The Bombay High Court recently comprising of a bench of Justice Anuja Prabhudessai observed that the Arbitration clause would continue to be applicable and operative in case of a post-dissolution dispute unless otherwise mentioned. (Ankit Vijaykumar Khandelwal V Aarti Rajkumar Khandelwal)
The bench observed that the Arbitration Clause is all-encompassing and would include all the disputes, controversies, and differences between the parties relating to the Partnership business or interpretation, operation, and enforcement of the terms of the Partnership Deed. In the absence of any embargo to refer the post-dissolution dispute to the Arbitrator, it is not possible to accept that the Arbitration clause would cease to exist with the dissolution of a partnership firm.
Facts of the Case
The Respondent was the Plaintiff and the Applicant was the Defendant in a suit for dissolution of Partnership firm and rendition of accounts. The Defendant filed a Notice of Motion under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to Arbitration in pursuance of the Clause 19 of the Partnership Deed. The Plaintiff however contested the Motion since he contended that the dispute between the parties is not covered by clause 19 of the Partnership Deed.
The Civil Court dismissed the notice of motion since the Court asserted that the Partnership is ‘at will’, and the right of a partner to dissolve partnership cannot be taken away by arbitration clause and that a partner, who is desirous of dissolving the firm cannot be forced to resort to arbitration. Also, the arbitration clause would apply only during subsistence of partnership and not after dissolution. Moreover, the Court observed the disputed clause and asserted that the clause was limited in nature and hence could be referred only the arbitration clause provides for reference of dispute to the Arbitrator only when there was a dispute related to interpretation on the terms of the Partnership Deed or the dispute arose due to the conduct of the business of partnership.
The present revision application was filed under Section 115 of the Civil Procedure Code, 1908 challenging the order passed by learned Judge, City Civil Court. Through the impugned order Notice of Motion for referring the parties to arbitration was dismissed by the Court.
Contention of the Parties
The learned counsel for the Defendant has relied upon the decision of the Apex Court in Branch Manager Magma Leasing and Finance Limited and Anr. Vs. Potluri Madhavilala and Anr., (2009) 10 SCC 103 and contended that the arbitration clause does not become inoperative with dissolution of partnership or by termination of the contract. He submitted that clause 19 of the Partnership Deed is not restricted to two contingencies noted by the Trial Court but covers all disputes between the parties in respect of or in relation to the partnership business or in respect of interpretation, operation or enforcement of any of the terms and conditions of the Partnership Deed. Learned counsel contended that the learned Judge has misinterpreted clause 19 and has failed to appreciate the mandate of Section 8 of the Arbitration and Conciliation Act.
On the other hand the counsel for the Plaintiff submitted that since the partnership is at will, any of the partners can dissolve the partnership. He further contended that with dissolution of partnership nothing survives except compliance of the natural consequences of dissolution, which cannot be construed as dispute as contemplated by clause 19 of the Partnership Deed. He submitted that the Defendant has not raised any dispute to invoke powers under Section 8 of the Arbitration Act.
Courts Observation & Judgment
The bench at the very outset evaluated the scope of Section 8 of Arbitration and Conciliation Act, 1996. The bench relied on the SC judgment in the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and ORs. (2011) 5 SCC 532 and Branch Manager Magma Leasing and Finance Limited and Anr. Vs. Potluri Madhavilala and Anr., (2009) 10 SCC 103 and observed, “Section 8 is in the form of legislative command to the court and once the prerequisites conditions are satisfied, the Court must refer the parties to arbitration. As a matter of fact, on fulfilment of the conditions of Section 8, no option is left to the Court and the Court has to refer the parties to arbitration.”
The HC taking note of the contention of the parties observed, “The Partnership Deed contains an Arbitration Clause, which not only covers disputes in respect of interpretation, operation or enforcement of the terms and conditions of the Partnership Deed and the disputes relating to conduct of partnership business but covers all other disputes whatsoever which are not otherwise provided in the Deed. It is therefore evident that non-compliance of Clause 18 of the Partnership Deed as well as continuing the partnership business for personal gains after the dissolution would be a dispute covered by clause 18 of the Partnership Deed.”
The bench allowing the revision application remarked, “In the instant case, the Arbitration clause is widely worded and is not restricted or limited to the disputes arising prior to dissolution of partnership firm. The Partnership Deed does not indicate that the parties intended to exclude post dissolution disputes from arbitral reference. Consequently there is no embargo to refer such disputes to the Arbitration. As stated earlier, the dispute relates to non-compliance of Clause 18 of the Partnership Deed. The enforcement of Clause 18 and provisions under Sections 46 and 48 of the Arbitration Act come in operation post dissolution of Partnership. The dispute relating to non-enforcement of Clause 18 is covered by Clause 19. In the absence of any embargo to refer post dissolution dispute to the Arbitrator, it is not possible to accept that the Arbitration clause would cease to exist with dissolution of partnership firm.
It is thus evident that there is a valid arbitration agreement between the parties. The dispute raised in the suit has its genesis in the arbitration clause. Learned Judge was therefore under an obligation to refer the parties to arbitration. Accordingly, the revision application is allowed. The impugned order is set aside. The dispute raised by the Plaintiff in the suit is referred to arbitration through Arbitrator duly appointed in accordance with law.”
Read Judgment @Latestlaws.com
Share this Document :Picture Source :
