Holding

The exception in Section 69(3)(a) of the Indian Partnership Act applies to arbitration proceedings, so a partner of an unregistered firm may file a petition under Section 8 of the Arbitration Act to enforce dissolution and accounts.

Summary

The appellant and several respondents were partners in an unregistered partnership firm and a suit for dissolution and accounts was filed by one partner. The partnership deed contained an arbitration clause, leading the appellant to obtain a stay of the suit under Section 34 of the Arbitration Act and to file a petition under Section 8 for the appointment of an arbitrator. The respondents argued that Section 69 of the Indian Partnership Act barred any proceeding, including arbitration, by a partner of an unregistered firm. The Supreme Court held that the exception in Section 69(3)(a) expressly permits a partner to enforce the right to dissolution, accounts, or realisation of property, and that the phrase “to sue” extends to arbitration proceedings. Accordingly, a petition under Section 8 of the Arbitration Act is maintainable despite the firm’s non‑registration. The High Court’s order was set aside and the appeal was allowed.

Issues considered

Whether Section 69(3)(a) of the Indian Partnership Act bars a partner of an unregistered firm from filing a petition under Section 8 of the Arbitration Act for appointment of an arbitrator to enforce dissolution and accounts.
Whether the words "to sue" in Section 69(3)(a) include arbitration proceedings.
Whether a petition under the Arbitration Act is maintainable despite the partnership being unregistered.

Legislation cited

Subjects

unregistered partnershipSection 69 Indian Partnership ActArbitration Act 1940dissolution of partnershipaccounts of partnershiparbitration clausemaintainability of petitionpartner rights

Judgment

A PRABHU SHANKAR JAISWAL
v.
SRI SHEO NARAIN JAISWAL ~.

OCTOBER 29, 1996

B [A.M. AHMADI, CJ. AND SUJATA V. MANOHAR, J.]

Indian Partnership Act, 1932: Section (69) sub-section (3) (a)-
Partnership Firm-Unregistered-Right of partner to sue for dissolution
and for accounts-Whether barred> Held: No, though a partnership firm
.~ .
may be unregistered, one partner could sue another partner for dissolution
C offirm and for accounts.

Arbitration Act, 1940: Section (8)-Maintainability of suit for
dissolution and for accounts-Held, application/petition under the
Arbitration Act by a partner of an unregistered firm for the purpose of
D enforcing right to secure dissolution and accounts is maintainable.

The appellant and respondents were partners in an unregistered
partnership firm. A suit for dissolution of the firm and accounts was
tiled by respondent no.I before Sub Judge. The appellant's application
under Section 34 of the Arbitration Act for stay of the suit granted.
E High Court upheld the stay order. Appellant filed Misc. Case for
appointment of Arbitrator. Respondent no.I raised preliminary
objections that partnership firm was unregistered and the petition
under Arbitration Act was not maintainable. The sub-Judge held that
the petition was maintainable. However, the High Court in Revision,
held that by reason of Section 69 of Partnership Act, a petition under
F Section 8 of the Arbitration Act was not maintainable. Hence this
appeal.

Allowing the appeal, this court

G HELD : l.J. The bar under Section (69)(a) of Partnership Act
1932 will not affectthe enforcement ofany right to sue for the dissolution
of a firm or for account or to realise the property of a dissolved firm.
The partners.hip firm may be unregistered, yet one partner can sue the
other partner for dissolution and accounts. 147-GJ

H J.2. The words "to sue" in sub-section (3) (a) of S.69 of the Act
44
P.S.JAISWALv. S.N.JAISWAL[MRS. SUJATA V.MANOHAR,J.] 45

cannot be taken to refer only to suits for dissolution of partnership A
and accounts. It must be understood as applying to any proceedings
1' for dissolution of partnership or for accounts or to realise the property
of a dissolved firm. The proceedings may be either by way of suit or
it can be through Arbitration. (47-H, 48-A)

2. Where arbitration is sought under the arbitration clause in a B
partnership deed of an unregistered firm for the purpose of dissolution
and accounts of the partnership firm, the partners can maintain all
applications/petitions under the Arbitration Act for the purpose of
enforcing their right to secure dissolution and accounts of the
partnership firm through arbitration, In fact, in the present case the
suit for dissolution and accounts of the partnership firm has been C
stayed under Section 34 of the Arbitration Act at the instance of
respondent no.I. The petition of the appellant, therefore, under
Section 8 of the Arbitration Act is maintainable. (48-E-F)

Prem Lata (Smt) and Anr. v. Mis. Ishar Dass Chaman Lal and Ors.,
[19951 2 sec 145, relied on. D

Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., AIR (1964)
SC 1883, distinguished. ·

- 1996.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 13362 of E

From the Judgment and Order dated 6.8.93 of the Patna High Court
in C.R. No.190 of 1993 (R)

Vikas Singh for L.R. Singh for the Appellant.
F

V.A. Mohta, A.K. Choudhary and M. Mukherjee for Manoj Prasad
for the Respondents.

The Judgment of the Court was delivered by G

MRS. SUJATA V. MANOHAR, J. Leave granted.

The appellant and respondents 1 to 5 were partners in an unregistered
partnership firm by the name of Mis. Lakshmi Narain and Sons which H
46 SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.

A was constituted under a deed of partnership dated 4/6.11.1967. The first
respondent brought Title Suit No. 71 of 1991 against the appellant and
respondents 2 to 5 for dissolution of the partnership firm and for accounts
in the Court of the Sub-Judge, Ranchi. As the deed of partnership contained
an arbitration clause, the appellant made an application before the Sub-
Judge under Section 34 of the Arbitration Act for stay of the Title Suit
B No.71 of 1991. This application was granted. In appeal before the High
Court being Misc. Appeal No. I 3 of I 992, the High Court has ultimately
by its order dated 16.12.1992 upheld the order of the Sub-Judge granting
a stay under Section 34 of the Arbitration Act.

The appellant filed Misc. Case No. I I of 1992 before the Sub-Judge,
...
C Ranchi under Section 8 of the Arbitration Act for appointment of an
arbitrator. The first respondent raised a preliminary objection contending
that the partnership firm was unregistered, and by reason of Section 69 of
the Indian Partnership Act, a petition under Section 8 of the Arbitration
Act was not maintainable. The Sub-Judge, however, held that the petition
was maintainable. In Civil Revision No. 190 of I 993 which was filed by
D the first respondent against this order, the High Court, by its order dated
6.8.1993, has allowed the revision and held that by reason of Section 69
of the Indian Partnership Act, a petition under Section 8 of the Arbitration
Act is not maintainable.

E The present appeal is from the order of the High Court dated 6.8. I993.
The relevant provisions of Section 69 of the Indian Partnership Act are as
follows:

"69. Effect of non-registration-
F
(1) No suit to enforce a right arising from a contract or conferred
by this Act shall be instituted in 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 for has been shown
G in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be
instituted in any Court by or on behalf of a firm against any
third partly unless the firm is registered and the persons suing
H are or have been shown in the Register of Firms as partners in
P.S. JAISW AL v. S.N. JAISWAL [MRS. SUJATA V. MANOHAR, J.] 47

the firm. A
(3) The provisions of sub-sections (I) 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 B
of a firm or for accounts of a dissolved firm, or any
right or power to realise the property of a dissolved
firm, or

(b) the powers of an official assignee, receiver or Court
under the Presidency-towns Insolvency Act, 1909, or C
the Provincial Insolvency Act, 1920, to realise the
property of an insolvent partner."

Under Section 69(1), a suit, inter alia, to enforce a right arising
from a contract cannot be filed by a person suing as a partner in a firm D
against the other partners of the firm unless the firm is registered. Under
sub-section (3) any other proceeding to enforce a right arising from a
contract by a person suing as a partner against the other partners of an
unregistered firm is also barred. Since the right to resort to arbitration
flows from the contract between the parties contained in the partnership
deed, a suit or any other proceeding by a partner to enforce this term in E
the contract against the other partners would, therefore, normally be barred
under the first part of sub-section (3) of Section 69. Vide Jagdish Chandra
Gupta v. Kajaria Traders (India)Ltd., AIR, (1964) SC 1882 Infra. Sub-
section (3), in its later part, however, carves out certain exceptions to the
bar contained in sub-sections (I), (2) and the first part of sub-section (3).
F
Under sub-section (3) (a) this bar will not affect the enforcement of
any right to sue for the dissolutions of a firm or for accounts of a dissolved
firm or any right or power to realise the property of a dissolved firm.
Therefore, although the partnership firm may be unregistered, one partner
can sue other partners for dissolution of the firm and for accounts. The G
words "to sue" used in sub-section (3) (a) cannot be construed narrowly to
refer only to suits for dissolution of partnership and accounts. The exception
contained in sub-section (3)(a) applies not merely to sub-sections ( l) and
(2) but also to the first part of sub-section (3) which deals with proceedings
other than suits. Therefore, in order that sub-section (3)(a) would apply to
all these provisions, the words "to sue" in sub-section (3)(a) must be H
48 SUPREMECOURTREPORTS [1996] SUPP. 8 S.C.R.

A understood as applying to any proceedings for dissolution of partnership
or for accounts of a dissolved firm or to realise the property of a dissolved
firm. This proceeding may be either by way of a suit or it can even be a
proceeding under the Arbitration Act to secure these rights through
arbitration. [Vide Prem Lata (Smt.) and Anr. v. Mis. Jshar Dass Chaman
Lal and Ors., [1995] 2 SCC 145, a judgement to which one of us was a
B party.] Therefore, an arbitration clause in a partnership deed of an
unregistered partnership can be enforced for the purpose of securing, inter
alia, a dissolution and accounts of the partnership or for enforcing any
right or power for obtaining the property of a dissolved firm.

Our attention was drawn to the case of Jagdish Chandra Gupta v.
C Kajaria Traders (India) Ltd., AIR (1964) SC 1882 where this Court has
held that the word "proceedings" in the first part of sub-section (3) must
be widely construed to include proceedings in arbitration. The exception
carved out under sub-section (3)(a) would equally apply to such proceedings.
The dispute, however, in that case between the partners did not relate to
dissolution or accounts of the partnership firm. Hence a resort to the
D exception under sub-section (3) (a) was not required. In fact, this aspect
was neither argued nor considered by this Court in that case. This question
directly arose in Prem Lata 's case (supra). This Court has held that a suit
under Section 20 ofthe Arbitration Act was maintainable under the exception
carved out in sub-section (3)(a) of Section 69 of the Indian Partnership
E Act. Hence where arbitration is sought under the arbitration clause in a
partnership deed of an unregistered firm for the purpose of dissolution
and accounts of the partnership firm, the partners can maintain all
applications/petitions under the Arbitration Act for the purpose of enforcing
their right to secure dissolution and accounts of the partnership firm.through
arbitration. In fact, in the present case the suit for dissolution and accounts
F of the partnership firm has been stayed under Section 34 of the Arbitration
Act at the instance of respondent No. I. The petition of the appellant,
therefore, under Section 8 of the Arbitration Act is maintainable in the
present case.

The judgement and order of the High Court dated 6.8.1993 is set
-
G aside. The appeal is allowed with costs.
S.V.K.I. Appeal allowed.