IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : SERVICE MATTER ARB P. 180/2003. Judgment delivered on: versus

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1 IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : SERVICE MATTER ARB P. 180/2003 Judgment delivered on: ESS VEE TRADERS & OTHERS... Petitioners versus M/S AMBUJA CEMENT RAJASTHAN LIMITED... Respondent Advocates who appeared in this case:- For the Petitioners : Mr Alok Krishna Agarwal and Mr Shashank Kumar For the Respondent : Mr T.S. Ahuja and Mr Arun Arora BADAR DURREZ AHMED, J 1. This is an application for appointment of an Arbitral Tribunal to adjudicate the purported disputes between the petitioner No.1 (firm) and the respondent. This application is styled as an application under Section 11 (4) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act'). However, it is being treated as an application under Section 11(6) of the said Act inasmuch as there purports to be an arbitration agreement between the parties and a procedure for appointing the arbitrator has been provided for. Therefore, Section 11 (4) of the said Act would not apply and this application has to be dealt with in terms of the provisions of Section 11 (6) thereof. 2. The respondent has raised a preliminary issue with regard to the maintainability of this petition. It is the contention of the learned counsel appearing for the respondent that the petitioner No.1 is a partnership firm which was not registered on the date of institution of the present petition. The petitioner Nos.2 & 3 are the partners of the said firm. According to the learned counsel for the respondent, in view of the provisions of Section 69 of the Indian Partnership Act, 1932, the effect of non-registration of the petitioner No.1 firm would be that it would be barred from instituting the present petition. The learned counsel for the petitioners contended that while it is true that the firm was not registered at the time of institution of the present petition, i.e., on (filing) / (on refiling), the firm was subsequently registered on and, as of now, the firm is a registered firm and, therefore, the bar of Section 69 would not apply. It was further contended by the learned counsel for the petitioner that the bar of Section 69 would, in any event, not apply to the present proceedings. 3. The brief facts giving rise to the present petition are that the petitioner No.1 (the partnership firm) entered into a contract dated with the respondent which was earlier running its business under the name and style of DLF Cement Limited. By virtue of the said contract, the respondent had appointed the

2 petitioner No.1 as the C&F agent for the sale of cement for the Jalandhar Depot for a period of two years. It is further the case of the petitioner that the said contract contained an arbitration clause which reads as under:- 16. ARBITRATION: i) All dispute(s) differences, and/or claims arising out of this Agreement shall be settled by arbitration in accordance with the provisions of Arbitration and Conciliation Act, 1996 or any Statutory amendment thereof and shall be referred to the sole arbitration of the Company Secretary of the DLF Cement Limited. It appears that the petitioner No.1 had sent a legal notice dated to the respondent requiring it to clear certain dues. The respondent apparently replied on stating that it had no liability and, on the other hand, demanded the payment of a sum of Rs.23,71,651/- in respect of a dishonoured cheque No dated There is a controversy with regard to the dishonoured cheque. It is the petitioner's case that no such cheque was issued by them, whereas it is the respondent's case that the cheque was issued by the petitioners and that, apart from the dishonour of the cheque, there was no subsisting dispute between the parties. The respondent apparently filed a complaint under Section 138 of the Negotiable Instruments Act, Those proceedings are pending before the Metropolitan Magistrate. The respondent had filed the complaint on Much later, on , the petitioner No.1 sent a legal notice to the respondent requiring it to pay a sum of Rs.40,43, with 18% interest or to appoint the arbitrator as per the terms and conditions of the agreement dated within 30 days so as to enable the petitioner No.1 to file its claim before him. By a letter dated , the respondent replied to the legal notice stating that there was no dispute with regard to the outstanding amount and that the petitioner No.1 had already issued a cheque in discharge of its liability in the sum of Rs.23,71,651/- vide cheque No dated for which proceedings were pending under Section 138 of the Negotiable Instruments Act, It was the respondent's contention that as such there was no question of appointment of an arbitrator and that the demands made by the petitioner No.1 and the request for appointment of an arbitrator were afterthoughts and, therefore, could not be acceded to by the respondent. Thereafter, the present petition was initially filed on and was refiled on Various issues were raised, including the question of disputes not being referable to arbitration, claim of the petitioner being time barred and only one of the partners having signed and verified the present petition. However, the key question is whether the petition is maintainable in view of the provisions of Section 69 of the Indian Partnership Act, First of all, the issue is whether the present proceedings under Section 11 (6) of the said Act could be said to be covered by the provisions of Section 69 of the Indian Partnership Act, Section 69 of the Indian Partnership Act, so much as is relevant for the present proceedings, reads as under:- 69. Effect of non-registration.â (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 or has been shown in the Register of Firms as a partner in the firm.

3 (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 party unless the firm is registered and the person suing are or have been shown in the Register of Firms as partners in the firm. (3) The provisions of sub-sections (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,â (a) xxxx xxxx xxxx xxxx xxxx (b) xxxx xxxx xxxx xxxx xxxx (4) xxxx xxxx xxxx xxxx xxxx 5. Analysing the provisions of this Section, the Supreme Court in the case of Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd: AIR 1964 SC 1882 held that the Section, speaking generally, bars certain suits and proceedings as a consequence of non-registration of firms. It observed that sub-section (1) prohibits the institution of a suit between the partners inter se or between the partners and firms for the purpose of enforcing a right arising from a contract or conferred by the Indian Partnership Act unless the same is registered and the person suing is or has been shown in the Register of firms as a partner in the firm. With regard to sub-section (2), the Supreme Court observed that this provision similarly prohibits a suit by or on behalf of the firm against a third party for the purpose of enforcing rights arising from a contract unless the firm is registered and the person suing is or has been shown in the Register of firms as a partner of the firm. The present case, clearly being between the firm and a third party, would be governed by the provisions of sub-section (2) of Section 69 of the said Act. But, sub-section 2 refers to suits. The present petition is one under Section 11 (6) of the said Act. To see whether the present proceedings are covered by the bar under Section 69 (2) of the Indian Partnership Act, 1932, one would have to examine the provisions of sub-section (3) of Section 69 thereof. In respect of this provision, the Supreme Court considered the question as to whether the expression other proceedings, appearing in sub-section (3) ought to be given its full and natural meaning or should be construed in a way so as to cut down that meaning in the light of the words that preceded it (viz., a claim of set-off ). The Supreme Court came to the conclusion that the words other proceedings in sub-section (3) must receive their full meaning, untrammeled by the words a claim of set-off. The Supreme Court clearly held that the latter words neither intend to nor can be construed to cut down the generality of the words other proceedings. The Supreme Court, therefore, held:- The sub-section provides for the application of the provisions of sub-secs. (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-sec. (3) and sub-sec. (4). 6. It is, therefore, settled that the provisions of sub-section (2) of section 69 are to extend to other proceedings of any kind and are not to be construed in the light of the words a claim of set-off. The only condition being that the proceeding must be for enforcement of a right arising from a contract and must not be covered by the exceptions provided in sub-sections (3) and (4). The present case is clearly one where the proceeding is an attempt to enforce a right arising from a contract. The petitioner seeks to enforce the arbitration clause by virtue of this proceeding. It is not

4 covered under the exceptions provided under sub-sections (3) and (4) of Section 69 of the Indian Partnership Act, Therefore, the provisions of Section 69 (2) of the Indian Partnership Act, 1932 would apply to the present proceedings under Section 11 (6) of the said Act. That being the case, the bar under Section 69 (2) of initiating and / or instituting such a proceeding unless the firm is registered and the persons suing are or have been shown in the Register of firm as partners in the firm, would apply. Admittedly, the petitioner No.1 firm was not a registered firm, nor were the petitioners 2 and 3 shown in the Register of firms as partners in the said firm. That being the case, the bar was absolute inasmuch as registration of the firm is a mandatory pre-condition for the institution of any suit or proceeding. The precondition not being satisfied, the petition is liable to be dismissed as being not maintainable. 7. In Kelson Constructions v. Versha Spinning Mills Ltd and Another: 1993 (4) AD (Delhi) 803 = 1994 (1) Arb LR Delhi 385, a learned single Judge of this court, faced with a petition under Section 20 of the Arbitration Act, 1940, considered the provisions of the Indian Partnership Act, 1932 with regard to the mandatory requirement of registration of a partnership firm. The issue that was considered by the learned single Judge was whether the petition under Section 20 of the Arbitration Act, 1940 would be maintainable in view of the fact that the firm in that case was not registered on the date of institution of the petition in April, It was contended that the partnership firm was registered subsequently in the year 1992 and, therefore, the petition was maintainable. This contention was repelled by the learned single Judge of this court by holding that while it is correct that it is not a pre-condition that a firm should be registered prior to entering into any contract, it is a mandatory requirement that the firm should be registered with the Registrar of Firms and the persons suing are or should have been shown in the Register of the firms as partners of the firm before any suit to enforce a right is brought by the firm. The learned Judge referred to the decision of the Supreme Court in Loonkaran Sethia, etc. v. Mr Ivan E. John & Others: AIR 1977 SC 336 and noted that the Supreme Court held that the provisions of Section 69 of the Indian Partnership Act, 1932 are mandatory in character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void. The learned single Judge observed that what is material is that on the date of institution of the suit, the partnership should have been registered, failing which the suit would fail. A reference was also made to a Division Bench decision of this court in the case of Shankar Housing Corporation v. Smt Mohan Devi and Others: AIR 1978 Delhi 92, wherein the said Division Bench had taken the view that the point of time contemplated in Section 69 (2) of the Indian Partnership Act, 1932 was the time of institution of the suit. The Division Bench had taken the view that sub-sections (1) and (2) of Section 69 were substantive provisions intended to discourage non-registration of firms. It also held that the provisions of Section 69 (2) of the Indian Partnership Act, 1932 were mandatory and make the registration of a firm a condition precedent to the institution of a suit of the nature mentioned therein. Obviously, all these observations with regard to suits would also apply to other proceedings including the present proceedings as indicated above. In Kelson Construction (supra), it was urged on behalf of the plaintiffs placing reliance on the judgment in the case of Atmuri Mahalakshmi and Others v. Jagdish Traders: AIR 1990 AP 288 that although the court

5 had accepted the position that the subsequent act of registration cannot validate the plaint from the date of its filing as no suit was maintainable before the date of registration, but the court proceeded to take the view that instead of allowing the withdrawal of suit and refiling after registration, the court could deem that the petition had been filed as on the date of registration of the partnership because the partnership was registered during the pendency of the suit and for the purposes of limitation, the date of registration of the partnership would be taken to be the date of institution. This argument was repelled by the learned single Judge in Kelson Construction (supra) by holding that if a suit on the date of institution is not maintainable, there is nothing in the language of the statute which by any implication would have the effect of validating the same plaint w.e.f. the date of registration of the partnership. It must be emphasized that the present case is not a dispute inter se the partners, therefore, the exception carved out under Section 69 (3) (a) is not attracted and, therefore, the recent decision of a Division Bench of this court in the case of Mulakh Raj (Shri) v. Smt. Shashi Rani: 2005 III AD (DELHI) 357 = 118 (2005) DLT 316 would have no application inasmuch as that case pertains to the exception carved out in Section 69 (3) (a) pertaining to disputes inter se the partners qua dissolution of the firm. The present case deals with a dispute with a third party and stands on an entirely different footing and is covered by the decision of the Supreme Court in the case of Jagdish Chandra (supra). 8. In this view of the matter, the settled position of law is that registration is a mandatory pre-condition for the institution of a suit or other proceeding as contemplated under Section 69 (2) and (3) of the Indian Partnership Act, If on the date of institution of the suit or proceeding, the firm is not registered, subsequent registration during the pendency of the suit or proceeding will not cure this defect. It is a mandatory pre-condition and if it is not satisfied, the suit or proceeding has to go. The present petition was instituted in August, 2003 when, admittedly, the petitioner No.1 was an unregistered firm. The mandatory pre-condition for institution of the present proceeding was not satisfied. The subsequent registration of the firm on would not cure this fatal defect. Accordingly, the present petition is not maintainable and is dismissed as such. No order as to costs. Sd/- BADAR DURREZ AHMED (JUDGE)

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