Facts

• The case involves a dispute among 12 individuals who claim to be partners in the firm M/s Ashok Traders.
• Three groups of partners are involved: Group "A", Group "B", and Group "C".
• The partnership underwent changes with the retirement of six partners and the formation of a new partnership.
• Disputes arose regarding management, access to accounts, and alleged mismanagement by Group "B".
• Group "A" initiated legal action invoking an arbitration clause, seeking the appointment of a receiver.
• The application was contested by Group "B", citing Section 69(3) of the Indian Partnership Act, 1932.
• The High Court allowed the appeal, ruling that Section 69(3) did not bar the application under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act).
• The High Court also found merit in Group "A"'s grievances and ordered the appointment of receivers to manage the business.
• The High Court's decision was based on the need to protect the interests of all parties involved.
• Hence, the appellant appealed before the Supreme Court.

Issues Involved

• Whether the application filed by Group "A" under Section 9 of the Arbitration and Conciliation Act is maintainable despite the provisions of Section 69(3) of the Indian Partnership Act, 1932, which require partnership firms to be registered for enforcement of rights arising from contracts?
• Whether the appointment of receivers is justified to address the disputes among the partners?

Observation

• The Supreme Court held that Section 69(3) of the Partnership Act does not affect the maintainability of an application under Section 9 of the A & C Act.
• The Court emphasized that Section 9 provides for interim measures of protection before, during, or after arbitral proceedings.
• The Court acknowledged the need for appointment of receivers but modified the High Court's order.
• The court said that business would continue to be managed by Group "B" as receivers, subject to certain conditions.
  • An official appointed by the Commissioner of Excise would act as an observer to ensure proper conduct of business.
  • All sale proceeds would be deposited in a designated bank account under joint signatures for transparency.
  • Group "A" would have limited rights to visit the shops and observe business activities.
  • The arrangement would continue until the end of the business term, and final accounts would be audited and distributed according to arbitration or legal decisions.
  • The receivers and observers would be under the control of the trial court, and parties could seek directions from the court in case of difficulties.

Conclusion

• The court observed the necessity for adherence to legal formalities, including partnership registration, while highlighting the need for equitable treatment and protection of minority interests in managing the business, underscoring the importance of fair dispute resolution.