Introduction

This case deals with the interpretation of term “right arising from of contract” under Section 69 of the Indian Partnership Act, 1932.

Facts

• M/S Kajaria Traders (India) Ltd. and Messrs. Foreign Import and Export Association (owned by Jagdish C. Gupta) joined together to export manganese ore to Phillips Brothers (India) Ltd., New York, from January to June 1956.
• Each of the partners agreed to supply a certain amount of manganese ore.
• They had an agreement that said if there was a disagreement, they would go to arbitration.
• Later, Jagdish could not fulfill his part, and the company wrote to him, appointing an arbitrator named Mr. Kolah.
• The company asked Jagdish to agree to Mr. Kolah or appoint his own arbitrator.
• However, he disagreed. On 28^th March 1959, the company filed an application under Section 8(2) of the Indian Arbitration Act, 1940, asking for Mr. Kolah or another arbitrator.
• Jagdish raised an objection stating following contentions:
  • (i) That Section 8(2) of the Indian Arbitration Act was not applicable as it was not expressly provided in the arbitration clause quoted above that the arbitrators were to be by consent of the parties and
• (ii) That Section 69(3) of the Indian Partnership Act, 1932 afforded a bar to the petition because the partnership was not registered.
• After hearing the case between the Kajaria Traders and Jagdish, the Bombay High Court held in favor of Kajaria Traders.
• Hence, Jagdish Chandra Gupta filed an appeal before the Supreme Court.

Issues Involved

• Whether under Section 8(2) of the Indian Arbitration Act, 1940 the Court has power to appoint the arbitrator without consent of the parties.
• Whether under Section 69(3) of the Indian Partnership Act, 1932 provides bar to the petition because partnership was not registered?
• Whether the present proceeding is one to enforce a right arising from the contract of the parties?

Observation

• The court highlighted that the proceeding under Section 8 of the Indian Arbitration Act, 1940 originated from the arbitration clause, which is part of the partnership agreement.
• Therefore, the court concluded that the ongoing legal action sought to enforce a right rooted in the contract, whether considering the entire contract or just the arbitration clause.
• The court held that parties were already at consensus on resolving the dispute through arbitration by adding an arbitration clause to the agreement.
• The court held that “Since the arbitration clause formed a part of the agreement constituting the partnership it is obvious that the proceeding which is before the Court is to enforce a right which arises from a contract”.
  • Whether one views the contract between the parties as a whole or one views only the arbitration clause it is impossible to think that the right to proceed to arbitration is not one of the rights which are founded on the agreement of the parties.
  • The words of Section 69(3) of the Indian Partnership Act, 1932 "a right arising from a contract" are in either sense sufficient to cover the present matters.

Conclusion

The Court finally set aside the decision of the Bombay HC and the application under Section 8(2) of the Indian Arbitration Act, 1940 was dismissed.

Notes

Section 69 of the Partnership Act, 1932 – 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 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 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 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 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 the Second Schedule 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.