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Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7916 OF 2009

M/s Umesh Goel         …Appellant

VERSUS

Himachal Pradesh Cooperative Group Housing                     Society Ltd.                         …Respondent  

J   U  D  G   M   E   N   T

Fakkir Mohamed Ibrahim Kalifulla, J.

1. An  interesting  but  very  important  legal  question  arises  for

consideration in this appeal relating to interpretation of Section 69(3) of the

Indian  Partnership  Act  with  reference  to  its  applicability  to  Arbitral

proceedings.  

2. The facts are not in controversy which can be briefly stated as under:

The  respondent  which  is  a  Cooperative  Group  Housing  Society  invited

tenders for construction of 102 dwelling units with basement at Plot No. 21

Sector 5, Dwarka New Delhi. The tenders were invited in May 1998. The

appellant, an unregistered partnership firm submitted its bid in response to

the said tender on 06.05.1998. The appellant was the successful bidder and

the contract was awarded to the appellant at an estimated cost of Rs.9.80

crores.  The  appellant  was  issued  a  letter  of  intent. On  09.08.1998  the

appellant submitted its first bill for the construction of the compound wall

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etc. The agreement for the construction of 102 dwelling units with basement

was entered into between the appellant and the respondent on 02.02.1999.

It is stated that there was some delay in getting the plan sanctioned, which

according to the appellant, he was not responsible for the delay. A dispute

arose as between the appellant and the respondent which necessitated the

appellant to move the High Court of Delhi by way of an application under

Section 9 of the Arbitration and Conciliation Act 1996 (for short “1996 Act”)

to  restrain  the  respondent  from  dispossessing  the  appellant  from  the

worksite  till  the  work  executed  by  the  appellant  is  measured  by  the

Commissioner to be appointed by the Court. It was filed on 22.05.2005. A

Commissioner was also appointed by the High Court. The appellant filed

another  application  under  Section  9  of  the  1996  Act  to  restrain  the

respondent from operating its bank accounts and from dispossessing the

appellant on 29.01.2003.

3. With reference to the dispute which arose as between the appellant

and  the  respondent  an  arbitrator/an  advocate  by  name  Smt.  Sangeeta

Tomar was appointed by the respondent to adjudicate the dispute between

them.  As  the  appointment  came  to  be  made  on  17.03.2003  by  the

respondent, though, the appellant earlier moved the High Court by way of

an Arbitration Application No.145 of  2003 on  09.07.2003 under Section

11(5)  of  the 1996 Act for appointment of  an independent arbitrator, the

same  was  subsequently  withdrawn.  The  appellant  participated  in  the

arbitration proceedings before the arbitrator appointed by the respondent.

Claims  and  counter  claims  were  made  by  the  appellant  as  well  as  the

respondent  before  the  arbitrator.  The  arbitrator  passed  the  award  on

05.05.2005 wherein the claim of the appellant was allowed to the extent of

Rs. 1,36,24,886.08 along with interest at the rate of 12% from 01.06.2002

till the date of the award and further interest from the date of award till its

payment at the rate of 18% per annum. While resisting the claim of the

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appellant, the respondent did not specifically raise any plea under Section

69 of the Partnership Act.  

4. The respondent challenged the award dated 05.05.2005 under Section

34 of the 1996 Act before the Delhi High Court which was registered as A.A.

No.188  of  2005.  The  said  application  was  filed  on  02.08.2005.  The

respondent’s application was dismissed by the learned Single Judge by an

order dated  01.09.2005. The respondent filed Review Application No.26 of

2005 which was also dismissed by the learned Single Judge by an order

dated 03.10.2005. As against the orders dated 01.09.2005 and 03.10.2005,

the  respondent  preferred  appeals  in  FAO  (OS)  No.376  of  2005  on

14.11.2005.  Pending disposal of the appeals, an interim order was passed

on  21.07.2006  directing  the  respondent  to  deposit  50% of  the  decretal

amount within six weeks and by subsequent order dated 18.08.2006 the

time was extended by another four weeks. By the impugned order dated

20.11.2007 the Division Bench having allowed the FAO(OS) No.376 of 2005,

the appellant is before us.

5. We heard Mr. Dhruv Mehta, learned Senior Counsel for the appellant

and Mr.Amarendra Saran, learned Senior Counsel for the respondent. Mr.

Dhruv Mehta, learned Senior Counsel in his submissions after drawing our

attention to Section 69 and in particular Section 69(3) of the Partnership

Act contended that when sub sections (1) and (2) are read in to sub section

(3) of Section 69, the expression “other proceedings” mentioned in the said

sub section (3)  should be with reference to other proceedings connected

with a suit in a Court and cannot be read in isolation. The learned Senior

Counsel  contented that  if  it  is  read in that  sense the expression  “other

proceedings” in  sub  section  (3)  can  have  no  relevance  nor  referable  to

Arbitral  proceedings  in  isolation. The  learned  Senior  Counsel  further

contended that going by the plain reading of the Statute and if the golden

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rule of construction is applied, an arbitrator by himself is not a court for the

purpose  of  Section  69 of  the  Statute.  The  learned  Senior  Counsel  then

submitted  that  there  is  a  vast  difference  between an  arbitrator  and the

Court, that though an arbitrator may exercise judicial powers, he does not

derive  such powers  from the  State  but  by  the  agreement  of  the  parties

under a contract and, therefore, he cannot be held to be a Court for the

purpose of Section 69 of the Partnership Act. While referring to Section 36

of  the 1996 Act, the learned Senior Counsel  submitted that  it  is  only a

statutory  fiction by which for  the purpose  of  enforcement, the  award is

deemed to be a decree and it cannot be enlarged to an extent to mean that

by virtue of the said award to be deemed as a decree, the arbitrator can be

held to be a Court. Lastly, it was contended by him that in order to invoke

Section  69(3), three  mandatory  conditions  are  required  to  be  fulfilled,

namely, that (a) there should be a suit and the other proceedings should be

intrinsically connected to the suit, (b) such suit should have been laid to

enforce a right arising from the contract and (c) such a suit should have

been filed in a Court of law.

6. As against the above submissions Mr. Saran, learned Senior Counsel

for the respondent submitted that the expression  “other proceedings” will

include arbitral  proceedings and that the foundation for it  must only be

based on a right in a contract. In support of the said submission, learned

senior  counsel  contended  that  this  Court  has  held  while  interpreting

Section 14 of the Limitation Act that arbitral proceedings are to be treated

on par with civil proceedings. The learned Senior Counsel also submitted

that under Section 2(a) of the Interest Act, arbitral proceedings have been

equated to regular suits and, therefore, the expression “other proceedings”

in Section 69(3) of the Partnership Act should be held to include an Arbitral

Proceeding on par with a suit.  The learned counsel, therefore, contented

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that  the  arbitrator  should  be  held  to  be  a  Court  and  the  proceedings

pending  before  it  are  to  be  treated  as  a  suit  and  consequently  other

proceedings. By referring to Sections 35 and 36 of the 1996 Act where an

award of  the arbitrator  has  been equated  to  a  decree  of  the Court  and

applicability of Civil Procedure Code for the purpose of execution has been

prescribed, the  learned  Senior  Counsel  contended  that  the  arbitral

proceedings should be held to be civil proceedings before a Court.  

7. Mr.  Dhruv  Mehta, learned  Senior  Counsel  for  the  appellant  relied

upon the decisions reported in Jagdish Chander Gupta v. Kajaria Traders

(India)  Ltd.  1964  (8)  SCR  50,  Kamal  Pushp  Enterprises  v. D.R.

Construction Co. (2000) 6 SCC 659, The Bharat Bank, Ltd., Delhi v. The

Employees  of  the  Bharat  Bank  Ltd.,  Delhi  and  the  Bharat  Bank

Employees’ Union, Delhi -  AIR 1950 SC 188,  Firm Ashok Traders and

another  v. Gurumukh  Das  Saluja  and  others –  (2004)  3  SCC  155,

Sumtibai and Ors. v. Paras Finance Co. Regd. Partnership Firm, Beawer

(Raj.)  Through  Mankanwar  (Smt.)  W/o  Parasmal  Chordia  (Dead)  and

Ors.- (2007) 10 SCC 82, Panchu Gopal Bose v. Board of Trustees for Port

of Calcutta - (1993) 4 SCC 338, M/s. Consolidated Engg. Enterprises v.

Principal Secy. Irrigation Deptt. and Ors. – 2008 (6) SCALE 748, State of

W.B. v. Sadan K. Bormal and Anr. - (2004) 6 SCC 59, Raj Kumar Khurana

v. State of (NCT of Delhi) and Anr. - (2009) 6 SCC 72 and M/s. Indian Oil

Corporation  Limited  Rep.  by  Its  Chief  LPG  Manager  (Engg.)  S.

Chandran  v. M/s.  Devi  Constructions,  Engineering  Contractors  &

another – 2009 (2) Law Weekly 849. Mr. Saran, learned Senior Counsel for

the respondent relied upon the decisions reported in Firm Ashok Traders

(supra),  Delhi  Development Authority  v.  Kochhar Construction Work

and Anr. (1998) 8 SCC 559, Panchu Gopal Bose (supra) and P. Sarathy v.

State Bank of India - (2000) 5 SCC 355.

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8. Having heard learned counsel for the appellant as well the respondent

and  having  bestowed  our  serious  consideration  to  the  respective

submissions, the  various  decisions  relied  upon  and  the  provisions

contained in the Partnership Act, the Interest Act, Civil Procedure  Code and

Arbitration  Act,  we  are  of  the  view  that  the  submissions  of  Mr.  Dhruv

Mehta, learned Senior Counsel for the appellant merit acceptance.  

9. To  appreciate  the  respective  submissions  and  in  support  of  our

conclusion, at the very outset Section 69 requires to be noted, which reads

as under: “69.  Effect  of  non-registration.-(1)  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 in a 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.

(2)  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.

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceedings to enforce a right arising from a contract, but shall not effect –

(a) The enforcement of any right to sue for the dissolution of a firm or for accounts of 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.

(4) This section shall not apply- (a) to firms or to partners in firms which have no place of business  in  the  territories  to  which  this  Act  extends,  or whose places of business in the said territories, are situated

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in  areas  to  which,  by  notification  under  section  56,  this Chapter does not apply, or (b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts  Act,  1882  (5  of  1882),  or,  outside  the Presidency-towns, is not of a kind specified in Schedule II to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to  any  proceeding  in  execution  or  other  proceeding incidental to or arising from any such suit or claim.”

10. Though, some of the decisions which were cited before us dealt with

Section 69(3) of the Partnership Act, in the instance we wish to analyze the

said sub-section along with the other components of the said Section 69.

When we read sub-section (3) of Section 69 carefully, we find that as rightly

contended by Mr. Dhruv Mehta, learned Senior Counsel for the appellant,

the provisions of sub-sections (1) and (2) have been impliedly incorporated

in sub-section (3). When the opening set of expression in sub-section (3)

states that the provisions of sub-sections (1) and (2) shall apply, there is no

difficulty in accepting the said submission of learned Senior Counsel for the

appellant that the entirety of the said two sub-sections should be held to be

bodily lifted and incorporated in sub-section (3). It is difficult to state that

any  one  part  of  sub-sections  (1)  and  (2)  alone  should  be  held  to  be

incorporated for the purpose of sub-section (3). Therefore, we are convinced

that when we read sub-section (3) it is imperative that all the ingredients

contained in sub-sections (1) and (2) should be read into sub-section (3)

and thereafter apply the said sub-section when such application is called

for in any matter.  

11. Once we steer clear of the said position it will be necessary to note

what  are  the  specific  ingredients  contained  in  sub-sections  (1)  and  (2).

When we read sub-section (1) of Section 69 the said sub-section primarily

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imposes a ban on any person as a partner of a firm from filing any suit to

enforce  a  right  arising  from  a  contract  or  a  right  conferred  under  the

Partnership Act in any Court by or on behalf of an unregistered firm or a

person suing as a partner of a firm against the said firm or against any

person alleged to be or to have been a partner in that firm. To put it in

nut-shell the ban imposed under sub-section (1) of Section 69 is on any

person in his capacity as the Partner of an unregistered firm against the

said firm or any of its partners, in the matter of filing a suit to enforce a

right  arising  from  a  contract  or  conferred  by  the  provisions  of  the

Partnership Act. In effect, the ban is in respect of filing a suit against that

unregistered firm itself  or  any of  its  partners  by way of  a  suit  under  a

contract or under the Partnership Act. Under sub-section (2) the very same

ban  is  imposed  on  an  unregistered  firm or  on  its  behalf  by  any  of  its

partners against any third party by way of a suit to enforce a right arising

from a contract in any Court. A close reading of sub-Sections (1) and (2)

therefore shows that while under sub-section (1) the ban is as against filing

a suit in a Court by any person as a partner of an unregistered firm against

the firm itself or any of its partner, under sub-section (2) such a ban in the

same form of a suit in the Court will also operate against any third party at

the instance of such an unregistered firm.  The common feature in both the

sub-sections are filing of a suit, in a Court for the enforcement of a right

arising from a contract or conferred by the Partnership Act either on behalf

of an unregistered firm or by the firm itself or by anyone representing as

partners of such an unregistered firm. While under sub-section (1) the ban

imposed would operate against the firm itself or any of its partners, under

sub-section (2) the ban would operate against any third party.  

12. The  question  for  our  consideration  is  by  virtue  of  sub-section  (3)

whether the expression “other proceedings” contained therein will include

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Arbitral  proceedings  and can be  equated to  a  suit  filed in a  Court  and

thereby the ban imposed against an unregistered firm can operate in the

matter of arbitral proceedings. If sub-sections (1) and (2) are virtually lifted

whole hog and incorporated in sub-section (3), it must be stated that it is

not the mere ban that is imposed in sub-sections (1) and (2) that alone is

contemplated for the application of sub-section (3). In other words, when

the whole of the ingredients contained in sub-sections (1) and (2) are wholly

incorporated in sub-section (3), the resultant position would be that the ban

can operate in respect of an unregistered firm even relating to a set off or

other proceedings only when such claim of set off or other proceedings are

intrinsically connected with the suit that is pending in a Court. To put it

differently, in order to invoke sub-section (3) of Section 69 and for the ban

to operate either the firm should be an unregistered one or the person who

wants to sue should be a partner of an unregistered firm, that its / his

endeavour should be to file  a suit  in a Court, in which event even if  it

pertains to a claim of set off or in respect of  ‘other proceedings’ connected

with any right arising from a contract or conferred by the Partnership Act

which is sought to be enforced through a Court by way of a suit then and

then alone the said sub-section can operate to its full extent.  

13. As far as the construction of the said sub-section (3) of Section 69 is

concerned, we are able to discern the above legal position without any scope

of ambiguity. To be more precise, the condition precedent for the operation

of ban under sub-section (3) is that the launching of a suit in a Court of law

should be present and it should be by an unregistered firm or by a person

claiming to be partner of an unregistered firm either to a claim for set off in

the said suit or any other proceedings intrinsically connected with the said

suit.

14. In the event of the above ingredients set out under sub-sections (1), (2)

and (3) being fulfilled then and then alone the ban prescribed against an

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unregistered firm under Section 69(1), (2) and (3) would operate and not

otherwise.

15. Keeping the above outcome of the legal position that can be derived

from a reading of sub-sections (1), (2) and (3) of Section 69 in mind we can

draw further conclusions by making specific reference to sub-clauses (a)

and (b) of sub-section (3) as well as the exceptions set out in sub-clauses (a)

and (b) of sub-section (4) as well. When under sub-section (3) which also

relates to a ban concerning ‘other proceedings’, the law makers wanted to

specifically exclude from such ban such of those proceedings which also

likely to arise in a suit, but yet the imposition of ban of an unregistered firm

need not be imposed. Keeping the said intent of the law makers in mind,

when  we  read  sub-clauses  (a)  and  (b)  of  sub-section  (3), it  can  be

understood  that  even  though  such  other  proceedings  may  be  for  the

enforcement of any right to sue but yet if it is for the dissolution of a firm or

for accounts of a dissolved firm or any right or power to realize the property

of a dissolved firm, the same can be worked out by way of a suit in a Court

or by way of other proceedings in that suit and the same will not be affected

by the ban imposed under sub-section (3). Similarly, any steps initiated at

the  instance  of  an  official  assignee,  a  receiver  or  Court  under  the

Presidency-Towns  Insolvency  Act  of  1909  (3  of  1909)  or  the  Provincial

Insolvency Act of 1920 (5 of 1920) to realize the property of an insolvent

partner  in  a  pending suit  of  a  Court  also stand excluded from the ban

imposed under sub-section (3). The specific exclusions contained in clauses

(a) and (b) of sub-section (3) therefore makes the position clear to the effect

that even though such proceedings may fall  under the expression “other

proceedings” and may be intrinsically connected with a suit in a Court, yet

the ban would not operate against such proceedings.  

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16. When we read sub-section (4), the ban imposed under sub-sections

(1), (2) and (3) will have no application to any of those proceedings set out in

sub-clauses (a) and (b) of the said sub-section (4). A specific reference to

sub-clause (b) of sub-section (4) disclose that in the last part of the said

sub-clause it is specifically provided that other proceedings incidental to or

arising from any suit or claim of set off not exceeding Rs.100 in value under

those  specific  statute  referred  to  in  the  said  sub-clause  can  also  be

launched without any ban being operated as provided under sub-sections

(1), (2) and (3). The said part of sub-clause (b) of sub-section (4) thus gives a

vivid picture as to the position that the  ‘other proceeding’ specified in the

said sub-section can only relate to a pending suit in a Court and not to any

other different proceeding which can be categorized as ‘other proceedings’.  

17. We are thus able to arrive at a definite conclusion as to the scope and

ambit of Section 69 in particular about Section 69(3). Having thus analyzed

the provision in such minute details and its implication, we can now apply

the said provision to the case on hand and find out whether Section 69(3) is

attracted to the Arbitral Proceedings and the ultimate award passed therein

by construing the same as falling under the expression “other proceedings”.  

18. In the case on hand, the contract between the parties contained an

Arbitration  Clause.  The  respondent  invoked  the  said  clause  and  an

Arbitrator came to be appointed. After the respondent filed its statement of

claim,  the  appellant  filed  its  reply  and  also  its  counter  claim  dated

30.08.2003. Before the Arbitrator, in the course of oral arguments, a faint

attempt  was  made  contending  that,  the  appellant-firm  being  an

unregistered  one,  by  virtue  of  Section  69  of  the  Partnership  Act,  the

proceedings insofar as the counter claim was concerned, the same was not

maintainable and should be rejected. The Arbitrator took the correct view

that Section 69 has no application to the proceedings of the Arbitrator and

held  that  the  objection  of  the  respondent  was  not  sustainable.  The

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Arbitrator  allowed  the  counter  claim  to  the  extent  of  Rs.1,36,24,886/-

(Rupees One crore thirty six lacs twenty four thousand eight hundred eighty

six  only).  When  the  award  of  the  Arbitrator  was  challenged  by  the

respondent under Section 34 of the Act, the very same objection was raised

as a ground of  attack. The learned Single Judge of  the High Court also

found no merit  in the said contention and upheld the award of  counter

claim.  

19. By the impugned judgment,  the Division Bench in the appeal  filed

under Section 37 of the Act took a contrary view and held that the counter

claim  in  an  Arbitral  Proceedings  is  covered  by  the  expression  “other

proceedings”  contained  in  Section  69(3)  of  the  Partnership  Act  and  the

appellant being an unregistered firm at the relevant point of time was hit by

the embargo contained therein and consequently the award of counter claim

in  the  award  as  confirmed  by  the  learned  Judge  was  reversed  as  not

justiciable by virtue of Section 69 of the Partnership Act.

20. Based on the close analysis of Section 69 in its different parts, we are

able to discern and hold that in order to attract the said Section, first and

foremost the pending proceeding must be a suit instituted in a Court and in

that suit a claim of set off or other proceedings will also be barred by virtue

of  the  provision  set  out  in  sub-sections  (1)  and  (2)  of  Section  69  as

specifically stipulated in sub-section (3) of the said Section. Having regard

to the manner in which the expressions are couched in sub-section (3), a

claim of set off or other proceedings cannot have independent existence. In

other  words,  the  foundation  for  the  application  of  the  said  sub-section

should  be  the  initiation  of  a  suit  in  which  a  claim  of  set  off  or  other

proceedings  which  intrinsically  connected  with  the  suit  arise  and  not

otherwise.  

21. Under the Partnership Act, the expression “Court” is not defined. In

Section 2(e) of the said Act though it is stated that the expressions used but

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not defined, the definition in the Indian Contract Act, 1872 can be applied,

in  the  Contract  Act  also  there  is  no  specific  definition  set  out  for  the

expression “Court”. However, we find a definition of the “Court” in Section

2(1)(e) of the 1996 Act, which reads as under: “2. Definitions.-(1) In this Part, unless the context otherwise requires,- (a) xxx xxx xxx (b) xxx xxx xxx (c) xxx xxx xxx (d) xxx xxx xxx (e) “Court”  means  the  principal  Civil  Court  of  original jurisdiction  in  a  district,  and  includes  the  High  Court  in exercise  of  its  ordinary  original  civil  jurisdiction,  having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;”

22. Mr. Amrender Saran, learned Senior Counsel for the respondent in his

submissions contended that under Section 36 of the 1996 Act since it has

been provided that the award of an Arbitrator can be enforced under the

Code of Civil Procedure in the same manner as if it were a decree of the

Court, it should be held that the role played by the Arbitrator should also

be deemed to be that  of  a  Court  and on that  footing hold that  Arbitral

Proceedings are also akin to Court proceedings before the Court by equating

the Arbitral Tribunal as a Court.

23. Having thus noted the facts involved in the case on hand and before

dealing with the contentions of Mr. Saran, learned Senior Counsel for the

respondent  on  the  interpretation  of  Section  69(3),  we  wish  to  note  the

earliest decision on this very question dealt with in Jagdish Chander case

(supra). Justice Hidayatullah, speaking for the Bench has made a critical

analysis  of  this very provision,  namely,  Section 69(3)  and has stated as

under in paragraphs 7 and 9:

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“7. Mr. Justice Naik asked the question that if all proceedings were to be  excluded  why  was  it  not  considered  sufficient  to  speak  of proceedings  along  with  suits  in  sub-Sections  (1)  and  (2)  instead  of framing a separate sub-section about proceedings and coupling “other proceeding” with “a claim of set-off?  The question is a proper one to ask but the search for the answer in the scheme of the section itself gives the clue.  The section things in terms of (a) suits and (b) claims of set-off  which are in a sense of the nature of suits and (c) suits and other proceedings.  The section first provides for exclusion of suits in sub-sections (1) and (2).  Then it says that the same ban applies to a claim of set-off and other proceeding to enforce a right arising from a contract.  Next it excludes the ban in respect of the right to sue (a) for the dissolution of a firm, (b) for accounts of a dissolved firm and (c) for the realization of  the property of  a dissolved firm.  The emphasis in each  case  is  on  dissolution  of  the  firm.   Then  follows  a  general exclusion of the section.  The fourth sub-section says that the section as a whole, is not to apply to firms or to partners and firms which have no  place  of  business  in  the  territories  of  India  or  whose  places  of business are situated in the territories of India but in areas to which Chapter  VII  is  not  to  apply  and  to  suits  or  claims  of  set-off  not exceeding  Rs.100  in  value.  Here  there  is  no  insistence  on  the dissolution of the firm.  It is significant that in the latter part of clause (b) of that section the words are “or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim” and this clearly shows that the word “proceeding” is not limited to a proceeding in the nature of a suit or a claim of set-off.  Sub-section (4) combines  suits  and  a  claim  of  set-off  and  then  speaks  of  “any proceeding in execution” and “other proceeding incidental to or arising from any such suit  or claim” as being outside the ban of  the main section.  It would hardly have been necessary to be so explicit if the words  “other  proceeding”  in  the  main  section  had  a  meaning  as restricted as is suggested by the respondent.  It is possible that the draftsman wishing to make exceptions of different kinds in respect of suits,  claims  of  set-off  and  other  proceedings  grouped  suits  in sub-sections (1) and (2), set-off and other proceedings in sub-section (3) made some special exceptions in respect of them in sub-section (3) in respect  of  dissolved  firms  and  then  viewed  them  all  together  in sub-section  (4)  providing  for  a  complete  exclusion  of  the  section  in respect of suits of particular classes.  For convenience of drafting this scheme was probably followed and nothing can be spelled out from the manner in which the section is sub-divided. 9.  In  our judgment,  the words “other  proceeding”  in  sub-section (3) must receive their full meaning untrammeled by the words “a claim of set-off”.   The latter words neither intend nor can be construed to cut down the generality of the words “other proceeding”. The sub-section provides for the application of the provisions of sub-sections (1) and (2)

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to claims of set-off and also to other proceedings of any kind which can properly be said to be for enforcement of any right arising from contract except those expressly mentioned as exceptions in sub-section (3) and sub-section (4).”  

    (Underlining is ours)

24. In the first blush, when we read paragraph 7, one is likely to gain an

impression as though the expression ‘other proceedings’ is disjunctive of a

suit as specifically prescribed in sub-sections (1) and (2) of Section 69. But

on a deeper scrutiny of the judgment, we find that in the light of the special

features involved in the said case, it was laid down that ‘other proceedings’

would be referable to Arbitration as well. We will right now note and state as

to those intricate factors which weighed with the learned Judges to state the

law in such terms. First and foremost, it will have to be noted that in the

said case, the Arbitral proceedings arose under the Indian Arbitration Act of

1940 and in particular in relation to a proceeding which emanated under

Section 8 of the said Act. Under Section 8 of the 1940 Act, the power of

Court to appoint Arbitrator or umpire is specified. Sub-sections (1)(a) to (c)

and (2) of Section 8 details the situations under which the said power of

appointment of Arbitrator or umpire can be made. Under Section 2(c), the

expression ‘Court’ is defined to mean a Civil Court having jurisdiction to

decide the questions framing the subject matter of a suit excluding a Small

Causes Court. Under the said definition, an exception is carved out even for

a Small Causes Court to fall under the definition of Court when the said

Court is called upon to exercise its jurisdiction in situations, which are set

out in Section 21 of the Act.

25. The definition of ‘Court’ under Section 2(c) read along with Sections 8

and 21 of the 1940 Act, therefore, indicates that the proceedings initiated

under the said Sections are virtually in the nature of a suit in a Civil Court

having jurisdiction, though such proceedings are relating to initiation as

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well as superintendence of Arbitration proceedings such as appointment of

an Arbitrator or umpire or inaction or neglect on the part of Arbitrator or

umpire or the incapacity of the Arbitrator or umpire, death of an Arbitrator

or umpire or even in situations where the agreement has not provided for or

not intended to supply the vacancy or the parties or the Arbitrator fail to

supply the vacancy or  the parties  or  the Arbitrator  who are  required to

appoint an umpire and they fail to carry out their obligation. Under Section

21  of  the  1940  Act  even  in  the  absence  of  an  agreement  providing  for

Arbitration, by consent of all parties to any suit can seek for a reference to

Arbitration  before  the  judgment  is  pronounced.  Equally  a  reference  to

Sections 11, 12, 14, 15, 16, 17, 18, 19, 20, 21, 23, 24, 25, 28, 29, 30, 31,

32, 33, 34, 36, 37, 38, 39, 40, 41, 43 and 47 of 1940 Act disclose that the

whole scheme of the Act in effect invested the Civil Court and under certain

specified situations even with the Small Causes Court to exercise all  the

powers that a Civil Court having jurisdiction in a civil suit mutatis mutandis

in relation to an Arbitration apply, unlike the Arbitration and Conciliation

Act of 1996 (hereinafter called the “1996 Act”).  

26. The scope and ambit of the power and jurisdiction of ‘Court’ defined

under Section 2(e)  of  the 1996 Act  is  circumscribed to  certain  specified

extent as set out in Sections 8, 9, 14, 27, 34, 36, 37, 39, 42, 43, 47, 48, 49,

50, 56, 58 and 59. A comparative consideration of the 1940 Act and 1996

Act disclose the extent of control and operation of a Court under the former

Act  was far  more intensive  and elaborate  than the latter  Act.  The more

significant distinction as between the 1940 Act and the 1996 Act is clear to

the position that the former Act does not merely stop with the initiation and

enforcement of  an Arbitration and its  award,  but effectively  provides for

intervention  at  every  stage  of  the  Arbitral  proceedings  upto  its  final

consideration and enforcement as if  it  were a regular civil  suit, whereas

under the 1996 Act, the scope of intervention is not that of a Civil Court as

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it could do in the matter of a suit. Such clear distinction could be discerned

from the reading of the various provisions of both the Acts. Therefore, in the

light  of  such  distinctive  features  that  prevail  in  respect  of  an  Arbitral

proceeding which emanated under the 1940 Act, this Court held in Jagdish

Chander case (supra) to the effect that an Arbitral proceedings governed by

1940 Act would squarely fall under the category of ‘other proceedings’ as

specified in Section 69(3)  of  the Partnership Act.  To be more precise,  in

Jagdish Chander case (supra), in as much the initiation of the proceedings

were  under  Section  8  of  the  1940  Act  before  a  Civil  Court  having

jurisdiction to decide the question forming the subject matter of suit and

the  respondent  therein  being  an  unregistered  Partnership  Firm,  the

ingredients set out in Section 69(1) to (3) of the Partnership Act applied in

all  force  and consequently  held that  the prohibition set  out  in  the said

Section squarely applied.      

27. We only wish to add that though in the said decision, this Court did

not specifically mention as to the requirement of pendency of a proceeding

in the nature of a suit in a Civil Court as the basic ingredient to be satisfied

as stipulated in sub-sections (1) & (2) of Section 69 in order to extend the

specific prohibition even to ‘other proceedings’ under sub-section (3), this

Court was fully aware of the fulfillment of  those mandatory requirement

having regard to the nature of proceedings that existed under the provisions

of the 1940 Act. Therefore, our conclusion based on the interpretation of

Section  69  on  the  whole  as  set  out  in  paragraphs  12  to  17  are  fully

supported by the above decision. We have therefore no hesitation to hold

that  the  ratio  laid  down in  Jagdish Chander  case (supra)  does  not  in

anyway conflict with the view which we have taken herein, having regard to

the  advent  of  the  1996  Act,  under  which  the  nature  of  Arbitration

Proceedings underwent a sea change as compared to the 1940 Act, what is

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stated in Jagdish Chander case (supra) can have application in the special

facts of that case and that it can have no application to a proceedings which

emanated under the 1996 Act, for which the interpretation to be placed on

Section 69(3) will have to be made independently with specific reference to

the provisions of the 1996 Act, where the role of the Court is limited as

noted earlier to the extent as specified in Sections 8, 9 etc.

28. Having thus noted the distinctive features in  Jagdish Chander case

(supra), we wish to refer to the subsequent decision of this Court reported

in  Kamal  Pushp  Enterprises  (supra).   The  judgment  and  the  ratio  in

Jagdish Chander (supra) was sought to be applied in all force in  Kamal

Pushp  Enterprises  (supra),  but  having  noted  the  distinctive  feature  of

Jagdish Chander (supra), this Court has explained the said judgment and

held that it will have no application to a post Award situation.  Some of the

relevant portions of the judgment in Kamal Pushp Enterprises (supra) can

be quoted to appreciate the ultimate conclusion which fully supports our

view.  The question posed for consideration has been noted as under:

“5. Mr. Sanjay Parikh, learned counsel for the appellant, contended that the Courts below ought to have sustained the objection of the appellant based upon Section 69 of the Partnership Act holding the proceedings to  be barred on account  of  the respondent  being an unregistered  firm…….  Strong  reliance  was  placed  in  this  regard upon the decision of this Court reported in Jagdish Chander Gupta Vs. Kajaria Traders (India) ltd. [AIR 1964 SC 1882]; ….. in addition to placing reliance upon some other decisions of the High Courts, to substantiate his claim….”

6. …..This Court ultimately construed the words “other proceedings” in  sub-section  (3)  of  Section  69  giving  them  their  full  meaning untrammelled by the words “a claim of set off, and held that the generality of the words “other proceedings” are not to be cut down by  the  latter  words.  The  said  case,  being  one  concerning  an application before Court  under Section 8(2)  of  the Arbitration Act, 1940 in the light of the arbitration agreement, this Court finally held that  since  the  arbitration  clause  formed  part  of  the  agreement constituting the partnership the proceeding under Section 8(2) was

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in fact to enforce a right which arose from a contract/agreement of parties.”

9. The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any Court by an unregistered firm, and it had no application to the proceedings before an Arbitrator and that too when the reference to the Arbitrator was at the instance of the appellant itself. If the said bar engrafted in Section 69 is absolute in its terms and is destructive of any and every right arising under the contract itself and not confined merely to enforcement of a right arising from a contract by an unregistered firm by instituting a suit or other proceedings in Court only, it would become a jurisdictional  issue in respect  of  the Arbitrators  power, authority  and  competency  itself,  undermining  thereby  the  legal efficacy of the very award, and consequently furnish a ground by itself to challenge the award when it is sought to be made a rule of Court……..  The  Award  in  this  case  cannot  either  rightly  or legitimately  said  to  be  vitiated  on  account  of  the  prohibition contained in Section 69 of the partnership Act, 1932 since the same has no application to proceedings before an Arbitrator. At the stage of enforcement of the award by passing a decree in terms thereof what is enforced is the award itself which crystallise the rights of parties under the Indian Contract Act and the general law to be paid for  the  work  executed  and  not  any  right  arising  only  from  the objectionable  contract.…….  Consequently,  the  post  award proceedings cannot be considered by any means, to be a suit  or other proceedings to enforce any rights arising under a contract. All the more so when, as in this case, at all stages the respondent was only on the defence and has not itself instituted any proceedings to enforce any rights of the nature prohibited under Section 69 of the Partnership Act, before any Court as such…….”                                                           (Emphasis added)

29. The  above  passages  extracted  from  the  case  of  Kamal  Pushp

Enterprises  (supra),  apart  from  explaining  the  principles  laid  down  in

Jagdish Chander case (supra), has thus held in categorical terms as to

how  Section  69  prohibition  will  have  no  application  to  the  post  award

proceedings as they do not fall under the expression ‘other proceedings’ of

the said section.  This Court thus having already understood and explained

Jagdish  Chander  case  (supra) and  reiterated  the  legal  position  on  the

application  of  Section  69(3)  to  the  post  award  proceedings, which  fully

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supports our conclusion in the case on hand, we need not dilate much on

this issue.

30. Having reached the above definite  conclusion on the application of

Section  69(3)  to  the  post  award  proceedings,  when  we  consider  the

submissions  of  Mr.  Amrender  Saran,  learned  senior  counsel  for  the

respondent, the learned counsel, in the first place, contended that for the

application of Section 69(3) of the Partnership Act to Arbitral proceedings,

the foundation must be only based on a right in a contract.  As far as the

said contention is concerned, the same has already been dealt with by this

Court in Kamal Pushp Enterprises (supra) wherein it is held as under: “…..The Award in  this  case  cannot  either  rightly  or  legitimately said to be vitiated on account of the prohibition contained in Section 69 of the partnership Act, 1932 since the same has no application to proceedings before an Arbitrator. At the stage of enforcement of the award by passing a decree in terms thereof what is enforced is the award itself which crystallise the rights of parties under the Indian Contract Act and the general law to be paid for the work executed  and  not  any  right  arising  only  from  the  objectionable contract.…….’ (Emphasis added)

31. Therefore, the said contention of the learned senior counsel for the

respondent has no force.

32. The  learned  senior  counsel  then  contended  that  while  interpreting

Section 14 of the Limitation Act, it was held that Arbitration Proceedings are

to be treated on par with civil proceedings.  Though, in the first blush, the

submission looks more attractive, on a deeper scrutiny it must be held that

it is always well settled that a judgment can be a binding precedent on a

question of law, which was canvassed before it and decided.  Keeping the

said  principle  in  mind when we consider  the  said  submission,  we  have

clearly held as to how a reading of Section 69 as a whole does not permit of

any interpretation that would cover Arbitral proceedings, de hors, filing of a

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suit in a Court and that too in respect of a right under a contract governed

by the provisions of the Indian Partnership Act, especially after the coming

into  force  of  the 1996 Act  and the  proceedings governed by the  special

features  contained  in  the  said  Act.   Therefore,  any  interpretation  made

under  the  Limitation  Act  while  construing  Section  14  to  treat  Arbitral

proceedings on par with civil proceedings cannot be applied to the case on

hand.   Further,  the  decision  of  this  Court  in  Kamal  Pushp  having

considered the application to Section 69(3) itself to Arbitral Proceedings and

held that the same will not apply to a Post Award Proceedings, we do not

find any merit in the said submission.  Therefore, we are not able to apply

the  principles  laid  down in  the  decision reported  in  M/s.  Consolidated

Engg.  Enterprises  (supra) and  P.  Sarathy  (supra) relied  upon  by  the

learned senior counsel for the respondent.  

33. The next submission of Mr. Saran, learned Senior Counsel was again

by relying upon Section 2(a) of the Interest Act. Under the said definition

section, ‘Court’ has been defined to include a Tribunal and an Arbitrator.

The learned senior counsel, therefore, contended that Arbitral Proceedings

should  be  equated  to  a  Court  and  consequently  make  Section  69(3),

applicable to it as falling under the expression ‘other proceedings’. If such a

specific provision has been incorporated in the Partnership Act, there can

be no difficulty in accepting the argument of the learned senior counsel for

the respondent.  In the absence of such a specific provision, it will not be

appropriate to import the definition clause under Section 2(a) of the Interest

Act to the Partnership Act in order to apply Section 69(3) of the Partnership

Act.  Therefore, we do not find any scope to countenance such a submission

of the learned senior counsel for the respondent.

34. Lastly, it was contended by Mr. Saran, learned Senior Counsel that

under Section 36 of  the 1996 Act,  an Award of  the Arbitrator has been

equated to decree of the Court for the purpose of execution.  Under Section

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35 of  the 1996 Act,  an Arbitral  Award will  be  final  and binding on the

parties and persons claiming under them subject to the other provisions

prescribed in the said part of the Act.  Under Section 36 it is provided that

where the time for making an application to set aside the arbitral award

under  Section  34  expired,  or  such  application  having  been  made  and

referred, the award can be enforced under the Code of Civil Procedure in the

same manner as if it were a decree of the Court.  When we consider the

submission of the learned senior counsel for the respondent, at the very

outset, it must be held that by referring to Sections 35 and 36, it is difficult

to draw an inference that based on the deeming provision specifically meant

for the enforcement and execution of an Award, the Arbitral  Proceedings

can be equated to a Civil Court proceedings.  As rightly contended by Mr.

Dhruv  Mehta,  learned senior  counsel  for  the  appellant,  Section 36 only

creates a statutory fiction which is limited for the purpose of enforcement of

the Award.   The deeming fiction is specifically restricted to treat the Award

as a decree of a Court, exclusively for the purpose of execution, though as a

matter of fact, it is only an Award of Arbitral proceeding.  It is a settled

proposition, that a statutory provision will have to be construed from the

words  that  are  expressly  used  and  it  is  not  for  the  Court  to  add  or

substitute any word to it.   Therefore, going by Sections 35 and 36 it cannot

be held that the entire Arbitral proceeding is a Civil Court proceedings for

the purpose of applicability of Section 69(3) of the Partnership Act.  In this

context, we draw support from the decision of this Court reported in  Sadan

K. Bormal (supra), paragraph 25 is relevant for our purpose which reads as

under:

“25.  So  far  as  interpretation  of  a  provision  creating  a  legal fiction is concerned, it is trite that the Court must ascertain the purpose for  which the fiction is  created and having done so must  assume  all  those  facts  and  consequences  which  are

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incidental  or  inevitable  corollaries  to  the  giving  effect  to  the fiction. In construing a fiction it must not be extended beyond the purpose for which it is created or beyond the language of the Section by which it  is  created. It  cannot  be extended by importing another fiction. These principles are well settled and it  is  not  necessary  for  us  to  refer  to  the  authorities  on  this subject.  The  principle  has  been  succinctly  stated  by  Lord Asquith  in  East  End Dwelling  Co.  Ltd.  V.  Finsbury  Borough Council, (1951) 2 ALL ER 587, when he observed :-

"If you are bidden to treat an imaginary state of affairs as

real, you must surely, unless prohibited from doing so, also

imagine as real  the consequence and incidents which,  if

the  putative  state  of  affairs  had  in  fact  existed,  must

inevitably have flowed from or accompanied it-. The statute

says that you must imagine a certain state of  affairs;  it

does  not  say  that  having  done  so,  you  must  cause  or

permit  your  imagination  to  boggle  when  it  comes  to  the

inevitable corollaries of that state of affairs".”  

35. We also  draw support  from the  decision  of  this  Court  reported  in

Paramjeet Singh Patheja Vs. ICDS Ltd. -  (2006) 13 SCC 322, paragraph

42 is relevant, which reads as under:

“42. The words “as if” demonstrate that award and decree or order are two different things. The legal fiction created is for  the  limited  purpose  of  enforcement  as  a  decree.   The fiction is not intended to make it  a decree for all purposes under all statutes, whether State or Central.”

36. Though  the  learned  senior  counsel  for  the  appellant  and  the

respondent referred to certain other decisions in support of their respective

submissions,  as  we  are  fortified  by  our  conclusion,  based  on  the

interpretation of Section 69 of the Partnership Act vis-à-vis the 1996 Act

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and the 1940 Act as well as supported by the decision in Jagdish Chander

(supra)  and Kamal  Pushp  Enterprises  (supra),  we  do  not  find  any

necessity  to  refer  to  those  decisions  in  detail.   Having  regard  to  our

conclusion that  Arbitral  Proceedings will  not  come under the expression

“other proceedings” of Section 69(3) of the Partnership Act, the ban imposed

under the said Section 69 can have no application to Arbitral proceedings

as well as the Arbitration Award.  Therefore, the appeal stands allowed, the

impugned judgment of the Division Bench is set aside and the judgment of

the learned Single Judge stands restored. No costs.  

….………………………………………...J. [Fakkir Mohamed Ibrahim Kalifulla]

….………………………………………...J. [C. Nagappan]

New Delhi; June 29, 2016.

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