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Judgment
Shamsher Bahadur, J.—This is an appeal directed against the order of the Subordinate Judge, Chandigarh, declining to appoint an Arbitrator to settle the dispute between the parties under sub-section (2) of section 8 of the Arbitration Act, 1940.
The facts which are not in dispute are set in detail in the application made by the appellants Kapur Chand, Gian Devi and Saraswati Devi. These appellants have been carrying on the business of manufacturing auto springs and spring leaves in partnership under the name and style of "Northern India Motor Parts Manufacturing Company'' in Industrial Area Chandigarh. Feeling the need of better finance, these appellants joined the three respondents Jai Bhagwan Gupta, Jai Parkash and Kaushalya Devi as partners in the, firm and a document was executed on 14th December, 1962. It was mentioned in this document described as a partnership-deed, that the appellants had already obtained some import licenses between March, 1961 and September, 1962 and augmentation of finance was needed to expedite the production of goods contemplated by these import licenses. The three respondents were, therefore, admitted as partners, the principal conditions being that the partnership "shall be deemed to have commenced from 1st December, 1962, and shall remain in force till determined by the parties." The object of partnership was to manufacture motor parts and other articles and to utilize the import licenses which had already been issued and the subsequent licenses granted upto September, 1965. The machinery already existing in the building was to be used by the partnership. The added partners, who are the three respondents, were to contribute "all capital required for conducting the partnership business." The shares of the six partners were enumerated in paragraph 6 of the partnership-deed. Under para 11 of this deed, "any matter of dispute relating to the partnership business shall be referred to the arbitration in accordance with and subject to Indian Arbitration Act".
According to the allegations made in the application of the appellants, the respondents did not honour the agreement to finance the partnership and some correspondence was exchanged between the parties for appointment of an arbitrator to settle these differences. The first respondent Jai Bhagwan Gupta for himself and on behalf of respondents I and 3, wrote to the appellants on 19th of March, 1965 thus:
We are quite prepared for an arbitration as suggested by you and as such kindly suggest a panel of three names of the retired Judges of the Punjab High Court out of whom we will select one.
A panel of Messrs. Teja Singh, Tek Chand and K. L. Gosain was suggested by the appellants on 25th March, 1965. The respondents in reply sent their own panel of two names of Messrs. Tek Chand and Gurnam Singh. In response to this letter the appellants wrote on 27th of April, 1965, that Mr. Tek Chand being common to both the panels, he should be appointed an arbitrator. To use the words of the appellants:
This determines conclusively the selection of Shri Tek Chand, retired Judge, High Court, Punjab, as the sole arbitrator.
The dispute not having been entrusted to the decision of Mr. Tek Chand, an application was moved under sub-section (2) of section 8 of the Arbitration Act on 24th of September, 1965, in the Court of the Subordinate Judge asking it to make the appointment itself.
Section 8 of the Arbitration Act says :
(1) In any of the following cases-
(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment; or appointments or
(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or
(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy
(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties.
It was submitted in the application that the respondents having failed to effectuate the appointment on which they agreed, the Court may act under sub-section (2) of section 8 and appoint Shri Tek Chand as an arbitrator.
Besides the pleas on merits, the respondents made a demurrer on the question of jurisdiction of the Court to entertain the application on the ground that the firm had not been registered. The following preliminary issue was framed:
Whether the provisions of section 69 (3) of Indian Partnership Act bar the present application ?
The Court having reached the conclusion in favour of the respondents dismissed the application and in the appeal preferred by the applicants before this Court the argument of the learned counsel his principally turned of the provisions of the Indian Partnership Act which gave rise to the plea.
Before making reference to the contentions of the parties, it would be necessary to make a brief reference to the provisions of the registration of firms embodied in Chapter VII of the Indian Partnership Act. u/s 53(1) the registration of a from may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee stating the firm name, the place of business and other essential particular When the Registrar is satisfied that the provisions of section 58 have been duly compressed with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement (vide section 59). There is no dispute that the firm of the three appellants was registered with the Registrar as Northern India Motor Parts Manufacturing Company. Section 60 deals with recording of alterations in firm name and principal place of business. Section 62 relates to noting of changes in names and addresses of partners. Section 63 deals with recording of changes in and dissolution of a firm. Under sub-section (I):
When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner immediately before the dissolution or the agent of any such partner or person specially authorized in this behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice along with the statement relating to the firm filed u/s 59.
It is common ground that no dissolution of the firm took place and all that was done was the induction of three more partners, who are respondents 1 to 3. Thus, under sub section (1) of section 63, all that was required to be done was that a notice should have been sent to the Registrar of the incoming partners of the firm whose name itself had remained unchanged. Section 69 deals with the effects of no registration, and sub-section (1) says that:
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 ina 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.
Sub-section (2) says that:
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 persons suing are or have been shown in the Register of Firms as partners in the firm.
Sub-section (3) says that:
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.
It would be manifest that subsection (1) is not applicable, there being no suit to enforce a right arising from a contract by or on behalf of any person suing as a partner in the firm, nor can the bar of sub-section (2) be attracted as the suit is not on behalf of a firm against any third party. It would be noted that the application under sub-section (2) of section 8 is made by three partners of the firm against the remaining three. The provisions of sub-sections (1) and (2), however, are to apply to other proceedings as well. It is, therefore, to be seen whether the provisions of sub-sections (1) or sub-section (2) would be applicable in an application where three partners of the firm are asking for the enforcement of the arbitration clause against the other three?
Now, the essential prerequisite of a suit filed under sub-section (1) of section 69 is that a firm should be registered and the person suing is or has been shown in the Register of Firms as a partner of the firm. According to Form A all the six partners are registered as partners and there is a certificate of the Registrar that the notice of change of firm by the introduction of three partners on 1st December, 1962, had been received and the change in the constitution of the firm u/s 63 (1) has taken place. This certificate is of 20th of March, 1966, and was admittedly given after the application under subsection (2) of section 8 had been filed. On the date when the application was filed only the first three appellants were registered as partners. Thus, the two conditions which are essential for a suit under sub-section (1) of section 69 had been complied with, the name of the firm having been duly registered and the three applicants suing having been shown as partners in the Register of Firms It is, however, to be observed that a suit under sub-section (2) of section 69 against a third party requires additionally that the persons suing are or have been shown in the Register of Firms as partners in the firm. It has been argued for the respondent-partners that their names not hiving been shown in the Register of partners on the relevant date and this requirement being essential, the application for appointment of an arbitrator which is "other proceeding" under sub-section (3) of section 69 should not be entertained. It is to be emphasized that the requirement of the partners being shown in the Register of Firms is essential only for a ''person'' suing under sub section (1) and ''persons'' under sub-section (2). The three respondents not having been shown as partners in the Register of Firms is not fatal as they are not the "persons suing". The persons suing, namely the three applicants, have at all relevant times been shown in the Register of Firms and the firm has also been registered. On a plain construction of the three sub-sections of section 69, therefore, it seems to me that the respondents cannot succeed in their preliminary objection. The various authorities which have been cited at the Bar by the learned counsel for the parties, in my opinion, also lead to the same conclusion.
Reliance is principally placed on behalf of the respondents on a Division Bench authority of this Court of Bhandari C.J. and Falshaw J. (as the Chief Justice then was) in Dr. V.S. Bahal Vs. S.L. Kapur and Co., . In this case, suits had been instituted by the firm of S.L. Kapur and Company against Bhagwan Dass and Dr. V.S. Bahal who were strangers, for recoveries of money and the case was governed by sub-section (2) of section 69. It appears that the firm consisting of three partners had been dissolved by resolution and it was held by the Bench that "in order to institute a suit a partnership firm must not only be a registered firm but also all the persons who are partners in the firm at the time of the institution of the suit must be or have been shown as such in the Register". In interpreting the words "persons suing" in section 69 (2), it was held that the phrase means "persons in the sense of individuals, and the only individuals referred to must be the partners in the firm." It is essential to note that the persons suing were the members of the dissolved partnership and the changed constitution of members had not been registered in the Register of Firms. It. was held by their Lordships of the Supreme Court in Jagdish Chander Gupta Vs. Kajaria Traders (India) Ltd., that the expression "claim of set off" in section 69 (3) of the Partnership Act does not disclose a category or a genus. The words "other proceeding" which follow must, therefore, receive their full meaning untrammeled by the words "a claim of set off". The latter words, in the opinion of their Lordships, neither intend nor can be construed to cut down the generality of the words "other proceeding", and would certainly cover an application made by a partner under sub-section (2) of section 8 of the Arbitration Act. In the case before their Lordships, a partner of an unregistered partnership had applied u/s 8 (2) of the Arbitration Act to enforce a right arising from a contract between the partners, and it was held that the proceedings are barred by section 69 (3) of the Partnership Act. It is to be noted that this conclusion was reached because the partnership itself had not been registered.
Another Division Bench authority of this Court of Gosain and Grover JJ. in Durga Das Janak Raj Vs. Preete Shah Sant Ram, has been cited for the proposition that section 69 (2) creates a bar to the institution of a suit by or on behalf of a firm against a third party but the only conditions which are provided and which have to be fulfilled for institution and trial of the suit are that the firm should be registered and the persons suing should be shown in the Register of firms as partners. According to this decision, there is no provision in section 69, or in Chapter VII dealing with registration of firms which makes fresh registration necessary in any of the contingencies provided for by sections 61 to 63, and if a firm is duly registered and if one of its partners dies, the registration for the purposes of section 69 of the Partnership Act does not come to an end. Stress has been laid by the counsel for the appellants on the continuity of the partnership on the authority of this ruling. The partnership of the three applicants was duly registered. It was by a subsequent agreement that three new partners were added and their names in the register of firms came to be included after the institution of the present application. This is not a case of non-registration of the firm. In Firm Buta Mal Dev Raj v. Chanan Mal AIR 1964 P&H 270, the earlier principle enunciated in Dr. V.S. Bahal v. M/s. S.L. Kapur and Company (supra), was reiterated it being held that to institute a suit a partnership firm must not only be a registered firm but also all the persons who are partners in the firm at the time of the institution of the suit must be, or have been, shown as such in the Register. This again is a case under sub-section (2) of section 69 of the Partnership Act which lays down the two prerequisite conditions for a suit by a firm against a third party.
Mr. Mani Subrat Jain for the appellant has also relied on a Bench decision of the Bombay High Court in Bombay Cotton Export Import Co. Bombay v. Bharat Survodaya Mill Co. Ltd. AIR 1959 Bom. 367, where it was held that a previous registration of a firm already effected in the province of Sind under the Partnership Act, 1932, and at a time before partition of India into India and Pakistan, is not rendered invalid and further that if a firm was duly registered under the Partnership Act by an authority competent in that behalf, the registration will avail the firm in filing a suit notwithstanding the readjustments which have since been made in the tutorial operation of the Act.
In my opinion, the appellants are entitled to succeed and this appeal is accordingly allowed. The preliminary objection is decided in favour of the appellants and against the respondents. The proceedings are sent back to the Court of the Subordinate Judge to decide the other questions raised before him with regard to the merits of the application. The counsel have been directed to cause their clients to appear before the Subordinate Judge on 12th May, 1966. The costs in this appeal will abide the event.