Holding

The suit under Section 20 of the Arbitration Act is maintainable as Section 69(3)(a) of the Partnership Act expressly exempts the enforcement of the arbitration clause.

Summary

The appellants, the widow and alleged son of a deceased partner, sought the accounts of an unregistered partnership firm that had dissolved upon the partner's death. They invoked Clause 16 of the partnership deed, which mandated referral of any dispute to named arbitrators, and filed a suit under Section 20 of the Arbitration Act, 1940 to compel such reference. The trial court allowed the suit, but the High Court reversed, holding that Section 69 of the Partnership Act, 1939 barred the application of Section 20 for an unregistered firm. The Supreme Court held that Section 69(3)(a) creates a specific exception allowing enforcement of the right to sue for dissolution, accounts, and property, which includes the right to refer the dispute to arbitration under the deed. Consequently, the suit under Section 20 was deemed maintainable and the trial court was directed to refer the matter to the named arbitrators.

Issues considered

Whether Section 20 of the Arbitration Act, 1940 is maintainable against an unregistered partnership firm under Section 69 of the Partnership Act, 1939.
Whether the exception in Section 69(3)(a) of the Partnership Act permits enforcement of an arbitration clause in the partnership deed.
Whether the right to sue for dissolution and accounts includes the right to refer the dispute to arbitration.

Legislation cited

Arbitration Act, 1940s. 20
Partnership Act, 1939s. 69(1), s. 69(2), s. 69(3)(a)

Subjects

ArbitrationPartnership lawUnregistered partnershipSection 20 Arbitration ActSection 69 Partnership ActEnforcement of arbitration clauseDissolution of partnershipAccounts of dissolved firm

Judgment

A SMT. PREM LATA AND ANR.
v.
~.
MIS ISHAR DASS CHAMAN LAL AND ORS .

.JANUARY 10, 1995

B [K. RAMASWAMY AND SUJATA V. MANOHAR, JJ.)

Arbitration Act, 1940-Section 2(}-Reference to Arbitration provided 'r
for in partnership deed of an unregistered Jinn-Suit under S.20 maintainable.

c Partnership Act, 1939-Section 69(3)-Not an embargo to reference of
disputes to arbitration, if such provision present in the partnership deed of an
unregistered firm.

One ID and his two sons by a partnership deed dated 13.12.65
.constituted an unregistered firm. With the death of the eldest son on 6.3.78.
D the partnership firm stood dissolved. The appellants, the widow and the ... ~
~
~
alleged son of the deceased, called upon the erstwhile partners, the respon-
dents herein, to render the accounts of the firm. The respondents did not
render the accounts and the appellants invoked Clause 16 of the Partner-
ship Deed and called upon them to refer the dispute to the named ar-
E bitrators. Since the respondents refused to refer the dispute the appellants ·
invoked the jurisdiction of the civil court under Section 20 of the Arbitra-
tion Act, 1940.

The Trial Court allowed the suit. In revision, the High Court held

F
that S.69(1)&(3) of the Partnership Act, 1939 excluded the application of -r
S.20 of the Arbitration Act and consequently the application under S.20
for reference to arbitration was not maintainable.

In appeal to this Court, it was contended that S.69(3) (a) carved out
an exception to S.69(1), (2) and main (3). As a result there was no
prohibition for the appellants to invoke Clause 16 of the partnership deed
G to enforce their rights so their application/suit under S.20 of the Arbitra-
tion Act was maintainable. ).\

The respondents contended that 'to sue' as envisaged in S.69(1) and 4
main (3) included an entitlement to enforce the right created under the
H partnership deed and since .the partnership firm was unregistered, the
168
'>-
PREM LATA v. l.D. CHAMAN LAL 169

rights under the deed, namely reference to arbitration under Clause 16, A
was not available. The suit under s.20 of the Arbitration Act was therefore
not maintainable.

Allowing the appeal, this Court

HELD : The alternate resolution forum agreed by the parties i.e. B
reference to private arbitration, was a mode of enforcing the rights given
under s.69(3) (a) of the Act and was an exception to sub-section (1) and (2)
and main part of (3) of s.69. The enforcement included right of reference
to arbitration in terms of Clause 16 of the partnership deed for disputes
and difference arising between the parties. There was no embargo for filing C
an application under s.20 of the Arbitration Act, 1940. The trial court is
directed to refer the dispute to the named arbitrator. [173-G]

Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., [1964] 8 SCR
50, relied on.
D
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5491 of
1985.

From the Judgment and Order dated 7.5.85 of the Punjab & Haryana
High Court in C.R. No. 660of1985.
E
Dhruv Mehta, S.K. Mehta, Aman Vachher and P.N. Puri for the
Appellants.

Satish Chandra, K.B. Rohtagi, S.K. Dhingra and Ms. AparnaRohtagi
for the Respondents.
F
The following Order of the Court was delivered :

Application for substitution is allowed.

This appeal, by special leave, arises from the judgment of the learned
Single Judge of the Punjab and Haryana High Court in Civil Revision No. G
660185, dated May 7, 1985.

M/s. Ishar Das Chaman Lal - partnership firm consists of Ishar Das,
the father, Chaman Lal and O~ Prakash, his sons. By a deed of partnership
dated 13.12.1965, the aforesaid partnership firm was constituted but the
firm was not registered unders s. 69 of the Indian Partnership Act. Chaman H
170 SUPREME COURT REPORTS (1995] 1 S.C.R.

A Lal, the eldest son died on 6.3.1978, by obvious reasons of which the
~-
partnership stood dissolved. By the death of one of the members,,_ it is no
longer possible to adhere to the original contract. The appellants - the
widow and alleged son of the deceased Chaman Lal - called upon the
respondents to render the accounts of the firm. Since they did not do so,
invoking Clause (16) of the partnership deed, the appellants had called
B upon the respondents to refer the dispute to M/s. Tara Chand and Hans
Raj Jain, Income-tax practitioners, the named arbitrators in the contract,
to resolve the dispute: Since the respondents had refused to refer the
dispute, the appellants invoked the jurisdiction of the civil court under s.20
of the Arbitration Act, 1940, for short the Act. The respondents resisted
c the claim contending that since the partnership firm was an unregistered
one, by operation of s.69 of the Partnership Act, the application under s.20
of the Act would not lie. The trial court negatived the contention of the
respondents. But, on appeal and in revision, ultimately, the High Court
held that sub-s. (1) of s.69 and main part of sub-s. (3) of s.69 exclude the
D application of s.20 of the Act and consequently, the suit is not maintainable.
Thus, this appeal, by special leave.

Shri Dhruv Mehta, the learned counsel appearing for the appellants
neatly contended that the appellants are only seeking to enforce the rights
of the parties arising from the dissolution of the firm for rendition of
E accounts of the dissolved firm and to take the property or the rights therein
as per the terms of the contract to which Chaman Lal was entitled to.
Instead of filing a suit, they invok~d the arbitration clause 16 for reference
to resolve the dispute by an alternative resolution forum created by the
parties. Since sub-s. 3(a) of s.69 of the Partnership Act carved out an
F exception to the main part of sub-ss. (1) and (2) of s.69, there is no
prohibition for the appellants to invoke clause 16 of the partnership deed
and that thererfore, the suit filed unders s.20 of the Act is maintainable.

Shri Satish Chandra, the learned Senior counsel for the respondents
G contended that "to sue", as envisaged in sub-s. (1) and main part of sub-s.
(3) of s.69, includes entitlement to enforce the right created under the
contract. Since the partnership firm was an unregistered one, the rights
arising under the contract, namely, reference to the arbitration under
clause 16 of the contract itself is a right to sue under the contract and that
H therefore, the suit under s.20 of the Act is not maintainable.
PREM LATA v. I.D. CHAMAN LAL 171

The question, therefore, is whether the suit filed under s. 20 of the A
Act is maintainable to work out the rights given to the parties under clause
~ (a) to sub-s.(3) of s.69 of the Partnership Act? Section 20 of the Arbitration
Act provides that :

"20. Application to file in Court arbitration agreement. - (1) Where
any persons have entered into an arbitration agreement before the B
institution of any suit with respect to· the subject-matter of the
agreement or any part of it, and where a difference has arisen to
--,I
which the agreement applies, they or any of them, instead of
proceeding under Chapter II, may apply to a Court having juris-
diction in the matter to which the agreement relates, that the c
agreement be filed in court.

(2) xx xx xx x

(3) xx xx xx x
D
(4) x x x x x x x, the Court shall order the agreement to be filed,
and shall make an order of reference to the arbitrator appointed
by the parties, whether in the agreement or otherwise, or, where
the parties cannot agree upon an arbitrator, to an arbitrator
appointed by the Court." E
Clause 16 of the partnership deed provides that :

"16. That any dispute or question in connection with the partner-
ship frrm or this deed shall be referred to arbitration of Shri
Tarachand and Shri Hansraj Jain, Income-tax Practitioner, and F
they shall be the arbitrators on behalf of the parties under the
provision of the Indian Arbitration Act of 1940, or any statutory
modification or re-enactment thereof for the time being in force."

The question, therefore, is whether s.69 prohipits the reference by G
the Court under s.20 of the Act? Section 69(3)(a) of the Partnership Act
reads thus:

"69. Effect of non-registration. -

(1) xx xx H
172 SUPREME COURT REPORTS [1995) 1 S.C.R.

A (2) xx xx

(3) The provisions of sub-ss. (1) and (2) shali apply also to a
claim of set-off or other proceeding to enforce a right arising from
a contract, but shall not affect -

B (a) the enforcement of any right to sue for the dissolution of a
firm or for accounts of a dissolved firm, or any right or power to
realise the property of a dissolved firm; or xx xx xx."

Undoubtedly, s.69(1) prohitits laying the suit to enforce a right arising from
C a contract or conferred by the Act or on behalf of a person suing as a
partner in the firm against the firm or any person alleged to be or to have
. been a partner in the firm. This Court in Jagdish Chander Gupta v. Kajaria
Traders (India) Ltd., [1964) 8 SCR 50, considering the words 'other
proceedings' in sub-s. (3) of s.69, held that the doctrine of ejusdem generis
would not apply and the words 'other proceedings' include the right arising
, D under an arbitration agreement between the parties is a right arising under
the contract. The words 'other proceedings' in sub-s.(3) must receive their
full meaning untramelled by the words 'a claim of set off. The latter words
neither intend nor can be construed to cut down the generality of the words
'other proceedings'. In that case, since the parties sought to avail the
E remedy under s.8 of the Act, this Court held that the words 'other
proceedings' include the proceedings under s.8 of the Act and that, there-
fore, the application would not lie. However, this Court had expressly laid
thus:

"In our judgment, the words 'other proceedings' in s.(3) must
F receive their full meaning untramelled by the words 'a claim of
set-off. The latter words neither intend nor can be construed to
cut down the generality of the words 'other proceedings'. The
sub-section provides for the application of the provisions of sub-ss.
(1) and (2) to claims of set-off and also to other proceedings of
any kind which can properly be said to be for enforcement of any
G right arising from contract except those expressly mentioned as
exceptions in sub-s. (3) and sub-s. (4)."

Thus this Court also had given effect to the exceptions carved out by sub-ss.
(3) and (4) of s.69 of the Partnership Act from the prohibition imposed by
H sub-ss. (1) and (2) and main part of sub-s. (3) even though the firm was
\

>--
PREM LATA v. l.D. CHAMAN LAL 173

not registered under s.69. A

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 B
the right to enforce the arbitration ciause 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.

Indisputably the first appellant is the widow of Chaman Lal - one of C
the partners. Therefore, she steps into the shoes of the deceased partner
who had a right in the dissolved partnership firm. Sub-s. (3)(a) carves out
three exceptions to sub-ss. (1) and (2) of s. 69 and also to the main part
of sub-s. (3) of s. 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 D
right or power to realise the property of the dissolved firm. Having ex-
cluded from the embargo created by the main part of sub-s. (3) of sub-
ss.(1) and (2) of s.69, the right to sue would not again to be construed to
engulf the exceptions carved out by sub-s. (3) or sub-s. (4) of s.69 of the
Act. Any construction otherwise would render the exceptions, legislature
advisedly has carved out in sub-ss. (3) and (4) of s.69, otiose. The object E
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 ~ub-s.{3) are to
enforce those rights including the rights to dissolution of 'the partnership F
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 alterna-
tive resolution forum agreeg by the parties, namely, refe~ence to a private
arbitration is a mode of enforcing the rights given undeT clause (a) of
sub.s{3) of s.69 of the Act and gets excluded from the main'part of sub-s.
(3) and sub-ss. (1) and (2) of s.69. The enforcement of the right to sue for G
disrnlution 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 s.20 of the Act.

It is fairly stated by Shri Satish Chandra that the party can enforce H
174 SUPREME COURT REPORTS [1995) 1 S.C.R.

A 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-s.(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
B maintainable. The High Court has, therefore, committed manifest error of
law in holding otherwise.

The appeal is allowed with costs of Rs. 5,000.

Since we have allowed the appeal, we direct the trial court to send
C the reference immediately to the named arbitrators and we do hope that
the arbitrators would immediately enter upon the reference and decide the
dispute as expeditiously as possible within a period of 6 months from the
date of the receipt of this order as this is a matter pending for long time.

D A.G. Appeal allowed.