SMT. PREM LATA & ANR Vs. M/S. ISHAR DASS CHAMAN LAL & ORS.

Supreme Court of India
Smt. Prem Lata & Anr vs M/S. Ishar Dass Chaman Lal & Ors on 10 January, 1995

Author: K Ramaswamy
Bench: Ramaswamy, K.

SMT. PREM LATA & ANR.                                                                                                   …PETITIONER:
Vs.

M/S. ISHAR DASS CHAMAN LAL & ORS.                                                                       ..RESPONDENT:

DATE OF JUDGMENT 10/01/1995

BENCH:
RAMASWAMY, K.
MANOHAR SUJATA V. (J)
CITATION:

ACT:
HEADNOTE:
JUDGMENT:
ORDER
1. Application for substitution is allowed.
2. 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.660/85, dated May 7,1985.
3. M/s. Ishar Das Chaman Lal partnership firm consists of Ishar Das, the father, Chaman Lal and
Om Prakash, his sons. By a deed of partnership dated 13.12.965 the aforesaid partnership firm was
constituted but the firm was not registered under s.69 of the Indian Partnership Act. Chaman Lal,
the eldest son died 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
Smt. Prem Lata & Anr vs M/S. Ishar Dass Chaman Lal & Ors on 10 January, 1995

render the accounts of the firm. Since they did no do so, invoking Clause (16) of the partnership
deed, the appellants had called 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 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 application
of s.20 of the Act and consequently, the suit is not maintainable. Thus, this ap- peal, by special leave.
4. Shri Dhruv Mehta, the learned counsel appearing for the appellants neatly contended that the
appellants arc only seeking to enforce the rights of the parties arising from the dissolution of the
firm for rendition of accounts of the dissolved firm and to take the property or the rights therein as
per the terms of tic contract to which Chaman Lal was entitled to. Instead of filing a suit they
invoked 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 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 therefore, the suit filed under s.20 of the Act is
maintainable.
5. Shri Satish Chandra, the learned Senior counsel for the respondents 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 content and that therefore, the suit under s.20 of the Act is not maintainable.
6. The question, therefore, is whether the suit filed under s.20 of the 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 have entered
into an arbitration agreement before the 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
which the agreement applies, they or any of them instead of proceeding under
Chapter II, may apply to a Court having jurisdiction the be filed in court (2) xxxxxx
(3)xxxxxx (4)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.”
Clause 16 of the partnership deed provide that:
Smt. Prem Lata & Anr vs M/S. Ishar Dass Chaman Lal & Ors on 10 January, 1995
2
” 16. That any dispute or question in connection with the partnership firm or this
deed shall be referred to arbitration of Shri Tara chand and Shri Hansraj Jain,
Income-tax Practitioner, and they shall be the arbitrators on behalf of the panics
under the provision of the Indian Arbitration Act of 1940, or any statutory
modification or re- enactment thereof for the time being in force.”
7. The question, therefore, is whether s.69 prohibits the reference by the Court under
s.20 of the Act? Section 69(3)(a) of the Partnership Act reads thus:
“69. Effect of non-registration. — (1)x x x (2) x x x (3) The provisions of sub-ss. (1)
and (2) shall apply also to a claim of set-off or other proceeding to enforce a right
arising from a contract, but shall not affect –
(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 x
x x x x x. ”
Undoubtedly, s.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. Ibis 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 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 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, therefore, the application would not lie. How ever, this Court had
expressly laid thus:
“In our judgment, the words ‘other pro- ceedings’ in 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’. 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 en- forcement of any 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 sub-ss. (1) and (2) and main part of sub-s.(3) even
though the firm was not registered under s.69.
8.It is seen that with the demise of the partners, ipso facto, the partnership stood dissolved. What
the legal representatives of the deceased partner, is seeking to enforce is for accounts of a dissolved
Smt. Prem Lata & Anr vs M/S. Ishar Dass Chaman Lal & Ors on 10 January, 1995
3
firm or any right or power to realise the property of the dissolved firm. The right ‘to sue’ for the
dissolution of the firm must, of necessity, be interpreted to mean the right to enforce the arbitration
clause for resolution of the disputes relating to dissolved firm or for rendition of accounts or any
right or power to realise the property of the dissolved firm.
9. Indisputably the first appellant is the widow of Chaman Lal one of the partners. Therefore, she
steps into the shoes of the deceased partner who had a right in the dissolved partnership firm.
Sub-s.(3)(a) carves out three exceptions to sub-s.(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 right or power to realise the property of the dissolved Ems
Having excluded from the embargo created by the main part of sub-s.(3) or sub-s.(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
subs.(4) of s.69 of the Act. Any construction otherwise would render the exceptions, legislature
advisedly has carved out in subss.(3) and (4) of s.69, otiose. The object appears to be that the
partnership having been dissolved or has come to a terminus, the rights of the parties are to be
worked out in terms of the contract of the partnership entered by and between the partners and the
rights engrafted therein. The exceptions carved out by sub- s.(3) are to enforce those rights
including the rights to dissolution of the partnership despite the fact that the partnership firm was
an unregistered one. Having kept that object in view we are of the considered opinion that the
alternative resolution forum agreed by the parties, namely, reference to a private arbitration is a
mode of enforcing the rights ‘given under clause (a) of sub.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 69. The enforcement of the right to sue for
dissolution includes a right for reference to an arbitration in terms of the agreement of the
partnership by and between the parties. Therefore, there is no embargo for filing a suit under s.20 of
the Act.
10. It is fairly stated by Shri Satish Chandra that the party can enforce the right by a suit for
rendering accounts and for realisation of the property of the dissolved firm pro-rata. When that is
permissible by an exception carved out by sub-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 arc of the view that the suit under s.20 of the
Act is maintainable. The High Court has, therefore, committed manifest error of law in holding
otherwise.
11. The appeal is allowed with costs of Rs.5,000/-
12. Since we have allowed the appeal we direct the trial court to send 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.
Smt. Prem Lata & Anr vs M/S. Ishar Dass Chaman Lal & Ors on 10 January, 1995

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