Arbitrator Empowered To Pass Order For Dissolution Of Partnership Firm Once Dispute Is Referred: Madhya Pradesh HC

Brief Facts

This application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (in short „the Act of 1996‟) has been filed by the applicant, one of the partners of a partnership firm M/s. P. N. Builders and Developers, for appointment of Arbitrator to settle the dispute between the parties.

The case of the applicant is that a partnership deed dated 15.07.2010 was executed between the applicant and the nonapplicants in the name and style of M/s. P. N. Builders and Developers. The aforesaid partnership firm was formed for the purposes of dealing in lands and immovable properties, buying, selling and developing the same, and for other allied purposes.

According to the applicant certain disputes have arisen between the parties, which led the applicant to issue a legal notice dated 03.03.2022, asking the non-applicants to close the bank accounts and to restrain from dealing with the land of the partnership firm.

However, as the aforesaid notice was not responded to by the non-applicants, a notice dated 16.11.2023, for appointment of arbitrator was also issued by the applicant through his Counsel wherein the applicant had also suggested the certain names one of whom could be appointed as the sole Arbitrator for settlement of disputes between the parties as is prescribed in Clause 16 of the Partnership Deed. However, as no response was given to the notice sent by the applicant, the present applicant has been filed.

Contentions:

The applicant argued that disputes between the parties as pointed out in the arbitration notice have still not been resolved compelling the applicant to file this application.Reliance was placed on M/s. Arif Azim Co. Ltd. Vs. M/s. Aptech Ltd., 2024.

Refuting the submissions, the non-applicant no. 3 supported by Non-Applicant No. 1 and 2 submitted that the non-applicant No.3 has taken various grounds for not entertaining the present application, including that of, i) the locus of the applicant, and ii) the invocation of the arbitration clause against one Ashok Patel, against whom, it is alleged that he is running the firm without any legal basis,

It was further contended that the claim of the applicant is stale and is barred by limitation also, as also iv) the relief of declaration that any sale made without the consent and permission of the applicant, is void ab initio, is a declaratory relief, cannot be granted by the Arbitrator, and finally v) that the applicant has also sought the dissolution of the partnership firm, which falls under the jurisdiction of the „Court‟ only and cannot be ordered by the Arbitrator in terms of the provision of Section 44 of the Indian Partnership Act, 1932.

It was further argued that there are certain matters, which can only be decided by the Civil Court only, including that of fixing the responsibility of Ashok Patel, against whom the allegations have been levelled, but who is not a party to the partnership firm, and the fact that the dissolution of a partnership firm can only be done by a Court of competent jurisdiction.

Observations:

The court rejected the argument that since allegations have also been levelled against one Ashok Patel who is a not a partner therefore the arbitration clause cannot be invoked.

The court observed that the grievance of the applicant is that the firm is being managed by Ashok Patel, who happens to be the father of non-applicant No.3, it is a grievance against the non-applicants only, which is also apparent from the notice for appointment of Arbitrator, in which the dispute has been raised against the present non-applicants only and not against Ashok Patel, and in such circumstances, the said Ashok Patel was not a necessary party to be impleaded in the lis, and thus, there is no question of bifurcation of dispute, hence, the decisions relied upon by Shri Phadke in the case of Sukanya Holdings Pvt. Ltd. (supra) would not be applicable in the facts and circumstances of the case.

In M/s. B and T AG vs. Ministry of Defence, 2023 the Supreme Court held that “It is only after the entire history of negotiation is pleaded and placed on record that the Court would be in a position to consider such history so as to find out what was the “Breaking Point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration.”

While applying the above ratio to the facts of the present case, the court observed that in the initial notice issued by the applicant, no specific date on which cause of action has arisen was not mentioned which the court noted was a result of a clever drafting. However, it further added that in the notice sent seeking appointment of arbitrator, the date of cause of action was specifically mentioned.

It further added that it is also found that there is no rebuttal of the aforesaid two notices by the non-applicants, and thus, in the considered opinion of this Court, the question of limitation, which is a disputed question of fact and law, can be tried by the Arbitrator only.

It noted that in V. H. Patel & Company and others Vs. Hirubhai Himabhai Patel and Others, 2000 the Supreme Court held that “Power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the court to it. If under the terms of the reference all disputes and difference arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal with all matters, including dissolution.

There is no principle of law or any provision which bars an arbitrator to examine such a question. It is permissible for the court to refer to arbitration a dispute in relation to dissolution as well on grounds such as destruction of mutual trust and confidence between the partners which is the foundation therefor.”

In light of the above discussion, the court concluded that the Arbitrator would have ample power even to pass an order for dissolution of the partnership firm.

Case Title: MAHESH PATEL Vs YASHWANT NETRAM AND OTHERS

Case Number: AC No. 1 of 2024

Judgment Date: 6/01/2025

Click Here To Read/Download The Order

Citation: 2025 LiveLaw (MP) 8