Jagdish Chander Gupta vs Kajaria Traders (India) Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 791 of 1962

Decision Date: 29 April, 1964

Coram: M. Hidayatullah, K.N. Wanchoo, K.C. Das Gupta, N. Rajagopala Ayyangar

The Supreme Court of India delivered its judgment on 29 April 1964 in the dispute titled Jagdish Chander Gupta versus Kajaria Traders (India) Ltd. The bench that heard the matter consisted of Justice M. Hidayatullah, Justice K.N. Wanchoo, Justice K.C. Das Gupta and Justice N. Rajagopala Ayyangar. The petitioner was Jagdish Chander Gupta and the respondent was Kajaria Traders (India) Ltd. The case is reported in 1964 AIR 1882 and 1964 SCR (8) 50. The factual backdrop involved a partnership agreement between the parties that had not been registered under the Indian Partnership Act, 1932. The agreement contained a clause stipulating that any dispute between the partners would be referred to arbitration in accordance with the Arbitration Act, 1940. When a dispute later arose, the respondent wrote to the petitioner requesting that the matter be placed before an arbitrator and appointed a sole arbitrator designated as “K”. The petitioner did not accept this appointment, prompting the respondent to file an application under section 8(2) of the Arbitration Act, 1940 for the Court to appoint an arbitrator. The application was heard by a Division Bench of the High Court. The petitioner contended that section 69(3) of the Indian Partnership Act, 1932 barred the application because the partnership was not registered. One of the High Court judges accepted this contention, another rejected it, and the matter was ultimately referred to a third judge who held that the application was maintainable. Dissatisfied with that decision, the petitioner appealed to this Court, which granted special leave to hear the appeal.

The Court held that because the arbitration clause formed part of the partnership agreement, the proceedings before the Court were essentially an effort to enforce a contractual right. Whether the agreement was viewed in its entirety or only the arbitration clause was examined, the right to refer the dispute to arbitration was unmistakably a right “arising from a contract”, and the language of section 69(3) of the Indian Partnership Act – “a right arising from a contract” – fully encompassed the situation. The Court further explained that the principles of ejusdem generis or noscitur a sociis do not automatically limit general words unless a specific genus or category is first identified to which the general words can be confined. The expression “claim of set‑off” does not disclose such a category because set‑offs exist in both legal and equitable forms and are already captured within the general terminology. Accordingly, the Court clarified that the phrase “other proceeding” in subsection (3) of section 69 must be given its ordinary, unrestricted meaning and should not be narrowed by the words “claim of set‑off”. The subsection therefore permits the application of the provisions of subsections (1) and (2) to both claims of set‑off and any other proceeding that seeks to enforce a contractual right, subject only to the specific exceptions that the statute expressly lists.

In this case the Court observed that the expression “other proceeding” in sub‑section (3) must be given its full, unrestricted meaning and should not be limited by the phrase “a claim of set‑off”. The Court explained that the latter words do not intend to narrow the generality of “other proceeding”. Accordingly, the sub‑section authorises the application of the rules in sub‑sections (1) and (2) to claims of set‑off as well as to any other proceedings of any kind that may be described as being for the enforcement of a right arising from a contract, save for the specific exceptions listed in sub‑sections (3) and (4). The Court further noted that there is no right “arising from a contract” that is of the same nature as a claim of set‑off which could be raised by a dependent in suit, and it distinguished the authorities Allen v. Emerson (1944) 1 K.B. 362, Hafiz Qamar Din v. Nur Din, A.I.R. 1936 Lah. 136, Babulal Dhan Dhania v. M/s. Gautam & Co. A.I.R. 1950 Cal. 341, Kottamasu Sreemannarayanmurthy v. Chokka Arjanadtu, A.I.R. 1939 Mad. 145, Jamal v. Firm Umar Haji Karim, I.L.R. 1943 Nag. 540, and Ram Lal Harnam Das v. Bal Kishan, A.I.R. 1957 Punj. 159, as not applicable to the present question. The judgment proceeded to note that the appeal, numbered Civil Appeal No. 791 of 1962, was filed by special leave against an order dated 22 March 1960 of the Bombay High Court in Award No. 18 of 1959. Counsel for the appellant and counsel for the respondent were listed, and the judgment was delivered on 29 April 1964 by Justice Hidayatullah. The Court recounted that the dispute originated from a partnership formed on 30 July 1955 by Messrs. Kajaria Traders (India) Ltd., the respondent, and Messrs. Foreign Import and Export Association, a sole proprietorship owned by the appellant Jagdish C. Gupta, to export 10,000 tons of manganese ore to Phillips Brothers (India) Ltd., New York, during the period January to June 1956. While the terms of the partnership were not material, the Court focused on a clause stipulating that any dispute would be referred to arbitration under the Indian Arbitration Act. The respondent alleged that the appellant failed to fulfil his obligations. After correspondence, the respondent wrote to the appellant on 28 February 1959, appointing Mr R. J. Kolah as its arbitrator and requesting the appellant either to accept Mr Kolah as sole arbitrator or to nominate his own arbitrator. The appellant delayed, and on 17 March 1959 the respondent informed him that, having failed to appoint an arbitrator within fifteen clear days, it was appointing Mr Kolah as sole arbitrator. The appellant disputed this appointment, and the respondent subsequently filed a petition on 28 March 1959 seeking the appointment of Mr Kolah or another arbitrator under section 8(2) of the Indian Arbitration Act.

An application was filed under section 8(2) of the Indian Arbitration Act, 1940, seeking the appointment of Mr Kolah or any other person as arbitrator. Jagdish Chander Gupta appeared in court and raised objections, inter alia, to the institution of the petition. He argued two grounds. First, he contended that section 8(2) of the Arbitration Act was inapplicable because the arbitration clause quoted earlier did not expressly provide that arbitrators were to be appointed by the parties’ consent. Second, he maintained that section 69(3) of the Indian Partnership Act, 1932, created a bar to the petition on the basis that the partnership involved was not registered.

The Chief Justice referred the petition to a Divisional Bench composed of Mr Justice Mudholkar and Mr Justice Naik. Both learned judges concurred that, given the facts of the case, an application under section 8 of the Arbitration Act was competent and that the court possessed the power to appoint an arbitrator. However, they diverged on the application of section 69(3) of the Partnership Act. Mr Justice Mudholkar held that section 69(3) barred the application, whereas Mr Justice Naik took the opposite view and held that no such bar existed. Consequently, the matter was referred to Mr Justice K T Desai, who aligned with Mr Justice Naik and consequently concluded that the application was competent.

In the present appeal, the parties did not dispute the correctness of the learned judges’ conclusions regarding section 8(2). The sole challenge was directed at the interpretation of section 69(3), alleging that it had been wrongly applied and that the bar it purported to create had been incorrectly disallowed. For reference, section 69 of the Indian Partnership Act reads as follows:

“69.(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the (3) The provisions of sub‑sections (1) and (2) shall apply also to a claim of set‑off or other proceeding to enforce a right arising from a contract, but shall not affect‑ (a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or (b) the powers of an official assignee, receiver or Court under the Presidency‑towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the.”

Section 69 of the Indian Partnership Act declares that the provisions of the preceding subsections do not apply to firms or partners that do not maintain a place of business within the territories covered by the Act, or whose places of business are situated in areas excluded by a notification made under section 56 of the same Chapter. The section also excludes from its operation any suit or claim of set‑off whose value does not exceed one hundred rupees when, in the Presidency towns, such suit is not of a type enumerated in section 19 of the Presidency Small Cause Courts Act, 1882, or, outside the Presidency towns, is not of a type listed in the Second Schedule to the Provincial Small Cause Courts Act, 1887. Furthermore, the section does not extend to any proceeding in execution or any other proceeding that is incidental to or arises from any such suit or claim.

In general, this provision bars certain suits and other proceedings when a firm has not been registered. Sub‑section (1) prevents a partner from instituting a suit against another partner or against the firm itself for the purpose of enforcing a contractual right or a right conferred by the Partnership Act unless the firm is registered and the suing partner is shown in the Register of Firms as a partner. Sub‑section (2) imposes a similar restriction on a suit brought by, or on behalf of, the firm against a third party for the purpose of enforcing a contractual right, again requiring the firm’s registration and the suing partner’s registration as a partner. Sub‑section (3) extends the bar to a claim of set‑off that operates as a counter‑claim, and it further bars “other proceedings.” The issue that arose in the present case concerned the interpretation of the phrase “other proceeding.” One approach is to give the expression its full ordinary meaning, while another approach is to limit its scope by considering the preceding words. The Court then examined whether an application filed under section 8(2) of the Arbitration Act could be characterized as a proceeding “to enforce a right arising from a contract,” which would bring it within the prohibition of section 69. Justice Mudholkar, in his analysis, declined to apply the ejusdem‑generis rule to the phrase “other proceeding” in relation to “a claim of set‑off.” He concluded that the arbitration application was indeed an attempt to enforce a right arising from the parties’ contract. Justice Naik observed that the language used was “other proceeding” rather than “any proceeding” or “any other proceedings,” and that, because these words were placed next to “a claim of set‑off,” they suggested a proceeding of a defensive nature, similar to a set‑off claim. On the second point, Justice Naik held that the arbitration application was not a proceeding intended to enforce a contractual right.

In the judgment, the Court observed that the claim under consideration was not a claim for performance of the partnership agreement but rather a claim for damages, and that such a claim could be entertained because it was founded on a cause of action that was independent of the contract to supply ore. The Court further held that the right the plaintiff sought to enforce originated in the Arbitration Act and did not arise from the parties’ contract. Justice K T Desai concurred with most of these findings and observed that the words placed before the expression “other proceeding,” namely “a claim of set‑off,” carried a demonstrative and limiting effect. He explained that he understood the phrase “other proceeding” by referring to the meaning of “a claim of set‑off,” which he regarded as being associated with that expression. The Court then identified the first issue for determination as whether the present proceeding was one that sought to enforce a right arising from the contract between the parties. It noted that a proceeding brought under section 8 of the Arbitration Act necessarily depended on the existence of an arbitration clause, because without an agreement to refer the dispute to arbitration that statutory provision could not be invoked. Since the arbitration clause formed part of the partnership agreement, the Court concluded that the suit before it was indeed an attempt to enforce a right that sprang from the contract. Whether the contract was examined in its entirety or only the arbitration clause was considered, the Court found it impossible to conceive that the right to refer a dispute to arbitration was not a right founded on the parties’ agreement. Consequently, the language of section 69(3) of the Partnership Act, which speaks of “a right arising from a contract,” was deemed wide enough to encompass the present matter. The Court thereafter turned to the question of whether the juxtaposition of the words “other proceeding” with “a claim of set‑off” implied any limitation on their meaning. It recorded that the learned judges had differed sharply on this point. The Court explained that when a statute lists particular classes and then follows them with a general term, the general term is sometimes interpreted ejusdem generis, meaning it is limited to the same category as the specific terms, but this rule is not mandatory. The nature of the specific and general words must be examined before applying the rule. Citing the decision in Allen v Emerson, the Court recounted Justice Asquith’s examples showing situations where the ejusdem generis principle may or may not apply. For instance, in the phrase “books, pamphlets, newspapers and other documents,” private letters would not be included because “other documents” would be read in the sense of the preceding categories. Conversely, in the wording “newspapers or other document likely to convey secrets to the enemy,” the term “other document” would be understood to include any kind of document and would not be limited by the preceding word “newspapers.” From these illustrations, the Court inferred that the application of ejusdem generis or noscitur a sociis requires the presence of a clear genus or category to which the general words can be anchored; absent such a category, the general words retain their broader meaning.

In this passage the Court explained that the rules of ejusdem generis or noscitur a sociis are not mandatory whenever a statute lists particular classes followed by general words. The Court said that before the general words can be limited by those rules, the statute must first disclose a genus or category that can serve as a reference point for the restriction. The Court observed that the phrase “claim of set‑off” does not identify any such genus or category. It noted that set‑offs fall into two recognized categories—legal set‑off and equitable set‑off—and that both categories are already covered by existing law. Consequently, the Court found it difficult to imagine any right “arising from a contract” that would be of the same character as a claim of set‑off and that could be raised by a defendant as a defence in a suit. The Court then reported that it had invited counsel Mr B C Misra to suggest examples of other proceedings that might fall within the same kind as a claim of set‑off. Mr Misra frankly admitted that he could not think of any proceeding of the nature of a claim of set‑off other than a claim of set‑off that could be brought in a suit as described in the second sub‑section of the statute. When asked about the first sub‑section, he was able to cite only two illustrations. The first illustration involved a pledgee of goods of an unregistered firm whose goods had been attached, and who would have to raise an objection under Order 21 Rule 58 of the Code of Civil Procedure. The second illustration concerned the proof of a debt before a liquidator. The Court observed that the second illustration is not raised as a defence and therefore cannot belong to the same genus as a “claim of set‑off.” The first illustration might be forced into the category only by a considerable stretch of imagination. The Court expressed doubt that the legislature intended such far‑reaching examples when it used the words “other proceeding” together with “claim of set‑off” under the principle of ejusdem generis. Justice Naik raised a further question: if the intention was to exclude all proceedings, why did the statute not simply refer to “proceedings” together with “suits” in sub‑sections (1) and (2) instead of creating a separate sub‑section that couples “other proceeding” with the phrase “the search for the answer in the scheme of the section”. The Court explained that the language of the section indicates a three‑part structure: (a) suits, (b) claims of set‑off, which are in a sense akin to suits, and (c) other proceedings. The statute first excludes suits in sub‑sections (1) and (2). It then extends the same exclusion to a claim of set‑off and to other proceedings that aim to enforce a right arising from a contract. Following that, the statute carves out specific exceptions for the right to sue for (i) dissolution of a firm, (ii) accounts of a dissolved firm, and (iii) realisation of the property of a dissolved firm, each of which stresses the dissolution of the firm. Thereafter, a general exclusion is provided, and sub‑section four states that the whole provision does not apply to firms or to partners and firms that have no place of business.

The provision applied to persons whose places of business were located in the territories of India, even when those places lay in areas to which Chapter VII did not apply, and it extended to suits or claims of set‑off whose value did not exceed one hundred rupees. The provision did not require that a firm be dissolved. The latter part of clause (b) of the section expressly included the words “or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim,” indicating that the term “proceeding” was not confined to a suit or a claim of set‑off. Subsection (4) therefore grouped suits and claims of set‑off together and then referred to “any proceeding in execution” and “other proceeding incidental to or arising from any such suit or claim” as matters that fell outside the ban imposed by the main section. The explicit language would not have been necessary if the expression “other proceeding” in the main provision were meant to have the narrow meaning suggested by the respondent. It is conceivable that the drafter, wishing to create various exceptions for suits, claims of set‑off and other proceedings, placed suits in sub‑sections (1) and (2), set‑off and other proceedings in sub‑section (3), made special exceptions for dissolved firms also in sub‑section (3), and then treated all of them collectively in sub‑section (4) by providing a complete exclusion for particular classes of suits. This drafting scheme was likely adopted for convenience, and the subdivision of the section does not, by itself, clarify the intended meaning. The High Court had cited several decisions, but none of those cases was directly applicable. In Hafiz Qamar Din v. Nur Din and Babutal Dhandhania v. Messrs Gauttam and Co., proceedings were initiated on an award—one to make the award a rule of the court and the other to set it aside. Those authorities were distinguishable because they concerned awards, and it was unnecessary to determine whether a post‑award proceeding was aimed at enforcing a contractual right; consequently, the Court did not refer to them. In Kottamasu Sreemannarayanamuthy and another v. Chakka Arjanadu, a petition for adjudicating a partner as insolvent was held to arise from a statutory right rather than from a contract, whereas the present dispute involved enforcement of a right that derived from the contract itself under the Arbitration Act. In Jamal v. Firm Umar Haji Karim, the bar of section 69(3) was raised during execution of a consent decree and was rejected, with Justice Grille observing that the phrase “other proceeding” denoted a matter that was sui generis to a claim of set‑off. If partners of an unregistered firm approach the court without first seeking dissolution or reaching an agreement, the enforcement of a consent decree may be viewed as simply enforcing a contractual right and therefore fall within the scope of the ban, although the Court did not need to resolve that issue at this stage.

In this case, the Court observed that when partners ask for dissolution of an unregistered firm or dissolve it themselves and then reach an agreement to settle their differences, the enforcement of the resulting consent decree may be characterized merely as the enforcement of a right that arises from a contract, and therefore it falls within the prohibition of s. 69. However, the Court noted that it was not necessary to resolve that particular point in the present judgment. The Court then referred to the decision in Ram Lal Harnam Das v. Pal Krishan and others, in which it was expressly held that the term “other proceeding” in the third sub‑section applies only to proceedings of the nature of a claim of set‑off and to nothing else. The Court indicated that the present case could not be said to interpret that sub‑section correctly. The Court further considered the decision in Mahendra v. Gurdeyal, which lays down that s. 69 does not bar a partner of an unregistered partnership firm from applying to the court under s. 8 of the Arbitration Act for referring a dispute between partners to an arbitrator as provided in the condition of their agreement. The Court listed the citations to that decision as (1) A.T.R 1936 Lah. 136. (3) A.I.R. 1939 Mad. 145. (5) A.I.R. 1917 Punjab 159. (2) A.r.R. 1950 Cal. 391. (4) I.L.R. 1943 Nag. 540. (6) I.L.R. 30 Pat. 109. The Court found that the reason given by the Divisional Bench—that because s. 69 allows dissolution and accounts of an unregistered partnership it cannot bar such an application—was not quite correct. In its judgment, the Court held that the words “other proceeding” in sub‑section (3) must receive their full meaning untrammeled by the words “a claim of set‑off”. The latter expression neither intends nor can be construed to cut down the generality of the words “other proceeding”. Consequently, the sub‑section provides for the application of the provisions of sub‑sections (1) and (2) to claims of set‑off and also to other proceedings of any kind that can properly be said to be for enforcement of any right arising from contract, except those expressly mentioned as exceptions in sub‑sections (3) and (4). Based on this reasoning, the appeal was allowed, the decision of the High Court was set aside, the application under s. 8(2) of the Arbitration Act was dismissed, and costs were awarded throughout against the applicant in the High Court. The appeal was therefore allowed.