Legal Heir Of Partner Can Seek Reference To Arbitration When Deed Provides For Partnership To Continue After Partner's Death: Calcutta HC

The Calcutta High Court bench of Justice Shampa Sarkar has observed that where a partnership deed provides that the heir of the deceased shall inherit the share and the partnership will continue, then the legal heir can seek reference of disputes to arbitration based on the arbitration clause in the deed of partnership. The Court highlighted that for non-signatories to be made a party to arbitration the requirement of law is that they must prima facie be connected to the arbitration agreement, which is satisfied in case of such a partnership deed. Facts This is an application for reference of a dispute between the parties to arbitration on the strength of Clause 33 of the deed of partnership dated September 1, 2000. The deed was entered into between the Respondents and Smt. Nandita Talukdar, since deceased. The Petitioner is the youngest son of Late Nandita Talukdar. The Petitioner relies on Clauses 20, 21 and 25 of the deed to assert that he has become a partner upon the death of his mother along with the Respondents and is entitled to participate in the business and enjoy the shares of profit. Disputes had arisen in respect of the partnership business and properties of the partners. Contentions The Counsel for the Petitioner placed reliance on the decision of Rahul Verma & Ors. v. Rampat Lal Verma & Ors. 2025 INSC, in support of the contention that Sections 40 and 46 of the Indian Partnership Act, 1932 read with Section 40, Arbitration and Conciliation Act, 1996 (“ACA”) would permit a legal heir of late Nandita Talukdar to seek reference of the disputes. The Petitioner contended that the contract clearly provides that the partnership will not stand dissolved on the death of the partner. The heirs shall inherit the share of the deceased partner. The partnership will continue with the heirs. Despite such clauses in the deed the Petitioner has not been allowed to participate in the partnership business upon its reconstitution with the Petitioner as a partner. It was further contended that Section 40, ACA provides that an Arbitration agreement shall not be discharged by the death of a party thereto and shall be enforceable by or against the legal representative of the deceased. In this case, one of the legal representatives of the deceased is seeking to enforce the arbitration agreement against the other two heirs of the deceased. The Counsel for the Respondents submitted that only disputes between the partners whose names appear in the deed of September 1, 2000, can be referred to arbitration. Unless the Petitioner is acknowledged as a partner upon reconstitution of the partnership and a deed to that extent is executed which contains an arbitration clause, the Petitioner cannot take advantage of the arbitration clause in the present deed. The deed provides that disputes between the parties to the agreement alone, shall be referred to a sole Arbitrator. Observations The Court observed that the deed of partnership was executed between Alok Talukdar, Nandita Talukdar, Avishek Talukdar. Though the Petitioner was not a partner, Nandita Talukdar wife of Alok Talukdar, was referred to as the “partner of the second part” which term and expression (unless excluded by or repugnant to the subject or context) was deemed to mean and include her heirs, executors, administrators, legal representatives and assigns of the second part. This understanding was reflected in the recital of the partnership deed also. The Court held that such recital read with Section 40, ACA enabled Avirup Talukdar to seek reference of the dispute to arbitration as per the arbitration clause. Moreover, the Court highlighted that Clauses 20, 21, and 25 of the deed indicate that the partnership did not dissolve on the death of Nandita. Rather, Avirup would have automatically inherited part of her shares in the partnership business, and be substituted in the business. The partnership business would continue with the substituted partner/heir. The Court observed that the dispute arose upon violation of the above Clauses by Respondents, as alleged by the Petitioner. The Court noted that the issue as to whether a non signatory can seek reference of the dispute to arbitration has to be gathered from the agreement, circumstances and conduct and the referral Court is merely required to asses whether prima facie the parties are intrinsically connected to the arbitration agreement or the contract out of which the disputes arose. In the present case, since the deed of partnership provides that the heir of the deceased shall inherit the share and the partnership will continue, the aforementioned connection between the parties is available. However, the issue will be ultimately addressed by the Arbitrator. The Court referred to a plethora of cases including Ajay Madhusudan Patel v Jyotirindra S Patel (2025) 2 SCC 147 and Cox & Kings Ltd v SAP (India)(P) Ltd....

Legal Heir Of Partner Can Seek Reference To Arbitration When Deed Provides For Partnership To Continue After Partner's Death: Calcutta HC

Arpita Pande

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