Unregistered partnership firms can be referred to arbitration, Mere non filing of deed not make arbitration application liable to dismissal–SC

Unregistered partnership firms can be referred to arbitration, there is no contrary statutory provision. Mere non filing of deed not make arbitration application liable to dismiss–Supreme Court 

Unregistered partnership firms can be referred to arbitration

ABCAUS Case Law Citation:
1055 (2016) (11) SC

Important Case under consideration:
Atul Singh & Othes Vs. Sunil Kumar Singh   &   Others 2008 (2) SCC 602
Bharat Sewa Sansthan Vs. U.P.Electronics Corporation Ltd.  2007 (7) SCC 737
Hindusthan Commercial Bank Ltd.   Vs.   Punnu   Sahu 1971 (3)  SCC 124
Martin and Harris Ltd. Vs. VIth Additional District Judge   and   others 1998 (1) SCC 732

Brief Facts of the Case:
A partnership firm was constituted by six sons after the demise of the father who had started a business for manufacture and sales of   ‘Beedi’.With the passage of time, all the six partners died and the firm was re-constituted from time to time to include sons and/or legal representatives of the demised sons as partners.

Subsequently, the dispute arose among the existing stakeholders of the firm and a suit was filed by three Plaintiffs (appellants) against six defendants  praying for restraining   the defendants   or   anyone   claiming   through   them for transferring   or   alienating   the property of the firm. The  Defendant  also invoked section 8(1) of Arbitration and Conciliation   Act,   1996   (Act)   seeking order referring   the   parties   to   the   arbitration. Accordingly the District Judge referred   the suit to   the   Arbitration   to settle   their   disputes  and differences,   in  view of  the Arbitration Agreement.

Contentions of the Appellant:

(i) The  application  praying  for referring  arbitration was not accompanied by the original retirement deed.

(ii) All the parties to the suit were not parties to the   arbitration   agreement  

(iii) The firm being   an   unregistered   firm,   no reference to the arbitration can be made with regard to  the  dispute relating to unregistered firm.

Questions framed by the Apex Court:

(i) Whether non-­filing of either original or certified copy of retirement deed and partnership deed along with application entailed dismissal of the application as per section 8(2) of 1996 Act.

(ii) Whether the fact that all the parties to the suit being not parties to the retirement deed/ partnership deed, the Court was not entitled to make the reference relying on arbitration agreement.

(iii) Whether dispute pertaining to unregistered partnership deed cannot be referred to an arbitration despite  there being arbitration  agreement in the deed of retirement/partnership deed.

Observations made by the Supreme Court:

The Court observed that it was only  after filing of original deeds that the District Judge proceeded   to decide the application. Section 8(2) has to be interpreted to mean that the  court shall  not consider any application filed by the party  under  Section 8(1)  unless it is accompanied by original  arbitration  agreement or duly   certified copy thereof. The filing of the application without such   original   or   certified   copy,   but bringing original arbitration agreement on record at the time when the Court was considering  the application shall not entail rejection of the application under Section 8(2).

The Supreme Court noted that as per the findings returned by the Trial Court, only   one defendant was not party to the retirement deed or partnership deed. The Court opined that merely  because one of the defendants  was not party to the arbitration   agreement,   the   dispute   between   the parties   which   essentially relates to   the benefits arising out of Retirement Deed and Partnership deed could not be referred. It was also observed that the District Judge had noted that the lone defendant in question had not   inherited   any   share   either   in Partnership deed or in the schedule property and hence there was no question of bifurcation of either cause of action or parties.

The Apex Court observed that there was no dispute between the parties that   both   Retirement   deed   and   Partnership   deed contained  an  arbitration clause.  In  Retirement  deed which   had   been   signed   by   retiring partners, continuing  partners and concurring partners.

According to the Court, when  the partners and those who claimed through partners agreed to get the dispute settled by arbitration, it was not open for the appellants to contend that partnership being unregistered partnership, the dispute could not be referred.

Furthermore, the petitioners were not able to show any statutory provision   either   in   1996  Act   or   in   any other statute from which it could be said that dispute concerning   unregistered   partnership   deed   cannot   be referred to  arbitration.  

The appeal was dismissed

Unregistered partnership firms can be referred to arbitration

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