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Arbitration clause would continue to be applicable and operative in case of a post-dissolution dispute unless otherwise mentioned: Bombay High Court

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. This remarkable judgment was passed by the Bombay High Court in the matter of ANKIT VIJAYKUMAR KHANDELWAL V AARTI RAJKUMAR KHANDELWAL [CIVIL REVISION APPLICATION NO.83 OF 2020] by Honourable Justice Smt. Anuja Prabhudessai.

This application is preferred under Section 115 of the Civil Procedure Code, 1908 through which the order dated 21/08/2019 passed by learned Judge, City Civil Court for Greater Bombay is challenged.  Through the impugned order Notice of Motion for referring the parties to arbitration was dismissed by the Court.

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. 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.  Additionally, 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 HC after hearing the submissions of both the parties evaluated the scope of Section 8 of Arbitration and Conciliation Act, 1996. The HC also relied on the SC judgment of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and ORs. (2011) 5 SCC 532 and Branch Manager, Magma Leasing and Finance Ltd. and observed that, “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.”

Before the HC the plaintiff contended that she called upon the Defendant to settle the accounts, assets and liabilities of the Partnership Firm in accordance with Clause 18 of the Partnership Deed which he denied and instead alleged that the Plaintiff was not cooperating and carrying out her obligations and duties to promote the business of the firm. The Defendant claimed that the Plaintiff can only retire from the business but cannot dissolve the partnership firm and he himself continued utilising the trademark for personal use even after dissolution.

The HC observed that, “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 Arbitration clause is widely worded and is not restricted or limited to the disputes arising prior to the dissolution of a partnership firm. There is a valid arbitration agreement between the parties and the dispute raised in the suit has its genesis in the arbitration clause.”

Therefore, the Learned Judge was under an obligation to refer the parties to the arbitration and so the revision application is allowed and the impugned order was set aside.

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