Justice Biren Vaishnav of the Gujarat High Court has held that the arbitration clause in a partnership deed cannot be used to refer disputes between partners to arbitration once the partnership has been dissolved.
The case pertained to an arbitration clause that allowed disputes related to the "dealing of the firm" to be referred to arbitration.
Brief Facts:
The case involved a dispute between partners of a firm involved in the business of manufacturing, purchasing and sale of pumps, motors and spare parts. The petitioners alleged that despite having a majority share in the firm, one of the respondents conducted business affairs unilaterally without their consent and knowledge.
After filing an application under Sec. 9 of the Arbitration and Conciliation Act, an arbitration notice was given but the respondents disagreed. Section 11 was then invoked and arbitration petitions were filed. The firm was subsequently dissolved, and the present petitions were filed invoking the arbitration clause pursuant to a notice under the Act dated 24.02.2021, which has been disputed by the respondents.
Contentions of the Appellant:
Counsel for the petitioners cited Clause 24 of the partnership deed and argued that the disputes among the partners are arbitrable under the Arbitration Act. They requested the Court to appoint an arbitrator under Sec.11(6) of the Act.
Contentions of the Respondent:
Counsel for respondent No.1, argued that there is no valid arbitration clause in the partnership deed and the firm has been closed since 2006. He also stated that previous arbitration notices failed to appoint an arbitrator and it is not possible to do so after the dissolution of the partnership. Further, he argued that the Court cannot appoint an arbitrator once the partnership is dissolved, citing the cases of Mohanlal Sajandas vs. Hareshkumar Narandas & Ors. 2001 (3) GLH 532 and Manibhai Shankerbhai Patel vs. Swashray Construction Co. & Ors. which were followed by Hemendra Babulal Shah vs. Dilipkumar Babulal Shah & Anr. 2001 (3) GLH 532.
Observations by the Court:
Given the circumstances, the Court noted that the petitions have been filed in relation to clause 24 of the agreement which allows disputes amongst partners regarding the "dealing of the firm" to be referred to arbitration. The term "dealing" means engaging in business and as argued by the respondent's counsel, clause 24 operates only when the firm is subsisting. Further, the court referred to the case of Mohanlal Sajandas vs. Hareshkumar Narandas & Ors. 2001 (3) GLH 532, once the partnership is canceled, the dispute can be referred to arbitration. Therefore, the respondent's argument that the term "dealing" referred to the engagement in business and, therefore, the firm must be existing for the dispute to fall under the arbitration clause, was acknowledged by the court.
The decision of the Court:
The petitions were dismissed in the immediate case.
Case Title: Yashang Navinbhai Patel v. Dilipbhai Prabhubhai Patel
Coram: Hon’ble Justice Biren Vaishnav
Case no.: C/ARBI.P/116/2021
Advocate for the Applicant: Mr Kunal Vyas
Advocate for the Respondent: Anand R Patel and
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