Matter Relating To Partnership Act & Partnership Deed Where Third-Party Rights Are Involved Cannot Be Referred To Arbitration: Madhya Pradesh HC

The Madhya Pradesh High Court Bench of Justice Anand Pathak held that when matter relates to Partnership Act and partnership deed and third-party rights are also involved then it cannot be referred to arbitration. Brief Facts: M/s Om Jai Gurudev is a partnership firm in which 11 partners existed initially. The partnership deed for the firm was constituted on 18.07.2017 and the deed was amended on 20.03.2019 wherein the firm was reconstituted and except the applicant and the non-applicants, other partners resigned from the said firm. The present applicant has 13% share in the partnership firm. Certain disputes arose between the parties and the application filed an application under Section 11(4) of the Arbitration & Conciliation Act, 1996 for appointment of an arbitrator to adjudicate the dispute. In the amended partnership deed, it was mentioned that the dispute is to be resolved through the appointment of Arbitrator. The applicant contended that Clause 11 indicates that dispute can be resolved through appointment of Arbitrator. The applicant wants property to be divided into metes and bounds and he seeks property correspondingly to his share in the partnership firm. Also, the applicant refers to the fact that dispute involves tenancy rights also and fate of three parties (tenants) would affect the proceedings because they would not be before the Arbitrator. The applicant also relied upon a judicial pronouncement in the case of VGP Marine Kingdom Private Limited and Another Versus Kay Ellen Arnold (2022). However, the respondent argued that no dispute exists between the parties. Even if any dispute exists under the Indian Partnership Act, 1932, appropriate remedy would be to approach Civil Court rather than appointment of Arbitrator because it would be beyond the domain of Arbitrator. The respondent relied upon the judgment of Apex Court in the case of Vidya Drolia and Ors. vs. Durga Trading Corporation (2021). Observation of the court: The court held that the relief of partition of subject property as sought by the applicant during subsistence of partnership firm is barred by law. Therefore, the matter is non-arbitrable. Additionally, the court noted that scope of enquiry having the trappings of adjudication is limited at the stage of application under Section 11 of the Act, but the Court can certainly determine existence of arbitration agreement and also to enquire whether there is prima facie arbitration dispute or not. So, the contention of the respondent appears to be correct because the applicant cannot seek prayer for physical share (metes and bounds) in the property of partnership firm without praying for retirement from the firm or for dissolution, in that condition only entitlement of a partner upon severance of status of the partnership firm would be of money equivalent to the value of his share therein. Therefore, the demand of the applicant is prohibited in law and appears to be a dead wood claim. Moving further, the court relied on the judgment of the Apex Court in NTPC Ltd. Vs. M/s SPML Infra Ltd. (2023) and Vidya Drolia and Ors. vs. Durga Trading Corporation (2021). Thereafter, the court held that when matter relates to the Partnership Act and partnership deed and third-party rights are also involved then it cannot be referred to arbitration. The applicant may resort to other remedy in accordance with law. Finally, the court dismissed the application. Case Title: GOKUL BANSAL Vs. VIPIN GOYAL & ORS. Case Number: ARBITRATION CASE NO. 44 of 2021 Counsel for the Applicant: Shri Anmol Khedkar Counsel for the Respondents: Shri Somyadeep Dwivedi Date of Judgment: 08.01.2025Citation: 2025 LiveLaw (MP) 14 Click Here to Read/Download The Order

Matter Relating To Partnership Act & Partnership Deed Where Third-Party Rights Are Involved Cannot Be Referred To Arbitration: Madhya Pradesh HC

Soumya Chakrabarti

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