Ban Imposed U/S 69 Of Partnership Act Has No Application To Arbitral Proceedings: Delhi High Court

The Delhi High Court Bench of Justice Neena Bansal Krishna held that the bar of Section 69 of the Partnership Act does not come within the expression “other proceedings” as used in Section 69(3) of the Partnership Act. Therefore, the ban imposed under Section 69 has no application to the arbitral proceedings.

Brief Facts

The Petition under Section 34 of the Arbitration and Conciliation Act, 1996 has been filed on behalf of the Claimant, partner seeking to challenge the Award dated 28.04.2017 and the corrected Award dated 01.07.2017 vide which the learned Arbitrator has decided the claims of the Claimant in Arbitration proceedings pertaining to their partnership Firms M/s Ashika Textiles and Classic Processors.

Claimant/petitioner, Mr. Hari Om Sharma and Mr. Sauman Kumar Chatterjee, and Mr. S.K. Malhotra, the respondent No.1& 2 respectively, constituted M/s Ashika Textiles, the Partnership Firm at Will, by executing a Partnership Deed on 12.05.1995 in Sahibabad, Ghaziabad, Uttar Pradesh having its Head Office in Delhi. Thereafter, two more partnership firms were opened by them.

The third Partnership Firm at Will, namely, Classic Processors was constituted on 19.12.2000 at Sahibabad, Ghaziabad, Uttar Pradesh having its Head Office at Delhi. The job work had been commenced under the Partnership Firm in June, 2001. Eventually, the Two Firms closed their business on 31.07.2003. Thereafter, disputes arose interse the Partners. The petitioner served a Legal Notice dated 27.10.2004.

With further facts that came to his knowledge till 01.08.2005, the Claimant served second Legal Notice dated 01.08.2005 and also made his Claims. On receiving a Reply dated 16.08.2005 from the respondents, the petitioner then issued the third Legal Notice dated 29.08.2005 for seeking redressal of his Disputes through Arbitration.

The respondents gave their consent only in the case of Ashika Textiles and refused in the case of Classic Processors, on the false averment of there being No Arbitration Clause in the Partnership Deed.

The petitioner then sent a copy of the Partnership Deed of Classic Processors, which contained the Arbitration Clause in the year 2006, but no further response was received from the respondents.

Since the respondents had already consented in the connected case of M/s Ashika Textiles, the Arbitrator was appointed for this Firm as well. On the request of the parties, both these cases were clubbed by the Arbitrator.

The learned Arbitrator thus held that the two unregistered Partnership Firms were not dissolved on 31.07.2003, although the business of both the Partnership Firms had been closed on the said date and dissolved both the Firms from the date of Award.

Contentions

The petitioner submitted that the learned Arbitrator has not only gone beyond his Jurisdiction but has misconducted himself in so much as the Claims have not been decided in accordance with the Partnership Deed.

It was further submitted that the respondents without following any provision of the Partnership Deeds or the Law also handed over the business premises to the landlord on the same day. No written Notice was served by the respondents on the petitioner as was required for the dissolution of the Firms as both the Firms were Partnership at Will.

It was further submitted that Partnership Firm was illegally closed w.e.f. 01.08.2003. The vacant possession of the business premises was handed over to the landlord on the last working day of Partnership Business i.e. 31.07.2003, which has resulted in damages to the appellant. The learned Arbitrator has failed to appreciate the evidence on record and has wrongly and arbitrarily decided that the cause of action arose on 31.07.2003.

It was further submitted that the decision of the learned Arbitrator allowing the interest is against the Terms of the Agreement and the applicable Law. The petitioner is in fact entitled to compound interest on the Capital at 18% p.a and not 12%.

Per contra, the respondents submitted that the Claims were all barred under Section 69 of the Partnership Act, as well as under the Limitation Act. Section 69 is a mandatory provision, and the bar engrafted therein, cannot be ignored. In this regard, reliance has been placed on Krishna Motor Service vs HB Vittala Kamath,(1996) and Jagdish Chander Gupta vs. Kajaria Traders (India) Ltd., (1964).

It was further submitted that the petitioner is trying to take advantage of the absence of written documents in respect of the dissolution of Partnership Firm and the money received after the dissolution. The reliance has been placed on Baijnath vs Chottelal, (1958) wherein the court held that “cessation of business coupled with other circumstances might legitimately lead to the inference that the partnership had been dissolved.

Court's Analysis

The court at the outset discussed the scope of interference under section 34 of Arbitration Act and referred to the Supreme Court judgment in MMTC Limited v. Vedanta Ltd, (2019) It was held that an interference with an Arbitral Award under Section 37 of the Act, 1996 cannot go beyond the boundaries established by Section 34.

The court moved further and analysed the contention with respect to dissolution of the firms. Firstly, the court agreed with arbitrator's reliance on the Supreme Court judgment in M/S V.H. Patel & Company & Ors vs Hirubhai Himabhai Patel & Ors, (2000) wherein it was held that if there is a breach of agreement and conduct is destructive of mutual confidence, certainly such conduct gives rise to a ground for dissolution of the partnership.

Based on the above the court observed that as has been rightly held by the learned Arbitral Arbitrator, the date of closure cannot be deemed to be a date of dissolution of partnership since all the assets of the partnership were yet to be distributed.

The court came to the conclusion that the findings of the learned Arbitrator about there being no dissolution and to hold that the partnership firms shall be dissolved w.e.f. the date of Award, does not suffer from any illegality or perversity and does not warrant any interference.

The court further rejected the contention of the respondent with respect to suit not maintainable due the partnership firms being unregistered and referred to the Supreme Court judgment in Ananthesh Bhakta v. Nayana S. Bhakta, (2017) wherein it was held that the bar of Section 69 is limited to the Courts and the Civil Suit and is not attracted where the disputes inter-se the partners, are referred to arbitration. So long as the Partnership Deed contains Clause providing for reference of disputes interse the partners to arbitration, non-registration of the Partnership Firm, is no ground to reject the reference to arbitration.

The court further rejected the limitation contention of the petitioner and observed that The Limitation would have to be calculated from the date on which cause of action arose. The Legal Notice was dated 29.08.2005. There is no infirmity in the findings of the learned Arbitrator about certain portions of the claims which were prior to 28.08.2002 being barred by limitation.

The court concluded that the parties have not been able to point out if there was any perversity in determination of the Claims, which is based on due appreciation of facts and law. The findings of the Arbitrator cannot be re-appreciated on merits.

Accordingly, the present petition was dismissed as being devoid of merits.

Case Title: HARI OM SHARMA v. SAUMAN KUMAR CHATTERJEE & ANR

Case Reference: O.M.P. (COMM) 381/2017

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