Manoj Ranjan Patnaik and ors. Vs. Sangram Keshari Patnaik and ors. - Court Judgment

SooperKanoon Citationsooperkanoon.com/532593
SubjectArbitration
CourtOrissa High Court
Decided OnMay-19-1995
Case NumberMiscellaneous Appeal Nos. 631 and 632 of 1992
JudgeA.K. Padhi, J.
Reported in1995(II)OLR167
ActsArbitration Act, 1940 - Sections 8(2), 20 and 34; Partnership Act - Sections 69
AppellantManoj Ranjan Patnaik and ors.
RespondentSangram Keshari Patnaik and ors.
Appellant AdvocateA. Mukharjee and G. Mukherjee
Respondent AdvocateBijan Ray, C. Choudhury, B. Mohanty, S. Jena, S. Panda, G.B. Jena, M. Kanungo, L. Kanungo, S. Das, K.K. Sahu, B.K. Bal and D. Chhotray in M.A. 631 of 1992 and ;Bijan Ray, C. Choudhury and B. Mohanty i
DispositionAppeal dismissed
Cases ReferredJagdish Chandra Gupta v. Kajaria Traders
Excerpt:
- labour & services pay scale:[tarun chatterjee & r.m. lodha,jj] fixation - orissa service code (1939), rule 74(b) promotion - government servant, by virtue of rule 74(b), gets higher pay than what he was getting immediately before his promotion - circular dated 19.3.1983 modifying earlier circular dated 18.6.1982 resulting in reduction of pay of employee on promotion held, it is not legal. statutory rules cannot be altered or amended by such executive orders or circulars or instructions nor can they replace statutory rules. - section 34 of the arbitration act reads as follows :power to stay legal proceedings where there is an arbitration agreement -where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ;and if satisfied that there is no sufficient reason why the matter' should not be referred to in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains ready and willing to do all things necessary to the proper conduct of arbitration, such authority may, make an order staying the proceedings. ' the order under section 34 of the arbitration act is a discretionary one and the court is to grant stay of the suit when it is satisfied that all the disputes between the parties can be resolved under an arbitration proceeding. this point had come up before the apex court as well as some high courts for consideration. we regret our inability to accept that argumentes well. it is well established that, if the language of any provision of law is clear, the mere fact that it causes hardship to any particular party can be no ground to interpret it in a manner not consistent with the language thereof .in passing we may add that we also do not agree with the learned counsel for the appellants that, if we interpret section 69(3) in the manner proposed above, the appellants would be left without any remedy.a.k. padhi, j. 1. both these miscellaneous appeals are interlinked and the parties are same. therefore, they are disposed of by this common judgment.2. in misc. appeal no. 631 of 1992 the order dated 29-8-1992 passed in 0. s. no. 129 of 1992 staying the suit under section 34 of the arbitration act, 1940 is under challenge. in misc. appeal no. 632,of 1992 the order dated 29-8-1992 passed in misc. case. no. 239 of 1992 arising out of os no. 129 of 1992 under order 39, rules 1 and 2, cpc is under challenge. 3. the facts which are necessary for adjudication of both the appeals are as follows : an unregistered partnership firm was constituted for trade of foreign liquor and beer with the name and a style 'madhuban in the year 1974 which was reconstituted on 26-12-1974. on 1-10-1976 the firm was again reconstituted of which plaintiffs 1 to 4 and defendants 1 to 4 were partners. in the year 1990 difference arose between the partners and on 22-10-1990 the partnership firm was dissolved. it is the case of the plaintiffs that defendant no. 1 taking advantage of the fact that he was the managing partner of the firm carried on business in. the firm named 'madhuban' till 31-3-1991 and thereafter is carrying on business in the same premises which was constructed and owned by all the partners of the dissolved firm in the name and style 's.k. patnaik'. accounts have not yet been settled between the partners. defendants 1 to 4 induced plaintiffs 1 to 3 to agree for settlement of the disputes by appointing defendants 5 and 6 as arbitrators. plaintiffs 1 to 3 and defendants participated in the arbitration proceeding which was conducted by defendants 5 and 6. plaintiff no. 4 never consented to the said proceeding. challenging the arbitration proceeding, plaintiffs filed os no... 129 of 1992 with the following prayers : '(1) let a decree for rendition of accounts directing defendant no. 1 to render up-to-date accounts of the dissolved partner-ship firm madhuban be passed within a time to be fixed by the court, and in case defendant no. 1 fails to render accounts within the time so fixed, let a commissioner be appointed by the court to examine the account of the assets and liabilities of the dissolved partnership firm madhuban. (2) let a decree be passed directing defendant no. 1 to distribute the assets and liabilities of the dissolved partnership firm ' madhuban' amongst all the partners according to their respective shares and in case he fails to do so within a time to be fixed by court the plaintiffs may be allowed to recover the dues with pendete lite and future interest at the rate of 10% per annum from defendant no. 1. (3) let a decree be passed restraining the defendants from carrying on the business in india made foreign liquor and beer and restraining the defendants from using the schedule-a property and the unexhausted stock in trade until the affairs of the dissolved firm of 1986 have been completely wound up. (4) let the defendants be directed to produce all the books of accounts up-to-date. (5) let a decree be passed declaring that the arbitration proceeding conducted by defendants 5 and 6 is void ab initio and is of no consequence at all. (6) let any other relief or reliefs to which the plaintiffs may be found entitled be decreed in their favour. (7) let cost of the suit be decree against the defendants.' 4. during pendency of the suit plaintiffs also filed an application praying for restraining the defendants from carrying on the business in the premises of the dissolved firm which was registered as misc. case no. 239 of 1992. the defendants on notice filed an application for stay of the suit stating that the suit should be stayed in view of section 34 of the arbitration act there being an arbitration clause (clause--13) in the agreement between the parties. by order dated 29-8-1992 the trial court came to the conclusion that since the parties had agreed to arbitrate the matter, the suit should not proceed and, therefore, stayed the further proceedings of the suit. in misc. case no. 239 of 1992 filed under, order 39 rules 1 and 2, cpc trial court came to the conclusion that since the suit cannot proceed the application for injunction which has been filed in the suit cannot proceed,5. challenging the aforesaid orders, counsel for the appellants submitted:(a) since no arbitration proceeding is maintainable in respect of an unregistered firm as per the ratio of the decision reported in air 1964 sc 1882(jagdish chandra gupta v. kajaria traders (india) ltd., the trial court should not have stayed the suit. defendants 5 and 6 have not been appointed as per the arbitration clause or by consent of all the parties. plaintiff no. 4 amita patnaik who was one of the partners had not given her consent to the appointment of defendants 5 and 6 as arbitrators. therefore, the arbitration prodeeding not being in consonance with clause-13 of the agreement, cannot proceed. (b) plaintiff no. 1 had filed an application under section 8(2) of the arbitration act, for appointment of arbitrator' as per the agreement which was registered as misc. case. no. 116 of 1992. said application for appointment of arbitrator was resisted by defendants. the subordinate judge allowed the application of the plaintiff directing appointment of arbitrator to resolve the disputes between the parties regarding rendition of accounts, distribution of share capital and profits arising out of the business of the dissolved firm. against the order of the subordinate. judge, defendant no. 1 filed misc. appeal no. 15 of 1992 which was allowed on 24-4-1992 by the additional district judge, bhubaneswar holding therein that since the dissolved firm was an unregistered one, application under section 8(2) of the arbitration act was not maintainable on account of the bar under section 69(3) of the partnership act, 1932. there being a decision of the additional district judge in misc. appeal no. 15/92, which is inter-parties, it operates as resjudicata. as application under section 8(2) of the arbitration act was rejected, plaintiffs filed os no. 129 of 1992. among other prayers the main prayers of the suit are rendition of accounts and distribution of assets of the dissolved firm. such suit could not have been stayed as the arbitration proceeding is void ab initio and without jurisdiction. the plaintiffs have no alternative remedy in view of the decision of the additional district judge passed in misc. appeal no. 15 of 1992 and the application for stay does not fulfil the condition prescribed as has been mandated by the apex court in air 1955 sc 53 (andarson wright ltd. v. moran and co.) 6. counsel for the respondents on the other hand submitted:(a) since as per the agreement between the parties differences between the partners are to be resolved by an arbitration proceeding which is continuing the suit is to be stayed under section 34 of the arbitration act even if the appellate court has held the proceeding under section 8(2) of the arbitration act as not maintainable, the plaintiffs have not other remedies under the arbitration act. therefore, without resorting to the other proceeding as prescribed under the arbitration act. the suit cannot proceed as the main prayer in the suit is to declare the arbitration proceeding as null and void. (b) plaintiffs 1, 2 and 3 have directly participated in the arbitration proceeding and, therefore have submitted to the jurisdiction of the arbitrators. plaintiff no. 4 had impliedly submitted to the jurisdiction of the arbitrators. therefore, it is no more available to the plaintiffs to contend that the appointment of the arbitrators was void ab initio. 7. from the rival contentions of both the parties, the moot questions which arise for consideration are :(1) whether plaintiff no. 4 had submitted to the jurisdiction of the arbitrators, therefore, cannot challenge the arbitration proceeding ? (2) in view of clause-13 of the agreement between the partners of the unregistered partnership firm, whether the suit is to be stayed under section 34 of the arbitration act ? (6) whether plaintiff no. 1 has got any other alternative remedy under the arbitration act in view of the fact that the dissolved firm was an unregistered one and the decision of the appellate court passed in misc. appeal no. 15 of 1992 holding that proceeding under section 8(2) of the arbitration act is not maintainable. 8. question no. 1 :from the. records it is clear that at no point of time either directly or impliedly plaintiff no. 4 had submitted to the jurisdiction of the arbitrators. after getting notice from the arbitrators she appeared through counsel and filed objection stating therein that the arbitrators so appointed were not competent to arbitrate the disputes as they had not been appointed in accordance with clause-13 of the agreement. consent by the other partners cannot be taken to be her consent either directly or indirectly as she was one of the partners. therefore, the contention that plaintiff no. 4 had submitted to the jurisdiction of the arbitrators is not sustainable. though plaintiff nos. 1 to 3 and other defendants had submitted to the jurisdiction of the arbitrators plaintiff no. 4 had never submitted to the jurisdiction of the arbitrators.9. point nos. 2 and 3 :these points are inter-linked and are taken up together for consideration. in order to decide these questions, relevant portion of clause-13 of the agreement is quoted below:'that in case of difference between the partners on matters arising out (of 7) the business of the firm the matters if not mutually resolved between the partners shall be referred to a local arbitrator in common agreement and in such event the decision of the arbitrator on issues shall be final and biding on the partners and their legal heirs and successors.'it is clear that the disputes between the parties and also the prayers which are now made in the suit are also capable of being decided by an arbitrator as per the agreement between the parties. question arises as to whether the suit is to be stayed under section 34 of the arbitration act. section 34 of the arbitration act reads as follows :'power to stay legal proceedings where there is an arbitration agreement -where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ; and if satisfied that there is no sufficient reason why the matter' should not be referred to in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains ready and willing to do all things necessary to the proper conduct of arbitration, such authority may, make an order staying the proceedings.'the order under section 34 of the arbitration act is a discretionary one and the court is to grant stay of the suit when it is satisfied that all the disputes between the parties can be resolved under an arbitration proceeding.10. in the case at hand the dissolved firm was an unregistered one and therefore provisions of section 69 of the indian partnership act, 1932. are applicable. therefore, it has to be seen whether any of the partners of the dissolved firm has got any remedy under the arbitration act. this point had come up before the apex court as well as some high courts for consideration.in air 1964 sc 1882 (jagdish chandra gupta v. kajaria traders (india) ltd. ) (supra), question arose as to whether a partner of an unregistered firm can enforce the arbitration clause of an agreement under section 8(2) of the arbitration act. their lordships of the . apex court have opined as follows :'in our judgment, the words 'other proceeding' in sub-section (3) must receive their full meaning untrammelled 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 proceeding'. the sub-section . provides for the application of the provisions of sub-sections,(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 right arising from contract except those expressly mentioned as exceptions in sub-section(3) and sub-section (4).'in air 1976 allahabad-19. (smt. rama devi and ors. v. bishambar nath puri and ors.), their lordships opined that any of the partners 6f the unregistered firm cannot under. section 20 of the arbitration act move the court to enforce the arbitration clause.in air 1977 allahabad 352 (iqbal singh and ors. v. ram narain and ors.), their lordships were, called upon to decide as to whether a proceeding under section 20 of the arbitration act was maintainable to settle accounts, by a partner of a dissolved firm which was an unregistered one. their lordships have observed as follows:learned counsel for the appellants also urged, that, if we take the above view of the provisions contained in section 69(3) of the partnership, act. it would leave the appellants without any remedy whatsoever. it was urged that this could never be the: intention of the legislature. learned counsel further urged that the decision of this court in p.a.f.o.no. 19 of 1961 (ail), therefore requires reconsideration. we regret our inability to accept that argumentes well. it is well established that, if the language of any provision of law is clear, the mere fact that it causes hardship to any particular party can be no ground to interpret it in a manner not consistent with the language thereof ...... in passing we may add that we also do not agree with the learned counsel for the appellants that, if we interpret section 69(3) in the manner proposed above, the appellants would be left without any remedy. in the case of smt. rampa devi v. bishambhar nath (air 1976 all. 19) the appellants first filed an application under section 20 of the arbitration act, which was dismissed as barred by section 69(3) of the partnership act. the appellants then fifed a suit for rendition of accounts. the respondents then filed an application under section 34 of the arbitration act, and thereupon the suit was stayed, the : plaintiffs then came up in appeal before this court and the court held that the suit being for rendition of accounting was not hit by section 69 of the partnership act.' in 42(1976) clt 238(sri laxmi narayan padhi v. sri bhaskar panda, his lordship while considering the scope and ambit of section 69(3) of the partnership act vis-a-vis section 20 of the arbitration act. has opined that sub-section (3) is not. applicable to arbitration proceeding. 'other proceeding' are saved from the purview of section 69(3).in 1995 air scw 505-1995 (2) scc 145 (smt. premalata and anr. v. m/s. ishar dass chaman lal and ors.) the relevant facts are as follows : that an unregistered partnership firm by the name and style ishar dass chaman lai was constituted in the year 1965 and in the year 1978 the firm was dissolved, 'thereafter the partners of the dissolved firm called upon the other partners to render accounts of the firm. since the respondents of that case did not render accounts and as clause-16 of the agreement of that partnership deed provided for settlement of disputes by arbitration proceeding, the. appellants of that decided case called upon the respondents to refer the matter to the named arbitrators to resolve the disputes. since the respondents refused to resolve the disputes, the appellants invoked the jurisdiction of the civil court under section 20 of the arbitration act. the respondents resisted the claim contending that since the partnership firm was an unregistered one by operation of the bar under section 69 of the partnership act, the application under section 20 of the arbitration act would not lie. the trial court negatived the contention of the respondents and allowed the suit. on appeal the high court held that the suit was not maintainable. challenging the order of the high court, special leave application was filed in the apex court. considering section 69(3) of the partnership act and section 20 of the arbitration act and the ratio of air 1964 sc 1882 (supra), their lordships held as follows :'undoubtedly, section 69(1) prohibits laying the suit to enforce a right arising from a contract or conferred by the act by 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 chandra gupta v. kajaria traders (india) ltd., (1964) 9 scr 50 : (air 1964 sc 1882) considering the words other proceeding' in sub-section (3) of section 69, held that the doctrine of ejusdem generis would not apply and the words 'other proceedings' include the right arising under an arbitration agreement between the parties is a right arising under the contract. the words other proceeding' in sub-section (3) must receive their full meaning untrammelled 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 remedy under section 8 of the act, this court held that the words 'other proceedings' include the proceedings under section 8 of the act and that, therefore, the application would not lie, however this court had expressly laid thus (at p. 1886 of air). 'in our judgment, the words other proceedings' in section 8 must receive their full meaning untrammolled by the words in 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-section (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 right arising from contract except those expressly mentioned as exceptions in sub-section (3) and sub-section(4). thus this court also had given effect to the exceptions carved out by sub-sections (3) and (4) of section 69 of the partnership act from the prohibition imposed by sub-sections (1) and (2)and main part of section (3) even though the firm was not registered under section 69. xxx xxx xxx xx xx 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 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 tata. when that is permissible by an exception carved out by sub-section (3)(a) to section 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 section 20 of the act. thus considered, we are of the view that the suit under section 20 of the act is maintainable. the high court has therefore, committed manifest error of law in holding otherwise.' this decision is squarely applicable to the case at hand. in the agreement it is provided that the disputes and differences, if any, between the parties relating to partnership firm are to be referred to a sole arbitrator appointed with the consent of the parties. if the arbitration proceeding is not in accordance with the arbitration clause, any of the parties can proceed in accordance with the provisions of the arbitration act. maintainability of the arbitration proceeding can be challenged in the proper form. the parties have also the remedy under sec, 20 of the arbitration act.11. in the circumstances, i do not find any infirmity in the judgments of the court below in holding that the suit is to be stayed as per provisions of section 34 of the arbitration act end if the suit is to be stayed, the application under order 39, rules 1 and 2,cpc-cannot be decided.12. in the result, both the appeals have no merit end are hereby dismissed. in the circumstances of the case, there shall be no order as to costs.
Judgment:

A.K. Padhi, J.

1. Both these Miscellaneous Appeals are interlinked and the parties are same. Therefore, they are disposed of by this common Judgment.

2. In Misc. Appeal No. 631 of 1992 the order dated 29-8-1992 passed in 0. S. No. 129 of 1992 staying the suit under Section 34 of the Arbitration Act, 1940 is under challenge. In Misc. Appeal No. 632,of 1992 the order dated 29-8-1992 passed in Misc. Case. No. 239 of 1992 arising out of OS No. 129 of 1992 under Order 39, Rules 1 and 2, CPC is under challenge.

3. The facts which are necessary for adjudication of both the appeals are as follows :

An unregistered partnership firm was constituted for trade of foreign liquor and beer with the name and a style 'Madhuban in the year 1974 which was reconstituted on 26-12-1974. On 1-10-1976 the firm was again reconstituted of which plaintiffs 1 to 4 and defendants 1 to 4 were partners. In the year 1990 difference arose between the partners and on 22-10-1990 the partnership firm was dissolved. It is the case of the plaintiffs that defendant No. 1 taking advantage of the fact that he was the Managing partner of the firm carried on business in. the firm named 'Madhuban' till 31-3-1991 and thereafter is carrying on business in the same premises which was constructed and owned by all the partners of the dissolved firm in the name and style 'S.K. Patnaik'. Accounts have not yet been settled between the partners. Defendants 1 to 4 induced plaintiffs 1 to 3 to agree for settlement of the disputes by appointing defendants 5 and 6 as arbitrators. Plaintiffs 1 to 3 and defendants participated in the arbitration proceeding which was conducted by defendants 5 and 6. Plaintiff No. 4 never consented to the said proceeding. Challenging the arbitration proceeding, plaintiffs filed OS No... 129 of 1992 with the following prayers :

'(1) Let a decree for rendition of accounts directing defendant No. 1 to render up-to-date accounts of the dissolved partner-ship firm Madhuban be passed within a time to be fixed by the Court, and in case defendant No. 1 fails to render accounts within the time so fixed, let a Commissioner be appointed by the Court to examine the account of the assets and liabilities of the dissolved partnership firm Madhuban.

(2) Let a decree be passed directing defendant No. 1 to distribute the assets and liabilities of the dissolved partnership firm ' Madhuban' amongst all the partners according to their respective shares and in case he fails to do so within a time to be fixed by Court the plaintiffs may be allowed to recover the dues with pendete lite and future interest at the rate of 10% per annum from defendant No. 1.

(3) Let a decree be passed restraining the defendants from carrying on the business in India Made Foreign Liquor and Beer and restraining the defendants from using the Schedule-A property and the unexhausted stock in trade until the affairs of the dissolved firm of 1986 have been completely wound up.

(4) Let the defendants be directed to produce all the Books of Accounts up-to-date.

(5) Let a decree be passed declaring that the arbitration proceeding conducted by defendants 5 and 6 is void ab initio and is of no consequence at all.

(6) Let any other relief or reliefs to which the plaintiffs may be found entitled be decreed in their favour.

(7) Let cost of the suit be decree against the defendants.'

4. During pendency of the suit plaintiffs also filed an application praying for restraining the defendants from carrying on the business in the premises of the dissolved firm which was registered as Misc. Case No. 239 of 1992. The defendants on notice filed an application for stay of the suit stating that the suit should be stayed in view of Section 34 of the Arbitration Act there being an arbitration clause (Clause--13) in the agreement between the parties. By order dated 29-8-1992 the trial Court came to the conclusion that since the parties had agreed to arbitrate the matter, the suit should not proceed and, therefore, stayed the further proceedings of the suit. In Misc. Case No. 239 of 1992 filed under, Order 39 Rules 1 and 2, CPC trial Court came to the conclusion that since the suit cannot proceed the application for injunction which has been filed in the suit cannot proceed,

5. Challenging the aforesaid orders, counsel for the appellants submitted:

(a) Since no arbitration proceeding is maintainable in respect of an unregistered firm as per the ratio of the decision reported in AIR 1964 SC 1882(Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., the trial Court should not have stayed the suit. Defendants 5 and 6 have not been appointed as per the arbitration clause or by consent of all the parties. Plaintiff No. 4 Amita Patnaik who was one of the partners had not given her consent to the appointment of defendants 5 and 6 as arbitrators. Therefore, the arbitration prodeeding not being in consonance with Clause-13 of the agreement, cannot proceed.

(b) Plaintiff No. 1 had filed an application under Section 8(2) of the Arbitration Act, for appointment of arbitrator' as per the agreement which was registered as Misc. Case. No. 116 of 1992. Said application for appointment of arbitrator was resisted by defendants. The Subordinate Judge allowed the application of the plaintiff directing appointment of arbitrator to resolve the disputes between the parties regarding rendition of accounts, distribution of share capital and profits arising out of the business of the dissolved firm. Against the order of the Subordinate. Judge, defendant No. 1 filed Misc. Appeal No. 15 of 1992 which was allowed on 24-4-1992 by the Additional District Judge, Bhubaneswar holding therein that since the dissolved firm was an unregistered one, application under Section 8(2) of the Arbitration Act was not maintainable on account of the bar under Section 69(3) of the Partnership Act, 1932. There being a decision of the Additional District Judge in Misc. Appeal No. 15/92, which is inter-parties, it operates as resjudicata. As application under Section 8(2) of the Arbitration Act was rejected, plaintiffs filed OS No. 129 of 1992. Among other prayers the main prayers of the suit are rendition of accounts and distribution of assets of the dissolved firm. Such suit could not have been stayed as the arbitration proceeding is void ab initio and without jurisdiction. The plaintiffs have no alternative remedy in view of the decision of the Additional District Judge passed in Misc. Appeal No. 15 of 1992 and the application for stay does not fulfil the condition prescribed as has been mandated by the Apex Court in AIR 1955 SC 53 (Andarson Wright Ltd. v. Moran and Co.)

6. Counsel for the respondents on the other hand submitted:

(a) Since as per the agreement between the parties differences between the partners are to be resolved by an arbitration proceeding which is continuing the suit is to be stayed under Section 34 of the Arbitration Act Even if the appellate Court has held the proceeding under Section 8(2) of the Arbitration Act as not maintainable, the plaintiffs have not other remedies under the Arbitration Act. Therefore, without resorting to the other proceeding as prescribed under the Arbitration Act. the suit cannot proceed as the main prayer in the suit is to declare the arbitration proceeding as null and void.

(b) Plaintiffs 1, 2 and 3 have directly participated in the arbitration proceeding and, therefore have submitted to the jurisdiction of the arbitrators. Plaintiff No. 4 had impliedly submitted to the jurisdiction of the arbitrators. Therefore, it is no more available to the plaintiffs to contend that the appointment of the arbitrators was void ab initio.

7. From the rival contentions of both the parties, the moot questions which arise for consideration are :

(1) Whether plaintiff No. 4 had submitted to the jurisdiction of the arbitrators, therefore, cannot challenge the arbitration proceeding ?

(2) In view of Clause-13 of the agreement between the partners of the unregistered partnership firm, whether the suit is to be stayed under Section 34 of the Arbitration Act ?

(6) Whether plaintiff No. 1 has got any other alternative remedy under the Arbitration Act in view of the fact that the dissolved firm was an unregistered one and the decision of the appellate Court passed in Misc. Appeal No. 15 of 1992 holding that proceeding under Section 8(2) of the Arbitration Act is not maintainable.

8. Question No. 1 :

From the. records it is clear that at no point of time either directly or impliedly plaintiff No. 4 had submitted to the jurisdiction of the arbitrators. After getting notice from the arbitrators she appeared through counsel and filed objection stating therein that the arbitrators so appointed were not competent to arbitrate the disputes as they had not been appointed in accordance with Clause-13 of the agreement. Consent by the other partners cannot be taken to be her consent either directly or indirectly as she was one of the partners. Therefore, the contention that plaintiff No. 4 had submitted to the jurisdiction of the arbitrators is not sustainable. Though plaintiff Nos. 1 to 3 and other defendants had submitted to the jurisdiction of the arbitrators plaintiff No. 4 had never submitted to the jurisdiction of the arbitrators.

9. Point Nos. 2 and 3 :

These points are inter-linked and are taken up together for consideration. In order to decide these questions, relevant portion of Clause-13 of the agreement is quoted below:

'That in case of difference between the partners on matters arising out (of 7) the business of the firm the matters if not mutually resolved between the partners shall be referred to a local arbitrator in common agreement and in such event the decision of the arbitrator on issues shall be final and biding on the partners and their legal heirs and successors.'

It is clear that the disputes between the parties and also the prayers which are now made in the suit are also capable of being decided by an arbitrator as per the agreement between the parties. Question arises as to whether the suit is to be stayed under Section 34 of the Arbitration Act. Section 34 of the Arbitration Act reads as follows :

'Power to stay legal proceedings where there is an arbitration agreement -Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings ; and if satisfied that there is no sufficient reason why the matter' should not be referred to in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains ready and willing to do all things necessary to the proper conduct of arbitration, such authority may, make an order staying the proceedings.'

The order under Section 34 of the arbitration Act is a discretionary one and the Court is to grant stay of the suit when it is satisfied that all the disputes between the parties can be resolved under an arbitration proceeding.

10. In the case at hand the dissolved firm was an unregistered one and therefore provisions of Section 69 of the Indian Partnership Act, 1932. are applicable. Therefore, it has to be seen whether any of the partners of the dissolved firm has got any remedy under the Arbitration Act. This point had come up before the Apex Court as well as some High Courts for consideration.

In AIR 1964 SC 1882 (Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd. ) (supra), question arose as to whether a partner of an unregistered firm can enforce the arbitration clause of an agreement under Section 8(2) of the Arbitration Act. Their Lordships of the . Apex Court have opined as follows :

'In our Judgment, the words 'other proceeding' in Sub-section (3) must receive their full meaning untrammelled 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 proceeding'. The Sub-section . provides for the application of the provisions of Sub-sections,(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 right arising from contract except those expressly mentioned as exceptions in Sub-section(3) and Sub-section (4).'

In AIR 1976 Allahabad-19. (Smt. Rama Devi and Ors. v. Bishambar Nath Puri and Ors.), their Lordships opined that any of the partners 6f the unregistered firm cannot under. Section 20 of the Arbitration Act move the Court to enforce the arbitration clause.

In AIR 1977 Allahabad 352 (Iqbal Singh and Ors. v. Ram Narain and Ors.), their Lordships were, called upon to decide as to whether a proceeding under Section 20 of the Arbitration Act was maintainable to settle accounts, by a partner of a dissolved firm which was an unregistered one. Their Lordships have observed as follows:

Learned counsel for the appellants also urged, that, if we take the above view of the provisions contained in Section 69(3) of the Partnership, Act. it would leave the appellants without any remedy whatsoever. It was urged that this could never be the: intention of the legislature. Learned counsel further urged that the decision of this Court in P.A.F.O.No. 19 of 1961 (AIL), therefore requires reconsideration. We regret our inability to accept that argumentes well. It is well established that, if the language of any provision of law is clear, the mere fact that it causes hardship to any particular party can be no ground to interpret it in a manner not consistent with the language thereof ......

In passing we may add that we also do not agree with the learned counsel for the appellants that, if we interpret Section 69(3) in the manner proposed above, the appellants would be left without any remedy. In the case of Smt. Rampa Devi v. Bishambhar Nath (AIR 1976 All. 19) the appellants first filed an application under Section 20 of the Arbitration Act, which was dismissed as barred by Section 69(3) of the Partnership Act. The appellants then fifed a suit for rendition of accounts. The respondents then filed an application under Section 34 of the Arbitration Act, and thereupon the suit was stayed, The : plaintiffs then came up in appeal before this Court and the Court held that the suit being for rendition of accounting was not hit by Section 69 of the Partnership Act.'

In 42(1976) CLT 238(Sri Laxmi Narayan Padhi v. Sri Bhaskar Panda, his Lordship while considering the scope and ambit of Section 69(3) of the Partnership Act vis-a-vis Section 20 of the Arbitration Act. has opined that Sub-section (3) is not. applicable to arbitration proceeding. 'Other proceeding' are saved from the purview of Section 69(3).

In 1995 AIR SCW 505-1995 (2) SCC 145 (Smt. Premalata and Anr. v. M/s. Ishar Dass Chaman Lal and Ors.) the relevant facts are as follows :

That an unregistered partnership firm by the name and style Ishar Dass Chaman Lai was constituted in the year 1965 and in the year 1978 the firm was dissolved, 'Thereafter the partners of the dissolved firm called upon the other partners to render accounts of the firm. Since the respondents of that case did not render accounts and as Clause-16 of the agreement of that partnership deed provided for settlement of disputes by arbitration proceeding, the. appellants of that decided case called upon the respondents to refer the matter to the named arbitrators to resolve the disputes. Since the respondents refused to resolve the disputes, the appellants invoked the jurisdiction of the Civil Court under Section 20 of the Arbitration Act. The respondents resisted the claim contending that since the partnership firm was an unregistered one by operation of the bar under Section 69 of the Partnership Act, the application under Section 20 of the Arbitration Act would not lie. The trial Court negatived the contention of the respondents and allowed the suit. On appeal the High Court held that the suit was not maintainable. Challenging the order of the High Court, special Leave Application was filed in the Apex Court. Considering Section 69(3) of the Partnership Act and Section 20 of the Arbitration Act and the ratio of AIR 1964 SC 1882 (supra), their Lordships held as follows :

'Undoubtedly, Section 69(1) prohibits laying the suit to enforce a right arising from a contract or conferred by the Act by 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 Chandra Gupta v. Kajaria Traders (India) Ltd., (1964) 9 SCR 50 : (AIR 1964 SC 1882) considering the words other proceeding' in Sub-section (3) of Section 69, held that the doctrine of ejusdem generis would not apply and the words 'other proceedings' include the right arising under an arbitration agreement between the parties is a right arising under the contract. The words other proceeding' in Sub-section (3) must receive their full meaning untrammelled 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 remedy under Section 8 of the Act, this Court held that the words 'other proceedings' include the proceedings under Section 8 of the Act and that, therefore, the application would not lie, However this Court had expressly laid thus (at p. 1886 of AIR).

'In our Judgment, the words other proceedings' in Section 8 must receive their full meaning untrammolled by the words in 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-section (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 right arising from contract except those expressly mentioned as exceptions in Sub-section (3) and Sub-section(4).

Thus this Court also had given effect to the exceptions carved out by Sub-sections (3) and (4) of Section 69 of the Partnership Act from the prohibition imposed by Sub-sections (1) and (2)and main part of Section (3) even though the firm was not registered under Section 69.

XXX XXX XXX xx xx 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 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 tata. When that is permissible by an exception carved out by Sub-section (3)(a) to Section 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 Section 20 of the Act. Thus considered, we are of the view that the suit under Section 20 of the Act is maintainable. The High Court has therefore, committed manifest error of law in holding otherwise.'

This decision is squarely applicable to the case at hand. In the agreement it is provided that the disputes and differences, if any, between the parties relating to partnership firm are to be referred to a sole arbitrator appointed with the consent of the parties. If the arbitration proceeding is not in accordance with the arbitration clause, any of the parties can proceed in accordance with the provisions of the Arbitration Act. Maintainability of the arbitration proceeding can be challenged in the proper form. The parties have also the remedy under Sec, 20 of the Arbitration Act.

11. In the circumstances, I do not find any infirmity in the Judgments of the Court below in holding that the suit is to be stayed as per provisions of Section 34 of the Arbitration Act end if the suit is to be stayed, the application under Order 39, Rules 1 and 2,CPC-cannot be decided.

12. In the result, both the appeals have no merit end are hereby dismissed. In the circumstances of the case, there shall be no order as to costs.