Closure Of Partnership Activities Till Dissolution Of Firm Cannot Be Granted As Interim Relief U/S 9 Of A&C Act: HP High Court

The Himachal Pradesh High Court bench of Justice Jyotsna Rewal Dua has observed that an interim relief petition under Section 9, Arbitration and Conciliation Act, 1996 (“ACA”) claiming closure of business and manufacturing activities of the partnership business cannot be granted when the principal dispute pertains to the business activities of that partnership. Granting such a relief would amount to the destruction of the subject matter of arbitration and would defeat the very intent and purpose behind the aforesaid section. Facts The present petition was filed under Section 9, ACA to restrain the Respondent from carrying out business operations in the name of M/s Vidhyasha Pharmaceuticals till the final adjudication of the arbitration proceedings including closure of production of production activities and freezing of the bank accounts of the partnership firm. The said partnership firm was constituted on 24.06.2014 between Sh. Parkash Chand Bansal, Nitin Gupta (Petitioner) and Arrpit Aggarwal (Respondent). Sh. Bansal retired from the partnership firm and the firm was reconstituted on 06.01.2015 between the remaining two partners who had 50% shares in the net profits and losses. The partnership firm was involved in the business of manufacturing pharmaceutical products, medicines, tools, dyes and also did service job work. Irreconcilable differences cropped up between the two partners. On 26.05.2025, Petitioner issued notice of dissolution of the partnership to the Respondent invoking Section 43, Partnership Act. The partnership firm stood dissolved on the date of publication of the notice. It is the Petitioner's case that the Respondent has no right to carry on business of partnership firm from 15.06.2025 and hence the present petition was filed. Contentions The Counsel for the Petitioner submitted that on dissolution of the partnership firm, its business needed winding up. The Respondent is required to be restrained from carrying out the partnership business till the appointment of Arbitrator/ adjudication of dispute by the competent authority. All actions pursuant to partnership deed needed to be stopped. Production activity in furtherance of partnership business was also required to be halted. The Counsel for the Petitioner cited various precedents where it has been observed by courts that once the firm is dissolved, no partner has a right to continue the business of the firm except for winding up and to complete the commitments prior to dissolution and not day to day business of the firm as it was prior to the dissolution. The Counsel for the Respondent submitted that neither the Petitioner had established prima facie case in his favour concerning alleged dissolution of the Partnership firm nor balance of convenience exists in petitioner's favour. It was urged that irreparable loss and injury will be caused to the partnership firm & Respondent by the closure of the partnership business altogether as prayed by the Petitioner. More than hundred employees engaged by the partnership firm will be rendered jobless. Observations The Court observed that the object of Section 9, ACA is to preserve the subject matter and secure arbitration. In the guise of praying interim relief under Section 9 petition, relief of nature destructive to the main subject matter could not be granted. Filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief which the court has power to grant before, during or after arbitral proceedings by virtue of Section 9, ACA. Analysing the clauses of the Partnership Deed, the Court observed that no doubt Clause 10 of the Partnership deed labelled the firm to be 'at will' yet Clause 8 of the deed categorically restrained either partner from selling, assigning transferring or otherwise parting with his share or interest without written consent of the other partner. The Court held that whether generalized 'at will' character of the partnership business under Clause 10 would yield to specific contractual bar in Clause 8 of the deed, was a question which required the detailed consideration of the arbitral tribunal and also whether the partnership deed conferred its indefinite duration but required mutual consent for exit. The Court observed that simply because Clause 10 of the partnership deed referred to the partnership as 'at will', this was not sufficient in the given facts to conclude at this stage that it was so and unilateral dissolution was permissible. The Court reiterated the three-point test for interim relief i.e. prima facie case, balance of convenience and irreparable loss. The Court observed that in the present case only the first requirement that is of prima facie case stood satisfied. The Court highlighted that it had not been denied that the complete shutdown of the partnership business would affect 120+ employees. It had...

Closure Of Partnership Activities Till Dissolution Of Firm Cannot Be Granted As Interim Relief U/S 9 Of A&C Act: HP High Court

Arpita Pande

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