1996 (1) TMI 470 - SC - Indian Laws

Unregistered Firm Renders Arbitration Proceedings Invalid

The Supreme Court held that proceedings under Section 20 of the Arbitration Act were ab initio defective if the firm was not registered at the time of ... - Issues: Interpretation of Sections 69(2) and (3) of the Indian Partnership Act, 1932 read with Section 20 of the Arbitration Act, 1940.Analysis:The judgment in question pertains to the interpretation of Sections 69(2) and (3) of the Indian Partnership Act, 1932 in conjunction with Section 20 of the Arbitration Act, 1940. The case involved an unregistered firm filing proceedings under Section 20 of the Arbitration Act in the High Court, which was contested on various grounds including limitation. The Single Judge allowed the suit, leading to a first appeal filed before a Division Bench, which was subsequently dismissed. The core issue revolved around the validity of the suit filed by an unregistered firm and the subsequent registration of the firm curing any initial defect within the limitation period.Section 69(1) of the Partnership Act mandates that no suit to enforce a right arising from a contract can be instituted by an unregistered firm against the firm or any alleged partner unless the firm is registered. Sub-sections (2) and (3) further reinforce this requirement, extending it to proceedings against third parties and other proceedings arising from a contract. The provisions clearly bar the institution of a suit by an unregistered firm. Section 20 of the Arbitration Act allows for the filing of an application to have an arbitration agreement enforced, which is treated as a suit and must comply with the registration requirements of the Partnership Act.The Court considered conflicting decisions regarding whether subsequent registration of a firm could cure the initial defect, with some courts holding the suit as incompetent ab initio. However, in line with the plain language of the Partnership Act and the Arbitration Act, and based on previous Supreme Court decisions, the Court concluded that proceedings under Section 20 of the Arbitration Act were ab initio defective if the firm was not registered at the time of institution. Therefore, the subsequent registration of the firm could not rectify this defect, rendering the proceedings invalid from the outset.In light of the above analysis, the Supreme Court allowed the appeal, set aside the High Court's order, and determined that the proceedings were ab initio defective due to the firm's lack of registration at the commencement of the proceedings. The Court made no order as to costs in this matter.