Holding

Section 69(3) of the Partnership Act does not affect the maintainability of an application under Section 9 of the Arbitration and Conciliation Act, 1996.

Summary

The Supreme Court examined a dispute among partners of the unregistered liquor‑trading firm Mis Ashok Traders, where a partner of Group A sought an interim order under Section 9 of the Arbitration and Conciliation Act, 1996 for the appointment of a receiver. The trial court dismissed the application on the ground that Section 69(3) of the Partnership Act, 1932 barred a suit by a person not entered in the register of firms. The High Court held that Section 69(3) did not apply to a Section 9 application and appointed receivers, but its detailed directions were questioned. The Supreme Court held that the bar in Section 69(3) does not affect the maintainability of a Section 9 application because the right under Section 9 is not a contractual right but an interim measure to protect arbitration proceedings. While upholding the appointment of a receiver, the Court modified the High Court’s directions, ordering the business to continue under Group B as receivers with an observer appointed by the Excise Commissioner. The Court also directed procedural safeguards for accounts and sale proceeds until the business is wound up. The appeals were disposed of without costs.

Issues considered

Whether Section 69(3) of the Indian Partnership Act, 1932 bars the maintainability of an application under Section 9 of the Arbitration and Conciliation Act, 1996 filed by a partner of an unregistered partnership firm or by a person not shown in the register of firms.
Assuming the application is maintainable, what interim arrangement (appointment of receiver, observer, etc.) is appropriate to protect the interests of all partners pending arbitration.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 17, s. 36, s. 9
Code of Civil Procedure, 1908
Indian Partnership Act, 1932s. 69

Subjects

ArbitrationSection 9Interim measuresPartnership ActUnregistered partnershipReceiver appointmentMaintainabilityCivil appeal

Judgment

"'>--;
A FIRM ASHOK TRADERS AND ANR. ETC.
V.

GURUMUKH DAS SALUJA AND ORS. ETC.

JANUARY 9, 2004

B [R.C. LAHOTI AND ASHOK BHAN, JJ.]

Arbitration and Conciliation Act, 1996:

s. 9--Application for interim measures by court-Unregistered
c partnership firm in liquor trade-Application by one of the partners for
appointment of receiver to take charge of business of the firm-Trial court
dismissing the application on the ground that name of the applicant does not
figure in the register offirms as partner of the firm-High Court allowed the
application holding that s.69(3) of the Partnership Act is not attracted to an
D application uls 9 of the Act-High Court further directed that the partners
who were running the business would run the business as receivers till
31.12.. 2003 and from 1./.2004 to 31.3.2004 the applicant and two other
,,
~
partners of his group would run the business as receivers-Held, order passed
by court should fall within the meaning of expression 'an interim measure of
protection' as distinguished from an all time of permanent protection-ft is a
E serious matter to appoint a receiver on a running business-This is not a case
of oppression of minority by majority-A better course would have been to
allow the conduct of the business continuing in the hands of the persons who
were doing so but at the same time issuing such directions and/or devising
such arrangement as would protect and take care of the interest of those who
F are not actually running the business-Purpose of enacting s. 9 is to provide
'interim measures of protection '-Though order of High Court appointing a
receiver on the partnership business is maintained, the rest of the order is set
'\ .
aside-Directions given inter alia, for running the business by the group of
partners who were running it prior to interim order of High Court under their
control but as receivers, and for appointment of an official as observer-
G Interim order-Partnership Act, 1932-s.69(3).
s. 9-Unregistered partnership firm-Application by one of the partners
for directions to appoint receiver-Maintainability of-Held, Court uls 9 is !
only formulating interim measures so as to protect the right under adjudication
before the arbitral tribunal from beingfrustrated-Primafacie, the bar enacted
H 404
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 405
by s.69 of Partnership Act does no/affect the maintainability of an application A
under s.9 of the Act-s. 69 of Partnership Act has no bearing on the right of
a party to an arbitration clause to file an application under s. 9 of the Act.

s. 9- ..party"-Jnvoking s.9-An application u!s. 9 is not a suit- 'Parity'
is defined ins. 2(/)(h) to mean a party to an arbitration agreement-So right
conferred by s. 9 is on a party to an arbitration agreement-Right conferred B
by s.9 cannot be said to be one arising out of a contract-Filing of an
application zt!s 9 by a party by virtue of its being a party to,an arbitration
agreement is for securing a relief which the court has power to grant before,
during or after arbitral proceedings by virtue of s.9 of the Act-The relief
sought for in an application uls 9 is neither in a suit nor a right arising from C
a contract-Party invoking s. 9 may not have actually commenced arbitral
proceedings but must be able to satisfy the court that the ar~itral proceedings
are actuaily contemplated or manifestly intended.

Mis. Sundaram Finance Ltd v. Mis. NEPC India Ltd., AIR 1999 SC
565, relied on. D
Kamal Pushpa Enterprises v. DR Construction Company, AIR (2000)
SC 2676; Jagdish Chandra v. Kajaria Traders (Ind.) Ltd., AIR (1964) SC
1882 and Delhi Development Authority v. Kochhar Construction Work and
Anr., (1998] 8 SCC 559, referred to.
E
Mis. Shreeram Finance Corporation Ltd. v. Yasin Khan ar.d Ors., (1989(
3 sec 476, cited.

Words and phrases: Word 'before' ins. 9 of Arbitration and Conciliation
Act, 1996-Connotation of
F
' /' CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 132 and
131 of 2004.

From the Judgment and Order dated 18.12.2003 of the Madhya Pradesh
High Court in M.A. No.2484 of 2003.
G
Harish N. Salve, Dr. A.M. Singhvi, Kapil Sibal, P. Chidambaram, R.F.
Nariman, Vivek Tankha, Rohit Arya, C. Mukhopadhya, Manu Nair, Ms.
Shalini, Rakesh K. Khanna, Aseem Mehrotra, Kanahaya Singh, Rajeev Singh,
Rajesh Prasad Singh, Akshay Arora, P.K. Bansal, Pankaj Kr. Singh, K.L.
Janjani and Ms. Abha R. Sharma for the appearing parties.
H
406 SUPREME COURT REPORTS [2004] l S.C.R.

A The following Order of the Court was delivered :

Leave granted in both the SLPs.

The dispute is among 12 persons who are, or are alleged to be, or claim
to be partners in the firm Mis Ashok Traders, the respondent no. I. These 12
B private parties to the litigation can be grouped into three, for the sake of
convenience. Gurumukh Das Saluja, Sanjay Chawla and Ajay Arora shall be
collectively referred to as Group "A". Bhagwati Prasad Kulhara, Badri Prasad
Jaiswal and Harprasad Jaiswal shall be referred to as Group "B". Rajesh
Jaiswal Ram Sewak Shanna, Baljeet Singh Bhatia, Rajendra Prasad Jaiswal,
Anil Kumar Shrivastava and Sushil Kumar Shrivastava shall be referred to as
c Group "C".

Mis. Ashok Traders are in liquor trade. In the Dead of Partnership
entered into on 27 .2.2002 there were 7 partners including Bhagwati Prasad
Kulhara and 6 others. The partnership firm was registered with Registrar of
D Firms. Six partners (i.e. other than Bhagwati Prasad Kulkhara) retired from
the partnership and a new partnership came to be constituted on 5.3.2002
evidenced by a Deed of the even date wherein all the persons belonging to
Groups A, B and C are partners. However, the names of the new partners
were not communicated to the Registrar of Firms. The firm was awarded a
liquor contract licence for Bhopal for the year 2002-03 at a licence fee of Rs.
E 66.51 crores. The existence of these two Deeds of Partnership and the factum
of the first one being registered and the second one being not registered with
the Registrar of Firms are admitted facts. For convenience sake, we would
refer to the partnership dated 27.2.2002 as Partnership-I, the Partnership
dated 5.3.2002 are Partnership-II and the alleged partnership dated 6.3.2003
F as Partnership-Ill.

The business ran smoothly upto February 2003 and then differences
and disputes are alleged to have arisen amongst the partners. Clause 20 of the
Partnership Deed-II incorporates an Arbitration Clause. Group "B" alleges
the existence of yet another Deed of Partnership which is dated 6.3.2003
G wherein the names of the members of Group "A" are not to be found mentioned
as partners. The partnership-Ill is also not registered.

On 6.3.2003 auction for IMFL and country-liqour shops (60 in number)
for the year 2003-04 was held at Bhopal. Mis Ashok Traders was declared
to be successful bidder for a licence fee of Rs. 73.25 crores. The shops are
H running and have always remained operational even during the present
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 407
litigation. A
Disputes arose giving rise to complaints by the members of Group "A"
complaining of the violation of their rights as partners at the hands of Group
"B'', Group "A" complained. of their being denied access to accounts, of
Group "B'' indulging into mismanagement of affairs and siphoning off of the
funds and so on. Ajay Arora (of Group "A") filed a civil suit which was held B
to be not-maintainable in view of Section 69 (3) of the Indian Pa1inership
Act, 1932; the name of Ajay Arora having not been shown in the Register
of Firms as a partner of the firm. According to Group "A", a notice was
issued on 2.6.2003 to the other partners invoking the arbitration clause and
calling upon them to join in the appointment of arbitrator/s consistently with C
the arbitration clause so as to adjudicate upon the disputes between the partners.
The contesting respondents do not admit the receipt of the notice. On
22.7.2003, Gurumukh Das Saluja of Group "A" filed an application under
Section 9 of the Arbitration and Conciliation Act, 1996 wherein the principal
relief sought for is the appointment of a receiver under Section 9(ii)( d) of the
Act to take charge of the entire business of the firm. Other incidental D
injunctions are also sought for. Group "B" contested the application on very
many grounds and mainly by submitting that the application was not
maintainable in view of the bar enacted by Section 69(3) of the Partnership
Act as the name of the applicant does not figure in the Register of Firms as
partner of the firm. The plea has prevailed with the learned Additional District E
Judge resulting in dismissal of the application. Gurumukh Das Saluja preferred
an appeal before the High Court under Section 37(1 )(a) of the A & C Act.
' During the pendency of the appeal an application under Section 9 pleading
similar facts and seeking similar reliefs, as was done before the Trial Court,
was filed. Group "B" contested the application on all possible grounds. The
factum of Group "A" being partners of the firm so far as the contract for the F
•f year 2003-04 is concerned was vehemently denied. It was reiterated that the
application was hit by Section 69(3) of the Partnership Act and hence was
liable to be dismissed. The High Court has allowed the appeal. It has held
that the applicability of Section 69(3) is not attracted to an application under
Section 9 of A & C Act. But on merits the High Court has found substance G
in the grievance raised by Group "A". The High Court has also held that the
business in the year 2003-04 was continuing under the Partnership Deed
dated 5.3.2002, i.e., Partnership-II; and that primafacie the existence of the
Partnership Deed dated 6.3.2003 (Partnership-III) was doubtful and
accompanied by suspicious circumstants raising doubts about the genuineness
of any new partnership having come into existence on 6.3.2003 superseding H
408 SUPREME COURT REPORTS (2004] I S.C.R.
~j
A the Partnership-II. The High Court seems to have made efforts at resolving
the controversy and finding out at least some such solution as would take
care of the disputes for the moment and protect the interests of all the parties
and then concluded as under:-
'"'",---
"Various options were explored at the time of hearing of the
B appeal. It was suggested that the Excise Commissioner may be
appointed as a receiver. But that does not appear to be feasible.
Further, the running of liquor business requires an expertise of
its own and as such it would not be proper to entrust the
management of the business to third person who might not be
aware of its intricacies. Therefore, it would be proper that the
c partners themselves should manage the business as receivers. It
is found that the contesting respondents No.2, 6 and 7 have run
this business in March, 2003 and also from 1.4.2003 and they
are still doing so. The present liquor contract is upto 31.3.2004.
It would be proper to appoint the respondents No.2, 6 and 7 to
D continue to run this business as receivers subject to their
complying with the provisions given in Order 40 rules I to 4 ...
CPC. They shall submit their accounts the court in which the
application under section 9 of the Act was considered i.e. Court
f ,.
of Vth Additional District Judge, Bhopal. Further, from 1.1.2004
it would be just and equitable to entrust the management and
E running of the business by the appellant* and the respondents
No.8 and 9* who together have 20% share in the firm. Therefore,
they are appointed as receivers from 1.1.2004 to 31.3 .2004 and /

they will take over the management of the business of this firm
as receivers from that date. The other respondents will hand over
F the management of the business of th is firm to them from
1.1.2004. The appellant and respondents No.8 and 9 will submit \.
full accounts to the court of Vth Additional District, Judge Bhopal
every month and will abide by the Order 40 Rules I to 4 CPC.
In case of any difficulty the parties will be free to approach the
court of Vth Additional District Judge, ·Bhopal for necessary
G orders. The Court of Vth Additional District Judge, Bhopal will
monitor the functioning of the receivers and issue necessary
..c.
directions from time to time. This direction is as per decision of
the Supreme Court in V. T. Slpahimalani v. Kanta, AIR (2000) I "
SC 1848. The Applicant will take steps for the appointment of
H arbitrator as early as possible. This directions is being given as
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 409
. t ""(
per decision of Supreme court in Mis Sundaram Finance ltd. v. A
Mis NEPC India ltd., AIR (1999) SC 565.

*(N.B.-'Appellant' in High Court was Gurumukh Das Saluja and
respondent nos. 8 and 9 were Sanjay Chawla and Ajay Arora; Hence
Group "A")
B
We have heard all the learned counsel appearing for Groups "A", "B"
and "C". The submissions made by the learned counsel for the parties have
centered around iwo questions: one, effect of the bar created by Section
69(3) of the Partnership Act on maintainability of an application under Section
9 of the A & C Act, 1996; and two, in the event of the question of
maintainability being decided for Group "A", what interim arrangement, C
whether by way of appointment of receiver or otherwise, would meet the
ends of justice?

On the question of maintainability of application under Section 9 of A
&C Act ever by a partner of an unregistered firm or by a person not shown
as a partner in the Register of Firms, the High Court has, for upholding the D
maintainability, relied on the decision of this Court in Kamal Pushpa
Enterprises v. Dr. Construction Company, AIR (2000) SC 2676. The learned
counsel for Group "B" have placed forceful reliance on Jagdish Chandra v.
Kajaria Traders (Ind.) Ltd., AIR ( 1964) SC 1882. The decision of this Court
in Mis. Shreeram Finance Corporation Ltd. v. Vasin Khan and Ors., (1989] E
3 SCC and Delhi Development Authority v. Kochhar Construction Work and
Anr., [I 998] 8 SCC 559 were also referred to.

Section 9 of A & C Act, 1966 and Section 69 of Partnership Act, 1932
(relevant part thereof) provide as under:
F
Arbitration and Conciliation Act, 1996

9. Interim measures by Court etc.-A party may, before or during
arbitral proceedings or at any time after the making of the arbitral
award but before it is enforced in accordance with section 36, apply
to a court- G
(I) for the appointment of a guardian for a minor or a person of
un~ound mind for the purposes of arbitral proceedings; or

(II) for an interim measure of protection in respect of any of the
following matters, namely:-
H
A
410 SUPREME COURT REPORTS [2004) I S.C.R.

(a) the preservation interim custody or sale of any goods which are
....
the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing
which is the subject-matter of the dispute in arbitration, or as to
B which any question may arise therein and authorizing for any of
the aforesaid purposes any person to enter upon any land or
building in the possession of any party, or authorizing any samples
to be taken or any observation to be made, or -experiment to be
tried, which may be necessary or expedient for the purpose of
c obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the
court to be j~st and convenient,

D and the Court shall have the same power for making orders as it has
for the purpose of and in relation to, any proceedings before it.

Indian Partnership Act, 1932 f
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
E 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
F 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 (I) and (2) shall apply also to
claim of set-off or other proceeding to enforce a right arising from a
G
contract, but shall not affect-

(a) xxx xxx xxx )
(b) xxx xxx xxx

H (4) xxx xxx xxx
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 411

To begin with, for the controversy centering around the abovesaid two A
provisions we told the learned counsel for the parties that we are not inclined
to go in-depth in the issue inasmuch as a prolonged hearing on the issue and
decision thereon may take time and that would have devastating effect on the
· rights of the paities. The learned counsel for the parties agreed that de hors
the issue, the Court may proceed to determine the appeal on merits. Yet, we
feel duty-bound to record at least our prima facie opinion on the issue, lest B
we should be misunderstood as having side-tracked the same.

Sub-Sections (I) and (2) of Section 69 of Partnership Act strike at the
very root of the jurisdiction of the Court to entertain a suit to enforce a right
arising from a contract, if the applicability of Section 69 is attracted. By C
virtue of sub-Section (3 ), the bar enacted. by sub-Sections (I) and (2) applies
also to a claim of set-off or 'other proceedings to enforce a right arising from
a contract' which, in the submission made by the learned counsel for Groups
"B" and "C", includes a proceeding commencing on an application under
Section 9 of the A & C Act.
D
In our opinion, which we would term as prima facie, the bar enacted
by Section 69 of the Partnership Act does not affect the maintainability of an
application under Section 9 of A & C Act.

A & C Act, 1996 is a long leap in the direction of alternate dispute
resolution systems. It is based on UNCITRAL Model. The decided cases E
under the preceding Act of 1940 have to be applied with caution for
determining the issues arising for decision under the new Act. An application
under Section 9 under the scheme of A & C Act is to a suit. Undoubtedly,
such application results in initiation of civil proceedings but can it be said
that a party filling an application under Section 9 of the Act is enforcing a F
right arising from a contract? "Party" is defined in Clause (h) of sub-Section
(1) of Section 2 of A & C Act to mean 'a party to an arbitration agreement'.
So, the right conferred by Section 9 is on' a pa11y to an arbitration agreement.
The time or the stage for invoking the jurisdiction of Court under Section 9
can be (i) before, or (ii) during arbitral proceeding, or (iii) at any time after
the making of the arbitral award but before it is enforced in accordance with G
Section 36. With the pronouncement of this Court in Mis Sundaram Finance
ltd. v. Mis NEPC India ltd., AIR (1999) SC 565 the doubts stand cleared
\ and set at rest and it is not necessary that arbitral proceeding must be pending
or at least a notice invoking arbitration clause must have been issued before
an application under Section 9 is filed. A little later we will revert again to H
412 SUPREME COURT REPORTS [2004 J I S.C.R.

A this topic. For the moment suffice it to say that the right conferred by Section
9 cannot be said to be one arising out of a contract. The qualification which
the person invoking jurisdiction of the Court under Section 9 must possess
is of being a party to an arbitration agreement. A person not party to an
arbitration agreement cannot enter the Court for protection under Section 9.
B This has relevance only to his locus standi as an applicant. This has nothing
to do with the relief which is sought for from the Court or the right which
is sought to be canvassed in support of the relief. The reliefs which the Court
may allow to a party under clauses (i) and (ii) of Section 9 flow from the
power vesting in the Court exercisable by reference to 'contemplated',
'pending' or 'completed' arbitral proceedings. The Court is conferred with
C the same power for making the specified orders as it has for the purpose of
and in relation to any proceedings before it though the venue of the proceedings
in relation to which the power under Section 9 is sought to be exercised is
the arbitral tribunal. Under the scheme of A & C Act, the arbitration clause
is separable from other clauses of the Partnership Deed. The arbitration clause
constitutes an agreement by itself. In short, filing of an application by a party
D by virtue of it<; being a party to an arbitration agreement is for securing a
relief which the Court has power to grant before, during or after arbitral
proceedings by virtue of Section 9 of the A & C Act. The relief sought for
in an application under Section 9 of A & C Act is neither in a suit nor a right
arising from a contract. The right arising from the partnership deed or conferred
E by the Partnership Act is being enforced in the arbitral tribunal; the Court
under Section 9 is only formulating interim measures so as to protect the
right under adjudication before the arbitral tribunal from being frustrated.
Section 69 of the Partnership Act has no bearing on the right of a party to
an arbitration clause to file an application under Section 9 of A & C Act.

F In Jagdish Chandra Gupta's case (supra) Constitution Bench approved
of a liberal and full meaning being assigned to the phrase 'other proceedings' t, •
in sub-Section (3) of Section 69 of the Partnership Act untramelled by the
preceding words 'a claim of set-off. The Court refused to countenance the
plea for interpreting the words 'other proceedings' ejusdem generis with the
G preceding words 'a claim of set-off. Mis. Shreeram Finance Corporation,
(supra) calls for the effect of bar created by Section 69 being determined by
reference to the date of institution of the suit and not by reference to any
subsequent event. In Delhi Development Authority's case, this Court held ..,
Section 69 of Partnership Act applicable to an application under Section 20
ot the Arbitration Act, 1940 as such an application (under the scheme of that
H Act) would be included within the meaning of 'other proceedings' in Section
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 413
69(3) of Partnership Act. In Kamal Pushpa Enterprises, this Court held that A
the bar under Section 69 of Partnership Act is not applicable at the stage of
enforcement of the award by passing a decree in terms thereof because the
award crystallises the rights of the parties and what is being enforced at that
stage is not any right arising from the objectionable contract. None of the
cases throws any direct light on the issue at hand. Rather, the undercurrent B
of dictum in Kamal Pushpa Enterprises lends support to the view we are
tentatively taking herein. We leave the matter at that and proceed to examine
the merits of the appeal as agreed to by all the learned counsel appearing.

The most basic principle governing the discretion of the Court in
appointing a receiver is whether it is 'just and convenient' to do so. A few C
factors are of relevance which we proceed to record dispensing with the need
of delving into any detailed discussion. On the own showing of Group "A'',
they have 20% share in the partnership business and Group "B" has I 8%
share. The stand taken by Group 'C', which according to Group "A" holds
62% share, was not known before the High Court, and therefore, so far as the
High Court is concerned the tussle was between the holders of 20% interest D
(Group "A") and holders of 18% interest (Group "B"). In this appeal, Group
'C' is represented and has vocally supported Group "B" standing by its side.
Before us it is a case of holders of 20% interest claiming against the holders
of 80% interest.

The finding recorded by the High Court is that it was Group "B" which E
was running business upto the date of passing of the order by it and was
found entitled to continue the same upto 31.12.2003, meaning thereby, for
nine months out of the total twelve months' period for which the business is
to run, it is Group "B" which has been running the business. Excepting bald
and general allegations of mismanagement and siphoning off of the fund F
nothing concrete has been alleged muchless demonstrated to give real colour
to the avennents made. The High Court has thought it proper to appoint
Group "A" as captain of the ship, which is the running business, to sail for
the remaining period of three months. We fail to understand the logic behind
such a change. It is a serious matter to appoint" a receiver, on a running
business. The High Court in spite of having formed an opinion in favour of G
directing the appointment or receiver has rightly observed that retail liquor
trade is an intricate and tricky trade and hence cannot be entrusted to a third
party. If that be so, we fail to appreciate the justification behind turning out
the persons. in actual management of business and passing on the reins in the
hands of those who were not holding the same for nine months out of the H
414 SUPREME COURT REPORTS (2004] I S.C.R.

A twelve. We do not say that such a course has any prohibition in law on being '>- i
followed. But we do not think a case oppression of minority by majority-
the sense in which their term is understood in law-having been made out
on the material available in the present case. A better course would have been
to allow the conduct of the business continuing in the hands of persons who
were doing so still now but at the same time issuing such directions and/or
B devising such arrangement as would protect and take care of the interest of
those who are not actually running the business and that is what we propose
to do.

There are two other factors which are weighing heavily with us and
c which we proceed to record. As per the law laid down by this Court in Ml
s. Sundaram Finance Ltd. an application under Section 9 seeking interim
relief is maintainable even before commencement of arbitral proceedings.
What does that mean? In Mis. Sundaram Finance Ltd., itself the Court has
said-"It is true that when an application under Section 9 is filed before the
commencement of the arbitral proceedings there has to be manifest intention
D on the part of the applicant to take recourse to the arbitral proceedings".
Section 9 permits application being filed in the Court before the
commencement of the arbitral proceedings but the provision does not give
~
t
any indication of how much before. The word 'before' means inter alia,
'ahead of; in presence or sight of; under the consideration or cognizance of.
The two events sought to be interconnected by use of the term 'before' must
E
have proximity of relationship by reference to occurrence; the later event
proximately following the preceding event as a foreseeable or 'within sight'
certainty. The party invoking Section 9 may not have actually commenced
the arbitral proceedings.but must be able to satisfy the Court that the arbitral
proceedings are actually contemplated or manifestly intended (as Mis
F Sundaram Finance Ltd. puts it) and are positively going to commence within
a reasonable time. What is a reasonable time will depend on the facts and \ •
circumstances of each case and the nature of interim relief sought for would
itself give an indication thereof. The distance of time must not be such as
would destroy the proximity of relationship of the two events between which

G
it exists and elapses. The purposes of enacting Section 9, read in the light of
the Model Law and UNCITRAL Rules is to provide 'interim measures of
protection'. The order passed by the Court should fall within the meaning of
..
the expression 'an interim measure of protection' as distinguished from an
'!
all-time or permanent protection. '

H Under the A & C Act 1996, unlike the predecessor Act of 1940, the ..
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 415
' ......,
arbitral tribunal is empowered by Section 17 of the Act to make orders A
amounting to interim measures. The need for Section 9, in spite of Section
17 having been enacted, is that Section 17 would operate only during the
existence of the arbitral tribunal and its being functional. During that period,
the power conferred on the arbitral tribunal under Section 17 and the power
conferred by the Court under Section 9 may overlap to some extent but so
far as the period pre and post the arbitral proceedings is concerned the party B
requiring an interim measure of protection shall have to approach only the
Court. The party having succeeded in securing an interim measure of protection
before arbitral proceedings cannot afford to sit and sleep over the relief,
conveniently forgetting the 'proximately contemplated' or 'manifesty intended'
arbitral proceedings itself. If arbitral proceedings are not commenced within C
a reasonable time of an order under Section 9, the relationship between the
order under Section 9 and the arbitral proceedings would stand snapped and
the relief allowed to the party shall cease to be an order made 'before' i.e.
in contemplation of arbitral proceedings. The Court, approached by a party
with ari application under Section 9, is justified in asking the party and being
told how and when the party approaching the Court proposes to commence D
the arbitral proceedings. Rather, the scheme in which Section 9 is placed
obligates the Court to do so. The Comi may also while passing an order
under Section 9 put the party on terms and may recall the order if the party
commits breach of the terms.
E
During the course of hearing, we asked the learned counsel for Group
"A" what steps have they taken for initiation of arbitral proceedings ever
since 2.6.2003 the date on which they claim to have invoked arbitration
clause, or since 22. 7.2003 the date on which the application under Section 9
was filed? We were told that Group "A" was awaiting for the orders of the
Court under Section 9 of the Act. Th is is hardly an explanation. F
Commencement of arbitral proceedings is not dependent on the interim relief
, being allowed or denied. It was expected of Group "A" to have post-haste
\
sought for the appointment of arbitrator under Section 11 of the Act if the
partners noticed had failed to respond to the demand of Group "A" for
arbitration. This, by itself, in our opinion would have been enough to deny G
relief to Group "A''. However, in the facts and circumstanes of the case, as
we find the High court having felt convinced of the need for appointment of
receiver and as we are inclined only to suitably modify the order, we do not
deem it proper to dismiss the application under Section 9 in its entirety and
for this reason alone. We direct the applicant under Section 9, to take steps
for appointment of arbitrator/s, without any further loss of time. H
416 SUPREME COURT REPORTS (2004] I S.C.R.

A The other factor centers around the very factum of existence of
partnership. The Deed dated 5.3.2002 relating to Partnership-II is a fixed
tenn partnership agreed to stand terminate at the close of the year as on 31st
March, 2003.. The High Court has proceeded on the premises that in spite of
the term of the partnership coming to an end by expiry of the contracted term
if the partners have continued the business beyond the expiry of the terms
B limited by the contract and without having expressly entered into a partnership
agreement afresh, the relationship shall continue to exist and govern the -..,·
parties so long as the business continues. It is not necessary for us, for the
present, to pronounce upon the correctness of the view so taken. Suffice it to
observe that in the liquor trade involving heavy investments and heavy stakes
C it appears highly improbable that the people in trade would continue as
partners without entering into a fresh contract though fully aware of the
expiry of the term limited by the previous contract, more so, when they are
called upon to deal as a partnership firm with the State Government. No
reason has been assigned as to why a fresh Deed of Partnership was not
entered into. If the members of Group "A" have allowed the liquor business f=
D to proceed without entering into a formal Deed of Partnership for the year
2003-04 and thereby allowed the members of Groups "B" and "C" to bring
into existence a Deed of Partnership excluding the members of Group "A"
and filing it on the record of the State Government (or substituting the same,
as Group "A" alleges) they have to thank themselves for the misadventure
E which they have indulged into. Their lack of alertness in vigilantly protecting
their rights tells adversely on the availability of strong prima facie case in
their favour which only can persuade the Court to direct appointment of
receiver over the business and in particular entrust the actual conduct of
business in their hands, may be as receivers.

F During the course of hearing, we asked the learned counsel for the
parties of either of them could suggest a practically feasible mechanism
which would work and also effectively protect the interest of the parties kept
)•
away from the actual running of the business but no concrete suggestion
came forward. On behalf of Group "A", a suggestion was .mooted that I/5th
G of the shops may be allowed to be run by them and remaining 4/5th may be
allowed to be run by Group "B" and identical precautionary or protective
mechanism may be introduced as cross-checks. But, what would be the
mechanism, none has been able to propound and project. J
As a result, the order under appeal is modified. Though the order of the
H High Court appointing a receiver on the partnership business is maintained,
FIRM ASHOK TRADERS v.GURUMUKH DAS SALUJA 417
'Jt' the· rest of the order is set aside and substituted by the following directions:- A
(I) The business shall run as before under the actual management
and control of Group "B" but as receivers.
(2) The Commissioner of Excise, Madhya Pradesh shall appoint an
official who has been associated with the excise department of B
Madhya Pradesh, preferably a retired person, who shall act as an
observer. The observer shall keep a watch on the business of
M/s. Ashok Traders generally and in particular to see:

(i) that the business is run by receivers without any hindrance
by any of the partners;
c
(ii) that the accounts are properly, truly and correctly maintained.

(iii) that the receipts and payments are properly vouched.

(iv) that the sale proceeds are properly accounted for and no part
of the proceeds is siphoned off and/or carried away D
unaccounted by anyone.
(3) All the sale proceeds shall be deposited day to day in a bank
account to be opened in a nationalised bank in the name of the
'Firms Mis Ashok Traders (under orders of the Court)'. Any
amounts to be withdrawn shall be only under the joint signatures E
of at least one members of Group "B" or "C" and the observer,
for the purpose of making payments to the State Government,
and on account of rent/licence fee of the shops, salary of the
staff, transport charges and other necessary expenses required
for running day to day business.
F
(4) Though the conduct of the business is being allowed to be
continued by Group "B" but that is in their capacity of receivers
as appointed by the Court. They must truly and strictly perform
their duties as receivers. Any deviation would be viewed seriously.
(5) The members of Group "A" and/or their representative/s, G
authorized in writing, shall have a reasonable right to visit the
shops during business hours and watch the activities going on
but without interfering with the business activities run by the
receivers.
(6) The observer shall be paid such monthly remuneration and H
A
418 SUPREME COURT REPORTS [2004) I S.C.R.

reimbursed such expenses, as may be considered reasonable and
-,.. .
appointed by the Commissioner of Excise subject to overall
directions of the Trial Court.
(7) This arrangement shall continue till 31st March 2004 and
also for such further period as may be necessary for winding
B up of the business as per terms of the license of the State
Government (Excise Department).
(8) On finalization of the accounts duly audited by Chartered
Accounts the net profit or loss, if any, shall be distributed in
accordance with the award given by the arbitrator or decision
c by any competent forum.
(9) The receivers and observers shall be under the control of the
trial Court. In case of any difficulty in carrying out this
order, the parties, the observer and the Excise Commissioner
of Madhya Pradesh or any officer subordinate to him shall
D be at liberty to seek directions from the trial Court.
..
F

Before parting we would like to clarify that whatever has been stated
~
hereinabove in this order is not in any manner intended to be a reflection,
much less a finding, on the merits of the case of either party which shall be
availabfo to be determined on evidence and material brought on record in any
E duly constituted legal proceedings, whether before the arbitral tribunal or
before the Court or any other forum. All that has been said hereinabove is
by way of prima facie observations confined to the disposal of the present
appeals.

The appeals stand disposed of. No order as to the costs.
F »-; .,
R.P. Appeals disposed of.

I