Case Note & Summary
Background: The dispute arose from the estate of Mulchand Anantji Shah, a partner in Inter Globe Services, a partnership firm governed by a Partnership Deed dated April 1, 1988 containing an arbitration clause. Mulchand died intestate on August 26, 2013. His daughter, Aruna Nilesh Shah, filed Suit No. 852 of 2016 against her mother, siblings, Inter Globe, and its partners seeking succession rights under the Hindu Succession Act, 1956. The suit was disposed of by Consent Terms dated May 2, 2022, which settled disputes between Aruna and her family members but left unresolved the amount payable by Inter Globe to Aruna for Mulchand's share, described as a 'mutually agreed amount'. Aruna was authorized irrevocably to pursue Mulchand's share in Inter Globe. Inter Globe and its partners were parties to the consent terms but their discharge depended on payment of the mutually agreed amount, which was never finalized. Aruna filed Commercial Arbitration Application No. 82 of 2024 under Section 11 of the Arbitration and Conciliation Act, 1996 seeking reference of disputes to arbitration. Inter Globe parties filed Interim Application No. 4903 of 2022 in the disposed suit seeking a declaration that the mutually agreed amount was Rs. ~11.11 Crores and an injunction against arbitration, and Interim Application No. 2996 of 2023 seeking to lead evidence through two witnesses. The court considered both proceedings together, noting that the issues were identical. Aruna contended that the arbitration agreement was valid and covered disputes over accounts and goodwill, and that no accord and satisfaction existed because the amount was only orally alleged. Inter Globe argued that the amount was mutually agreed at Rs. ~11.11 Crores based on contemporaneous accounting entries and that evidence should be taken in the interim application to prove the settlement, warranting an anti-arbitration injunction. The court found that the existence of the arbitration agreement was undisputed and that disputes relating to the partnership firm's accounts, goodwill valuation, and deceased partner's share fell within the arbitration clause. It held that the Consent Terms clearly settled only the family inter se disputes and did not discharge Inter Globe, because no written agreement on the mutually agreed amount existed. The court observed that the oral understanding and evidence of the two witnesses should be presented before the arbitral tribunal, not in an interim application in a disposed suit. It concluded that there was no scope for an anti-arbitration injunction and that the unresolved disputes ought to be resolved by arbitration. Accordingly, the Section 11 Application was allowed and the interim applications were dismissed, with liberty to lead evidence before the arbitral tribunal.
Headnote
A) Arbitration - Existence of Arbitration Agreement - Section 11, Arbitration and Conciliation Act, 1996 - Where partnership deed contains arbitration clause and existence is undisputed, disputes relating to firm accounts and deceased partner's share fall within arbitration - The court noted the arbitration agreement in the Partnership Deed dated April 1, 1988 was not disputed and held that the matter fell within its jurisdiction under Section 11 - Held that disputes ought to be referred to arbitration (Paras 6-7). B) Arbitration - Accord and Satisfaction - Consent Terms - Arbitration and Conciliation Act, 1996 - Consent terms settling disputes between family members left the amount payable by the partnership firm as 'mutually agreed amount' unresolved - The court found no accord and satisfaction on face of record because the amount was not agreed in writing and was alleged to be orally agreed - Held that firm cannot be considered discharged without firm evidence of mutually agreed and discharged amount, and such issue belongs to arbitral tribunal (Paras 16-21). C) Civil Procedure - Anti-Arbitration Injunction in Disposed Suit - Interim Application in Suit No. 852 of 2016 - Arbitration and Conciliation Act, 1996, Section 11 - No scope for anti-arbitration injunction in disposed suit regarding disputes between parties covered by arbitration clause - The court reasoned that Suit 852 disposed of family inter se disputes and unresolved disputes with firm must be resolved by arbitration, with consent terms envisaging legal remedies - Held that injunction against arbitration cannot be granted (Para 19). D) Evidence - Oral Agreement and Accord - Interim Application No. 2996 of 2023 - Arbitration and Conciliation Act, 1996 - Evidence of two witnesses about oral agreement should be led before arbitral tribunal, not in interim application in disposed suit - The court held that the same witnesses could lead evidence before the tribunal to demonstrate agreement on amount - Held that the matter ought to be proved before the arbitral tribunal and not in IA 4903 (Paras 20, 22). E) Partnership - Deceased Partner's Share and Accounts - Partnership Deed - Arbitration clause - Dispute about accounts and goodwill valuation is squarely in arbitration domain - The court observed that valuation of deceased partner's share and firm accounts and goodwill fell squarely within the domain of arbitration proceedings because it was a dispute relating to the Partnership Deed which contained an arbitration clause - Held that the unresolved disputes ought to be adjudicated upon and resolved by arbitration (Para 17).
Issue of Consideration
Whether disputes and differences between Aruna and Inter Globe Services and its partners regarding the mutually agreed amount payable for deceased partner Mulchand's share should be referred to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996; whether such disputes were already settled by Consent Terms dated May 2, 2022; whether an interim application in a disposed suit can seek declaration of the mutually agreed amount and an anti-arbitration injunction.
Final Decision
The Commercial Arbitration Application No. 82 of 2024 was allowed; disputes between Aruna and Inter Globe Services and its partners under the Partnership Deed dated April 1, 1988 were referred to arbitration. Interim Application No. 4903 of 2022 seeking declaration of mutually agreed amount and anti-arbitration injunction was refused and dismissed; Interim Application No. 2996 of 2023 seeking to lead evidence was also refused and dismissed, with liberty to lead evidence before the arbitral tribunal.
Law Points
- Existence of valid arbitration agreement under Section 11 of the Arbitration and Conciliation Act
- 1996 mandates reference of disputes to arbitration
- consent terms that settle only family inter se disputes do not discharge partnership firm without determination of mutually agreed amount
- accord and satisfaction founded on oral understanding must be proved before arbitral tribunal
- anti-arbitration injunction cannot be sought in disposed suit involving arbitrable disputes under partnership deed
- valuation of deceased partner's share and firm accounts fall within arbitration clause of partnership deed
