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2017 DIGILAW 2755 (PNJ)

Supreme Builders v. Punjab State

2017-11-17

S.J.VAZIFDAR

body2017
JUDGMENT : S.J. VAZIFDAR, J. This is a petition under section 11(6) of the Arbitration and Conciliation Act, 1996, for the appointment of an Arbitrator. The rejoinder filed in Court on behalf of the petitioner to reply of respondent No.3 is permitted to be taken on record subject to all just exceptions. 2. The petitioner, a firm registered under the Indian Partnership Act, 1932, entered into a contract with respondent Nos.1 and 2 which, I will presume, contains a valid and binding arbitration agreement. It is, however, not necessary to consider the petition at this stage so far as respondent Nos.1 and 2 are concerned as I find that the partner who filed this petition does not have the authority to do so. I have, therefore, proceeded to deal with this petition even in the absence of respondent Nos.1 and 2. 3. The petitioner is a firm comprising of two partners, namely, Harjeet Singh and Manoj Kumar. The petition has been filed on behalf of the firm only by said Harjeet Singh. Manoj Kumar was not impleaded either as a petitioner or as a respondent. Nor was his consent obtained for filing this petition. Manoj Kumar filed Civil Miscellaneous Application No. 6794-CII of 2017 seeking to be impleaded which was allowed by my order and judgment dated 28.04.2017. 4. Mr. Jasdeep Singh Gill, the learned counsel appearing on behalf of respondent No.3 contended that the petitioner does not have the authority to file the petition seeking to submit a dispute relating to the business of the firm to arbitration. He relied upon section 19 of the Partnership Act which, in so far as it is relevant, reads as under:- “19. Implied authority of partner as agent of the firm.- (1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his “implied authority”. (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to- (a) submit a dispute relating to the business of the firm to arbitration. (b) .…..… …..…… ..….. .…..… …..…. ..….. .….. ….. (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to- (a) submit a dispute relating to the business of the firm to arbitration. (b) .…..… …..…… ..….. .…..… …..…. ..….. .….. ….. (c) compromise or relinquish any claim or portion of a claim by the firm. (d) .…..… …..…… ..….. .…..… …..…. ..….. .….. ….. (e) admit any liability in a suit or proceedings against the firm.” 5. As Mr. Gill rightly submitted, section 19(2)(a) would operate even where there is an arbitration agreement between the firm and a third party. The language of sub-clause (a) clearly establishes the same. It provides that the implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration. A dispute can be submitted to arbitration either by first entering into an arbitration agreement and thereafter submitting it to arbitration or by submitting a dispute to arbitration in accordance with an arbitration clause that had already been entered into by the firm. Section 19(2)(a) takes within its ambit even the latter category. This is clear from the plain language of the section and in particular the words “submit a dispute” in clause (a) of sub-section (2) thereof. The submission of a dispute to arbitration posits an agreement to refer the dispute to arbitration. The section goes beyond the arbitration agreement and deals with the submission of the dispute to arbitration in accordance with the same. In other words, the mere existence of a valid arbitration agreement between a firm and a third party does not entitle one or some of the partners of the firm to submit the dispute to arbitration in accordance with the arbitration agreement. This is, of course, subject to any usage or custom of trade to the contrary. The respondents have not established any usage or custom of trade to the contrary. 6. There is a material difference between arbitration proceedings and actions before a public forum such as a suit or proceedings under and in accordance with a statute. In the latter case, a party has a right to institute the action or proceeding. On the other hand, despite an arbitration agreement, a party may not opt to refer the disputes to arbitration. In the latter case, a party has a right to institute the action or proceeding. On the other hand, despite an arbitration agreement, a party may not opt to refer the disputes to arbitration. Further, there are cases where the Court may not enforce the arbitration agreement whether under sections 8 or 11 of the Act or even otherwise. Moreover, whereas parties may choose an arbitrator they cannot even by consent choose a Court. These are possibly some of the reasons for enacting section 19(2)(a) of the Indian Partnership Act, 1932. 7. As rightly pointed out by Mr. Gill, it is not the petitioner’s case that the terms and conditions of the partnership deed had been amended to confer blanket authority upon Harjeet Singh to submit a dispute relating to the business of the firm in every case without reference to his partner Manoj Kumar. Nor is it established that Manoj Kumar had otherwise conferred blanket authority upon Harjeet Singh to submit disputes relating to the business of the firm to arbitration in every case. In any event, such authority express or implied was not established. The mere fact that the petitioner had, in the past, filed certain proceedings on behalf of the firm on his own does not imply or establish such authority. It is not established that the proceedings had been filed on the basis of a blanket authority. The respondent partner Manoj Kumar is entitled, therefore, to oppose the present petition under section 19(2)(a) of the Partnership Act. 8. The petition is, therefore, not maintainable at this stage. 9. I asked Mr. Gill whether he would, for the benefit and in the interest of the firm, agree to the appointment of an Arbitrator in respect of the disputes between the firm and the original respondents i.e. respondent Nos.1 and 2. The benefit of an award would ultimately enure to the benefit of both the partners. He agreed that this would clearly be so but submitted that in the present case, the original respondents would, in all probability, refuse to pay the amount which they are allegedly willing to pay so long as the petition is pending. The benefit of an award would ultimately enure to the benefit of both the partners. He agreed that this would clearly be so but submitted that in the present case, the original respondents would, in all probability, refuse to pay the amount which they are allegedly willing to pay so long as the petition is pending. He, therefore, submits that the appropriate course would be for the two partners to refer their disputes to arbitration in accordance with the arbitration clause that admittedly exists between the partners and to seek suitable directions from the Arbitrator regarding protecting and pursuing the claims of the firm. He rightly submitted that he would, in fact, co-operate in any and every manner for the purpose of protecting the interests of the firm against the original respondents for that would ultimately also enure to his benefit. Mr. Dheeraj Mahajan, the learned counsel appearing on behalf of the petitioner, stated that the petitioner has no objection to referring the disputes and differences between the two partners to arbitration and to seek appropriate directions as suggested by Mr. Gill. 10. As I mentioned earlier, the petition is not maintainable at this stage as Harjeet Singh does not have the authority, express or implied, to submit the disputes relating to the business of the firm to arbitration. The petition would be maintainable if the other partner Manoj Kumar also agrees to do so. It would also be maintainable if an order to do so is passed by a Court or arbitral tribunal. The question whether in a partnership action such as for dissolution and accounts, a Court can compel the firm to refer its disputes with a third party to arbitration despite the objection of one of the partners does not arise in this petition and is, therefore, kept open. 11. The petition is accordingly disposed of with liberty to the firm to file a fresh petition or to have this petition revived in accordance with law in the event of there being any change in circumstances such as those indicated above. In the event of there being any difficulty or disagreement between the partners even in this regard, liberty to the petitioner and/or respondent-partner to make an application for reviving this petition.