An unregistered firm formed in 2022 of January with 4 partners A,B,C,D & in one partner name building rent agreement for ground floor was entered for firm Lab & Diagnostics purpose. After few days one partner (Mr.A) without proper consent of other partners entered one more agreement after colluding with building owner for the 2 nd floor of the same building and bought machines related to lab and diagnostics business by using firm profits and also his own funds but not given any details of firm business to other partners and also not approved for further investments from other partners. But now claiming that 2nd floor is completely of his own and not belongs to firm. However in agreement it is mentioned clearly that for the firm business purpose, agreements can be entered in the name of individual partners and finally it belongs to firm itself. Further, in the deed there is an arbitration clause to solve disputes. Further, Mr. A is trying to buy 1st floor and also entered agreement in the name of his brother and also trying to bring all 2nd floor machines of firm to first floor and also claiming that second floor machines were not bought in the name of firm but were bought in the name of his brother and also creating fake bills. Further, in the name of firm Mr. A has opened separate bank account for 2nd floor business but given his individual PAN for opening account but already in the same name firm account is ther in one more bank account. Questions 1. As per latest Supreme Court judgment, Arbitration clause can be revoked and can we approach directly arbitrator for solving our disputes since it is an unregistered firm. 2. To stop his transfer of firm assets to outside or to second floor or to maintain current status of the firm till dispute resolves can we approach normal civil court for injunction in the name of individual partner capacity 3. Is there any provision under arbitration for getting stay? 4. Can we stop other persons to entering into 1st floor for similar business purpose since it will adversely affect our business? 5. In the same firm name Mr. A has opened separate bank account in his individual PAN card number and will it leads to cheating case and can we file case against such cheating in normal court. 6. Since owner is colluded with Mr. A. all these problems were created and as such, what proper legal thing we can do against such owner and can we also make him as party in our suit. 7. Can we claim injunction for whole building till our partners disputes solves under arbitration.
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1) you can invoke arbitration clause for resolution of disputes
2) you can seek injunction restraining partner A FROM SELLING OFF FIRM ASSETS
3) Section 44 of the Arbitration Act 1996 allows a party to apply to the court for interim relief in order to preserve property rights which are the subject of a dispute in arbitration.
4) You cannot stop other person from carrying on similar business
5) you can file cheating case against partner and owner
1/. Yes
2. You can pray for injunction
3. Yes injunction
4. Yes through restraining order from court
5. Yes
6. You can make him a party
7. No
1. The disputes between the partners can be resolved by invoking the arbitration clause.
2. If You suspect that he had purchased the properties to his new firm out of the funds of the partnership firm, then you can issue a demand notice, subsequently you can file a recovery suit and get an order of injunction against his new firm which is suspected to have been formed out of the funds of the partnership fund, but you have to produce documentary evidences to prove the embezzlement of funds and fraudulent activities of the said partner.
3. The arbitration proceedings can be stayed by high court provided it is not a legally valid proceedings.
4. No you cannot curtain the rights of others to enter into the other part of the building to which the partnership firm is not having any connection or binding.
5. He can open a bank account with the same PAN for other firms in his individual capacity
6. The owner is not bound to oblige you, your relationship/connection with the owner is limited to your partnership firm as a landlord and tenant alone and not beyond that.
7. No, it will not be tenable nor the court will entertain such claims especially when you do not have any rights or interests over the entire building./
Hello,
Arbitrator or arbitral panel is to be appointed according to the procedure contained in the arbitration agreement (arbitration clause in your partnership deed). If the agreement does not specify any procedure and parties fail to agree on a procedure among themselves, you will have to approach the High Court under Section 11 of the Arbitration and Conciliation Act 1996.
There is indeed a provision under the Act for stay orders, namely Section 9. It empowers a court to grant "interim measures" (read: stay and other injunctions). You can apply to the appropriate court on an urgent basis even before the appointment of an arbitrator or arbitral panel. The nature and scope of the interim measures will depend on the full facts the case.
You need to send a legal notice to the bank. Ask it to forthwith freeze the bank account in question as its operation has not been duly authorised by the firm.
Whether there has been any cheating or not will depend on the full facts of the case which are not before me. It will depend on the facts which sections (if any) of the Indian Penal Code are attracted. It will then have to be determined if those sections are cognisable (police can register FIR and investigate) or non-cognisable (police needs a magistrate's permission to investigate).
The owner of the building could theoretically be liable in damages for the tort of inducing or procuring breach of contract. If the ingredients of the tort exist in your case then you can file a civil suit against him for the recovery of damages. Again I cannot comment on the owner's liability without the full facts of the case.
You should file a Section 9 application for interim measures posthaste. You may also be able to obtain an injunction against the owner of the building if the facts of your case support a civil suit against him.
Hope that answers your questions.
I am circling back to clarify a couple of things.
1. S. 69 of the IPA has been held to not bar arbitral proceedings among partners of an unregistered partnership firm. The SC said so in Umesh Goel vs Himachal Pradesh Cooperative Group Housing Society Limited, 2016 SCC OnLine SC 624. While I personally have serious reservations about that judgment, it is the law.
2. S. 69(2) does not operate as a bar against a suit by an unregistered firm against a third party if said suit is not based or related to a contract entered into by the firm and third party in question in the course of inter se business dealings. The judgment where it has been so held is Shiv Developers, through it's partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers & Ors,2022 SCC OnLine SC 114. In your case, the bar will therefore not operate. You are free to bring an action for damages for the tort of procuring breach of contract against the “owner” (all else being equal).
