Delhi High Court
Kanahi Ram vs Kartar Singh on 3 April, 1998
Equivalent citations: 72(1998)DLT740, 1998(46)DRJ453
Author: S.N. Kapoor
Bench: S.N. Kapoor
JUDGMENT S.N. Kapoor, J.
1. Respondent Nos. 1 and 2 have filed IA No. 5750/97 seeking rejection of the petition under Section 20 of the Arbitration Act, 1940 (hereinafter called the "the Act") under Order 7, Rule 11, CPC on ground that the partnership firm not being registered, the petition is barred by Section 69(1) of the Partners Act, 1932.
2. Before considering the objection, firstly, relevant facts in brief are require to be taken note of.
3. The petitioner and the respondents entered into a partnership agreement on 8th February, 1990 in relation to cinema business including canteen and cycle stand or by any other source by using the cinema building belonging to the partnership firm. The petitioner has claimed rendition of accounts relating to cycle stand and the canteen of Kalyan Cinema from 1986 onwards and to pay share of the petitioner to the extent of 31.66%. The petitioner further seeks reference of the petition under the arbitration clause which reads as under:
"15. That any dispute or difference arising between the parties or their legal representative or heirs regarding the interpretation of the contents of this deed or in respect of any matter relating to the business of the partnership shall be referred to arbitration in accordance with the subject to the provisions of the Indian Arbitration Act, 1940."
4. It has not been disputed that the Firm Kalyan Exhibitors was duly registered on 26th February, 1977 and it included the name of S./Sh. R.L. Malhotra, Kartar Singh, Pratap Singh, Kanhi Ram, Gaje Singh, Mohan Lal and Smt. Bhagwati as is apparent from the registration certificate. But the then existing firm was firstly reconstituted on 1st September, 1988 and secondly on 7th February, 1990 on account of death of Sardar Singh, by inducting Kartar Singh, Pratap Singh and Kanahi Ram. Thereafter the firm was comprised of Kartar Singh, Pratap Singh and Kanahi Ram, Bhagwati Devi and Gaje Singh.
5. The contention of the respondents is that the partnership firm which was constituted way back in 1977 does not exist any more and it stood dissolved. It is further contended that the petition under Section 20 of the Act is based on a arbitration agreement between the partners of an unregistered firm. It is not maintainable for it is "a right arising from a contract" under Section 69 and the words "other proceedings" cover arbitration proceedings as well. Neither any suit nor any other proceeding, including right to file a petition under Section 20 could be enforced in absence of registration of the firm. Learned Counsel relies upon the following cases.
1. Chunu lal Hathibhai Shah v. Champaklal Ambalal Parikh, 1994(1) Arb. L.R. 172.
2. Jagdish Chander Gupta v. Kajaria Traders (India) Ltd., .
3. Shreeram Finance Corporation v. Yasin Khan and Ors., .
6. On the other hand the contention of the petitioner is that once a partnership firm is registered, subsequent re-constitutions do not require any fresh registration. Relying on Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr., , learned Counsel for the petitioner contends that if by virtue of non-compliance of certain mandatory provisions in not informing the Registrar of Firms about change in the constitution of the firm, certain penalties provided in the Act alone are attracted and that will not lead to the conclusion that the registration of the firm ceased. This conclusion is based on a conjoint reading of Sections 58 - 63 and the forms prescribed thereunder. There cannot be any dispute with this proposition.
7. But this. Court is certainly required to consider whether the basic requirement of Section 69 of the Partnership Act stands satisfied or not to decide whether this petition is barred or not barred by Section 69 without entering into the question whether the present petition is a suit or not.
8. Arbitration proceedings are certainly covered in the term "other proceedings" and it is no more ratio integra, for this aspect is settled finally by the Supreme Court in Jagdish Chander Gupta v. Kajaria Traders (India) Ltd. (supra) in the following words :
"In our judgment, the words 'other proceeding' in Sub-section (3) must receive their full meaning untramelled 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-sees. (1) and (2) to claims of set-off and also to other proceedings of any kind which can properly be said to be enforcement of any right arising from contract except those expressly mentioned as exceptions in Sub-section (3) and Sub-section (4)."
9. Il may further be mentioned that the bar provided in Sub-sections (1) and (2) applies also to other proceedings by virtue of Sub-section (3) of Section 69 of the Partnership Act. So, whether the present petition is a suit or any other proceeding within the meaning of Section 69(3), two requirement are required to be fulfillled before filing the petition under Section 20 of the Arbitration Act: firstly, that the firm is a registered partnership firm; and secondly, the person suing is or has been shown with the Registrar of Firms as a partner in the firm. In this regard, Form-A indicated that the firm Kalyan Exhibitors was registered on 26th February, 1977 and duration of the firm was at Will. Sh. Kanahi Ram has been shown as a partner.
10. Now, the effect of non-registration of the subsequently re-constituted firm is required to be see.
11. Learned Counsel for the petition in support of his contention that the firm continues to be registered and is not affected by reason of subsequent alteration in the constitution of the firm relies upon the following cases:
1. Pratap Chand Ram Chand & Co. v. Jahangirji Bomanji Chennai AIR 1940 Bombay 257.
2. Kesrimal and Anr. v. Dalichand and Ors., .
3. Tyresoles (India) Calcutta v. Commissioner of Income-Tax Coimbatore .
4. Firm Girdhar Mal Kapur Chand v. Firm Dev Raj Madan Gopal .
In Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr., , the Hon'ble Supreme Court considered the following authorities:
1. Tyresoles (India) Calcutta v. Commissioner of Income-Tax, Coimbature .
2. Commissioner of Income-Tax, West Bengal-III v. Pigot Champan & Co., .
3. Maddi Sudarsanam and Ors. v. Borogu Viswanadham Brothers, AIR 1955 (5) SCR 171.
4. Firm Girdhar Mal Kapur Chand v. Firm Dev Raj Madan Gopal .
12. On the basis of Commissioner of Income-Tax, West Bengal-III v. Pigot Champan & Co.(supra) and Tyresoles (India) Calcutta v. Commissioner of Income-Tax, Coimbature (supra), the Supreme Court recognised distinction between two different legal concepts of reconstitution and of dissolution of a partnership firm. A dissolution brings the partnership to an end while re-constitution means continuation of the partnership under altered circumstances. In paragraph 27 of the judgment in Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr. (supra), the Supreme Court took the view that the changes in the constitution of the firm may not affect the registration once made. Fresh registration is not required to be obtained every time a new partner is inducted. However, information about changes may be required to be given under Section 63(3) of the Partnership Act. While by approving the observations in Maddi Sudarsanam and Ors. v. Borogu Viswandham Bros. (supra), the view of the Supreme Court appears to be that even in retirement or death of one or the other partner is not likely to affect the registration.
13. Now, it is to be seen whether the present firm is reconstituted firm and 1977 registration is still valid for the existing firm or whether 1994 agreement constituted a new firm after dissolution of the old firm. The partnership was at Will as it is apparent from Form-"A" registration certificate of the year 1977. As such the firm could be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm and the firm would stand dissolved from the date mentioned in the notice as the date of dissolution or if no date is so mentioned from the date of communication of the notice. Since Sub-section (2) of Section 43 does not provide for written notice it could be inferred that the could be written as well as oral notice.
14. From typed copy of the partnership deed dated 8th February, 1990 filed by the petitioner himself, it is evident that the partnership which pre-existed was dissolved on 7th February, 1990 on account of death of Sh. Sardar Singh, who was having 26.67th share under the partnership deed dated 1st September 1988. By this deed the newly constituted firm took over the business of Kalyan Cinema us per the balance-sheet of 7th February, 1990 with all assets and liabilities, privileges and goodwill. The dissolution deed dated 7th February, 1990, the partnership deed dated 1st September, 1988 and the dissolution or re-constitution of the firm after 26th February, 1977 have not been brought on record. It is not clarified that how R.L. Malhotra, Shyam Singh, Smt. Bhagwati and Mohan Lal parted with partnership firm. They were the registered partners alongwith the petitioner. If one goes by the intentions of the parties, seeing their own expression and preparation of the balance-sheet taking over the business of Kalyan cinema it is evident that the firm stood certainly dissolved on 17th February, 1990, if not earlier. In this regard, following Commissioner of Income-Tax, West Bengal-Ill v. Pigot Champan & Co.(supra) it appears to be a case of dissolution of a firm being followed by constitution of a new firm by some of the erst while partners and son of the deceased Kartar Singh who had taken over the assets and liabilities of the dissolved firm. It is further notable that under Section 42(c) on the death of a partner partnership firm stands dissolved, of course, this is subject to contract between the erstwhile partners. Thus, in case the earlier partnership deed provides for continuation of the firm even after death and also for either inducting heirs of such a partner in the firm or admitting them to the benefit of the firm, the firm might not have dissolved. No such contract between the parties contrary to the intention of Section 42 has been placed on record. There is no express provision like the case of Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr. (supra) that the death or retirement of any partner shall not dissolve the partnership firm. The expressed intention in the partnership deed itself indicates that the old firm stood dissolved. Since dissolution followed by some of the erstwhile partners taking over the assets and liabilities of the dissolved partnership and forming them into a partnership is not re-constitution of the original partnership. Partnership firm after dissolution has to be deemed to be a new partnership and not continuation of the old partnership for it would be contradiction in terms to say that ceased to exist still continued. Applying the ratio in Tyresoles (India) Calcutta v. Commissioner of Income-Tax, Coimbature (supra) and approved in Sharad Vasant Kotak and Ors. v. Ramniklal Mohanlal Chawda and Anr. (supra) in paragraph 25 of the judgment it has to be held that the pre-existing firm stood dissolved on 7th February, 1990.
15. Now, a question arises whether a registered partner of a dissolved partnership firm, who has joined the new partnership firm after dissolution, can maintain the petition in respect of his rights arising out of the partnership agreement entered in between the parties after dissolution. It is evident that the registered partnership firm had become extinct on its dissolution whether in 1990 or earlier in 1988. The firm which has, now, existence is certainly not a registered firm nor the present petitioner a registered partner of the newly constituted firm after its dissolution. The petitioner could have certainly maintained this petition in respect of rights and liabilities arising out of the contract in between the partners in case the same old firm would have continued without having been dissolved. In such circumstances, it is evident that the requirements of Section 69 of the Partnership Act that the partnership firm itself should be registered first and the persons suing should be registered partners are not being satisfied and fulfillled in this case. Consequently, the petition appears to be barred under Section 69 of the Partnership Act, 1932.
16. ft may be mentioned that the fact that nobody informed the Registrar of Firms about dissolution cannot by any stretch of imagination mean that the partnership firm which, was constituted in the year 1977 and which was registered still continues, specially in view of the partnership deed which is being relied upon by the petitioner himself. Section 68 of the Partnership Act cannot apply to a case of dissolved firm, for dissolution takes effect immediately whether the parties inform the Registrar of Firms or not. Accordingly the petition is barred by Section 69 of the Partnership Act. The petition has to be rejected accordingly.
17. Since the petition is being rejected, IAs. 4111, 4123, 5750-51/97 have become in-fructuous and as such do not survive for consideration.
18. The petition under Section 20 of the Arbitration Act S.No. 1918A/95 is rejected. IAs. 4111, 4123, 5750-51/97 are dismissed as infructuous.