Whether Non-Signatory Bound By Arbitration Agreement Can Be Decided By Tribunal, Not Referral Court U/S 11 Of Arbitration Act: Allahabad HC

The Allahabad High Court bench of Justice Manoj Kumar Gupta affirmed that referral court under section 11 of the Arbitration Act stage cannot examine as to whether the non-signatory is bound by the arbitration agreement or not. Such an issue requires factual determination which can be decided by the arbitral tribunal under section 16 of the Arbitration Act. Brief Facts The instant application under Section 11 of the Arbitration and Conciliation Act, 1996 has been filed by the applicants invoking the power of this Court to constitute an arbitral tribunal in respect of the disputes arising between the parties out of partnership agreements dated 29 August 2016, 2 March 2020 and 20 February 2021. A partnership agreement was executed on 29 August 2016 between applicant no. 1 (Ram Taulan Yadav) and one Sheela Yadav for doing business in the name of M/s Autar & Associates. As per Clause 14 of the said agreement, all disputes and differences arising between the parties would be referred to mutually acceptable arbitration. On 20 February 2021, a supplementary deed of partnership was executed whereby Ram Milan Yadav retired from the partnership firm with effect from 31 March 2021 and Radhey Shyam Mishra (opposite party No. 3) was inducted as a new partner. Thereafter a memorandum of understanding (MoU) dated 09.09.2022 was executed between the partners of the firm and thereunder, the parties agreed that the properties given by the applicants in mortgage to secure the loan taken by the firm from the financial institutions would be released and thereafter, the applicants would retire from the partnership firm. In compliance of the said arrangement, four properties of the applicants were redeemed from mortgage, however, five properties remained mortgaged. The applicants suggested names of three arbitrators vide its notice dated 15 April 2023. Opposite party no. 1 agreed to the name of Mr. Justice 2 Vipin Sinha, Former Judge of this Court whereas opposite parties No. 2 & 3 did not respond to the notice. Opposite party No. 3 has filed counter affidavit and has opposed the appointment of an arbitral tribunal. This gave rise to disputes and differences between the parties, the resolution of which has been sought through arbitration. Contentions The opposite party submitted that the partnership firm was unregistered and the partnership deed was not properly stamped, therefore, bar of Section 69 of the Partnership Act, 1932 and Sections 33 and 35 of the Stamp Act, 1899 would apply and that there was no arbitration clause in the supplementary partnership agreement dated 20 February 2021 whereby opposite party No. 3 was inducted as partner in the partnership firm for the first time. It said that the arbitration clauses in the previous agreements are not binding on opposite party No. 3 as he was not signatory to these agreements. Per contra, the applicants submitted that the bar under Section 69 of the Partnership Act does not apply to arbitration proceedings and that in case, there is any deficiency in stamp duty, the same can be agitated before the arbitral tribunal but on this ground the prayer for appointment of arbitrator cannot be rejected. Reliance was placed on reliance on a recent Constitution Bench judgment in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In Re., 2024. That the supplementary agreement whereby opposite party no. 3 was inducted as partner in the partnership firm was in continuation of the earlier two partnership agreements. Therefore, all the three agreements have to be read together. They said that the question as to whether opposite party No. 3 was signatory and a consenting party to the arbitration clause should be left for being decided by the arbitral tribunal as laid down by Supreme Court in Cox & Kings Ltd. v. SAP India Pvt. Ltd. & another, 2024. Court's Analysis The court noted that in Umesh Goel vs. Himachal Pradesh Cooperative Group Housing Society Limited, 2016, the Supreme Court has held that the expression “other proceedings” in Section 69(3) of the Partnership Act does not cover arbitral proceedings as well as arbitral award. Based on the above, the court rejected the first contention that the dispute could not be referred to the arbitration. The issue as to whether the agreements could not be enforced because of any deficiency in stamp duty is also squarely covered by the judgment of Supreme Court in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In Re-2024 In the above case, the Apex Court has held that in case, there is any deficiency in stamp duty an objection to the said effect can be taken before the arbitral tribunal but the same would not detain the Court from entertaining application for constitution of an arbitral tribunal. The next issue whether...

Whether Non-Signatory Bound By Arbitration Agreement Can Be Decided By Tribunal, Not Referral Court U/S 11 Of Arbitration Act: Allahabad HC

Mohd Malik Chauhan

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