Law Web: Whether award passed in reference to arbitration at instance of one of partners without specific consent of others is binding on firm?

The Division Bench of this Court, in the matter of Bhagvan Manaji Marwadi and others v. Hiraji premaji Marwadi, reported in A.I.R. 1932 Bom. 516 held that award passed in a reference to arbitration at the instance of one of the partners without specific consent of others is not binding on the firm is a well settled law. Indeed this principle of law is well settled since 19th century as is revealed from the judgment of the Division Bench in the said case which has referred to the various decisions right from 1825 onwards till the date of delivery of decision. It refers to the earlier decisions in the matters of Datoobhoy Hassum and others v. Vallu Mahomed Rahimtulla and others, reported in 1899(1) Bom.L.R. 828; Vallabhdas Narandas & Co. v. Keshavlal Himatlal, reported in A.I.R. 1927 Bom. 428 and Gopal Das v. Baij Nath and others, reported in MANU/UP/0321/1925 : AIR1926All238 as well as in the case of Stead v. Salt 1825 (3) Bing. 101 : 10 Moore 389 : 3 L.J.C.P. 175 : 28 R.R. 602. All these decisions are referred to in Bhagvan Manaji's case and considering the well established law on the point in issue, there cannot be any question of ratification or waiver of right as such of the appellant in relation to the award in question and hence the third point is to be answered in negative.

J.J.L.B. Engineers and Contractors through its partner Balabeersingh Vs. Manmohan Harijinder and Associates and Anr.

Reported in : 2001(2)ALLMR149; 2001(3)BomCR577

Judge : R.M.S. Khandeparkar, J.

Decided On : Oct-03-2000

Case Number : Appeal from Order No. 16 of 1986

Arbitration - reference - Sections 30 and 33 of Arbitration Act, 1940, Article 119 of Limitation Act, 1963, Sections 18, 19 and 22 of Partnership Act, 1932 - appeal filed against rejection of objections filed under Section 30 and 33 to award dated 06.11.1981 - objections were filed within peri ..... In that regard, the appellants are perfectly justified in relying upon the decision in the matter of Dewan's case supra. , reported in [1963]3SCR209 and it is submitted that Bhupinder Singh had no authority to refer the dispute to the arbitration and therefore, entire proceedings are ab initio bad in law and therefore award passed in such proceedings is a nullity. 8. Section 19(2)(a) of the Partnership Act clearly provides that in the absence of any usage or custom of trade to the contrary the implied authority of the partner does not empower him to submit a dispute relating to the business of the firm to arbitration. It clearly rules out any implied consent of other partner in that respect unless there is usage or custom to the contrary. That apart, it cannot be stated that the existence of usage or custom of trade is a question of fact and must have been specifically pleaded and proved unless it is well established one and this is apparent from the provisions of law contained in section 19(2) of the Partnership Act itself. 12. Considering the law laid down by the Apex Court in Waverly Jute Mills case, therefore, and applying the same to the facts of the case, in the absence of any specific consent having been disclosed from records to Bhupinder Singh to enter into an agreement with respondents to agree to refer the dispute for arbitration, the entire proceedings before the arbitrator are to be held as without jurisdiction and they are bad in law. Section 19(2)(b) of the Partnership Act clearly rules out any implied authority of other partners in the absence of usage or custom of trade to the contrary for submitting one of partner to the arbitration on behalf of the firm. All the partners subsequently mutually agreed by deed of dissolution that the pronote in dispute as had been allotted to the said partner who was authorised to deal with it in any way he liked as his personal property and that his acts relating to the pronote were ratified. In any case, the view that mere silence on the part of other partners would amount the ratification of agreement cannot be held to be good law in relation to the reference of dispute relating to the business of the firm to arbitration in view of specific provision in section 19(2)(a) of the Partnership Act. Sub-section (2) clearly states that the implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration. 516 held that award passed in a reference to arbitration at the instance of one of the partners without specific consent of others is not binding on the firm is a well settled law. Indeed this principle of law is well settled since 19th century as is revealed from the judgment of the Division Bench in the said case which has referred to the various decisions right from 1825 onwards till the date of delivery of decision. Baij Nath and others, reported in AIR1926All238 as well as in the case of Stead v. 602. All these decisions are referred to in Bhagvan Manaji's case and considering the well established law on the point in issue, there cannot be any question of ratification or waiver of right as such of the appellant in relation to the award in question and hence the third point is to be answered in negative.

Judgment:

R.M.S. Khandeparkar, J.

1. Heard the learned advocates for the respective parties.

2. The appellant challenges the order dated 20th March, 1986 passed by the lower Court in Misc. Application No. 145/81 rejecting the objections filed under sections 30 and 33 of the Indian Arbitration Act, 1940 (hereinafter called as the said Act) to the award dated 6-11-81.

3. The appellant is a registered partnership firm and was awarded the contract of canal work in relation to Jayakwadi project. The appellant had applied the services of the respondent No. 2 on contract basis and the payments thereof were made either to the respondent No. 2 himself or in the name of his firm i.e. respondent No. 1. At some point of time, dispute arose between the appellant and the respondents, and one of the partners of the appellant-firm by name Bhupindersingh signed an agreement agreeing for reference of dispute to arbitration pursuant to which award dated 6-11-81 was delivered.

4. It is the case of the appellant that the reference of dispute to arbitration by Bhupindersing was without consent of the partners of the appellant and therefore, award is not binding upon the appellants. On the other hand, it is the contention of the respondents that Bhupindersing had implied consent of all the partners for reference of dispute to the arbitration, besides the partners of the appellant by their conduct had either ratified the agreement executed by Bhupindersing or waived their right to object to the award, apart from the fact that the objections filed by the appellants were beyond the period of limitation prescribed for filing objection under sections 30 and 33 of the said Act.

5. Upon hearing the learned advocate for the appellant and on perusal of the records, the following questions arise for determination :

(1) Whether the objections filed by the appellants under sections 30 and 33 of the said Act, were within the period of limitation prescribed for the same ?

(2) Whether Bhupindersing held consent of all the partners of the appellant firm for reference of dispute between the appellants and the respondents to arbitration?

(3) Whether the partners of the appellant by their conduct had ratified the said agreement or had waived their right to object to the award?

6. As regards the first point for consideration, it is not in dispute that the award is dated 6-11-1981, it was filed in the Court on 13-11-1981, the appellant had filed a Caveat Application in the lower Appellate Court on 18-11-1981 and the objections were filed only on 5-1-1982. According to the learned advocate for the respondents, the objections have been filed beyond the period of limitation prescribed under Article 119(b) of the Limitation Act, 1963. On the other hand, it is contended by the learned advocate for the appellant that the notice of filing of the award was given to the appellant on 10-12-1981 and considering the decision of the Apex Court in the case of Dewan Singh v. Champat Singh and others, reported in : [1970]2SCR903 , the objections were filed within the period of limitation. Article 119(c) of the Limitation Act provides period of limitation for setting aside the award to be of thirty days from the date of service of the notice of filing of the award. There is no dispute that the notice of filing of award in question was given to the appellant herein on 10th December, 1981. As already pointed out above, there is no dispute that the objections were filed on 5th January, 1982 and that means the objections were filed within thirty days from the date of service of notice of filing of the award. Undisputedly, there is no proof of any such notice of filing of the award having been served upon the appellant prior to 10-12-1981. Being so the objection having been filed within thirty days from 10th December, 1981, it cannot be said that the objections were filed beyond the period of limitation prescribed under Article 119(b) of the Limitation Act. In that regard, the appellants are perfectly justified in relying upon the decision in the matter of Dewan's case supra. Hence the first point for consideration is to be answered in affirmative.

7. As regards the second point, the entire case of the appellants is based on the proviso to section 19 of the Partnership Act. Referring to section 19(2)(a) of the Partnership Act, it is sought to be contended that in the absence of specific authority or consent by the partners to the firm, no partner is entitled to submit a dispute on behalf of the firm relating to the business of the firm to arbitration process. Reliance is sought to be placed in the matter of Waverly Jute Mills Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd., reported in : [1963]3SCR209 and it is submitted that Bhupinder Singh had no authority to refer the dispute to the arbitration and therefore, entire proceedings are ab initio bad in law and therefore award passed in such proceedings is a nullity. On the other hand, the learned advocate for the respondents, referring to Clause 14 of the Partnership Deed dated 1-4-1979 of the appellant firm has submitted that the same clearly authorised each of the partners including Bhupindersing to enter into correspondence with others for and on behalf of the firm which authority includes powers to sign any document and therefore, the agreement executed by Bhupindersing agreeing on behalf of the firm to refer the dispute to arbitration cannot be said to be bad in law or in any manner contravening the provisions contained in section 19(2)(a) of the Partnership Act. Reliance is placed in the decision of the Apex Court in the matter of Sanganer Dal and Flour Mill v. F.C.I. and others, reported in : AIR1992SC481 . Reference is also made to section 18 of the Partnership Act.

8. Section 19(2)(a) of the Partnership Act clearly provides that in the absence of any usage or custom of trade to the contrary the implied authority of the partner does not empower him to submit a dispute relating to the business of the firm to arbitration. There is no dispute that the matter which was referred to the arbitration was relating to the business of the appellant's firm. Clause 14 of the Partnership Deed of the appellant empowers four partners of the firm including Bhupindersing to sign tender documents, receive cheques and payments etc. from the department and also to enter into correspondence with others for and on behalf of the firm. There cannot be and there is also no dispute that Bhupindersing was entitled to enter into correspondence with others on behalf of the appellant firm. The point is whether Clause 14 of the Partnership Deed empowers partners and more particularly Bhupindersingh to refer a dispute in relation to the business of the firm to Arbitration on behalf of the firm. Plain reading of Clause 14 of the Deed discloses that Bhupindersingh was certainly entitled to execute tender documents and have dealings with the department. The department is none other than the Government department as the firm had dealings with the Government department in relation to the canal work. Clause 14 further empowers Bhupinder Singh to enter into correspondence with others for and on behalf of the firm.

9. Section 18 of the Partnership Act undoubtedly provides that every partner is an agent of the firm for the purposes of the business of the firm but subject to the provisions of the said Act. Section 19(1) provides that subject to the provisions to section 22, the act of 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'. Section 22 of the Partnership Act provides for the mode of doing act to bind firm and it states that in order to bind the firm an act or instrument done or executed by partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. The most relevant provision contained in section 19(2) provides that in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration. In other words, though section 18 considers a partner as the agent of the firm for the purposes of business of firm, section 22 specifically provides that in order to bind a firm, the act of the partner should be on behalf of the firm and in the name of the firm, and in the manner expressing or implying intention to bind the firm. Further in terms of sub-section (1) of section 19, every partner subject to section 22 enjoys implied authority in relation to an act of a person which is done by him to carry on in usual way the business of a kind carried on by the firm and such act binds the firm. However sub-section (2) excludes certain acts from the implied authority to a partner and requires specific consent of the other partners. One of these instances is reference of a dispute relating to the business of the firm to arbitration. In other words, section 19(2)(a) specifically provides that in order to enable a partner to refer any dispute relating to the business of the firm, to arbitration, such partner be have specifically authorised or consented by all other partners of the firm. It clearly rules out any implied consent of other partner in that respect unless there is usage or custom to the contrary. Undisputedly, in the case in hand, there is neither any such usage nor custom of trade pleaded or established nor it is a case that there is any such usage or custom of trade. That apart, it cannot be stated that the existence of usage or custom of trade is a question of fact and must have been specifically pleaded and proved unless it is well established one and this is apparent from the provisions of law contained in section 19(2) of the Partnership Act itself. Similar views were expressed by learned Single Judge of the Punjab High Court in the case of Sohanlal v. Firm Madho Ram Banwari Lal and others, reported in .

10. In Sanganer Dal and Flour Mills case supra, the contract was entered into by one of the partners of the firm with F.C.I for supply of Dal. The authority of the partners to enter into contract on behalf of the firm was not denied. No objection was raised as to signing of the tender by the partner on behalf of the firm. There was no objection for appropriation by F.C.I. of the security deposit made by the firm thereby expressing ratification of the contract for supply of Dal. The contract included arbitration clause. Based on the said clause in the contract, the matter was referred to the arbitration. The firm was carrying on business of supply of Dal. The partner was authorised to do the business on behalf of the firm. In all these circumstances, the Apex Court held that the contract was binding on the firm.

11. In Waverly Jute Mills case supra, it was held that if a contract is illegal and void, an arbitration clause which is one of the terms thereof must also perish alongwith it and that an agreement for arbitration is the very foundation on which the jurisdiction of the arbitrator to act rests, and where that is not in existence at the time when he enters on his duties, the proceedings must be held to be wholly without jurisdiction.

12. Considering the law laid down by the Apex Court in Waverly Jute Mills case, therefore, and applying the same to the facts of the case, in the absence of any specific consent having been disclosed from records to Bhupinder Singh to enter into an agreement with respondents to agree to refer the dispute for arbitration, the entire proceedings before the arbitrator are to be held as without jurisdiction and they are bad in law. Indeed, there is nothing on record, to show that Bhupinder Singh had any authority or consent by other partners to agree to refer the dispute to arbitration in relation to the business of the firm. Therefore, the agreement stated to have been executed by Bhupinder Singh to refer the dispute to arbitration cannot be said to be binding on the appellant. The decision in case of Sanganer Dal and Flour Mill's case were given in totally different sets of facts. There was clear reference of acceptance of agreement and therefore can be of no help to hold that the act of Bhupinder Singh in executing agreement can bind the appellant firm. The second point for consideration therefore, has to be answered in negative.

13. Then remains the third question. The submissions on behalf of respondents in this behalf are devoid of substance. There is nothing on record to show that the appellant firm had either ratified the agreement for reference of dispute to arbitration. Section 19(2)(b) of the Partnership Act clearly rules out any implied authority of other partners in the absence of usage or custom of trade to the contrary for submitting one of partner to the arbitration on behalf of the firm. Mere silence on the part of other partners cannot be considered or presumed to ratify an act which had no legal sanction. None of the decisions relied upon by the learned advocate for the respondents in that regard is of any help. In S.N. Soni v. Taufiq Farooki and others, case reported in : AIR1976Delhi63 one of the partners had assigned pronote for lesser value than was due to the firm without consent of other partners. All the partners subsequently mutually agreed by deed of dissolution that the pronote in dispute as had been allotted to the said partner who was authorised to deal with it in any way he liked as his personal property and that his acts relating to the pronote were ratified. That is not the case in the matter in hand.

14. As regards the decision in City Bank of Lahore and others v. Duni Chand and others, reported in relied upon by the learned advocate for the respondent, it is to be noted that the same was delivered prior to the decision of the Apex Court in Sanganer Dal and Flour Mills case. Besides in the course of the evidence before the arbitrator, one of the partners of the firm who had not been authorised to the agreement for reference of dispute to arbitration had appeared and produced account book of the firm. One of the partners was a partner in both the firms and inspite of full knowledge of all the proceedings none of the partners raised objection to the proceedings till the award was passed. In the circumstances, the Court held that the reference agreement was ratified by all the partners. In any case, the view that mere silence on the part of other partners would amount the ratification of agreement cannot be held to be good law in relation to the reference of dispute relating to the business of the firm to arbitration in view of specific provision in section 19(2)(a) of the Partnership Act. In this regard, one can advantageously refer to two decisions; one of Madras High Court and other of our own High Court.

15. The learned Single Judge of the Madras High Court in the matter of M/s. Alagappa Cotton Mills, Rajapalavam v. Indo Burmah Trading Corporation, Madras and others, reported in A.I.R. 1976 Mad 79 held thus:

'6. Section 19 of the Partnership Act provides :

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.' 6-A. The authority of a partner to bind the firm conferred by this section is called as 'implied authority'.

Sub-section (2) provides-

'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.' Reading this section which is subject to section 22, it is clear that under sub-section (1) the act of a partner will bind the firm if it is carried on in the usual way. Sub-section (2) clearly states that the implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration. Section 19 is subject to section 22 which prescribes the mode of doing an act to bind the firm. Section 22 reads-

'In order to bind the firm an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm's name or in any other manner expressing or implying an intention to bind the firm.'

Section 22 refers to the act of a partner which is done to carry on in the usual way the business of the kind carried on by a firm in order to bind the firm. The mode that is required to be adopted is that the person should express that he was acting on behalf of the firm implying an intention to bind the firm. But this would not empower the partner to submit a dispute relating to the business of the firm to arbitration. Therefore, the letter of one of the partners accepting the arbitration cannot bind the partnership.'

16. The Division Bench of this Court, in the matter of Bhagvan Manaji Marwadi and others v. Hiraji premaji Marwadi, reported in A.I.R. 1932 Bom. 516 held that award passed in a reference to arbitration at the instance of one of the partners without specific consent of others is not binding on the firm is a well settled law. Indeed this principle of law is well settled since 19th century as is revealed from the judgment of the Division Bench in the said case which has referred to the various decisions right from 1825 onwards till the date of delivery of decision. It refers to the earlier decisions in the matters of Datoobhoy Hassum and others v. Vallu Mahomed Rahimtulla and others, reported in 1899(1) Bom.L.R. 828; Vallabhdas Narandas & Co. v. Keshavlal Himatlal, reported in A.I.R. 1927 Bom. 428 and Gopal Das v. Baij Nath and others, reported in : AIR1926All238 as well as in the case of Stead v. Salt 1825 (3) Bing. 101 : 10 Moore 389 : 3 L.J.C.P. 175 : 28 R.R. 602. All these decisions are referred to in Bhagvan Manaji's case and considering the well established law on the point in issue, there cannot be any question of ratification or waiver of right as such of the appellant in relation to the award in question and hence the third point is to be answered in negative.

17. In the result, therefore, the appeal is to be allowed. The impugned order is to be quashed and set aside. The objections filed by the appellant are to be allowed with costs by respondents and the award dated 6-11-81 is held as null and void and not binding upon the appellant.

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Friday, 10 October 2014

Whether award passed in reference to arbitration at instance of one of partners without specific consent of others is binding on firm?

J.J.L.B. Engineers and Contractors through its partner Balabeersingh Vs. Manmohan Harijinder and Associates and Anr.

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