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1990 Supreme(MP) 364
MADHYA PRADESH HIGH COURT
R. C. Lahoti, J.
RAM KUMAR AGARWAL - APPELLANT
v.
RAM KISHAN TAYAL FOUJI AND OTHERS - RESPONDENTS
M.A. No. 11 of 1981,
Decided on : September 14, 1990.
B. G. Apte, for the Appellant.
B. S. Agarwal, for the Respondents.
An application under Section 20 of the Arbitration Act, 1940, seeking accounts of a dissolved firm is saved from the bar of Section 69(1) of the Partnership Act, 1932, by the exception under Section 69(3)(a) and is maintainable.
Headnote:
PARTNERSHIP ACT, 1932 - SECTION 69(1) - ARBITRATION ACT, 1940 - SECTION 20 - APPLICATION FOR FILING OF ARBITRATION AGREEMENT - MAINTAINABILITY - NON-REGISTRATION OF FIRM - EFFECT - EXCEPTION UNDER SECTION 69(3)(A) - APPLICATION FOR ACCOUNTS OF DISSOLVED FIRM - SAVED FROM BAR OF SECTION 69(1) - AMENDMENT OF APPLICATION - PERMISSIBLE.
Fact of the Case:
Plaintiff and defendants entered into a partnership on 15.12.1976. Defendant No. 1 misappropriated partnership payments to his own use. Plaintiff filed an application under Section 20 of the Arbitration Act, 1940, seeking filing of the partnership agreement, incorporating the arbitration agreement, and taking account through arbitration of the amount due and payable to the plaintiff. The defendant objected that the application was not maintainable due to the non-registration of the partnership and that the partnership had dissolved. Plaintiff sought an amendment to the application, claiming entitlement to settlement of accounts and realization of the amount due to him consequent to the dissolution of partnership.
Finding of the Court:
The trial court dismissed the application, holding it to be not maintainable due to the bar created by Section 69(1) of the Partnership Act, 1932. The High Court allowed the appeal, set aside the impugned order, and directed the trial court to proceed with the hearing of the application.
Issues: 1. Whether an application under Section 20 of the Arbitration Act, 1940, is maintainable despite the non-registration of the partnership? 2. Whether the exception under Section 69(3)(a) of the Partnership Act, 1932, applies to an application for accounts of a dissolved firm? 3. Whether the amendment of the application to incorporate the claim for accounts of a dissolved firm is permissible?
Ratio Decidendi: 1. An application under Section 20 of the Arbitration Act, 1940, is saved from the bar of Section 69(1) of the Partnership Act, 1932, by clause (a) of sub-section (3) of Section 69, which provides an exception for the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm. 2. The exception under Section 69(3)(a) of the Partnership Act, 1932, applies to an application for accounts of a dissolved firm, even if the proceedings are initiated under Section 20 of the Arbitration Act, 1940, on account of an arbitration agreement between the parties. 3. The amendment of the application to incorporate the claim for accounts of a dissolved firm is permissible, as it is an amplification of the pleadings already raised and does not change the basic structure of the main application.
Final Decision: The appeal was allowed, the impugned order was set aside, and the trial court was directed to proceed with the hearing of the application in accordance with law.
R. C. Lahoti, J. - The plaintiff has come up in appeal aggrieved by an order of the trial Court holding an application under S. 20 of the Arbitration Act, 1940 to be not maintainable on account of bar created by S. 69(1) of Partnership Act, 1932.
2. The plaintiff and defendants entered into partnership on 15.12.1976. It appears, that the defendant No. 1 received certain payments relating to partnership and misappropriated the amount to his own use without distributing the same in accordance with the terms of partnership. On 1.6.1979, an application under Section 20 of the Arbitration Act was filed seeking filing of the partnership agreement, incorporating the arbitration agreement, in the court and, thereafter, taking account through arbitration of the amount due and payable to the plaintiff and awarding the same to the plaintiff.
3. The plaintiff also moved an application seeking an interim injunction restraining the defendant No. 1 from realising and other payments due to the partnership.
4. The defendant No. 1 filed a reply to the applications and took an objection therein that the partnership being not registered, the application was not maintainable. Therein, it was also stated that the partnership had stood dissolved.
5. Soon on the filing of the reply and having noticed the objection raised by the defendant No. 1 the plaintiff filed an application (I.A. No. 4) on 27.6.1979 seeking an amendment in the main application that the partnership having been dissolved as per the stand taken by the defendant No. 1, himself, the plaintiff was entitled to settlement of accounts consequent to the dissolution of partnership and to realisation of the amount due to him.
6. Admittedly, this application for amendment remained pending and the trial court having framed preliminary issues as to the maintainability of the main application, heard the parties on it and directed the application to be dismissed as stated hereinabove.
7. The learned counsel for the appellant has submitted that the application under Section 20 of the Arbitration Act was saved by Clause (a) of Sub-section (3) of Section 69 of the Partnership Act inasmuch as the plaintiff was seeking enforcement of his right to use for accounts of a dissolved firm and the trial court should not have dismissed his application without permitting the amendment prayed for.
8. The trial court definitely erred in overlooking I.A. No. 4 and adjudicating upon the maintainability of the main application. The amendment was prayed for at a preliminary stage of the proceedings and possibility there could have been no objection to permit the amendment because the plea was sought to be raised on the basis of a plea taken in the defence and further the basic structure of the main application remained the same. Really speaking, the amendment was an amplification of the pleadings already raised. The application deserved to be allowed and is hereby allowed.
9. The English Law of the Partnership makes registration of firms compulsory and imposes a penalty for non-registration. That drastic approach has not been followed in the Indian statute. Still, a firm not registered has been attached with disability to enforce its claims either against third parties or against fellow partners. One exception to this disability recognised by the Indian Law is that any unregistered partner in any firm registered or unregistered may sue for dissolution of the firm. This exception is made on the principle that registration is designed primarily to protect third parties and the absence of registration is designed primarily to protect third parties and the absence imperfectly registered firm. (See report of Special Committee). In Chhotelal v. Gopaldas (AIR 1940 Nag 78), the scheme underlying Section 69 was summed up in the following words :
"It is impossible to legislate entirely against unregistered partnership, but the intention of the Legislature was to discourage non-registration as far as possible; to proh
