IMPORTANT POINTS
1. The bar enacted by Section 69 of the Partnership Act does not affect the maintainability of an application under Section 9 of the Arbitration and Conciliation Act.
2. It is a serious matter to appoint a receiver, on a running business.

Headnote:(i) Partnership Act, 1932-Section 69(3)-Arbitration and Conciliation Act, 1996-Section 9-Unregistered firm-Effect of bar created by Section 69(3) of the Partnership Act on maintainability of an application u/s 9 of Arbitration Act-Application u/s 9 of Arbitration Act moved by a partner of an unregistered firm or by a person not shown as a partner in Register of Firms-Maintainable-Section 69 of Partnership Act has no bearing on right of a party to an arbitration clause to file an application u/s 9 of Arbitration Act.
       Held : Sub-Sections (1) and (2) of Section 69 of Partnership Act strike at the very root of the jurisdiction of the Court to entertain a suit to enforce a right arising from a contract, if the applicability of Section 69 is attracted. By virtue of sub-Section (3), the bar enacted by sub-Sections (1) and (2) applies also to a claim of set-off or other proceedings to enforce a right arising from a contract which, in the submission made by the learned counsel for Groups "B" and "C", includes a proceeding commencing on an application under Section 9 of the A & C Act. In our opinion, which we would term as prima facie, the bar enacted by Section 69 of the Partnership Act does not affect the maintainability of an application under Section 9 of A & C Act. (Paras 11 & 12)
       A & C Act, 1996 is a long leap in the direction of alternate dispute resolution systems. It is based on UNCITRAL Model. The decided cases under the preceding Act of 1940 have to be applied with caution for determining the issues arising for decision under the new Act. An application under Section 9 under the scheme of A & C Act is not a suit. Undoubtedly, such application results in initiation of civil proceedings but can it be said that a party filing an application under Section 9 of the Act is enforcing a right arising from a contract? "Party" is defined in Clause (h) of sub-Section (1) of Section 2 of A & C Act to mean a party to an arbitration agreement . So, the right conferred by Section 9 is on a party to an arbitration agreement. The time or the stage for invoking the jurisdiction of Court under Section 9 can be (i) before, or (ii) during arbitral proceedings, or (iii) at any time after the making of the arbitral award but before it is enforced in accordance with Section 36. (Para 13)
       The arbitration clause constitutes an agreement by itself. In short, filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief which the Court has power to grant before, during or after arbitral proceedings by virtue of Section 9 of the A & C Act. The relief sought for in an application under Section 9 of A & C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the arbitral tribunal; the Court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the arbitral tribunal from being frustrated. Section 69 of the Partnership Act has no bearing on the right of a party to an arbitration clause to file an application under Section 9 of A & C Act. (Para 13)
       (ii) Arbitration and Conciliation Act, 1996-Section 9-Application for appointment of a receiver-Dispute among 12 persons who are, or are alleged to be or claim to be partners in a firm-These partners grouped into three, group A , B and C -Firm is in liquor trade-Firm was awarded a liquor contract licence for year 2002-03-Complaints by members of group A complaining of violation of their rights as partners at the hands of group B -Application filed under Section 9(ii)(d) of the Act, for appointment of a receiver, to take charge of entire business of the firm-Group A having 20 share in partnership business and group B having 18 share-Group C having 62 share not contesting, vocally supported group B standing by its side-Case of holders of 20 interest claiming against holders of 80 interest-It was group B which was running business upto the date of passing of order by High Court-Whether it was justified to appoint a receiver, on a running business-However, order of High Court appointing a receiver on partnership business maintained with modifications.
       Held :
        (1) The business shall run as before under the actual management and control of Group "B" but as receivers.
        (2) The Commissioner of Excise, Madhya Pradesh shall appoint an official who has been associated with the excise department of Madhya Pradesh, preferably a retired person, who shall act as an observer. The observer shall keep a watch on the business of M/s. Ashok Traders generally and in particular to see :
        (i) that the business is run by receivers without any hindrance by any of the partners;
        (ii) that the accounts are properly, truly and correctly maintained,
        (iii) that the receipts and payments are properly vouched,
        (iv) that the sale proceeds are properly accounted for and no part of the proceeds is siphoned off and/or carried away unaccounted by anyone.
        (3) All the sale proceeds shall be deposited day to day in a bank account to the opened in a nationalised bank in the name of the Firm M/s. Ashok Traders (under orders of the Court) . Any amounts to be withdrawn shall be only under the joint signatures of at least one members of Group "B" or "C" and the observer, for the purpose of making payments to the State Government, and on account of rent/licence fee of the shops, salary of the staff transport charges and other necessary expenses required for running day to day business.
        (4) Though the conduct of the business is being allowed to be continued by Group "B" but that is in their capacity of receivers as appointed by the Court. They must truly and strictly perform their duties as receivers. Any deviation would be viewed seriously.
        (5) The members of Group "A" and/or their representative/s, authorized in writing, shall have a reasonable right to visit the shops during business hours and watch the activities going on but without interfering with the business activities run by the receivers.
        (6) The observer shall be paid such monthly remuneration and reimbursed such expenses, as may be considered reasonable and appointed by the Commissioner of Excise subject to overall directions of the Trial Court.
        (7) This arrangement shall continue till 31st March 2004 and also for such further period as may be necessary for winding up of the business as per terms of the license of the State Government (Excise Department).
        (8) On finalization of the accounts duly audited by Chartered Accountants the net profit or loss, if any, shall be distributed in accordance with the award given by the arbitrator or decision by any competent forum.
        (9) The receivers and observers shall be under the control of the trial Court. In case of any difficulty in carrying out this order, the parties, the observer and the Excise Commissioner of Madhya Pradesh or any officer subordinate to him shall be at liberty to seek directions from the trial Court. (Para 21)

Judgement Key Points

Yes, in this case it was held that interim relief is in aid of final relief. The court clarified that the purpose of interim measures, such as those granted under Section 9 of the Arbitration and Conciliation Act, is to provide protection and preserve the rights of the parties pending the final resolution of the dispute. The court emphasized that interim relief is meant to support and facilitate the ultimate relief sought in the substantive proceedings, rather than serve as a substitute for the final determination.

ORDER

Leave granted in both the SLPs.

2. The dispute is among 12 persons who are, or are alleged to be, or claim to be partners in the firm M/s Ashok Traders, the respondent No. 1. These 12 private parties to the litigation can be grouped into three, for the sake of convenience. Gurumukh Das Saluja, Sanjay Chawla and Ajay Arora shall be collectively referred to as Group "A". Bhagwati Prasad Kulhara, Badri Prasad Jaiswal and Harprasad Jaiswal shall be referred to as Group "B". Rajesh Jaiswal, Ram Sewak Sharma, Baljeet Singh Bhatia, Rajendra Prasad Jaiswal, Anil Kumar Shrivastava and Sushil Kumar Shrivastava shall be referred to as Group "C".

3. M/s. Ashok Traders are in liquor trade. In the Deed of Partnership entered into on 27.2.2002 there were 7 partners including Bhagwati Prasad Kulhara and 6 others. The partnership firm was registered with Registrar of Firms. Six partners (i.e. other than Bhagwati Prasad Kulhara) retired from the partnership and a new partnership came to be constituted on 5.3.2002 evidenced by a Deed of the even date wherein all the persons belonging to Groups A, B and C are partners. However, the names of the new partners were not communicated to the Registrar of Firms. This firm was awarded a liquor contract licence for Bhopal for the year 2002-03 at a licence fee of Rs. 66.51 crores. The existence of these two Deeds of Partnership and the factum of the first one being registered and the second one being not registered with the Registrar of Firms are admitted facts. For convenience sake, we would refer to the partnership dated 27.2.2002 as Partnership -I, the Partnership dated 5.3.2002 as Partnership - II and the alleged partnership dated 6.3.2003 as Partnership - III.

4. The business ran smoothly upto February 2003 and then differences and disputes are alleged to have arisen amongst the partners. Clause 20 of the Partnership Deed-II incorporates an Arbitration Clause. Group "B" alleges the existence of yet another Deed of Partnership which is dated 6.3.2003 wherein the names of the members of Group "A" are not to be found mentioned as partners. This partnership-III is also not registered.

5. On 6.3.2003 auction for IMFL and country-liquor shops (60 in number) for the year 2003-04 was held at Bhopal. M/s Ashok Traders was declared to be successful bidder for a licence fee of Rs. 73.25 crores. The shops are running and have always remained operational even during the present litigation.

6. Disputes arose giving rise to complaints by the members of Group "A" complaining of the violation of their rights as partners at the hands of Group "B". Group "A" complained of their being denied access to accounts, of Group "B" indulging into mismanagement of affairs and siphoning off of the funds and so on. Ajay Arora (of Group "A") filed a civil suit which was held to be not-maintainable in view of Section 69 (3) of the Indian Partnership Act, 1932; the name of Ajay Arora having not been shown in the Register of Firms as a partner of the firm. According to Group "A", a notice was issued on 2.6.2003 to the other partners invoking the arbitration clause and calling upon them to join in the appointment of arbitrator/s consistently with the arbitration clause so as to adjudicate upon the disputes between the partners. The contesting respondents do not admit the receipt of the notice. On 22.7.2003, Gurumukh Das Saluja of Group "A" filed an application under Section 9 of The Arbitration and Conciliation Act, 1996 wherein the principal relief sought for is the appointment of a receiver under Section 9(ii)(d) of the Act to take charge of the entire business of the firm. Other incidental injunctions are also sought for. Group "B" contested the application on very many grounds and mainly by submitting that the application was not maintainable in view of the bar enacted by Section 69(3) of the Partnership Act as the name of the applicant does not figure in the Register of Firms as partner of the firm. The plea has prevailed with the

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2004 Supreme(SC) 35

IMPORTANT POINTS1. The bar enacted by Section 69 of the Partnership Act does not affect the maintainability of an application under Section 9 of the Arbitration and Conciliation Act.2. It is a serious matter to appoint a receiver, on a running business.

Cases Referred (5)

IMPORTANT POINTS
1. The bar enacted by Section 69 of the Partnership Act does not affect the maintainability of an application under Section 9 of the Arbitration and Conciliation Act.
2. It is a serious matter to appoint a receiver, on a running business.