Introduction

• This case deals with Section 69(3) of the Indian Partnership Act, 1932.

Facts

• The Cooperative Group Housing Society (Respondent), issued a call for tenders to construct 102 dwelling units with a basement.
• An unregistered partnership firm (Appellant) submitted a bid in response, winning the contract at an estimated cost of Rs. 9.80 crores.
• The Appellant, successful in securing the contract, received a letter of intent and submitted its initial bill for construction activities, including the compound wall, on 09th August 1998.
• The formal agreement for the project was executed on 02nd February 1999 between the Appellant and the Respondent.
• Although the Appellant asserted that it was not responsible for the delay in obtaining plan sanction, a dispute emerged between the two parties.
• This disagreement prompted the Appellant to approach the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking an injunction to prevent the Respondent from removing the Appellant from the worksite until the work completed by the Appellant was assessed by a Commissioner appointed by the Court.
• Initially, the Respondent appointed an arbitrator to resolve the dispute, as per Section 11(5) of the A&C Act for the selection of an independent arbitrator.
• The appellant and the respondent presented assertions and counter-arguments to the arbitrator.
• On 05^th May 2005, the arbitrator issued a decision, granting the appellant's claim up to Rs. 1,36,24,886.08, with an additional interest rate of 12% from 01.06.2002 until the award date, and subsequent interest at 18% per annum from the award date until the payment date.
• It is noteworthy that the respondent, in opposing the appellant's claim, did not explicitly raise any objections under Section 69 of the Indian Partnership Act, 1932.
• The Appellant actively participated in the subsequent arbitration proceedings conducted by the arbitrator chosen by the Respondent.
• Despite the arbitrator's decision, the Respondent was dissatisfied and lodged an appeal with the Delhi High Court, which ultimately dismissed the appeal.
• Therefore, he approached the Supreme Court.

Issue Involved

• Whether expression other proceedings contained in Section 69(3) of the Indian Partnership Act, 1932 will include Arbitral proceedings and can be equated to suit filed in Court and thereby ban imposed against unregistered firm can operate in matter of arbitral proceedings?

Observation

• The court emphasized that Section 69 of the Indian Partnership Act, 1932 imposes a ban on unregistered firms or individuals claiming to be partners of such firms from initiating legal proceedings in a court.
• The ban extends to claims of set-off or other proceedings intrinsically linked to a pending suit.
• The Court clarified that to trigger Sub-section (3) of Section 69, the key condition is the initiation of a suit in a court by an unregistered firm or a person claiming to be a partner of such a firm.
• The prohibition does not extend to arbitration proceedings, and the Court rejected an argument challenging the maintainability of a counter claim of appeallnat in arbitration based on Section 69 of the Indian Partnership Act, 1932.
• The Court underscored that the interpretation of Section 69 should not encompass arbitral proceedings, especially given the distinct features of the A&C Act which governs arbitration.

Conclusion

• The Court ruled that Arbitral Proceedings do not fall within the scope of the term "other proceedings" as stated in Section 69(3) of the Indian Partnership Act, 1932.
• The prohibition outlined in Section 69 of the Indian Partnership Act, 1932 does not extend to Arbitral proceedings and the resulting Arbitration Award.