Once Parties Intend To Resolve Their Dispute By Arbitration, It Is Needless For Court To Decide Whether Partnership Was At Will: Karnataka HC

The Karnataka High Court bench of Chief Justice N. V. Anjaria and Justice K. V. Aravind has held that when both parties have agreed to resolve their disputes regarding the nature of the partnership through arbitration, it is unnecessary for the Court to determine whether the partnership is one "at will." Such issues are more appropriately left for adjudication by the arbitrator. Brief Facts: N. H. Gowda (Appellant) and respondent Nos.1 and 2 are partners in appellant No.3 firm, formed under a Partnership Deed dated 22.08.2022. Initially, respondent Nos.1 and 2 held 30% each, while the appellant and one Girish M held 20% each. Upon reconstitution on 23.08.2024, Girish M retired, and the revised shareholding was: respondent Nos.1 and 2 – 36.67% each, and the appellant – 26.66%. The appellant and his family owned land in K.G. Lakkenahalli, Bengaluru North, which was developed into a wedding venue named “Kalyani Vasti and De Destino.” Disputes arose over the firm's accounts and management, leading the appellant to issue a notice under Section 43 of the Indian Partnership Act, 1932 (Partnership Act) expressing intent to dissolve the firm, asserting it was a partnership at will. Both sides invoked the arbitration clause in the deed. The appellant and respondents filed separate applications under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) numbered Com.A.A.No.8 and Com.A.A.No.7 of 2025, respectively. The Commercial Court permitted both rival parties to carry on and participate in the day-to-day affairs of the partnership firm, without conferring exclusive right on either party. Contentions: The Appellant submitted that the partnership firm, being “at will”, can be dissolved by issuance of notice under Section 43 of the Partnership Act. Upon issuance of such notice, the partnership stands dissolved by operation of law, and in such event, permitting respondent Nos.1 and 2 to participate in and carry on the day-to-day activities of the firm is impermissible. It was further submitted that till the appointment of an arbitrator, the activities of respondent No.3- M/s. North City Ventures may be carried out through a receiver to be appointed either by mutual consent or by this Court. Per contra, the Respondents submitted that while the appellant contributed the lands, the entire infrastructure for various activities, including the wedding destination and other purposes, was provided by respondent Nos.1 and 2. It was further submitted that as the expertise and skill were employed by respondent Nos.1 and 2 in the business, the appellant has no role to play in its activities, and his intervention, as permitted by the Commercial Court, would obstruct the smooth functioning of the business. Lastly, it was submitted that it is the agreement as a whole that must be considered to determine whether the partnership is “at will” or otherwise. Observations: The court at the outset noted that there is no dispute between the parties that any dispute arising out of the partnership shall be subject to arbitration. It further observed that whether the partnership is "at will" constitutes an arbitrable issue. In light of the undisputed agreement between the parties to resolve disputes relating to dissolution through arbitration, it is unnecessary to delve into the merits of the dispute at this stage. It further observed that any such examination would intrude upon matters reserved for arbitral determination. Accordingly, the issue is left open for adjudication by the arbitrator. The court further said that while directing the parties to resolve their dispute through arbitration, the interim arrangement ordered by the Commercial Court cannot be sustained without modification. The existing arrangement is impractical and disproportionately affects the interests of both parties, potentially leading to further litigation. Based on the above, the court held that it is necessary to institute a balanced interim arrangement to safeguard the interests of both sides, ensure the smooth functioning of respondent No.3, and secure the performance of existing contractual obligations. The court held that Justice V. Jagannathan, former Judge of the High Court, is appointed as the sole arbitrator by mutual consent of the parties, and shall commence proceedings through the Bengaluru Arbitration Centre. Shri H.R. Srinivas, former Principal District and Sessions Judge, is appointed as the receiver by consent to maintain the accounts of respondent No.3. Both parties are directed to immediately hand over all accounts to the receiver, who shall maintain and share them quarterly. It further directed that all bookings of respondent No.3's venue must be routed through the receiver, and any prior bookings must be disclosed. Services rendered by respondent Nos.1 and 2 in relation to bookings shall be coordinated...

Once Parties Intend To Resolve Their Dispute By Arbitration, It Is Needless For Court To Decide Whether Partnership Was At Will: Karnataka HC

Mohd Malik Chauhan

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