Single Partner In A Firm Cannot Invoke Arbitration Without Explicit Authority From Other Partners: Kerala High Court

The Kerala High Court has held that one partner of a partnership firm cannot, without explicit authorisation from the other partners, invoke an arbitration clause or seek appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.Justice S. Manu, delivered the judgment in an arbitration request.The arbitration request was filed by a partner of M/s P K Chandrasekharan Nair and Co., a partnership firm, which was operating a retail outlet of petroleum products of the respondent. An agreement was executed between the firm and the respondent in 1970 which was renewed periodically till 2019. In 2013, the land owner in which the firm was operating filed a suit for recovery of possession of property and other reliefs against the respondent and the Managing partner of the firm. The suit was dismissed and dispute was referred for arbitration since there was an arbitration clause in the lease dead between the respondent and land owner. After filing of the suit the land owner refused to renew the lease and to give consent for renewing the explosive licence. The outlet was therefore closed from 2021. In 2022, the respondent instructed the firm to find an alternate site due to pending litigation. Later, the respondent allowed another dealer to start a new retail outlet on the premises. Alleging that the firm was entitled to run the retail outlet for a period of 10 years ending on 30.06.2029 according to the agreement between the parties a notice issued to respondent, calling upon to pay a sum of Rs. 2,51,60,000/- as damages. Since there was no response to the notice, a notice was issued invoking the arbitration clause in the agreement for initiating arbitration. The respondents in their counter affidavit, contended that the partnership firm has Mr. Anilkumar K C and Mrs. Ganga Sreekumar as partners. It was stated that no express authority was given by the other partner to Mr. Anilkumar K C to file an arbitration request in the name of the partnership and hence it was not maintainable under Section 19(2)(a) of the Indian Partnership Act, 1932. The Counsel for the petitioner submitted that the scope of enquiry under Section 11 of the Arbitration and Conciliation Act is constricted and the only requirement is to verify whether there is a valid arbitration agreement as per the provisions of the Act. It was further submitted that it is not within the domain of the Court to examine the aspect or analyse the merits of contentions regarding validity of the arbitration clause and arbitrability of the dispute. The Court examined the scope of enquiry under Section 11 of the Arbitration and dConciliation Act. The Court observed that the decision In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 [(2024) 6 SCC 1], laid down that the scope of Section 11(6) should be confined to existence of arbitration agreement and validity of an arbitration agreement must be restricted to requirement of formal validity. The Court noted that the present case dealt with maintainability of the request made under Section 11 of the Act and not on the dispute regarding the existence of arbitration clause in the agreement and hence the scrutiny of the maintainability of an application under Section 11(6) of the Arbitration and Conciliation Act is within the authority of the Court. “There cannot be a proposition that every application filed under Section 11(6) of the Arbitration and Conciliation Act shall be mechanically entertained and the examination should confine regarding the existence and validity of the arbitration agreement. The appointment of arbitrator, invoking Section 11(6) of the Arbitration and Conciliation Act, is a special power conferred on the Court and therefore primary scrutiny of the application under Section 11(6) of the Arbitration and Conciliation Act is not a matter to be left to the domain of the arbitrator.” the Court noted. The Court further examined Section 19 of the Indian Partnership Act, 1932 which deals with Implied authority of partner as agent of the firm and emphasised that Section 19(2)(a) makes it clear that a partner lacks implied authority to submit a firm's disputes to arbitration.The Court thus observed: “Clause (a) precisely deals with submitting disputes relating to the business of the firm to arbitration. Therefore, no implied authority can be claimed by a partner in the matter of submitting a dispute relating to the business of a firm, in the absence of the usage or custom of trade to the contrary.” the Court noted. The Court further observed that if one partner initiates arbitration proceedings without express authority or ratification by the remaining partners and the proceedings culminate in an award there is a possibility of the other partners disputing the validity and binding effect of the award. Noting that various High Court has taken divergent positions in this regard, the Court observed:...

Single Partner In A Firm Cannot Invoke Arbitration Without Explicit Authority From Other Partners: Kerala High Court

Anamika MJ

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