the petitioner.
7. The case of the petitioner that the averments made in the petition and the
grievances as raised by them would cover and impliedly include the relief of
dissolution of firm is misconceived for the reasons:
(i) Clause 9 of the partnership deed dated 6th June, 2012 reads as under:
"(9) That the firm shall not dissolve by the death, insolvency or
retirement of any of the partners and will continue as a going concern
as per remaining partners, as they may agree."
(ii) The facts as pleaded and placed on record would show that none of
the parties have ever intended to dissolve the firm.
(iii) Petitioner itself is not interested in dissolving the firm; rather it
wants to retire from the firm inter alia leaving the business of the firm in
the hands of the other two partners.
(iv) Petitioner is only interested in its profit share, return of capital if any.
8. Mr. Ravi Gupta, learned Sr. Counsel for the respondents would submit that
the judgments relied upon by the petitioner are not applicable to the facts of the
present case for the reason that either in the facts of the said judgments respective
firms already stands dissolved either by the act of the party or by the death of any
of the partner. The present case being of a retirement of the partner from the
firm, the principles of dissolution of the firm cannot be applied to the same. He
would submit that the contention of the petitioners to the effect that retirement of
a partner from a partnership firm amounts to the dissolution of the firm in
question is erroneous for the following reasons:
(i) The law of partnership draws a distinction between retirement of a
partner and dissolution of a firm as dissolution of partnership
between all the partners. These terms are not synonymous either in
their judicial content or their legal implications and consequences.
They are treated separately by the law of partnership: one is dealt
with in Section 32 while the other is dealt with in Chapter VI
commencing with Section 39.
(ii) Partnership is the jural relationship between partners who are
collectively called a firm and when this jural relation is snapped
between all the partners inter se, that constitutes dissolution of the
firm. But as in the present petitions, there may be cases where a
partner may wish to withdraw from the firm without affecting the
jural relation subsisting between the other partners. He may wish to
sever his relation as a partner with the other partners leaving the jural
relation to the other partners inter se unaffected. He can do so in the
cases set out in Section 32 and when he does so, he is to retire from
the firm, thus leaving the said partnership firm to continue and be
run by the other remaining partners. When a partner retires from a
firm there is no dissolution of partnership between all the partners;
there is no severance of the jural relationship of partnership inter se
between all the partners; the only alternation of jural relationship
which takes place is that the jural relation of the retiring partner with
the other partners is severed but the jural relation of partnership
subsisting between the other partners remains unaffected and
continues.
9. The petitioner has erroneously contended that retirement from a partnership
is covered under the definition of „dissolution‟ of the firm. Section 39 of the
Partnership Act defines „dissolution‟ of a firm as under:
"39. The dissolution of partnership between all the partners of a
firm is called the „dissolution of the firm."
Therefore, the dissolution involves the end of the partnership between "all"
the partners. Retirement of a partner from a partnership in which there are more
than 2 partners cannot amount to dissolution of a firm. Reference is made to Para
9 of Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy
(2003) 3 SCC 445 and Para 5 of Vishnu Chandra v. Chandrika Prasad Agarwal
and Ors. (1983) 1 SCC 22.
10. The submission of the petitioner that it‟s right to file the present petition is
coming from a statute and not from the contract is also misconceived for the
reason that the provisions of Section 41, 42, 43, 45 and 46 are not applicable to
the facts of the present case since the same pre-suppose and proceed with the
dissolution of the firm. Unless the firm is dissolved, various duties and rights of
the partners after dissolution of the firm as envisaged under the Partnership Act
are not attracted. In the present case neither in the facts or in law the firm is
dissolved, the firm is still operating and hence these sections are not applicable to
the case. Even the averments made in the petition would show that the petitioner
in the present proceedings is enforcing its rights under a contract of a Partnership
Deed. Its grievance is that the respondents are allegedly acting in breach of the
terms of the Partnership Deed and are acting detriment to its interest and,
therefore, it is entitled to maintain the present proceedings. Hence, the petitioner
by way of the present proceedings is enforcing its contractual rights which
otherwise is not permissible in law and there is a specific bar to the same under
Section 69 of the Partnership Act. The petitioner has relied upon JT 2000 (2) SC
596 M/s. Haldiram Bhujiawala v. M/s. Anand Kumar Deepak Kumar, which is
not applicable in the facts of the present case as it was a suit based on
infringement of statutory rights under the Trade Marks Act. In the present case,
the petitioner is seeking retirement from the firm, rendition of the accounts and
return of its capital, which are all rights arising out of the contract, i.e., the
partnership deed.
11. The submission of the petitioner that its petition under Section 9 is
maintainable at present as it may come with a petition under Section 11 in future
may not be a case since Section 11 petition has already been filed by the
petitioner and in the said petition too, the petitioner is not claiming any relief for
dissolution of the partnership. Therefore, the submission of the petitioner is made
in air or in anticipation and these petitions are to be governed by the law and the
facts as of today.
12. Mr. Ravi Gupta would submit that the judgment of the Supreme Court in
the case of (2004) 3 SCC 155; Firm Ashoka Traders v. Gurumukh Das Saluja is
not a precedent for the reason that it is just an opinion given by the Hon‟ble Court
without necessity. The same was not required to be decided on merits. It is only
an opinion with no binding effect. No law has been laid down by Hon‟ble
Supreme Court. Reference is made to (2014) 9 SCC 407 Balwant Rai Saluja v.
Air India Ltd. (Paras 22-26) wherein it is held that "judgment has to be
considered in the context in which it was rendered and that a decision is authority
for what it decides and it is not everything said therein that constitutes a
precedent....In our view, the binding nature of a decision would extend to only
observations on points raised and decided by the Court and not on aspects which
it has neither decided nor had occasion to express its opinion upon."
13. In Para 15 of Arvind Constructions Co. (P) Ltd. v. Kalinga Mining
Corporation (2007) 6 SCC 798 reference made to Firm Ashoka Traders v.
Gurumukh Das Saluja, the Supreme Court held that the reliance placed on Firm
Ashoka Traders v. Gurumukh Das Saluja in that behalf does not help much,
since this Court in that case did not answer that question finally but prima facie
felt that the objection based on Section 69(3) of the Partnership Act may not stand
in the way of a party to an arbitration agreement moving the Court under Section
9 of the Act. In Para 45 in Tapadiya Construction Ltd. v. Sanjay Suganchand
Kasliwal 2015 SCC Online Bom 6781, the plea that the opinion of the Supreme
Court in the case of Firm Ashoka Traders (supra) was prima facie and the view
was tentatively taken, was found appealing.
14. The submission of the petitioner that the law concerning the old Arbitration
Act of 1940 does not hold any good in the present proceedings is also
misconceived and not sustainable. The relevance of Section 5 of the Arbitration
and Conciliation Act is neither of any consequence nor of any help to the
petitioner. The provisions of Section 5 does not exclude applicability of other
laws and statues which may be applicable in the facts of the case like a
Partnership Act which governs the rights and responsibilities of the parties in the
present proceedings. The dispute between the parties is to be decided in
accordance with the said Act. Section 69 and the Order 7 Rule 11 CPC clearly
bars the maintainability of the present petition and hence all the petitions filed by
the petitioner are liable to be rejected. The issue here is not of the locus standi of
the petitioner but whether it is entitled to file and maintain the present
proceedings in view of the fact that the partnership firm is not registered. The
provisions of CPC are applicable to the Part I of the Arbitration and Conciliation
Act and hence, the present proceedings are liable to be rejected under Order 7
Rule 11 CPC read with Section 69 (3) of the Partnership Act. Reference is made
to Paras 11 and 18-21 of (2007) 7 SCC 125 Adhunik Steels Ltd. v. Orissa
Manganese and Minerals (P) Ltd. and Paras 6 and 10-12 of (2002) 5 SCC 510
ITI Ltd. v. Siemens Public communications Network Ltd.
15. It is the submission of learned Sr. Counsel for the respondents that in case
Section 11 petition is itself not maintainable and liable to be dismissed, then
Section 9 petition cannot independently be maintained. Section 9 is in aid of
Section 11 and if the main petition itself is not maintainable then the interim
application too is not maintainable and no interim relief can be granted by the
Court. The respondent submits that in the present case both the petitions being
Section 11 as well as Section 9 are independently liable to be dismissed.
16. It is further submitted that if the present petitions under Sections 9 and 11
are dismissed as being barred under Section 69 (3) of the Partnership Act, it
won‟t render the petitioner remediless as the phrase "other proceedings" does not
cover reference to arbitration de hors the Court. In other words, the bar under
Section 69 (3) is not attracted to arbitration proceedings without the intervention
of the Court.
17. In any event, Clause 13 of the Partnership Agreement dated 6 th June, 2012
clearly stipulates that all accounts of the partnership firm would be settled on the
retirement of any of the partners or dissolution of the firm, within 6 months from
the said retirement or dissolution. The said clause 13 of the Partnership deed
dated 6th June, 2012 is reproduced herein below for ready reference:-
"(13) That accounts will be closed / settled on the retirement / dissolution
of the firm within six months as per Balance Sheet, profit and Loss of
account of the firm as on that date of retirement / dissolution."
18. It is also submitted that the bar under Section 69 of the Partnership Act
applies to all court proceedings, whether it is an Arbitration proceeding or a Civil
Suit. The rigours of Section 69 would apply to the given facts of the case „as it
is.‟ „Leaving the party with no relief‟ is no ground to maintain the petitions even
when the partnership firm is unregistered; for otherwise, the provision of Section
69 of the Partnership Act would become otiose and redundant. The very purpose
of the statute would be defeated if the petitions are entertained even against the
principles of Section 69. Therefore, the petitioner cannot claim that it will be
remediless if the present petitions are dismissed.
19. In support of his submission Mr. Ravi Gupta, learned Sr. Counsel has
relied upon (i) Paras 7 and 9 Jagdish Chandra Gupta v. Kajaria Traders (India)
Ltd. (1964) 8 SCR 50; (ii) Paras 15, 22-24 and 26-28 in Vanita Gambhir v.
District Judge, Delhi 2005 (1) Arb. L.R. 166 (Delhi) (DB); (iii) Paras 4-8 of Ess
Vee Traders v. Ambuja Cement Rajathan Ltd. 2006 (9) DRJ 293; (iv) Paras 3-5
of Delhi Development Authority v. Kocchar Construction Work (1998) 8 SCC
559 and (v) Paras 4-6 of M/s. Shreeram Finance Corporation v. Yasin Khan
(1989) 3 SCC 476.
20. On the other hand, Mr. Harish Malhotra, learned Sr. Counsel appearing for
the petitioner in Arb. Petition nos. 212-213/2016 and Mr. Sudhir Nandrajog,
learned Sr. Counsel appearing for the petitioner in OMP (I) (COMM) 94/2016
and 96/2016 would submit that the plea taken by the respondents that the
petitions filed by the petitioner are barred by the provisions of Section 69 of the
Partnership Act because of the firm being not registered is devoid of any merit
and substance and is liable to be rejected. It is submitted that all the aforesaid
petitions are under the provisions of the Act of 1996. In terms of Section 5 of the
said Act, it has been clearly stated that notwithstanding anything contained in any
other law for the time being in force, any matter governed by this part, no judicial
authority shall intervene, except where so provided in this part. Section 9 which
deals with the power of the Court to grant interim measures and Section 11 which
deals with the powers of the Chief Justice to appoint an arbitrator and both the
said sections are covered under the said part, as mentioned in Section 5. It is
submitted that in the entire Act of 1996, there is no restriction on any party under
the said Act from filing a Petition under Section 9 or Section 11 if that party is
not registered under the Partnership Act, more particularly Section 69, is not
liable to be looked into. Under Section 9 of the Arbitration Act, a right has been
given to a party to the arbitration to approach the Court for grant of interim
measures, either before or during the pendency of the arbitral proceedings, or at
any time after making of arbitral award, but before its enforcement in accordance
with Section 36. This right is a statutory right granted under the Act of 1996 and
is not a right arising out of any contract. Consequently, the provisions of Section
69 of the Partnership Act will not be applicable.
21. It is submitted that the Hon‟ble Supreme Court in the case titled Firm
Ashoka Traders (supra) has categorically held that the right being exercised
under Section 9 is not a right arising out of a contract, but a right under a statute
and therefore, the bar contained under Section 69 of the Partnership Act cannot be
attracted. Reference is made to Paras 11 to 14 of the said judgment. Reference is
also made to the judgment of the Division Bench of this Court in the case of
Vanita Gambhir (Supra) wherein it has been held that petition under Section 11
of the Act of 1996 is maintainable without there being any registration of the
firm, provided it is for dissolution of the firm and settlement of accounts.
Reference is also made to a judgment reported as 2006 (1) ALR 126 (Delhi) (DB)
Mulakh Raj vs. Shashi Rani and Anr., which clearly say that invoking
arbitration and appointment of an arbitrator in terms of Section 11 of the
Arbitration Act, would be an application for dissolution of the firm or having his
share from the assets of the firm thus covered under the exception of Section 69
(3) of the Partnership Act.
22. Even otherwise, if the provisions of Section 69 are looked into, a bare
reading of that section clearly shows that Section 69 (1) and (2) are not applicable
to the facts of the present case, as the proceedings under Sections 9 and 11 are not
Suits. Section 69 (3) covers the word "proceedings" but shall not affect the
enforcement of any right to sue for dissolution of a firm, for accounts of a
dissolved firm or the power to realize the properties of the partnership firm. A
bare perusal of the aforesaid petition would show that the allegations in the
petition is regarding misappropriation of funds by the other partners and breach of
the partnership deed, introduction of Mr. Sidharth Gupta as a partner without the
consent of the petitioner as envisaged under Section 31 under „Notes to the
Accounts‟ of documents file in OMP (I) (COMM) 94/2015 and it clearly shows
that there is mistrust and the petitioner is asking for dissolution of the firm and
rendition of account and this is otherwise covered under Section 69(3) of the
Partnership Act. It is only because there is an arbitration agreement between the
parties, instead of filing a Suit for rendition of accounts and dissolution under
Section 69(3) (a), a petition under Section 11 has been moved for appointment of
an arbitration and under Section 9 for interim measures.
23. In support of their submissions learned Sr. Counsels for the petitioner
would rely upon the following judgments:
1. M/s. Jayamurugan Granite Exports v. M/s. SQNY Granites and Anr.
AIR 2015 Madras 266
2. Mahan Traders v. Amar Singh 2006 (4) Arb. L.R. 320 (DB)
3. M/s. Krishna Motor Service v. H.B. Vittala Kamath AIR 1996 S.C.2209
4. Jagat Mittar Saigal v. Kailash Chander Saigal and Anr. AIR 1983
DELHI 134
5. Rajinder Singh and Ors. v. Kartar Singh and Ors. 2001 (VII) AD (Delhi)
6. Haldiram Bhujiawala and Anr. v. M/s. Anand Kumar Deepak Kuma and
Anr. JT 2000 (2) SC 596
7. Vanita Gambhir v. District Judge Delhi 2005 (1) ALR 166 (Delhi)
8. Mulakh Raj v. Shashi Rani and Anr. 2006 (2) ALR 126 (Delhi) (DB)
9. Firm Ashoka Traders vs. Gurumukh Das Saluja 2004 (3) SCC 155
10. Neeraj Khullar & Anr vs. Virender Kumar Khullar 2012 Law Suit (Del)
714.
24. While concluding, they would submit that judged from any angle
whatsoever, the pleas taken by the respondents are totally misconceived and not
maintainable. Thus, the petitions under Section 9 and Section 11 (6) are liable to
be tried on their merits as the bar under Section 69 (3) of the Partnership Act is
not attracted in the present case.
25. Having heard the learned counsel for the parties and perused the written
submissions filed by them, for determining the question as noted above, it is
necessary for this Court to look into the legal notices exchanged between the
parties to determine whether the petitioner had only sought his retirement/
settlement of his account as a partner of a firm or the same was seeking
dissolution of the partnership firm. As determination of this aspect would be
relevant to determine whether the bar under Section 69 (3) of the Partnership Act
would operate. Noting the position of law as relied upon by the counsel for the
parties, the following position emerges:-
(i) If the request of the petitioner was for seeking of the dissolution of the firm
then the bar under Section 69(3) may not operate, if not then the bar would
operate;
(ii) The concept of retirement from partnership firm does not amount to
dissolution of a firm as the firm continues to be in existence.
26. On perusal of the legal notice dated 31st March, 2015 it is revealed that the
petitioner has in substance asked for profits, remuneration and interest on the
capital account apart from huge sums of money from the firm as partners. A
perusal of the legal notice does not reveal that the petitioner has expressed for
dissolution of the partnership deed. The legal notice was replied by the
respondents on 14th April, 2015, wherein respondents have taken a stand that the
share of the profits can be disbursed for the year 2014-2015 after the statutory
audit and signing of the financial statements without accumulating to the
petitioner‟s capital account. It was also stated that the petitioner will have to
bring into the firm separately its share and additional capital as and when
required. Respondents in their reply has stated that the profits from the firm shall
be paid as per clause 18 of the partnership deed, which stipulates that the amounts
drawn by each of the partners for their personal expenses shall be to their
respective drawings account. Further it was stated that the partners have to infuse
separate adequate capital in the firm. It was also stated that the petitioner has to
give suitable assurance for infuse of additional capital, if required.
27. In the rejoinder, the petitioner has stated that as and when the funds are
required to be infused in the firm with the object of furthering the business of the
firm, all partners are obliged in terms of the Partnership Act & Partnership Deed
equivalent amount of funds. But in no way entitles to adjust all the profits of
Capital Account of SSP Developers Pvt. Ltd. and Sh. Siddharth Gupta. Suffice to
state that the communication dated 2nd June, 2015 from the petitioner does not
reflect that the petitioner has expressed itself for the dissolution of the firm.
28. There is no doubt on the proposition of law that where one of the partners
has sought for dissolution of the partnership, exception under Section 69 (3) of
the Partnership Act shall come into play.
29. Now the question which would arise even if the dissolution of the firm has
not been sought for, a petition under Sections 9 and 11 of the Act would mean
that the same arises from the contract, i.e., partnership deed or it is a statutory
right available to a party to the arbitration agreement separable from the
partnership deed. The issue was first considered by the Supreme Court in the
case of Jagdish Chandra Gupta (Supra). In Para 5 of the said Judgment, the
Supreme Court held that the proceedings under Section 8 of the Arbitration Act
has its genesis in the Arbitration Clause because without an agreement to refer the
matter to arbitration that section cannot possibly be invoked. The Supreme Court
held since the arbitration clause is a part of the agreement constituting the
partnership, it is obvious that the proceeding which is before the court is to
enforce a right which arises from a contract. The Court held whether we view the
contract between the parties as a whole or view only the clause about arbitration,
it is impossible to think that the right to proceed to arbitration is not one of the
rights which are founded on the agreement of the parties. The Supreme Court
held that the words of section 69 (3) "a right arisen from contract" are in either
sense sufficient to cover the said matter. In other words, it was the view of the
Supreme Court that such a right to file an application under Section 8 of the
Arbitration Act, 1940 arises from the contract. Later in the year 2004, a similar
issue arose before the Supreme Court in Firm Ashoka Traders (Supra). The
Supreme Court in Para 10 had recorded its prima facie opinion on the issue and in
Para 12 has concluded that the bar enacted under Section 69 (3) of the Partnership
Act does not affect the maintainability of an application under Section 9 of the
Act of 1996. In any case in Para 13, the Supreme Court had carved out the reason
for holding so, but the plea of the learned counsel for the respondents that the
same being a prima facie opinion is appealing. In fact the Bombay High Court in
the case of Tapadia Constructions Ltd. (Supra) while referring the judgment of
the Supreme Court upheld the plea of the learned counsel for the respondent that
it was only a prima facie and tentative opinion as appealing.
30. I note, for benefit the Supreme Court in the case of Arvind Constructions
Pvt. Ltd. (supra) has in Para 15 held that the reliance placed on the judgment of
Firm Ashoka Traders (supra) does not help much, since the Court in that case
did not answer that question finally but prima facie felt that the objection based
on Section 69(3) of the Partnership Act may not stand in the way of a party to an
arbitration agreement moving the Court under Section 9 of the Act. If that be so,
the position of law which holds the field is the one decided by the Supreme Court
in the case of Jagdish Chandra Gupta (supra). The judgment of the Jagdish
Chandra Gupta (supra) was followed by the Single Bench of this Court in the
case of ESS VEE Traders & Ors. V. Ambuja Cement Rajasthan Ltd (supra).
31. Having said so, the question is, whether the petitions filed under Sections
11 and 9, need to be dismissed, the answer is „No‟ as the ratio of the judgment of
this Court in Mulakh Raj vs. Shashi Rani and Anr (supra), can‟t be overlooked.
The Division Bench of this Court, in the said case held as under:-
"10. These exceptions are basically 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. (emphasis supplied by this Court). Similar is the view taken by
Supreme Court in Smt. Premlata and Anr. Vs. Ishar Dass Chaman
Lal and Ors., which is reproduced hereunder :-
"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.
xxx xxx xxx
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."
In view of the above, the petitions also being under Section 11 of the Act of 1996,
it must be construed, the petitions are for dissolution of the firms, and as such the
bar of Section 69(3) of the Partnership Act shall not be applicable.
32. That apart, it is also relevant to note, in the submissions filed by learned
counsel for the petitioner in these proceedings wherein in Para 2 it is stated that
the breach of partnership deed having been committed by the respondent and the
allegations are direct that the respondent has misappropriated the funds of the
partnership business and that despite the fact that the petitioner is a partner of
50% in the firm and it is being deprived of its share in the profit and loss, it is a
clear case of mistrust between the parties and consequently it is clear from the
wordings that the petitioner has indicated that it is not possible for the petitioner
and the respondent to continue with the partnership business.
33. This Court in the case of Neeraj Khullar & Anr vs. Virender Kumar
Khullar Case No.201, 313 of 2011 decided on 30th March, 2012 by referring to
the judgment of the Supreme Court in the case of Premlata v. M/s Ishar Dass
Chaman Lal 1995 (2) SCC 145; Prabhu Shankar Jaiswal v. Sheo Narain
Jaiswal 1996 (11) SCC 225; and V.H. Patel & Company vs. Hirubhai
Himabhai Patel 2000 (4) SCC 368, has held as under:-
"27. It is also evident that over the past one year, the attempts at
having the parties settle the disputes through mediation or otherwise
have not proved successful. There seems to be a complete breakdown
of trust. Therefore, although, at the stage of filing of O.M.P. No.313
of 2011, the dissolution of the partnership was not being contemplated
by the Petitioner, the subsequent events have led to the Petitioners to
realize that there is no option but to seek dissolution of the
partnership. The respondent has, by running another proprietorship
concern, from the said business premises, made it appear that he too
is not interested in the partnership continuing as such. It is, therefore,
understandable that the disputes between the parties are essentially
about the dissolution of the partnership firm. Although, Arb. P. No.
201 of 2011 has not been formally amended to seek reference of such
dispute. It is plain that the main claim in the arbitration proceedings
by the Petitioners will be to seek dissolution of the firm. Learned
counsel for the Petitioners also made this explicit in his submissions.
28. In that view of the matter, the bar under Section 69 of the PA will
not operate. The legal position was explained in Premlata v. M/s
Ishar Dass Chaman Lal as under:
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.
9. Indisputably the first appellant is the widow of Chaman Lal - one of
the partners. Therefore, she steps into the shoes of the deceased
partner who had a right to the dissolved partnership firm. Sub-section
(3)(a) carves out three exceptions to Subsections (1) and (2) of Section
69 and also to the main part of Sub-section (3) of Section 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 right or power to
realise the property of the dissolved firm. Having excluded from the
embargo created by the main part of Sub-section (3) or Sub-sections
(1) and (2) of Section 69, the right to sue would not again be
construed to engulf the exceptions carved out by Sub- section (3) or
Sub-section (4) of Section 69 of the Act. Any construction otherwise
would render the exceptions, legislature advisedly has carved out in
Sub-sections (3) and (4) of Section 69, otiose. The object 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-section
(3) are to enforce those rights including the rights to dissolution of the
partnership 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 alternative resolution forum agreed by the
parties, namely, reference to a private arbitration is a mode of
enforcing the rights given under Clause (a) of Sub- section (3) of
Section 69 of the Act and gets excluded from the main part of Sub-
section (3) and Sub-sections (1) and (2) of Section 69. The
enforcement of the right to sue for dissolution 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 Section 20 of the Act."
29. The above legal position was subsequently explained further in
Prabhu Shankar Jaiswal v. Sheo Narain Jaiswal as under:
"5. Under Section 69(1), a suit, inter alia, to enforce a right arising
from 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 as 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 in the 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. [Vide Jagdish Chandra Gupta v.
Kajaria Traders (India) Ltd.] Sub-section (3), in its later part,
however, carves out certain exceptions to the bar contained in Sub-
sections (1), (2) and the first part of Sub-section (3).
6. Under Sub-section (3)(a) this bar will not affect the enforcement of
any right to sue for the dissolutions of a firm or for accounts of a
dissolved firm or any right or power to realise the property of a
dissolved firm. Therefore, although the partnership firm may be
unregistered, one partner can sue other partners for dissolution of the
firm and for accounts. The words "to sue" used in Sub-section (3)(a)
cannot be construed narrowly to refer only to suits for dissolution of
partnership and accounts. The exception contained in Sub-section
(3)(a) applies not merely to Sub-sections (1) and (2) but also to the
first part of Sub-section (3) which deals with proceedings other than
suits. Therefore, in order that Sub-section (3)(a) would apply to all
these provisions, the words "to sue" in Sub-section (3)(a) must be
understood as applying to any proceedings for dissolution of
partnership or for accounts of a dissolved firm or to realise the
property of a dissolved firm. This proceeding may be either by way of
a suit or it can even be a proceeding under the Arbitration Act to
secure these rights through arbitration. (Vide Prem Lata v. Ishar Dass
Chaman Lal [1995]2 SCC 145, a judgment to which one of us was a
party). Therefore, an arbitration clause in a partnership deed of an
unregistered partnership can be enforced for the purpose of securing,
inter alia, a dissolution and accounts of the partnership or for
enforcing any right or power for obtaining the property of a dissolved
firm. (emphasis supplied by this Court)"
30. The Supreme Court reiterated the above position in V.H. Patel &
Company v. Hirubhai Himabhai Patel where it was emphasized that
where there is no mutual trust remaining between the parties, and the
idea is to settle all the disputes between them, it will be open to any of
them to claim dissolution of the partnership and seek reference of
such dispute to arbitration. (emphasis supplied by this Court)"
34. In view of the discussion above, the fact that the petitioner has filed
applications under Section 11 of the Act of 1996 and noting the stand of the
petitioner and the mistrust between the parties and taking the stand of the
petitioner as seeking dissolution of the firms, this Court is of the view,
additionally on this ground as well that petitions under Section 11 of the Act of
1996 are maintainable.
35. In view of the fact, petitions under Section 11 of the Act of 1996 are
maintainable, the petitions under Section 9 of the Act of 1996 are also
maintainable. Accordingly, I decide the preliminary issue in favour of the
petitioner.
36. The petitions are listed before the Roster Bench for further proceedings, on
August 29, 2016.
(V.KAMESWAR RAO)
JUDGE
AUGUST 11, 2016
jg
