Pendency Of Civil Or Criminal Litigation Between Partners Cannot Estop Either Partner From Invoking Arbitration Clause: Punjab and Haryana HC

The Punjab and Haryana High Court bench of Justice Suvir Sehgal has held that pendency of a civil and criminal litigation inter se partners, cannot estop one of the partners from invoking the arbitration clause or bar the reference of dispute for adjudication to an arbitrator for determination. Brief Facts: This petition has been filed under Section 11 (6) of the Arbitration Act to adjudicate the disputes and differences between the parties. The petitioner submitted that the respondent committed various acts detrimental to the interest of the firm and started a proprietorship CA firm with a similar name. When the petitioner protested, by notice dated 27.04.2022,respondent dissolved the firm without settling the accounts. It was also argued that petitioner responded by sending a reply dated 29.04.2022, and as disputes arose between the parties, he served a legal notice dated 08.05.2022, invoking the arbitration clause. Vide communication dated 11.05.2022, respondent stated that the arbitration clause cannot be invoked as the partnership firm stands dissolved. Respondent filed a suit for rendition of accounts and petitioner filed an application under Section 8 of the Arbitration Act for referring the dispute to the Arbitrator, which are pending. It was submitted that the dispute between the parties deserve to be resolved by referring the matter for adjudication to an Arbitrator. Refuting the submissions, the respondent argued that the petitioners had filed a petition under Section 9 of the Arbitration Act, which was withdrawn on 30.05.2022, by recording a statement that they have availed an appropriate remedy. It was also argued that the present petition is not maintainable as a civil suit is pending between the parties and by interim order dated 16.06.2022, petitioners have been restrained from continuing the profession in the name of the partnership firm and from using the assets of the firm or from transferring its funds. It was also argued that as partnership firm stands dissolved, the arbitration clause, which forms a part of the Instrument of Partnership cannot be given effect to. Lastly, it was argued that the notice invoking the arbitration clause has been served only by petitioner No.2 and as there is no notice by petitioner No.1, instant petition at their hands is not maintainable. Observations: The court after referring to section 21 of the Arbitration Act observed that the provision has been incorporated primarily with the objective of determining the date of the commencement of the arbitral proceedings. The proceedings are deemed to have been initiated from the date the notice invoking the arbitration clause “is received by the respondent”. While coming to the facts of the present case, the court said that the clause does not require the notice to be served by all the parties to the agreement. Notice by one of the parties to the agreement would be a sufficient compliance of the statutory provision. The giving of such a notice is purely procedural and not a decisive step. It also opined that its form and terms do not call for a strict scrutiny. Technicality cannot be attached with a notice served under Section 21 of the Arbitration Act as that would defeat the objective of the statute, which provides for a speedy resolution of the disputes. The notice, is held to be valid and in the opinion of the Court, it meets the mandate of statutory provision. The court noted that in Ravi Prakash Goel Versus Chandra Prakash Goel and another, (2008), the Supreme Court held that “the legal representative of a deceased-partner has a right to enforce an arbitration agreement, Supreme Court held that on the dissolution of a partnership firm, the arbitration clause does not come to an end. It was further held that the dispute relating to the accounts of a partnership firm is a dispute, which touches the affairs of the firm and is clearly referable to an Arbitrator and the parties cannot be compelled to take a recourse to the civil courts.” The court concluded that pendency of a civil and criminal litigation inter se partners, cannot estop one of the partners from invoking the arbitration clause or bar the reference of dispute for adjudication to an arbitrator for determination. Accordingly, the present petition was allowed. Case Title: PRIKSHIT WADHWA AND ORS VERSUS VINOD K WADHWA Case Number:ARB-241-2022 (O&M) Judgment Date: 07/01/2025 Mr. Dheeraj Mahajan, Advocate for the petitioners. Mr. Vaibhav Sehgal, Advocate for the respondent. Click Here To Read/Download The Order

Pendency Of Civil Or Criminal Litigation Between Partners Cannot Estop Either Partner From Invoking Arbitration Clause: Punjab and Haryana HC

Mohd Malik Chauhan

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