Holding

The contract with an arbitration clause binds the partnership and the reference to arbitration under Section 20 of the Arbitration Act is valid.

Issues considered

Whether a partner has implied authority under Section 19(2)(a) of the Indian Partnership Act to refer a dispute arising from a contract entered into on behalf of the firm to arbitration.
Whether a contract containing an arbitration clause, entered into by one partner, binds all partners in the absence of objection or repudiation.
Whether the reference to arbitration under Section 20 of the Arbitration Act, 1940 is within the jurisdiction of the court.

Legislation cited

Arbitration Act, 1940s. 20
Indian Partnership Act, 1932s. 18, s. 19(1), s. 19(2)(a)

Subjects

partnership lawimplied authorityarbitration clausecontract ratificationSection 19(2)(a)Section 20 Arbitration Actjurisdiction

Judgment

A SANGANER DAL AND FLOUR MILL
v.
F.C.I. AND. ORS.
.(._
~
OCTOBER 22, 19<Jl
B [K. RAMASWAMY AND YOGESHWAR DAYAL, JJ.]

Indian Partnership Act, 1932--Section 19(2)(a)-Application o~
Contract by one partner-No objection by others--Arbitratio11 clause of the
contract bi11ding on the jinn 011d reference of dispute for arbitration u/s.20,
c Arbitration Act, 194(}-{'roper. .;,,.- -
The appellant-a partnership firm consisted of nine partners. One
Satya Narain was one of the partners. He submitted a tender to the
respondents on July 25, 1973 on behalf of the firm offering to sppply 1000
quintals of Gram Dal at the rate of Rs.185/· per bag. Tender was accepted
by the respondents. The appellant coinmitted breach of the contract and
.D
as a result, the respondents. filed an ~pplication under sec. 20 of the
Arbitration Act, 1940 before the District Court for making reference for
arbitration in terms of the contract.

The application was allowed and the dispute was referred for *
E arbitration.

Against the order of the Addi. District Judge, an appeal wa~ filed
before the High Court and the High Court confirmed the order ·or the
Additional District Judge.

F This appeal by special leave under Art. 136 of the ConstitUtion is
against the order of the High Court. The appellant contended .that by .
operation of Sec.19(2)(a) of the Partnership Act, 1932, there was no implied
authority given to one of the partners to refer the dispute re~ting to the
business of the farm for arbitration and therefore the reference made by the
court, pursuant tO a contract entered into by one of its partner, Satya Narain
G on behalf of the firm, was without jurisdiction and that the original contract
did not contain arbitration clause. In a separate letter with a rubber stamp
(facsimile) of the firm, one of the partners agreed for reference to arbitration
and therefore the reference did not bind the other partners.

H Dismissing the appeal, this Court,
542
FLOUR MILL v. F. C. 1' 543

.. HELD: 1. The operation of Secs. 18 & 19(1) is subject to the_ A
exceptions engrafted in sub-sec. (2) of Sec. 19. Sec. 19(2)(a) provides that
in the absence of any usage or custom of trade to the contrary, the implied
authority of a partner does not empower him to submit a dispute relating
to the business of the firm to arbitration. [545B-C]

2. None of the partners laave entered into the witness box to deny the
B
validity of the contract nor raised any objection that they had not
authorised the partner (Satya Narain) to enter into the contract nor that
they were bound by any acts done by him. When the partner signed the
tender, at that time no other partners raised objection regarding the
signing of the tender by the partner on behalf of the firm. In view of these C
facts it is clear that they ratified the contract. [544 E-FJ

3. The firm had entered into a binding contract with the corporation
and contract contained the arbitration clause which binds the partners.
(544 GJ
D
4. The contract engrafts an arbitration clause and in terms thereof
the dispute .is to be referred to the arbitration. Therefore, the reference
made by the Addi. District Judge under Sec. 20 of the Arbitration Act is
within the jurisdiction and in terms of the contract. [545 DJ

Gopal Das v. Baij Nath & Ors., AIR 1926 Allahabad 238; Finn Rad-
E
hakishan Chwmila/ v. Finn Ashamal Ishardas, AIR 1926 L~hore 92;
Rajendra Prasad v. Pannalal Champa/a/ & Ors, AIR 1932 Calcutta 343;
Mansabdar Khan v. M.T. Allah Devi & Ors., AIR 1934 Lahore 485; Sohan-
ial v. Finn Madhoram Banwarilal, AIR 1952 Punjab 240; and Mis. Alazap-
pa Cotton Mills v. lndo Bunna Trading Corporation, AIR 1976 Madras 79, F
referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1677 of
1984.

From the Judgment and Order dated 7.7.1983 of the Rajasthan High
Court in S.B. Civil Misc. Appeal No. 6 of 1983. G
S.K. Jain, Mrs. Pratibha Jain and Sudhanshu Afreya for the Appel-
lant.

C.K. Sucharita, Y. Prabhakara Rao (N.P.) and Ganpathi Iyer Gopalkrish-
nan for the Respondents. H
544 SUPREME COURT REPORTS (1991) SUPP. 1 S.CR.

A The following Order of the Court was delivered:
This appeal by special leave under Art. 136. of the Constitution is
against the order of the High Court of Rajasthan dated July 7, 1983. The
appellant a partnership firm consists of nine partners of which Satya
Narain is one of the partners. On July 25, 1973 Satya Narain submitted a
B tender to the respondentS offering to supply 1000 quintals of Gram Dal
at the rate of Rs. 185/- per bag. This was accepted by the respondentS. by
letter dated August 28, 1973 followed by confirmation letter by the frrm
on August 31, 1973. It is the case of the respondents that the appellant *~
committed breach of the contract and as a result, the respondents filed
an application under sec. 20 of the Arbitration Act, 1940 (for short as the.
C 'Act') before the District Court for making reference for arbitration in
terms of the contract. The Addi. District Judge after considering the
evidence and the objections allowed the application and referred the dis-
pute for arbitration. Against that order, the appeal was filed and the High
Court confirmed the order of the Addi. District Judge.

D The contention ra~sed by Sri Sushil Kumar Jain, learned counsel for
the appellant is that by operation of Sec. 19(2)(a) of the Indian Partnership
Act, 1932 (for short as the 'Partnership Act') there is no implied authority
given to one of the partners to refer the dispute relating to the business of
the firm for arbitration and therefore the reference made by the court,
pursuant to a contract entered into by Satya Narain on behalf of the firm, is
E without jurisdiction. The High Court found as a fact that none of the
partners have entered into the witness box to deny the validity of the con-
tract nor raised any objection that they had riot authorised Satya Narain to
enter into the contract nor that they were bound by any acts done by him. It
is also found that Satya Narain signed the tender and at that time no other
·partners raised objection regarding the signing of the tender by Satya
F Narain on behalf of the firm. In view of these facts it is clear that they
ratified the contract. It is also further to be noted that. in terms of the
contract, the corporation had appropriated the security deposit made by
the appellant-firm and that was not objected to at any time. This itself
would fortify. the conclusion that the fitm had entered into a binding con-
G tract with the corporation and contract contained the arbitration clause '
which binds the partners. The contention raised that the contract is void
and that in terms of the contract, making a reference is without jurisdiction
bears no substance.

The High Court found that Satya Narain has implied power to con-
H duct business on behalf of the partnership firm and the implied authority

~-
. FLOUR MILL v. F. C. I 545
J>inds all the partners. Sec. 18 of the Partnership Act postulates that "sub- A
__, jec;t to the provisions of the Act a partner is the agent of the firm for the
purposes of the business of the firm". Sec. 19(1) adumbrates that "subject
to the provisions of Sec. 22 the act of the partners which is done to carry
on in the usual way the business of the kind carried on by the firm, binds
the firm". Thus, Satya Narain has implied authority to enter into the con-
tract with the corporation to supply the Dal of 1000 quintals at the con- B
tracted rate which is the usual course of the business of the appellant. Bu.t
it is settled law that the operation of Secs. 18 & 19(1) is subject to the
exceptions engrafted in sub-sec. (2) of Sec. 19. Sec. 19(2)(a) provides that
in the absence of any usage or custom of trade to the contrary, the implied
authority of a partner does not empower him to submit a dispute relating
to the business of the firm to arbitration. Satya Narain has power to do
business on behalf of the firm and in exercise thereof he entered into the C
contract with the corporation during the usual control of business to supply
the Dal. Then crucial question is whether a valid contract which was not
repudiated as per law, binds the other partners? Our answer is yes. It is
not in dispute that the contract engrafts an arbitration clause and in terms
thereof the dispute is to be referred to the arbitration. Therefore, the D
reference made by the Addi. District Judge under Sec. 20 of the Arbitra-
tion Act is perfectly within the jurisdiction and in terms of the contract.
It is not the case of the partners that the firm is not carrying on the business
of the supply of Dal and that Satya Narain, as found by the Trial Court,
was authorised to do business on behalf of the firm.

Under those circumstances, the reference is clearly valid. We do not E
find any illegality to interfere with the order of the High Court.

In this view, the decisions in Gopal Das v. Baij Nath & Ors., AIR
.... ¥ 1926 Allahabad 238; Finn Radlzakisha11 Chun11i/a/ v. Finn Ashamal lshar-
das, AIR 1926 Lahore 91; Raje11dra Prasad v. Pa1111a/al Champa/al & Ors.,
AIR 1932 Calcutta 343; Mansabdar Khan v. M.T. Allah Devi & Ors., AIR F
1934 Lahore 485; Solza11/al v. Finn Madlioram Brmwarilal, AIR 1952 Pun-
jab 240; and Mis Alazappa Cotton Mills v. lndo Bzm11a Trading Corporation,
AIR 1976 Madras 79; cited by learned counsel are of little assistance to
the appellant. In Mis Alazappa Cotton Mills case the original contract does
not contain arbitration clause. In a separate letter with a rubber stamp
(facsimile) of the firm one of the partners agreed for reference to arbitra- G
tion. On those facts it was held that the reference does not bind the other
partners. The appeal is accordingly dismissed. Since we do not call upon
the respondents to argue, there will be no order as to costs.

V.P.R. Appeal dismissed.