IMPORTANT POINT
A partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of the main part of Section 69(3) of the Partnership Act but when the dispute is only with regard to working out the rights flown from dissolution for settlement of accounts of the dissolved firm or any right or power to realise the property of the dissolved firm etc. that right would form part of the exception engrafted in sub-section (3) of Section 69.

ORDER

Leave granted.

We have heard learned counsel on both sides.

2. These appeals by special leave arise from the order of a Division Bench of the Karnataka High Court made in M.F.A. No. 324/86 on 3.1.1994 and in Civil Petition No.96/94 on 25.3.1994. It is not necessary to narrate in extenso the constitution, existence and continuance of the partnership firm prior to July 1, 1973. Suffice it to state that the respondent, who was working in the partnership firm as a Supervisor on salary basis, was taken as a partner on July 1, 1973, resulting a new partnership and it was agreed that he would be entitled to 10% of the profit and loss without contribution of any capital in the partnership. When disputes had arisen between the appellants and the respondent, the appellants - four partners - had a notice issued on 10.5.1984 dissolving the partnership. The respondent by his reply dated 17.5.1984 had agreed for dissolution. Subsequently, he filed an application under Section 20 of the Arbitration Act, 1940 (for short, the Act ) on 8.6.1984, in the court of the Civil Judge at Shimoga for reference to the arbitrator in terms of the agreement. The trial Court rejected three out of 4 claims made by him and referred claim No. 1 to the arbitration. The High Court on further consideration, in appeal, added two more items to the reference. Thus, these appeals by special leave.

3. Shri Javali, learned senior counsel for the appellants, contended that since admittedly the partnership firm was not registered as required under Section 69 of the Partnership Act, 1932, the respondent was not entitled to the reference under Section 20 of the Act to an arbitration. He also contended that even assuming that the court has such power of making reference, it would be only within the parameters of the provisions in sub-section (3) of Section 69 of the Partnership Act and no other claim is referable for arbitration. He placed strong reliance on Jagdish Chander Gupta v. Kajaria Traders (India) Ltd.1, in particular the last paragraph thereof, overruling the judgment of the Patna High Court in Mahender v. Guru Dayal2. The respondent resisted the contention and relied on Prem Lata v. Ishar Dass Chaman Lal3.

4. The question, therefore, is: whether the respondent is entitled to a reference under Section 20 of the Act? Admittedly, the partnership firm was not registered as required under Section 69(1) of the Partnership Act. The partnership deed does contain a clause for reference to arbitrate the disputes that would arise under the contract. The question, therefore, is: whether the exceptions to sub-section (3) of Section 69 would apply to the facts of the case? Sub-section (3) of Section 69 envisages as under :

"69. (3) 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, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts or a dissolved firm, or any right or power to realize the property of a dissolved firm; or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920), to realize the property of an insolvent partner."

(Emphasis supplied)

5. The contention of Shri Javali is that since the words "other proceedings to enforce a right arising from a contract" clearly envisage that when a party to the contract seeks to enforce the right arising from the contract, the main part of sub-section (3) stands attracted, the exceptions provided in the exclusionary clauses have no application. Therefore, the ratio in Jagdish Chandra Gupta s case, though related to reference under Section 8 would apply to the facts of the case and that the reference is not maintainable. We find no force in the contention. The words "but shall not affect" require to be given meaning and effect