Party Autonomy Is The Backbone Of Arbitration: SC Cleared The Decks On International Commercial Arbitration Between Indian Parties

In a recent case, the Hon’ble Andhra Pradesh High Court was hearing a revision petition arising out of an order passed by the executing court relating to the execution of a decree in favour the Original Plaintiff, being an unregistered partnership firm. The original Plaintiff had filed a suit for recovery of certain dues pursuant to 2 promissory notes executed by the Defendants to the suit. The Defendants did not participate in the trial of the suit and accordingly, the suit was decreed ex-parte in favour of the Plaintiff.

The Plaintiff thereafter took out an Execution Application for the enforcement of the Decree passed in favour of the Plaintiff, Partnership Firm. The Execution Application was dismissed for default and an Application for restoration of the Execution Application was filed by the Plaintiff. The Restoration Application was opposed by the Defendant inter alia on the ground that in terms of Section 69 (2) of the Indian Partnership Act, as the Plaintiff firm was not registered at the time of institution of the suit, the suit would not be maintainable.

The executing court rejected the objections raised by the Defendant as to the maintainability of the suit which were raised for the first time by one of the Defendants in the reply filed to the Restoration Application. The order of the executing court was challenged by Defendant No.1 before the Hon'ble Andhra Pradesh High Court by filing a Revision Petition.

The Hon’ble Andhra Pradesh High Court held that the decree against the first Defendant was a nullity and un-executable against him for the reason that a suit filed by an unregistered partnership firm is not maintainable in view of Section 69 (2) of the Indian Partnership Act and such defect would go to the root of the matter and would render a Decree passed in such suit a nullity despite the fact that the suit was decreed ex parte. The Hon'ble Court held as follows “31. In the circumstances, it cannot be stated that the Petitioner could not make an attempt to reopen this issue under the garb of Section 47 CPC when he did not choose to raise such defence or question, during earlier stages of the litigation. The prohibition under Section 69 (2) of the Indian Partnership Act, is penal and plenary. When such is the impact, mere omission or silence on the part of the Petitioner to raise such defence at earlier stages of the litigation cannot benefit the first Respondent. This serious omission as to want of registration of the firm goes to the root of the matter affecting the very institution of the suit. When a plaint presented in such manner, by a firm, which is incompetent to do likewise, cannot lead to proper and legal institution of the suit. Therefore, when this Section is with reference to very maintainability of the suit, a decree passed therein is not only void but also improper exercise of jurisdiction amounting to an illegality. It is well known that there cannot be contracting out of the statutory provisions and a decree passed in derogation of the terms of Section 69 (2) of the Indian Partnership Act cannot be legally sustained. A decree of this kind, can indeed, be questioned at any stage.”1

By - Chaitanyaa Bhandarkar

  1. Before the Andhra Pradesh High Court, C.R.P.No.2208 of 2019. D/d. 22.01.2021