Power Of Arbitrator To Resolve Dispute In A Partnership Flows From Clauses Of Partnership Deed: Karnataka High Court

A Single Judge bench of Justice S G Pandit, dismissed a petition filed by one Jameela who claimed to be the second wife of deceased partner Hajee Ibrahim and sought dissolution of the firm and sought share in the assets of the firm of which the deceased was the partner. She sought appointment of sole arbitrator in this regard.

It was claimed by the petitioner that Hajee S. Ibrahim was Managing Partner of the partnership firm, had 45% share in the firm and had solely invested for establishing the medical centre. On his death, the petitioner being second wife requested the respondents to reconstitute the partnership and the petitioner also claimed partition of the firm properties. However, when the respondents refused, the petitioner got issued legal notice invoking Arbitration Clause-18 (of the agreement) and called upon the respondents to consent for appointment of arbitrator.

As the respondents refused, she approached the court under Section 11 (5) and (6) of the Arbitration and Conciliation Act, 1996, praying to appoint a District Judge as sole arbitrator to arbitrate the dispute between the parties as per the partnership deed.

The respondents denied the status of petitioner as wife of late Hajee Ibrahim. It was said late Hajee Ibrahim never married the petitioner and the petitioner was working as a maid in his house. Thus unless she proves her status as wife of late Hajee Ibrahim, she could not seek appointment of arbitrator.

Moreover, assuming that the petitioner could invoke arbitration clause and seek appointment of arbitrator, there is no arbitrable dispute since clause-13 of the partnership deed would state that in the event of death, retirement, insolvency or lunacy of the first partner (i.e., Hajee S. Ibrahim) the firm shall not be dissolved but the same shall be continued by other partners and his share of profit, capital account and assets shall be transferred to remaining partners equally.

It is in this backdrop that the Court held,

“Partners of the firm are bound by the terms or clauses of the partnership deed, unless it is contrary to law. Though the partnership deed provides for appointment of arbitrator, the arbitrator could resolve the dispute or disputes in terms of the clauses of the partnership deed. The power of the arbitrator to resolve the dispute flows from the clauses of the partnership deed.”

It added, “When the partners themselves have agreed under the partnership deed dated 15.06.2020 that on the death of first partner (i.e., Late Hajee Ibrahim) firm shall not be dissolved and the same shall be continued by remaining partners and first partner's share of profit, capital account balance and assets of the firm shall be transferred to remaining partners equally, the petitioner cannot seek for dissolution of the firm and could not seek partition of the assets of the firm.”

So far as status of petitioner is concerned, the bench said “In terms of Section 40 of 1996 Act a legal representative can enforce an arbitration clause. Whether petitioner is a legal representative, who claims that she is second wife of late Hajee S. Ibrahim, is to be decided as the respondents have denied the status of the petitioner as second wife of late Hajee S. Ibrahim.”

Referring to the Supreme Court judgment in the case of (2021) 2 SCC 1 (Vidya Drolia and others vs. Durga Trading Corporation) wherein it indicated the subject matters which are arbitrable and which are not arbitrable, the bench said,

“In the case on hand, the status of the petitioner as legal representative is under dispute and the petitioner is yet to establish that she is one of the legal representatives of late Hajee S. Ibrahim. Admittedly, suit in O.S.No.217/2021 for partition filed by petitioner is pending, wherein the status of the petitioner would be determined. Only on determination of the status of petitioner as legal representative or wife of late Hajee Ibrahim, the petitioner could invoke the arbitration clause, if the petitioner establishes that there is an arbitrable dispute.”

Further noting that Clause-13 (of the partnership agreement) would not provide for dissolution of the partnership firm on the death of first partner and would provide for transfer of first partner's share of profit, capital account balance and assets among remaining partners equally, the bench held,

“In terms of the above clause, the petitioner who claims as second wife of late Hajee Ibrahim, the first partner of the firm, would not be in a position to seek dissolution of the firm and to claim partition of the properties of the firm.”

Case Title: Jameela And Sullia Afsa & Others

Case No: CIVIL MISC. PETITION NO.500 OF 2021

Citation: 2023 LiveLaw (Kar) 198

Date of Order: 16-05-2023

Appearance: Advocate Kethan Kumar for petitioner.

Advocate Sachin B S For respondents.

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