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K.K.SUNDARAN, AGED 36 YEARS versus V.N.REJI, AGED 36

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K.K.SUNDARAN, AGED 36 YEARS v. V.N.REJI, AGED 36 - Arb A No. 29 of 2006 [2006] RD-KL 2099 (29 November 2006)

IN THE HIGH COURT OF KERALA AT ERNAKULAM

Arb A No. 29 of 2006()

1. K.K.SUNDARAN, AGED 36 YEARS,
... Petitioner

Vs

1. V.N.REJI, AGED 36,
... Respondent

2. C.KHALID, ADVOCATE,

For Petitioner :SRI.N.N.SUGUNAPALAN (SR.)

For Respondent :SRI.VARGHESE C.KURIAKOSE

The Hon'ble MR. Justice J.B.KOSHY The Hon'ble MR. Justice M.N.KRISHNAN

Dated :29/11/2006

O R D E R

J.B. KOSHY & M.N.KRISHNAN, JJ.

Arb. Appeal No. 29 of 2006

Dated this the 29th day of November, 2006

Judgment

Koshy,J.

In Arbitration Request No.39 of 2001, this Court appointed a retired District Judge as arbitrator to resolve the dispute between the appellant and first respondent relating to 'Kochukarippal Jewellery' which was stated to be a firm constituted by the appellant and first respondent. According to the first respondent, a partnership deed was executed for conducting business in the manufacture and sale of jewellery items on 14.1.1999. It was intended to be run in a shop room which had been used by the appellant as a proprietary concern for the business conducted by him. The total capital of the proposed firm was agreed to be Rupees Five lakhs to be contributed equally by the appellant and first respondent. The value of the machineries, furniture and other rights of the proprietary concern of the appellant worth Rs.2,50,000/- was agreed to be treated as share capital of the appellant and first respondent advanced cash of Rs.2,50,000/- towards his share of capital. They Arb.Appeal No. 29/2006 2 purchased 464 grams of gold from Bhima Jewellery for jewellery business and started the business. The details of the same were incorporated in clause 3 of the partnership deed which was prepared by a Chartered Accountant. The appellant being a goldsmith, by profession, was designated as the Managing Partner of the firm. It is the case of the first respondent that after commencement of the business, appellant treated the firm as a proprietary business and respondent was even denied the right to scrutinise the business account and refused to give his share of profit. Thereafter, first respondent issued notice to the appellant seeking statement of accounts. That request was turned down. Therefore, first respondent claimed the capital investment of Rs.2,50,000/- made by him and also share of profits from the business at the rate of Rs.5,000/- per month for a period of 45 months and also a sum of Rs.25,000/- as half of the value of the goodwill of the business. In view of the arbitration clause in the arbitration deed, arbitrator was appointed by this Court despite objections from the appellant. First respondent filed detailed claims before the arbitrator. Appellant filed a counter statement before the arbitrator denying Arb.Appeal No. 29/2006 3 the existence of the firm and execution of the partnership agreement. Even though appellant wanted to refer the matter for expert opinion regarding the genuineness of the signature, arbitrator did not allow the request and proceeded with the arbitration and passed an award for payment of Rs.2,83,427/- with 12% interest per annum from 6.9.2003 till realisation. Appellant filed petition under section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 5.9.2003 in Arbitration Request No.39 of 2001. The District Court dismissed the petitioner. Hence, this appeal was filed.

2. The arbitrator found that the partnership agreement was proved by calling the witnesses to the execution of the document. The Chartered Accountant (PW2) corroborated the evidence of first respondent who was examined as PW1 regarding the execution of the partnership deed. He deposed that the partnership deed was prepared by him and both partners went to his office and had jointly furnished materials for the preparation of the partnership deed. He himself was an attesting witness. Ext.P7 receipt was also proved. Ext.P7 receipt kept in the office. Project report and Arb.Appeal No. 29/2006 4 balance sheet produced as Exts.R2 and R3 also contained signature of PW1. Those documents were produced by the appellant himself. PW3, proprietor of an advertisement firm testified before the arbitrator that he signed and attested the partnership deed. The entire evidence adduced before the court was considered by the arbitrator and found that the arbitration request was genuine. The District Court also observed that even if the partnership deed is not sent for expert report for verifying the signature it will remain as an opinion. The arbitrator has to decide the matter on evidence. All contentions raised by the parties were considered by the arbitrator. With regard to the merits, not much arguments were made before the arbitrator. The District Court also considered the matter and agreed with the arbitrator. In any event, there was no perverse finding. This court is not sitting in appeal in a petition under section 34 of the Arbitration and Conciliation Act is filed to set aside the award. No valid grounds are urged to show that arbitrator has committed any misconduct or the award was against public policy. Considering the entire aspects of the matter only, the impugned order was passed dismissing the application for setting aside the award. Arb.Appeal No. 29/2006 5

3. Argument projected before this Court by the Senior Advocate appearing for the appellant was that arbitration itself is invalid as the firm was not registered. Even though such a contention was raised in the objection filed before the arbitrator that the arbitration itself will not lie because partnership deed was not a registered one, that point was not considered by the arbitrator or District Court. Such a prayer was not seen seriously pressed or argued before the arbitrator or court. Appellant relied on section 69 of the Partnership Act. Section 69 of the Partnership Act reads as follows:

"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 Arb.Appeal No. 29/2006 6 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 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 of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise 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 in areas to which, by notification under Arb.Appeal No. 29/2006 7 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, or outside the Presidency- towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim."

4. The contention of the first respondent was that even though partnership was constituted with first respondent and appellant, first respondent was not allowed to scrutinise the accounts as per the terms of the contract and no profit was given and, therefore, first respondent wants dissolution of the firm and wants refund of capital investment, share of profits for the previous years and goodwill. Apart from the demand for return of capital, when the existence of the firm is denied, it will amount to dissolution. Sub-section (3) of section 69 clearly states that claim under sub-sections Arb.Appeal No. 29/2006 8 (1) and (2) shall not apply to enforcement of any right to dissolution of the firm or for accounts of the dissolved firm or any right or power to realise the property of a dissolved firm.

5. In Krishna Motor Service v. H.B. Vittala Kammath ((1996) 10 SCC 88), it was held by the Apex Court as follows: "7. If the right to dissolve the

firm itself is in dispute and is the subject-matter of the suit, necessarily in the suit for dissolution of the partnership firm, if a party to the contract of partnership seeks a reference for arbitration to resolve that dispute, it would be a right from a contract arisen in the proceedings for enforcement of the right to dissolve the firm. In that event, necessarily, the main part of sub-section (3) stands attracted and no such reference is valid in law. But in a case where the parties have already agreed for dissolution of the partnership by mutual consent, the partnership stood dissolved. There is no dispute as regards the right arising from the contract of a firm. The dispute is only with regard to working out the rights flown from dissolution fir settlement of accounts of the Arb.Appeal No. 29/2006 9 dissolved firm o 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. The object intended by the legislature appears to be that in spite of the defect of non-registration and the prohibition created in the main part of non-enforceability of the right arising from a contract, the parties having worked under that contract, to the limited extent of the enforcement of a right to realise the assets, settlement of the accounts of the dissolved firm or any right or power to realise the property of the dissolved firm are exceptions engrafted therein and gives right to the parties to enforce the same, independent of the right arising from the contract. Therefore, the parties are relieved from the prohibition created by operation of section 69."

6. In Firm Ashok Traders and another v. Gurumukh Das Saluja and others ((2004) 3 SCC 155), the Apex Court held that the bar enacted by section 69 of the Partnership Act does not affect the maintainability of the application under section 9 of the Arbitration and Conciliation Act. The Apex Court also explained Jagdish Arb.Appeal No. 29/2006 10 Chander Gupta v. Kajaria Traders (India) Ltd. (AIR 1964 SC 1882) and approved of a liberal and full meaning of 'other proceedings' in sub-section (3) of section 69 of the Partnership Act untrammelled by the preceding words 'a claim of set-off'. The court refused to countenance the plea for interpreting the words 'other proceedings' ejusdem generis with the preceding words 'a claim of set- off'.

7. In Prem Lata and another v. M/s.Ishar Dass Chaman Lal and others ((1995) 2 SCC 145), the Apex Court held that suit filed under section 20 by legal representatives of a deceased partner of a firm for reference to arbitration of dispute regarding rendition of accounts of the firm after dissolution in terms of unregistered partnership deed having arbitration clause is maintainable. In Kamal Pushp Enterprises v. D.R. Construction Co. (AIR 2000 SC 2676), the Apex Court held that prohibition in respect of instituting a proceeding to enforce a right arising from a contract in any court by an unregistered firm have no application before the arbitrator. Considering the nature of the claim and contentions, we are of the view that the proceedings filed before the arbitrator for rendition of accounts on Arb.Appeal No. 29/2006 11 return of capital investment in view of the arbitration clause in the agreement, cannot be challenged merely because it is an unregistered firm. We have already held that the arbitrator has considered the entire matter and no grounds are made out by the appellant to set aside the award. It cannot be stated that the entire proceedings are not maintainable. We have also seen that the award of the arbitrator is not liable to be set aside on any of the grounds mentioned under the Arbitration and Conciliation Act. Hence, the appeal is dismissed. . J.B.KOSHY

JUDGE

M.N.KRISHNAN

JUDGE

vaa J.B. KOSHY AND

M.N.KRISHNAN,JJ.

Arb.A.No. 29 of 2006 Judgment

Dated: November, 2006


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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