Arbitration proceedings not barred under Section 69(3) of the Partnership Act: SC [Read Judgment]

Arbitral Proceedings will not come under the expression “other proceedings” of Section 69(3) of the Partnership Act, the Court held.

The Supreme Court in M/s Umesh Goel vs.Himachal Pradesh Cooperative Group Housing Society Ltd. has held that the expression “other proceedings” in Section 69(3) of the Partnership Act does not include Arbitration Proceedings and the ban imposed under the said Section to can have no application to Arbitral proceedings as well as the Arbitration Award.Division Bench of the Apex Court comprising of Justices Fakkir Mohamed Ibrahim Kalifulla and C. Nagappan, allowing the appeal against the High Court judgment, also held that Section 35 and 36 of the Arbitration and Conciliation Act,1996 is specifically restricted to treat the Award as a decree of a Court and does not equate Arbitration proceedings with court proceedings.

BACKGROUND

The Division Bench of Delhi High Court in the appeal filed under Section 37 of the Act took a view that the counter claim in an Arbitral Proceedings is covered by the expression “other proceedings” contained in Section 69(3) of the Partnership Act and the appellant being an unregistered firm at the relevant point of time was hit by the embargo contained therein and consequently the award of counter claim in the award as confirmed by the learned Judge was reversed as not justiciable by virtue of Section 69 of the Partnership Act. The Appellant challenged this judgment of Delhi High Court before the Apex Court.

SECTION 69 OF THE PARTNERSHIP ACT

Sub-Section 1 of the Section 69 of the Partnership Act bans filing a suit in a Court by any person as a partner of an unregistered firm against the firm itself or any of its partner, and under sub-section (2) such a ban in the same form of a suit in the Court will also operate against any third party at the instance of such an unregistered firm.

The Court interpreted Section 69(3) as follows : “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.”

JAGDISH CHANDER CASE NOT APPLICABLE FOR PROCEEDINGS UNDER 1996 ACT

The court referring to Jagdish Chander Gupta v. Kajaria Traders (India) Ltd. 1964 (8) SCR 50said:“ the ratio laid down in Jagdish Chander case (supra) does not in any way conflict with the view which we have taken herein, having regard to the advent of the 1996 Act, under which the nature of Arbitration Proceedings underwent a sea change as compared to the 1940 Act, what isstated in Jagdish Chander case (supra) can have application in the special facts of that case and that it can have no application to a proceedings which emanated under the 1996 Act, for which the interpretation to be placed on Section 69(3) will have to be made independently with specific reference to the provisions of the 1996 Act, where the role of the Court is limited as noted earlier to the extent as specified in Sections 8, 9 etc.”

SECTION 35, 36 OF ARBITRATION ACT (1996) DOES NOT EQUATE ARBITRATION PROCEEDINGS WITH CIVIL COURT PROCEEDINGS

Referring to Sections 35 and 36 of the Arbitration and Conciliation Act, 1996, the court said : “The deeming fiction is specifically restricted to treat the Award as a decree of a Court, exclusively for the purpose of execution, though as a matter of fact, it is only an Award of Arbitral proceeding.It is a settled proposition, that a statutory provision will have to be construed from the words that are expressly used and it is not for the Court to add or substitute any word to it.Therefore, going by Sections 35 and 36 it cannot be held that the entire Arbitral proceeding is a Civil Court proceedings for the purpose of applicability of Section 69(3) of the Partnership Act.”

LIMITATION ACT AND INTEREST ACT DEFINITIONS CANNOT BE IMPORTED

Rejecting the submissions of the respondent in relation to interpretation of Court in the Interest Act, the Bench said: “In the absence of such a specific provision, it will not be appropriate to import the definition clause under Section 2(a) of the Interest Act to the Partnership Act in order to apply Section 69(3) of the Partnership Act. If such a specific provision has been incorporated in the Partnership Act, there can be no difficulty in accepting the argument of the learned senior counsel for the respondent.” The Court also held that any interpretation made under the Limitation Act while construing Section 14 to treat Arbitral proceedings on par with civil proceedings cannot be applied to the case on hand.

Read the Judgment here.