In the High Court of Judicature at Madras Dated: 18.03.2010 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Original Petition No.139 of 2008 1. M/s. Texfield Engineers Rep. by its Managing Partner T.Chandramohan (died) 23-A, Vivekananda Nagar, Singanallur, Coimbatore. 2. Mrs.Pushpa Chidambaram 3. Mr.Sarath Chidambaram .. Petitioners (Cause title amended as per order dated 23.2.2010 in Application No.464 of 2010.) Vs. 1. Texteema Engineering Industries A Partnership firm 402/2, Elgi Industrial Estate, Singanallur, Coimbatore. 2. Ramdass, Partner 3. Nandagopal 4. T.K.Seshadri, Senior Advocate Arbitrator .. Respondents PETITION under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 15.10.2007. For Petitioners : Mrs.Hema Sampath, S.C. For M/s. Kalyanasundaram & R.Meenal For Respondents: Mr.M.S.Krishnan, S.C. For M/s.Sarvabhauman Associates - R1 to R3 -------------- O R D E R The petitioners are the claimants in the Arbitral proceedings. The learned Arbitrator rejected the claim petition of the petitioners herein accepting the preliminary objection taken by respondents-1 to 3 that as per Section 69 of the Indian Partnership Act, an unregistered firm cannot maintain a suit to enforce a right arising under the contract in any Court by or on behalf of any person suing as a partner of the firm. Thus, by award dated 15th October, 2007, under Section 16(1) of the Arbitration and Conciliation Act, 1996, the learned Arbitrator dismissed the claim petition. The learned Arbitrator viewed that the reference to proceedings under Section 69(3) of the Indian Partnership Act included arbitration proceedings. Hence, following the decision of the Supreme Court reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.), the claim made by the petitioner was rejected as hit by the provisions of Section 69(3) read with Section 69(2) of the Arbitration and Conciliation Act, 1996 as beyond the jurisdiction of the Arbitrator to decide on the claim of the petitioners. 2. It is seen that respondents-1 to 3 herein had also made a counter claim. The learned Arbitrator held that the counter claim could be held as a separate proceeding under the Arbitration and Conciliation Act, 1996 and notice would be issued to the party for the adjudication of the counter claim of respondents-1 to 3 against the petitioners. 3. Challenging the said award of the learned Arbitrator passed under Section 16(1) of the Arbitration and Conciliation Act, 1996, the present petition is filed. 4. Before going into the various contentions raised by the parties herein, the facts of the case needs to be adverted to. The first petitioner is an unregistered partnership firm. The first respondent is a partnership firm manufacturing certain textile machinery spares, apart from dealing in other related products. The petitioners and respondents-1 to 3 entered into a distributorship agreement on 27.11.2000 for Atomisers, invented and manufactured by the petitioners herein, which is a device for spraying and atomising liquids for humidifying surrounding air and spraying liquids. Respondents-1 to 3 were to act as the distributors for the products manufactured by the petitioner. In the course of the business dealings, disputes arose between the parties and the petitioners alleged that respondents-1 to 3 had acted without the permission or licence from the petitioners against the Rules and Regulations of copyright and patent. It is stated that the conduct of respondents-1 to 3 was aimed at depriving the petitioners of the benefits of the invention. In the above circumstances, the petitioners invoked the arbitration Clause 11 of the agreement for the resolution of disputes. As the parties herein did not reach a consensus in the appointment of the Arbitrator and as the the contract provided for the appointment of a sole arbitrator, respondents-1 to 3 filed a petition under Section 11(4), (5) and (6) of the Arbitration and Conciliation Act, 1996 for the appointment of an Arbitrator. By order dated 24th February, 2005 in O.P.No.377 of 2002, the fourth respondent was appointed as the sole Arbitrator by this Court. 5. The petitioners made a claim for damages as follows: a. Damages due to non-lifting of required number of Atomisers is to the tune of (421 Atomisers @ Rs.1,500) Rs. 6,31,500/- b. Balance amount due to Tex Field vide the lifting of Atomisers is calculated as Rs. 6,64,940/- c. Interest @ 20% up to 31st Aug 2005 Rs. 8,42,273/- --------------- Rs.21,38,713/- ---------------- d. Compensation against loss of Tex Fields business opportunity by printing and publishing brochures as Techno Atomisers Rs.20,00,000/- Total Rs.41,38,713/- 6. The petitioners also sought for interest on the said sum of Rs.41,38,713/-. The said claim was denied by respondents-1 to 3. Taking a stand that the claim was totally unjustified, respondents-1 to 3 herein made a counter claim contending that respondents-1 to 3 were put to enormous loss of money, time and resources on account of the breach of warranty committed by the petitioners herein; that respondents-1 to 3 had been put to great monetary loss on account of the mass rejection of the products supplied by the petitioners and hence, respondents-1 to 3 were not liable for any payment towards the rejected items. Thus respondents-1 to 3 herein made the following claims: (i) Amount due to us from Texfield as per statement of account enclosed Rs. 2,52,878/- (ii) Loss of profit due to rejection of Atomisers 232 x 7500  2950 = Rs.10,55,600/- (iii) Administrative and marketing expenses Rs. 2,00,000/- (iv) Due to rejection of nozzles supplied by Texfield Engineers Respondent could not market the nozzles even though there was potential demand for nozzles. If Texfield had supplied good quality nozzles as per agreement numbering 421 or if it had been purchased from outside source they would have earned a profit of Rs.421 x 4000/- = upto June 2001 Rs.16,84,000/- (v) If Texfield had supplied as per agreement for remaining period 5 months totalling 500 or if the Respondent purchased it from outside source they would have earned a profit of Rs.500 x 4000 = Rs.20,00,000/- (vi) Loss of reputation and loss due to effort and expenses estimated as Rs.10,00,000/- ----------------- TOTAL Rs.61,92,478/- ----------------- Respondents-1 to 3 claimed interest at 18% per annum from the date of claim till the date of payment. 7. The petitioners filed a rejoinder to the said claim. It is seen that after filing of the claim petition, respondents-1 to 3 made an application contending that on going through the claim petition, it was seen that the first petitioner herein was an unregistered partnership firm. There was no averment in the claim statement or in the deposition and no document was filed stating that the first petitioner was a registered firm. In the circumstances, the claim instituted at the instance of the unregistered firm is not maintainable, there being a clear bar contained in Section 69 of the Indian Partnership Act, 1932. 8. Placing reliance on the decisions reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd. and (2004) 7 SCC 332 (U.P.State Sugar Corporation Ltd. V. Jain Construction Co. and another), respondents-1 to 3 raised a preliminary objection as to the maintainability of the arbitral proceedings and sought for dismissal of the same. To this, the petitioners herein filed an objection that Section 69 of the Indian Partnership Act could not wipe out the dealing of the partnership company when the claim was a genuine one. Hence, the petitioners herein sought for rejection of the respondents' contention. 9. Thereafter, respondents-1 to 3 sought leave of the Arbitrator to raise an additional plea on the maintainability of the claim, particularly with reference to Section 69 of the Indian Partnership Act. Respondents-1 to 3 stated that in view of the objection taken by the petitioners herein that respondents-1 to 3 had waived their right as to the jurisdiction of the Tribunal by not making such a claim in the written statement, they were estopped from raising such a plea thereafter in the course of the proceedings. However, advised by their counsel, as a measure of abundant caution, respondents-1 to 3 herein filed a separate application to specifically raise the additional plea on the maintainability of the claim. Thus, invoking Section 23(3) of the Arbitration and Conciliation Act, 1996, respondents-1 to 3 sought for dismissal of the claim of the petitioners. The petitioners herein filed a reply stating that when respondents-1 to 3 had waived their defence, they should be precluded from raising the point subsequent thereto to the filing of the written statement to invalidate the claim petition. The petitioners contended that having participated in the proceedings, with full knowledge of the facts, and the rights had already crystalised in terms of Section 4 of the Arbitration and Conciliation Act, 1996, respondents-1 to 3 were precluded from invalidating the claim. The petitioners further contended that the Arbitrator was appointed only on the petition by respondents-1 to 3 before the High Court under Section 11 of the Arbitration and Concilation Act, 1996. 10. Placing reliance on the decision of the Bombay High Court reported in 2002 (2) ARB.LR 271 (Sunil Girdharilal Shah V. Sanjay Navneetdas Shah and others), the petitioner contended that the decisions relied on by respondents-1 to 3 were not applicable to the case herein. In the circumstances, the petitioners sought for rejection of the application. 11. By order dated 15th October, 2007, learned Arbitrator allowed the application to file an additional ground in the main arbitration proceedings and passed an independent order rejecting the claim of the petitioner based on Section 69 (3) of the Indian Partnership Act. 12. Learned Arbitrator pointed out that the petitioners herein admitted the position that they are an unregistered firm. If that be so, as per Section 69 of the Indian Partnership Act, 1932, the petition by the unregistered firm is not maintainable. Learned Arbitrator referred to the decision of the Supreme Court reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.), holding that the provision of Section 69 of the Indian Partnership Act applies to the proceedings under the present Act. Learned Arbitrator viewed that the claim was hit by the mandatory provision of Section 69(3) read with Section 69(2) of the Indian Partnership Act. 13. Learned senior counsel appearing for the petitioners pointed out that respondents-1 to 3 herein preferred an application under Section 11(4), (5) and (6) of the Arbitration and Conciliation Act, 1996 before this Court seeking appointment of an Arbitrator. Under order dated 24.2.2005, the Arbitrator was appointed. Since thereafter nothing moved from respondents-1 to 3, the petitioners made a claim on 15.9.2005. A counter claim from respondents-1 to 3 along with a counter was filed during January, 2006. Having invoked Section 11 of the Arbitration and Conciliation Act, 1996, the contention taken by respondents-1 to 3 after filing the counter is a belated one. In these circumstances, in the face of Section 16 of the Arbitration and Conciliation Act, 1996 and having regard to the belated claim made, the learned Arbitrator ought to have rejected the prayer of respondents-1 to 3. She pointed out that the issue as to the maintainability was made only at the last stage; hence, there is a deemed waiver on the objection as to the jurisdiction of the learned Arbitrator based on Section 69(3) of the Indian Partnership Act. In any event, pointing out to the scheme of the Arbitration and Conciliation Act, 1996, she contended that the purport and object of the Act is wider in its application and in the face of Section 16(4) of the Arbitration and Conciliation Act, 1996, there being no explanation in not raising the objection on time, the Arbitral Tribunal ought to have rejected the belated objection taken. 14. In this connection, she placed reliance on the decisions reported in 2001-3-L.W. 576 (V.V.Textiles etc. v. M/s. Mahavit Fabrics etc.); AIR 1972 Madras 86 (Jalal Mohammed Ibrahim (died) and others V. Kakka Mohammed Ghouse Sahib and another) and 20092-L.W 849 (M/s. Indian Oil Corporation Limited V. M/s. Devi Constructions) that the belated claim made by respondents-1 to 3 has to be rejected, there being no explanation to support the delayed submission. She further pointed out that in the context of the agreement entered into between the parties to refer the disputes to arbitration, the question of applicability of Section 69 of the Indian Partnership Act to the Arbitration proceedings does not arise. In this connection, she placed reliance on the decisions reported in (2004) 3 SCC 155 (Firm Ashok Traders and another Vs. Gurumukh Das Saluja and others), 20092- L.W. 849 (M/s. Indian Oil Corporation Limited V. M/s. Devi Constructions), (2009) 4 SCC 684 (Secretary, Bhubaneshwar Development Authority V. Susanta Kumar Mishra) and (2006) 7 SCC 275 (Rashtriya Ispat Nigam Ltd. And another V. Verma Transport Co.) and submitted that the claim is well maintainable. She also pointed out to the belated objection and placed reliance on the decisions reported in 1998 (II) CTC 108 (T.T.K.Pharma Ltd. Vs. AG.Robapharam) and AIR 1964 SC 1300 (Dhirendra Nath Gorai & others Vs. Sudhir Chandra Ghosh & others) that there are no valid reasons for allowing the claim of the respondents by way of additional grounds. 15. Per contra, Mr.M.S.Krishnan, learned senior counsel appearing for respondents-1 to 3, placed reliance on the decision referred to by the Tribunal reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.) and submitted that the question as to whether the Arbitrator has the jurisdiction to consider a claim from an unregistered firm is no longer res integra. Consequently, learned Arbitrator rightly followed the decision of the Apex Court reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.). He also referred to the decision reported in (2004) 7 SCC 332 (U.P.State Sugar Corporation Ltd. V. Jain Construction Co. and another), reiterating the view that the arbitral proceedings will not be maintainable at the instance of an unregistered firm, having regard to the mandatory provision of Section 69 of the Indian Partnership Act. He pointed out that the question as to whether the Arbitrator has the jurisdiction to decide the issue can be raised at any time and the same need not have been raised at the very first instance. To this, he relied on the decision reported in AIR 2003 AP 418 (The Andhra Pradesh Cooperative Wool Spinning Mills Limited and another Vs. G.Mahanandi and Company Wool Merchants and others). Citing the decisions of the Apex Court reported in (1998) 7 SCC 184 (Raptakos Brett & co. Ltd., V. Ganesh Property) and (1998) 8 SCC 559 (Delhi Development Authority Vs. Kochhar Construction Work and another), he submitted that with a legal bar under Section 69(3) of the Indian Partnership Act, to maintain a claim by an unregistered firm, any award passed would be void ab initio. 16. He made particular reference to Section 23(3) of the Arbitration and Conciliation Act, 1996 as to the discretion of the Tribunal to condone the delay and give permission to file an additional ground; that having regard to the discretionary order passed allowing the amendment to the counter filed, it is no longer open to the petitioners to challenge the same. He also referred to Section 28(1)(a) of the Arbitration and Conciliation Act, 1996 casting an obligation on the Arbitrator to decide the disputes in accordance with the substantive law. Considering that Indian Partnership Act being a substantive enactment, the decision to permit the petitioners to file an additional ground as per Section 23(3) of the Arbitration and Conciliation Act, 1996, cannot be faulted with. He pointed out that the provision of Section 69(3) of the Indian Partnership Act is a mandatory one and in compliance of the same, the Arbitrator had rightly rejected the claim of the petitioners. In the face of a specific bar, the question of plea of waiver does not arise for consideration. In the face of the total lack of jurisdiction to entertain and decide the issue raised by an unregistered firm, learned Arbitrator had rightly rejected the claim petition and no exception could be taken to the said view. 17. Heard the learned senior counsel appearing for the petitioners and the learned senior counsel appearing for respondents-1 to 3. 18. Before going into the merits of both the parties, it is necessary to see the clause on arbitration. Clause 11 of the agreement reads as follows: "11. ARBITRATION: a) All disputes and controversies which may arise between the parties, out of, or in relation to or in connection with this AGREEMENT or for the breach thereof shall, unless settled by mutual consultation in good faith, be finally settled by arbitration in accordance with the ARBITRATION ACT." 19. The issue raised being, pure and simple, a question of law, we need to advert our attention to the provisions of the Arbitration and Conciliation Act, 1996, the agreement and the provisions of Section 69(3) of the Indian Partnership Act and its applicability to the arbitration proceedings. 20. The centre of the submissions made by both the parties is the decision of the Supreme Court in the decision reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.). The facts of the reported decision were that there was an agreement between one Kajaria Traders, who was the respondent before the Supreme Court and Foreign import and Export Association, a proprietory concern of the appellant for export of Manganese Ore to U.S.A. The agreement provided for reference of the disputes to arbitration. The respondent appointed one Mr.Kolah as the arbitrator. The appellant therein disputed the appointment of the Arbitrator. Hence, the respondent filed an application under Section 8(2) of the Indian Arbitration Act, 1940 for the appointment of one Mr.Kolah or any other person as Arbitrator. The appellant took objections on the ground that there was no provision in the arbitration agreement that the Arbitrators were to be appointed by the consent of the parties and hence the application under Section 8(2) of the Indian Arbitration Act, 1940 would not lie. Further, Section 69(3) of the Indian Partnership Act was a bar to the petition, since the respondent was an unregistered firm. 21. The Division Bench, to which the case was referred to, agreed that by an application under Section 8 of the Arbitration Act, 1940, the Court could appoint an Arbitrator. However, the learned Judges therein disagreed on the applicability of the Indian Partnership Act to the arbitration proceedings. Hence, on a reference to the third Judge, the majority viewed that the application was not hit by Section 69(3) of the Indian Partnership Act. On further appeal, the Apex Court pointed out that since the arbitration clause was a part of the agreement constituting the partnership, it was obvious that the proceedings, which was before the Court, was to enforce a right arising from a contract. 22. In this background, the Supreme Court pointed out that the words 'other proceeding' can properly be said to include proceedings for enforcing any right arising from the contract except those expressly mentioned as exceptions in sub-sections (3) and (4). The Apex Court pointed out that the word 'proceeding' is not restricted to the proceeding in the nature of the suit or a claim for set off. In the circumstances, the Supreme Court held that the claim therein for a reference to arbitration was barred by Section 69 of the Indian Partnership Act. 23. The said decision came up for consideration before the Supreme Court in the decision reported in (2004) 3 SCC 155 (Firm Ashok Traders and another Vs. Gurumukh Das Saluja and others). The Supreme Court pointed out that Section 69(1)(2) of the Indian Partnership Act strikes at the very root of the jurisdiction of the Court to entertain the suit to enforce a right arising from a contract. The Supreme Court also pointed out that an application under Section 9 of the Arbitration and Conciliation Act is not a suit. The bar enacted under Section 69 of the Indian Partnership Act does not affect the maintainability of the application under Section 9 of the Arbitration and Conciliation Act, 1996. Referring to the Constitution Bench decision reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.), the Supreme Court pointed out that given the nature of the jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996, the bar under Section 69(3) of the Indian Partnership Act has no application at all to the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996. 24. (2000) 6 SCC 659 (Kamal Pushp Enterprises V. D.R.Construction Co.) is yet another decision relied on by the petitioner dealing with Section 69 of the Indian Partnership Act and Section 14 of the Arbitration and Conciliation Act, 1996. The Apex Court pointed out that the prohibition contained in Section 69 of the Indian Partnership Act is in respect of instituting a proceeding to enforce a right arising from a contract in any Court by an unregistered firm and it had no application to the proceedings before the Arbitrator and that too when the reference to the Arbitrator was at the instance of the appellant therein. The Supreme Court pointed out that if the bar engrafted is absolute in its terms and is destructive of any other terms arising under the contract, then it would become a jurisdictional issue in respect of the Arbitrator's power and authority; consequently, furnishes a ground by itself to challenge the award. The Apex Court pointed out that the award in the said case could not be said to be vitiated on account of the prohibition under Section 69 of the Indian Partnership Act, since the same had no application to post-award proceedings. 25. In the above said decision, referring to the decision reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd.), the Apex Court pointed out the said case, being one concerning an application before the Court under Section 8(2) of the Arbitration Act, 1940 in the light of the arbitration agreement, this Court finally held that since the arbitration clause formed part of the agreement constituting the partnership, the proceeding under Section 8(2) was in fact to enforce a right which arose from a contract/ agreement of parties." The Apex further pointed out The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any court by an unregistered firm, and it had no application to the proceedings before an arbitrator and that too when the reference to the arbitrator was at the instance of the appellant itself.  26. In the background of the above-said decision, the recent decision of this Court reported in 2009 (2) CTC 791 (Indian Oil Corporation Limited V. Devi Constructions) needs to be considered. The case relates to the Indian Oil Corporation entrusting certain construction work to an unregistered partnership firm. The contract provided for referring the disputes to a sole Arbitrator. The Arbitrator allowed the claim of the partnership firm and dismissed the counter claim of the Indian Oil Corporation. On an appeal at the instance of the Corporation that the respondent firm contractor was an unregistered firm and hence, could not initiate arbitration proceedings, the Division Bench of this Court held that Section 69 of the Indian Partnership Act would be applicable to a suit or a proceeding initiated before the Court and that too for enforcement of a contract and the provision is not applicable to a reference of the dispute to an Arbitrator in terms of the contract. This Court considered the reliance placed by the Oil Corporation, the appellant therein, to the decisions reported in AIR 1964 SC 1882 (Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd., AIR 1989 SC 1769 (Shreeram Finance Corpn. V. Yasin Khan) and 1998 (8) SCC 559 (Delhi Development Authority V. Kochhar Construction Work) and pointed out that the cases referred to therein were in respect of an application filed under Section 8(2) of the Indian Arbitration Act, 1940 in the Court and in