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Unregistered Partnership Firm Entitled To Interim Measures Vide the Arbitration and Conciliation Act, 1996

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Overview 

A Civil Miscellaneous Appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996 against an order dated 13.03.2020 passed by the X Additional Chief Judge, City Civil Court, Hyderabad, that dismissed an application filed by appellants under Section 9 of the Act in relation to M/s Menaka and M/s Apsara theatre. In the said application, the appellants had sought an order restraining the Respondents from alienating the O.P. schedule property and change its nature.

Facts 

The appellants’ father initially acquired the theatres’ property in question by P. Anand Rao and one Vallabha Das Loya under a registered Sale Deed dt.10.04.1961. P. Anand Rao and Vallabha Das Loya, later on, sold the property to one R.S. Chenoy and Shahpur Chenoy under a registered Sale Deed dt.19.02.1963. However, subsequently, the legal heirs of R.S. Chenoy and Shahpur Chenoy re-sold the property again to P. Anand Rao, Vallabhdas Loya, Ch. Hanumanth Rao and Smt. Appayamma under a registered Sale Deed dt.09.03.1966.

Both the theatres were being run under a partnership agreement, and after the death of P. Anand Rao, the 3rd appellant was inducted as the partner in both the partnership firms vide a partnership deed. According to these deeds, the appellants were entitled to get a share of 15% in both the firms.

Both the theatres were shut down in 2011due to renovation, but the appellants alleged that the Respondents did not invest their shares for renovation and, in a meeting later on, agreed to sell their 85% of shares to the appellants. The appellants alleged that they came to know that some partners in M/s Apsara were trying to sell the property and were engaged in creating illegal third-party documents without the appellants’ knowledge.

The appellants invoked clause 14 of the arbitration agreement and appointed a person named Rangiah to adjudicate the dispute, but the Respondents did not agree to the person’s appointment and appointed another person named Sheshadri as the arbitrator. The appellants invoked Section 11 of the act and sought the help of the High Court in appointing an arbitrator.

The appellants also contended that a person started trespassing the property and demolishing the property. They tried to lodge a police complaint, but the police refused to help as the case was civil in nature and thus, out of the police’s scope. Left with no other alternatives, in order to save the property, the appellants filed an application u/s 9 of the act, which the X Additional chief judge dismissed. Hence, the CMA.

Arguments made by the learned counsel of the Petitioners 

He submitted that the Respondents did not invest their shares when the firms were shut down due to the renovation work. Also, the other partners in the firm viz. M/s Apsara was creating third-party documents intending to sell the property without the appellants’ knowledge, whereas the same is prohibited u/s 19 (2)(g)of the Indian Partnership Act.

Arguments made by the learned counsel of Respondents 

The counsel submitted that the appellants are not entitled to any interim relief, which they have prayed for u/s 9 of the act as M/s apsara and M/s Maneka were unregistered firms. He further submitted that on the ground of non-joinder of necessary parties and on the ground that the 2nd Respondent is not a partner of the firm, the O.P should be dismissed. He quite intriguing pointed out that as the firms are not registered, they are not entitled to seek remedy due to the bar enunciated in sec 69 of the Indian Partnership Act. He also contended that every partner is allowed under the partnership deed to sell his share to a third party, and hence, interim relief cannot be granted u/s 9 of the act.

Court’s observation 

After referring to the submissions made by both the parties and after considering sec 9 of the act, the Court held that any partnership firm could invoke sec 9 of the act, be it a registered or unregistered firm. It also observed that though, initially, a status quo order was passed by itself, but even 10 months after that, the arbitration proceedings did not commence and thus, colluding sec 9 (2) with this fact, it said that the order of status quo stands dismissed. Later, considering the appellant’s viewpoint, the arbitral proceedings need to be commenced when the Respondent receives the request for the dispute to be referred to arbitration. The Court relied on the fact that the appellants had u/s sec 11, moved an application, seeking an arbitrator’s appointment and the same were allowed. Therefore, it is not possible to contend that arbitral proceedings had not been commenced within time as is being done by Respondents.

It also observed that though a partner has an implied authority to bind the firm under sec 19 of IPA,1935 yet, such “ implied authority does not empower a partner to transfer immovable property belonging to the firm and relied on sec 19(2)(g) of the IPA, 1935. 

Judgment 

The Court allowed the appellants’ appeal and ordered that the orders passed in arbitration dated 13.03.2020 be set aside. The matters were remitted to the X Additional chief judge, city civil Court, Hyderabad, to decide the matters afresh after hearing both the parties within four (04) weeks from the date of receipt of the copy of the order. It also ordered an interim injunction against the Respondents, restraining them from alienating the property and changing its name.

Click here to read the judgment.


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