If Dispute Is Arbitrable, Court Cannot Refuse To Refer Parties To Arbitration U/S 8 Of Arbitration Act: Gauhati High Court

Brief Facts

This appeal, under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996, is directed against the order dated 09.08.2024, passed by the learned Civil Judge (Senior Division), Dibrugarh.

It is to be noted here that vide impugned order dated 09.08.2024, the learned Civil Judge (Senior Division), Dibrugarh ('trial Court', for short) had dismissed the Petition filed by the appellant/defendant No. 1, under Section 8 of the Arbitration and Conciliation Act, 1996 ('Act of 1996', for short), praying for dismissal of the analogous Commercial Suit by referring the parties to go for arbitration, under Section 8 of the Act of 1996.

The claim of the respondents of the aforesaid Commercial Suit is that they are legal heirs and representatives of Late Sampat Lal Verma and that there was a partnership firm in the name and style of M/s Verma Market, which came into existence on 01.04.1984 and thereafter, continued vide deed of partnership, dated 01.04.1992, as per terms and conditions incorporated in the said partnership deed, and that the appellant, along with Lalmati Devi Verma and Sampat Lal Verma, were the partners of the said partnership firm having 1/3rd share.

Thereafter, Sampat Lal Verma expired on 21.11.2023 and on the demise of Sampat Lal Verma, the partnership firm stands dissolved automatically on 21.11.2023, as one of the two remaining partners expired and that the plaintiffs being the legal heirs of deceased partner, namely, Sampat Lal Verma, were not interested in continuing the firm or constitute a fresh partnership firm and as such, on 26.01.2024, the plaintiff No. 1 requested the appellant to render the accounts of the firm and disburse half share of the surplus and property of the partnership firm, but the appellant refused to do the same.

The plaintiffs claimed that they are entitled to half share of the surplus and proceed of the assets and properties of the firm after meeting the liabilities of the firm and for disbursal of the half share of partnership firm and for appointment of receiver, mandatory injunction etc.

On receipt of the summon, the appellant entered appearance before the learned trial Court and since there is a clause for arbitration in the partnership deed i.e. Clause No. 15, the appellant filed one petition to refer the matter for arbitration and to dismiss the Commercial Suit. Upon the said petition, the learned trial Court registered a case and thereafter, hearing the learned Advocates of both the parties, passed the impugned order dated 09.08.2024.

Contentions

The appellant submitted that there is an arbitration clause in the partnership deed itself i.e. Clause No. 15 and in view of existence of the arbitration clause, the matter ought to have been referred to the arbitrator, but, the learned trial Court had ignored the same.

• Referring to Section 7 and Section 7(2) of the Act of 1996, it was further submitted that the learned trial Court has no jurisdiction to enter in the Commercial Suit and that the legal heirs of the deceased partner i.e. Late Sampat Lal Verma, are also bound by the said agreement on account of death of Sampat Lal Verma, and the learned trial Court had committed illegality by holding that on account of death of one of the partners, the firm automatically stands dissolved.
• It was further contended that the death of a partner does not bring into an end of the partnership for all purposes, the provision pertaining to arbitration can be invoked against the legal heirs of the deceased partner, once there is an arbitral clause even though the legal heirs of the deceased partner may not be entitled to be inducted as partner.

Per contra, the respondent submitted that in view of the decision of Hon'ble Supreme Court in the case of S.P. Misra (supra), the firm M/s Verma Market automatically came to an end and the partnership firm is not binding upon the legal heirs of the present respondents.

• Referring to another decision of Hon'ble Supreme Court, in Atul Singh and Ors. vs. Sunil Kumar Singh and Ors., reported in (2008), it was further submitted that the respondents, being not parties to the arbitration agreement and also being not parties to the partnership deed, not bound by the arbitration clause of the partnership deed and as such, the learned trial court has rightly rejected the petition.

Court's Analysis

The court first analysed section 42 of the Partnership Act which provides for the dissolution of the firm. It states that a partnership firm can also be dissolved on the death of a partner provided there is no contract to the contrary.

The court referred to the Supreme Court judgment in C.I.T.M.P. vs. Seth Govindram Sugar Mills reported in (1956) wherein it was held that Section 42(c) can appropriately be applied to a partnership where there are more than two partners. If one of them dies, the firm is dissolved; but if there is a contract to the contrary, the surviving partners will continue the firm.

Based on the above, the court held that the dispute relates to the affairs of the partnership firm and regarding its dissolution or discontinuation of the partnership business has been specifically dealt with in clause 15 of the deed, which indicates that the dispute regarding affairs of the firm its dissolution or discontinuation of the business has to be referred to arbitration.

The court further observed that since this aspect has been specifically provided in the partnership deed itself, this Court is of the view that section 42(c) of the Indian Partnership Act would not stand in the way of referring the matter to arbitration.

The court further observed that the case of the Supreme Court in S.P. Misra and Ors. vs. Mohd. Laiquddin Khan and Anr. (2019) is different from the present case. In the former, the issue was pertaining to the execution of decree which was held to be non-executable against the legal heirs of the deceased judgment debtor after the dissolution of the firm.

The court further observed that the issue here in this case relates to referring of the dispute relating to the partnership affairs and regarding dissolution and discontinuance of the partnership business between one of the partner to the partnership deed and legal heirs of the deceased partner, to arbitration, in view of clause 15 of the said partnership deed.

The court further observed that the issue here in this case is different from the issue in the case of S.P. Misra (supra). In view of different factual backdrop and different issues involved in the both the cases this court afraid the ratio laid down in the case of S.P. Misra (supra) would not advance the case of the respondent.

The court further referred to the Supreme Court judgment in Prakash Goel vs. Chandra Prakash Goel and Anr. AIR 2007 wherein it was held that if the right to sue for rendition of accounts of partnership firm survives on the legal representative of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed.

The court further held that the above judgment is squarely applicable to the facts of the present case since in this case also right to for rendition of accounts of partnership firm survives on the legal representative of a deceased partner.

The court further referred to another judgment of the Supreme Court in Hindustan Petroleum Corpn. Ltd vs. M/S. Pinkcity Midway Petroleums (2003) wherein “it was held that if the existence of an arbitral clause in the agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.”

The court concluded that this court is of the view that the impugned order of rejection of the petition under Section 8 of the Arbitration and Conciliation Act, for referring the matter for arbitration, so passed by the learned trial court has failed to withstand the legal scrutiny.

In view of existence of an arbitration clause in the partnership deed, the learned trial court was not justified in dismissing the petition.

Case Title: RAMPAT LAL VERMA v. RAHUL VERMA AND ORS.

Case Reference: GAHC010187132024

Court: Gauhati High Court

Judgment Date: 22/10/2024

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