2016 (6) TMI 1488 - SC - Indian Laws

Unregistered partnership firms can pursue arbitration despite Section 69(3) ban on court suits

The SC held that Section 69(3) of the Indian Partnership Act does not apply to arbitral proceedings. The Court distinguished between court proceedings and ... Interpretation of Section 69(3) of the Indian Partnership Act with reference to its applicability to Arbitral proceedings - by virtue of sub-section (3) whether the expression “other proceedings” contained therein will include Arbitral proceedings and can be equated to a suit filed in a Court and thereby the ban imposed against an unregistered firm can operate in the matter of arbitral proceedings? - HELD THAT:- In order to invoke sub-section (3) of Section 69 and for the ban to operate either the firm should be an unregistered one or the person who wants to sue should be a partner of an unregistered firm, that its / his endeavour should be to file a suit in a Court, in which event even if it pertains to a claim of set off or in respect of ‘other proceedings’ connected with any right arising from a contract or conferred by the Partnership Act which is sought to be enforced through a Court by way of a suit then and then alone the said sub-section can operate to its full extent. When under sub-section (3) which also relates to a ban concerning ‘other proceedings’, the law makers wanted to specifically exclude from such ban such of those proceedings which also likely to arise in a suit, but yet the imposition of ban of an unregistered firm need not be imposed. Keeping the said intent of the law makers in mind, on reading sub-clauses (a) and (b) of sub-section (3), it can be understood that even though such other proceedings may be for the enforcement of any right to sue but yet if it is for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realize the property of a dissolved firm, the same can be worked out by way of a suit in a Court or by way of other proceedings in that suit and the same will not be affected by the ban imposed under sub-section (3). Whether Section 69(3) is attracted to the Arbitral Proceedings and the ultimate award passed therein by construing the same as falling under the expression “other proceedings'? - HELD THAT:- In the case on hand, the contract between the parties contained an Arbitration Clause. The respondent invoked the said clause and an Arbitrator came to be appointed. After the respondent filed its statement of claim, the appellant filed its reply and also its counter claim dated 30.08.2003 - The Arbitrator took the correct view that Section 69 has no application to the proceedings of the Arbitrator and held that the objection of the respondent was not sustainable. The Arbitrator allowed the counter claim to the extent of Rs. 1,36,24,886/- (Rupees One crore thirty six lacs twenty four thousand eight hundred eighty six only). When the award of the Arbitrator was challenged by the respondent under Section 34 of the Act, the very same objection was raised as a ground of attack. The learned Single Judge of the High Court also found no merit in the said contention and upheld the award of counter claim. The scope and ambit of the power and jurisdiction of ‘Court’ defined under Section 2(e) of the 1996 Act is circumscribed to certain specified extent as set out in Sections 8, 9, 14, 27, 34, 36, 37, 39, 42, 43, 47, 48, 49, 50, 56, 58 and 59. A comparative consideration of the 1940 Act and 1996 Act disclose the extent of control and operation of a Court under the former Act was far more intensive and elaborate than the latter Act. The more significant distinction as between the 1940 Act and the 1996 Act is clear to the position that the former Act does not merely stop with the initiation and enforcement of an Arbitration and its award, but effectively provides for intervention at every stage of the Arbitral proceedings upto its final consideration and enforcement as if it were a regular civil suit, whereas under the 1996 Act, the scope of intervention is not that of a Civil Court as it could do in the matter of a suit. Such clear distinction could be discerned from the reading of the various provisions of both the Acts. Having regard to our conclusion that Arbitral Proceedings will not come under the expression “other proceedings” of Section 69(3) of the Partnership Act, the ban imposed under the said Section 69 can have no application to Arbitral proceedings as well as the Arbitration Award. Therefore, the appeal stands allowed. Issues Involved:1. Interpretation of Section 69(3) of the Indian Partnership Act regarding its applicability to arbitral proceedings.2. Whether arbitral proceedings can be equated to a suit in a court under Section 69(3).3. The role of statutory provisions in determining the nature of arbitral proceedings.Issue-wise Detailed Analysis:1. Interpretation of Section 69(3) of the Indian Partnership Act:The primary issue in this case revolves around the interpretation of Section 69(3) of the Indian Partnership Act, which extends the ban on suits by unregistered firms to 'other proceedings' to enforce a right arising from a contract. The appellant argued that the expression 'other proceedings' should be limited to those connected with a suit in a court and not applicable to arbitral proceedings. The respondent contended that arbitral proceedings should be included under 'other proceedings' since they are based on contractual rights. The court concluded that the provisions of sub-sections (1) and (2) of Section 69 are incorporated into sub-section (3), meaning the ban applies only when there is a suit in a court, and the proceedings are intrinsically connected to the suit.2. Whether Arbitral Proceedings Can Be Equated to a Suit in a Court:The court examined whether arbitral proceedings could be equated to a suit in a court under Section 69(3). The appellant argued that an arbitrator is not a court and that arbitral proceedings are distinct from court proceedings. The respondent, however, claimed that arbitral proceedings should be treated as civil proceedings, akin to a suit, based on precedents where arbitral proceedings were equated to civil proceedings under the Limitation Act and the Interest Act. The court held that for Section 69(3) to apply, there must be a pending suit in a court, and the arbitral proceedings must be intrinsically connected to that suit. Since arbitral proceedings under the Arbitration and Conciliation Act, 1996, do not involve a suit in a court, they do not fall under the 'other proceedings' mentioned in Section 69(3).3. The Role of Statutory Provisions in Determining the Nature of Arbitral Proceedings:The court analyzed the statutory provisions of the Arbitration and Conciliation Act, 1996, and compared them with the Arbitration Act, 1940, to determine the nature of arbitral proceedings. The court noted that under the 1996 Act, the role of the court is limited, and arbitral proceedings are distinct from court proceedings. The statutory fiction created by Sections 35 and 36 of the 1996 Act, treating an arbitral award as a decree for enforcement purposes, does not extend to equating the entire arbitral proceeding to court proceedings. The court emphasized that a statutory provision must be construed based on the words used and cannot be extended beyond its intended purpose. Consequently, the court concluded that arbitral proceedings do not fall under the expression 'other proceedings' of Section 69(3), and the ban imposed by Section 69 does not apply to arbitral proceedings or awards.Conclusion:The court allowed the appeal, set aside the impugned judgment of the Division Bench, and restored the judgment of the learned Single Judge. It held that arbitral proceedings are not covered by the expression 'other proceedings' in Section 69(3) of the Partnership Act, and therefore, the ban imposed by Section 69 does not apply to arbitral proceedings or the arbitration award.