Case Note & Summary
The Petitioner, Darshan Mahendra Nibjya, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of a substitute arbitrator after the presiding arbitrator resigned. The dispute arose from a partnership firm where the Petitioner was once a partner. Two partnership deeds, identical except for dates, were part of the record. Previously, by an order dated August 7, 2023, a Single Judge of the Bombay High Court had appointed a retired judge as presiding arbitrator under Section 11. Respondent No. 1 challenged this order before the Supreme Court, which dismissed the challenge on April 8, 2024, holding that the arbitration agreement had been appropriately considered. Subsequently, Respondent No. 2, who became a partner after the Petitioner exited, filed an application under Section 16 before the arbitral tribunal, arguing that he was not a partner when the Petitioner was, and thus there was no arbitration agreement between them. The presiding arbitrator resigned on January 16, 2025, after allegations were levelled by Respondent No. 2. In the present petition, Respondent No. 2 objected to the appointment of a substitute arbitrator, contending that the existence of an arbitration agreement between the Petitioner and Respondent No. 2 was in doubt. The court held that the partnership firm continued despite changes in partners, and the arbitration agreement was a clause in the partnership deed. The court noted that the liabilities of an incoming partner are matters of evidence for the arbitral tribunal. The court rejected Respondent No. 2's reliance on Magic Eye Developers Pvt. Ltd. v. M/s. Green Edge Infrastructure Pvt. Ltd., stating that the law has been overtaken by subsequent larger bench decisions, including the seven-judge bench in Interplay Judgment, SBI General, and Patel. The court emphasized that under Section 11(6A), the court's scope is limited to examining the existence of a valid arbitration agreement, and questions of privity and substantive issues fall within the domain of the arbitral tribunal under Section 16. The court appointed Smt. Justice R.P. Sondurbaldota (Retd.) as the Sole Arbitrator and directed the Petitioner to communicate the order to her within one week. The court also imposed costs of Rs. 25,000 on Respondent No. 2 for its trenchant approach to the proceedings.
Headnote
A) Arbitration Law - Appointment of Arbitrator under Section 11 - Scope of Inquiry - Section 11(6A) of the Arbitration and Conciliation Act, 1996 - The court's jurisdiction under Section 11 is limited to examining the existence of a validly executed arbitration agreement; questions of privity of parties and substantive issues are for the arbitral tribunal under Section 16. (Paras 6-8) B) Partnership Law - Continuing Partnership Firm - Liability of Incoming Partner - Indian Partnership Act, 1932 - In a continuing partnership firm, the liabilities of an incoming partner in respect of prior dues are matters of evidence to be decided by the arbitral tribunal, not by the Section 11 court. (Para 6) C) Arbitration Law - Resignation of Presiding Arbitrator - Appointment of Substitute Arbitrator - Section 11 of the Arbitration and Conciliation Act, 1996 - Where the presiding arbitrator resigned after allegations by a party, the court appointed a substitute sole arbitrator, noting that the same party had already raised jurisdictional objections under Section 16 before the tribunal. (Paras 4, 8-9)
Issue of Consideration
Whether the Section 11 Court can examine privity of parties to an arbitration agreement in a partnership dispute where partners have changed over time
Final Decision
The court appointed Smt. Justice R.P. Sondurbaldota (Retd.) as the Sole Arbitrator to adjudicate the disputes between the parties. The court directed the Petitioner to communicate the order to the arbitrator within one week. The arbitrator was requested to forward the disclosure statement under Section 11(8) read with Section 12(1) within two weeks. The parties were directed to appear before the arbitrator for further directions. Costs of Rs. 25,000 were imposed on Respondent No. 2, payable to the Petitioner within two weeks.
Law Points
- Section 11(6A) limits court's inquiry to existence of arbitration agreement
- Section 16 empowers arbitral tribunal to rule on its own jurisdiction
- partnership firm continues despite change in partners
- incoming partner's liability is a matter of evidence
