Dispute Related Insolvency & Winding-Up Of Partnership Concerning Partners' Rights & Obligations Is Arbitrable: Telangana High Court Appoints Justice L. Nageswara Rao As Arbitrator

Brief Facts:

The matter pertained to a dispute which arose when the Applicant requested information and clarification related to the firm via legal notices, which were met with denial from the Respondents. Subsequently, the Applicant notified the Respondents of the firm's dissolution under Section 43 of the Indian Partnership Act, 1932, and called for settlement of accounts.

Following these communications, the Applicant approached the Telangana High Court (“High Court”) for the appointment of the sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.

The Applicant argued that the Respondents did not contest the existence of the Partnership Deed or the arbitration clause therein. It argued that the dispute necessitates resolution as per the agreed-upon arbitration process.

The Respondents contended that the arbitrator's authority under the Partnership Deed is limited, and the relief sought for settlement of accounts falls outside the purview of Clause 19. It further argued that disputes pertaining to insolvency and winding-up matters are non-arbitrable.

Observations by the High Court:

The High Court noted that the Respondents did not dispute the existence of the Partnership Deed nor did they deny the presence of the arbitration clause within it.

The High Court referred to Section 16(1) of the Arbitration and Conciliation Act, 1996, which empowers the arbitral tribunal to rule on its own jurisdiction. The High Court referred to the decision of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited (2020) 2 SCC 455, and emphasized the doctrine of kompetenz-kompetenz which aims to minimize judicial intervention and allow the arbitral process to proceed smoothly. The High Court held that Section 16 of the Arbitration Act grants the arbitral tribunal broad authority, including the ability to decide on jurisdictional issues.

Furthermore, the High Court referred the decision of the seven-Judge Bench of the Supreme Court in Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2023 LiveLaw (SC) 1049) and observed that the scope of examination under Section 11(6A) of the Arbitration Act is limited to determining the existence of an arbitration agreement in a prima facie manner. Issues concerning the substantive existence and validity of the arbitration agreement are left to be decided by the arbitral tribunal under Section 16.

Therefore, the High Court held that objections regarding the jurisdiction of the arbitrator to adjudicate the Applicant's claim can and should be raised before the arbitral tribunal itself. It held that certain disputes, such as those related to insolvency and winding-up of a company, are non-arbitrable (referred to Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd (2011) 5 SCC 532). However, the High Court held that the dispute fell within the ambit of the Indian Partnership Act, 1932, concerning partners' rights and obligations, thus making it arbitrable.

Consequently, the High Court appointed Justice L. Nageswara Rao, a former Judge of the Supreme Court, as the sole arbitrator to adjudicate the dispute between the parties.

Case Title: Shameen Sultana Khan vs Faizunnisaa Begum

Case Number: ARBITRATION APPLICATION No.164 of 2023

Advocate for the Appellant: K.R.Raman

Advocate for the Respondent: R.Sushanth Reddy

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