Arbitration Clause Survives The Termination Of The Underlying Agreement: Madras High Court Reiterates Legal Position

The Court reiterated that all the issues related to the arbitrability of the claims shall be decided by the arbitral tribunal unless it is a clear case of deadwood. The Court held that Section 11 of A&C Act does not permit elaborate pleadings on the claims.

The Court also held that a poor drafting of an arbitration clause shall not deprive a party of its right to refer its disputes to arbitration as long as the intention of the parties to arbitrate can be clearly gathered from the clause.

Facts

The parties entered into a partnership deed. Later on, the respondent left the firm and it was reconstituted and the parties entered into an amended partnership deed. Disputes arose between the parties regarding the distribution of properties and income generated by the firm. The deed had an arbitration clause.

The parties were referred to mediation, however, the same failed and the petitioner requested the court to appoint an arbitrator.

Contention Of The Respondent

The respondent objected to the maintainability of the petition on the following grounds:

• The agreement between the parties terminated on account of a 'Sammatha Pathiram' or Letter of Consent executed between the parties.
• The claim of the petitioners is assertion of a right in rem i.e., right to title qua properties and therefore is not arbitrable.
• There is no valid arbitration clause as the clause between the parties refers to the Arbitration Act, 1940 which is a repealed legislation.

Analysis By The Court

The Court held that the arbitration clause contained in a partnership deed survives the termination of the deed. The Court held that the clause is an independent agreement and outlives the main contract in which it is incorporated.

The Court reiterated that all the issues related to the arbitrability of the claims shall be decided by the arbitral tribunal unless it is a clear case of deadwood. The Court held that Section 11 of A&C Act does not permit elaborate pleadings on the claims.

The Court further held that the petitioner is only claiming a right arising out of a partnership deed, therefore, the same cannot be called an action in rem.

The Court that an erroneous reference to the earlier arbitration act is only a fault attributable to the draftsman and does not invalidate the entire arbitration clause. It further held that the poor drafting of an arbitration clause shall not deprive a party of its right to refer its disputes to arbitration as long as the intention of the parties to arbitrate can be clearly gathered from the clause.

Case Title: Rajasthani Marbles and Anr. v. Na.K. Kumar Son of N. Kuppurathinam, Arb. O.P. (Comm.Div) No. 73 of 2021.

Date: 28.03.2022

Counsel for the Petitioners: Mr. AR. M. Arunachalam

Counsel for the Respondents: Mr. S. Rajendrakumar

Citation: 2022 LiveLaw (Mad) 177

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