Mere Pendency Of A Civil Suit Is Not An Absolute Bar To A Petition Under Section 11 Of The A&C Act: Bombay High Court

The Single Bench of Justice G.S. Kulkarni held that it is also permissible for the Civil Court to consider an application of the plaintiff to permit withdrawal of the suit when there is an arbitration agreement, and refers the parties for arbitration.

The Court held the rights accrued to a party as the legal heir of its deceased parents in their estate are independent of its right which is recognized by a partnership deed as a legal heir of the deceased partners.

Facts

The parents of the applicants were partners in the Respondent 1 (Firm) which was reconstituted vide a Partnership Deed dated 12.03.2012 (Partnership Deed). Clause 17 of the Partnership Deed provided that on the death of any partner his interest in the firm would pass on to his heir. Clause 19 of the deed was the arbitration clause.

After the death of the applicant's parents, the firm was reconstituted vide a 'Deed of Retirement-cum-Partnership' dated 17.01.2019 whereby the interest of the parents of the applicants was distributed between respondent no. 2 and respondent no. 3, the brothers of the applicants who were already partners in the firm.

Thereafter, vide another 'Deed of Retirement-cum-Partnership' dated 23.05.2019, respondent no. 2 diluted his share in the firm in favour of his wife who was inducted as a partner in the firm. Except for the following changes, the provisions of both the 17.01.2019 and 23.05.2019 partnership deed were similar to the 2012 partnership deed.

In March 2020, the applicants filed a Civil Suit against respondents no. 2 and 3 for administration and partition of the estate of the deceased parents. The applicants have reserved their right to take appropriate legal proceedings against respondent 1. (firm) at a later point in time.

Subsequently, the applicants have invoked the arbitration clause in the Partnership Deed dated 12.03.2012 on the ground that by virtue of Clause 17 of the partnership deed, they were entitled to the interest of their parents in the firm and issued an arbitration notice on the respondents.

The Contention Of The Parties

The applicants sought the appointment of the arbitrator on the following grounds:

• The applicant has the right and the locus as legal heirs of the deceased partners to invoke the arbitration agreement as contained in Clause 19 of the Partnership Deed.
• By virtue of Clause 17, the legal heirs of a deceased partner were to be inducted as the partners in the firm.
• The share of a deceased partner could only go to the existing partners when the deceased partner had no legal heir, therefore, the usurpation of the share of their parents by their brothers who were already partners in the firm is in the teeth of clause 17.
• The opening clause of the deed also recognizes the legal heirs as the partner in the firm.
• The Civil Suit instituted by the applicants is in no manner whatsoever is concerned in regard to the dispute integral to the partnership firms in question.

The respondents opposed the application on the following grounds:

• The applicants are neither a party to the partnership deed nor to the arbitration agreement contained therein.
• The applicants have already filed a Civil Suit for the administration and partition of the estate of their deceased parents and the firm in question in one of the applications has been made a party to that Civil Suit, therefore, the application is not maintainable.
• Once a suit is filed which is for the administration of the estate of the deceased parents, which includes their interest in the partnership firm, there cannot be a parallel demand from the applicants to assert any independent rights under the partnership deed

Analysis By The Court

The Court observed that the opening paragraph of the partnership deed referred to the legal heirs of deceased partners as the partners in the firm. Further, Clause 17 also provided that on the death of a partner, the legal heir of that partner would be inducted as the new partner and lastly, Clause 19 also recognized the right of a legal heir of a partner to raise any dispute for settlement via arbitration.

The Court held that the applicants are persons as recognized by the deed of partnership, who have been conferred an interest in the partnership firm in the capacity as legal heirs. The Court held that such a right is recognized under three different clauses of the partnership deed, i.e., opening paragraph, Clause 17, and Clause 19.

The Court held that on a cumulative reading of all the three clauses, it becomes explicitly clear that the legal heir of a deceased partner could invoke the arbitration clause for the settlement of any dispute or difference under the partnership deed dated 12.03.2012.

The Court rejected the argument of the respondent that by choosing the remedy of civil suit, the applicants would be prohibited from seeking any reference to arbitration. The Court held that the rights accrued to the applicants as legal heirs of their deceased parents in their estate stand completely independent from the rights of these legal heirs, which the partnership deed would recognize.

The Court further held that even if assuming that the cause of action for the Civil Suit, as well as the present arbitration application, is overlapping, nonetheless as Section 8 of the Act would postulate and as a general principle in law, it is always open to the plaintiffs to withdraw the suit by making such application in the suit, not later than the date the defendants submitting their first statement on the substance of the dispute.

The Court held that there cannot be an absolute bar on the appointment of an arbitrator merely because the petitioner had filed a Civil Suit regarding the same dispute. It would be permissible for the petitioner to file an application for appointment of an arbitrator provided he can withdraw his suit before the other party files its statement on the substance of the matter.

The Court also relied on Section 40 of the A&C Act to hold that an arbitration agreement survives the death of a party and the legal heirs of that party can step into its shoes to invoke the arbitration agreement.

Accordingly, the Court allowed the arbitration petition and appointed a sole arbitrator to adjudicate the dispute arising out of the partnership deed dated 12.03.2012.

Case Title: Priya Rishi Bhuta & Anr. V/s. Vardhaman Engineers and Builders & Ors. 

Date: 06.06.20222

Citation: 2022 LiveLaw (Bom) 221

Counsel for the Applicants: Mr. Sanjay Jain a/w. Mr. Nishant Sasidharan, Mr. Ashvin Bhalekar, Mr. Ashwin Bhadang, Ms. Shruti Lakhani and Ms. Khushbu Shah i/b. Dipti Shah.

Counsel for the Respondents: Mr. Mayur Khandeparkar with Mr. Rajesh A. Revankar i/b. A.G. Revankar & Co. for respondent nos. 1, 5 to 10 and Mr. Ankit Lohia with Mr. Chetan Yadav and Mr. Samarth Patel i/b. R. V. & Co. for Respondent Nos.2 & 3.

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