Unregistered partners can invoke arbitration

The Supreme Court has held that partners of an unregistered firm can seek interim relief in a dispute between them under the Arbitration and Conciliation Act.

Though the partnership may be unregistered or the status of partners disputed, they can take recourse to the new Arbitration Act, according to the "prima facie" the Supreme Court order in the Ashok Traders & Co vs Gurumukh Das case, delivered last week.

In this case, three groups of partners of a liquor firm in MPhad differences among them. One group moved a civil court but the petition was dismissed because the names of those members were not shown in the register of firms.

According to Section 69(3) of the Partnership Act, firms not registered and the partners who are not shown as such in the register cannot move a civil suit.

The failed group then invoked Section 9 of the Arbitration and Conciliation Act, which allows the court to grant interim orders before or during proceedings.

They wanted the court to appoint a receiver to take charge of the firm's business. The second group objected to this saying the other group was not registered and thus could not get interim orders.

The MP High Court said the applicability of the Partnership Act did not stand in the way of the grant of interim orders under the arbitration law.

On appeal, the apex court had to decide whether partners in an unregistered firm can invoke the arbitration law.

The judgment delivered by the apex court Bench comprising Justice RC Lahoti and Justice Ashok Bhan said, "In our opinion, which we would term as prima facie, the bar enacted by Section 69 of the Partnership Act does not affect the maintainability of an application under the Arbitration and Conciliation Act."

They said the arbitration clause was separable from other clauses of the partnership deed. The arbitration clause constituted an agreement by itself.

"In short, filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief, which the court has power to grant before, during or after proceedings by virtue of Section 9 of the Arbitration Act.

"The relief sought in an application under Section 9 of the Arbitration Act is neither a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the arbitral tribunal," the judgment said.

While modifying the high court order, they said the court in cases of Section 9 was only formulating interim measures to protect rights of the parties before the arbitral tribunal.

Section 69 of the Partnership Act had no bearing on the right of a party to an arbitration clause to file an application under Section 9 of the Arbitration Act, the court said.