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PETITIONER: SANGANER DAL AND FLOUR MILL

       Vs.

RESPONDENT: F.C.I. AND ORS.

DATE OF JUDGMENT22/10/1991

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. YOGESHWAR DAYAL (J)

CITATION:  1992 AIR  481            1991 SCR  Supl. (1) 542  1992 SCC  (1) 145        JT 1991 (5)   355  1991 SCALE  (2)983

ACT:      Indian Partnership Act, 1932---Section 19(2)(a)--Appli- cation   of-Contract   by  one   panner--No   objection   by others--Arbitration  clause of the contract binding  on  the firm and reference of dispute for arbitration u/s.20,  Arbi- tration Act, 1940--Proper.

HEADNOTE:      The  appellant--a  partnership firm consisted  of  nine partners.  One  Satya  Narain was one of  the  partners.  He submitted  a tender to the respondents on July 25,  1973  on behalf of the firm offering to supply 1000 quintals of  Gram Dal at the rate of Rs.185/- per bag. Tender was accepted  by the  respondents.  The  appellant committed  breach  of  the contract and as a result, the respondents filed an  applica- tion  under sec. 20 of the Arbitration Act, 1940 before  the District Court for making reference for arbitration in terms of the contract.      The  application  was allowed and the dispute  was  re- ferred for arbitration.      Against  the  order  of the Addl.  District  Judge,  an appeal  was filed before the High Court and the  High  Court confirmed the order of the Additional District Judge.      This  appeal  by special leave under Art.  136  of  the Constitution  is  against the order of the High  Court.  The appellant contended that by operation of Sec.19(2)(a) of the Partnership Act, 1932, there was no implied authority  given to one of the partners to refer the dispute relating to  the business  of  the  firm for arbitration  and  therefore  the reference made by the court, pursuant to a contract  entered into  by one of its partner, Satya Narain on behalf  of  the firm,  was without jurisdiction and that the  original  con- tract  did  not contain arbitration clause.  In  a  separate letter  with a rubber stamp (facsimile) of the firm, one  of the partners agreed for reference to arbitration and  there- fore the reference did not bind the other partners. Dismissing the appeal, this Court, 543     HELD: 1. The operation of Secs. 18 & 19(1) is subject to the   exceptions engrafted in sub-sec. (2) of Sec. 19.  Sec. 19(2)(a) provides that in the absence of any usage or custom

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of trade to the contrary, the implied authority of a partner does  not  empower him to submit a dispute relating  to  the business of the firm to arbitration. [545B-C]     2.  None of the partners have entered into  the  witness box  to  deny the validity of the contract  nor  raised  any objection  that they had not authorised the  partner  (Satya Narain) to enter into the contract nor that they were  bound by any acts done by him. When the partner signed the tender, at  that time no other partners raised  objection  regarding the  signing of the tender by the partner on behalf  of  the firm. In view of these facts it is clear that they  ratified the contract. [544 E-F]     3. The firm had entered into a binding contract with the corporation  and contract contained the  arbitration  clause which binds the partners. [544 G]     4.  The contract engrafts an arbitration clause  and  in terms thereof the dispute is to be referred to the  arbitra- tion.  Therefore, the reference made by the  Addl.  District Judge  under Sec. 20 of time Arbitration Act is  within  the jurisdiction and in terms of the contract. [545 D]     Gopal  Das v. Brij Nath & Ors., AIR 1926 Allahabad  238; Firm  Radhakishan  Chunnilal v. Firm Ashamal  Ishardas,  AIR 1926 Lahore 92; Rajendra Prasad v. Pannalal Champalal & Ors, AIR  1932 Calcutta 343; Mansabdar Khan v. M.T. Allah Devi  & Or3’.,  AIR 1934 Lahore 485; Sohanlal v. Firm Madhoram  Ban- warilal, AIR 1952 Punjab 240; and M/s. Alazappa Cotton Mills v.  Indo  Burma  Trading Corporation, AIR  1976  Madras  79, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1677 of 1984.      From  the  Judgment  and Order dated  7.7.1983  of  the Rajasthan  High  Court in S.B. Civil Misc. Appeal No.  6  of 1983. S.K.  Jain, Mrs. Pratibha Jain and Sudhanshu Atreya for  the Appellant.      C.K.  Sucharita, Y. Prabhakara Rao (N.P.) and  Ganpathi Iyer Gopalkrishnan for the Respondents. 544       The following Order of the Court was delivered:       This  appeal  by special leave under Art. 136  of  the Constitution  is  against  the order of the  High  Court  of Rajasthan  dated July 7, 1983. The appellant  a  partnership firm consists of nine partners of which Satya Narain is  one of the partners. On July 2.5, 1973 Satya Narain submitted  a tender  to the respondents offering to supply 1000  quintals of  Gram  Dal  at the rate of Rs. 185/- per  bag.  This  was accepted by the respondents by letter dated August 28,  1973 followed  by confirmation letter by the firm on  August  31, 1973.  It is the case of the respondents that the  appellant committed  breach of the contract and as a result,  the  re- spondents filed an application under sec. 20 of the Arbitra- tion Act, 1940 (for short as the ’Act’) before the  District Court  for making reference for arbitration in terms of  the contract.  The  Addi. District Judge after  considering  the evidence  and  the objections allowed  the  application  and referred  the dispute for arbitration. Against  that  order, the appeal was filed and the High Court confirmed the  order of the Addi. District Judge.      The contention raised by Sri Sushil Kumar Jain, learned counsel  for  the  appellant is that by  operation  of  Sec.

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19(2)(a)  of the Indian Partnership Act, 1932 (for short  as the  ’Partnership Act’) there is no implied authority  given to one of the partners to refer the dispute relating to  the business  of  the  firm for arbitration  and  therefore  the reference made by the court, pursuant to a contract  entered into  by  Satya  Narain on behalf of the  firm,  is  without jurisdiction.  The High Court found as a fact that  none  of the  partners have entered into the witness box to deny  the validity of the contract nor raised any objection that  they had  not authorised Satya Narain to enter into the  contract nor that they were bound by any acts done by him. It is also found  that Satya Narain signed the tender and at that  time no other .partners raised objection regarding the signing of the tender by Satya Narain on behalf of the firm. In view of these facts it is clear that they ratified the contract.  It is also further to be noted that. in terms of the  contract, the  corporation had appropriated the security deposit  made by  the appellant-firm and that was not objected to  at  any time.  This  itself would fortify. the conclusion  that  the firm  had entered into a binding contract with the  corpora- tion  and  contract contained the arbitration  clause  which binds the partners. The contention raised that the  contract is  void and that in terms of the contract, making a  refer- ence is without jurisdiction bears no substance.       The  High  Court found that Satya Narain  has  implied power to con duct business on behalf of the partnership firm and the implied authority 545 binds  all  the  partners. Sec. 18 of  the  Partnership  Act postulates  that  "subject to the provisions of  the  Act  a partner  is  the agent of the firm for the purposes  of  the business  of the firm". Sec. 19(1) adumbrates that  "subject to  the provisions of Sec. 22 the act of the partners  which is  done  to carry on in the usual way the business  of  the kind  carried on by the firm, binds the firm".  Thus,  Satya Narain has implied authority to enter into the contract with the  corporation to supply the Dal of 1000 quintals  at  the contracted rate which is the usual course of the business of the  appellant. But it is settled law that the operation  of Sees.  18 & 19(1) is subject to the exceptions engrafted  in sub-sec. (2) of Sec. 19. Sec. 19(2)(a) provides that in  the absence of any usage or custom of trade to the contrary, the implied  authority  of  a partner does not  empower  him  to submit  a dispute relating  to the business of the  firm  to arbitration. Satya Narain has power to do business on behalf of  the  firm and in exercise thereof he  entered  into  the contract  with the corporation during the usual  control  of business to supply the Dal. Then crucial question is whether a valid contract which was not repudiated as per law,  binds the other partners? Our answer is yes. It is not in  dispute that  the  contract engrafts an arbitration  clause  and  in terms thereof the dispute is to be referred to the  arbitra- tion.  Therefore, the reference made by the  Addi.  District Judge  under  Sec. 20 of the Arbitration  Act  is  perfectly within the jurisdiction and in terms of the contract. It  is not  the case of the partners that the firm is not  carrying on the business of the supply of Dal and that Satya  Narain, as  found by the Trial Court, was authorised to do  business on behalf of the firm.        Under  those circumstances, the reference is  clearly valid. We do not find any illegality to interfere with the order of the  High Court.      In this view, the decisions in Gopal Das v. Bail Nath & Ors., AIR 1926 Allahabad 238; Finn Radhakishan Chunnilal  v.

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Finn  Ashamal lshardas, AIR 1926 Lahore 91; Rajendra  Prasad v. Pannalal Champalal & Ors. AIR 1932 Calcutta 343;  Mansab- dar  Khan  v.M.T. Allah Devi & Ors., AIR  1934  Lahore  48S; Sohanlal  v. Finn Madhoram Banwarilal, AIR 19S2 Punjab  240; and M/s Alazappa Cotton Mills v. Indo Bunna Trading Corpora- tion,  AIR 1976 Madras 79; cited by learned counsel  are  of little  assistance to the appellant. In M/s Alazappa  Cotton Mills  case the original contract does not contain  arbitra- tion  clause.  In  a separate letter  with  a  rubber  stamp (facsimile)  of  the  firm one of the  partners  agreed  for reference  to arbitration. On those facts it was  held  that the  reference does not bind the other partners. The  appeal is  accordingly  dismissed. Since we do not  call  upon  the respondents to argue, there will be no order as to costs. V.P.R.                                                Appeal dismissed. 546