Case Note & Summary
This case concerned an arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator to adjudicate disputes arising from a partnership deed dated 23 October 1992. The petitioner, Rachana Kamlesh Shahani, claimed to be a partner in the first respondent partnership firm, Sunshine Financial Services, and named respondents 2 to 7 as other partners. The firm's business involved managing portfolios, equity participation, share trading, and related financial dealings. The petitioner invoked clause 12 of the partnership deed, which stated that if any difference arose between partners regarding construction, division, acts, or partnership affairs, such difference shall be deemed to partners and majority decision will be final and binding. On 6 September 2018, the petitioner issued notice to the firm and other partners informing them of appointment of Justice J.N. Patel (Retd.) as sole arbitrator and calling for concurrence. Respondents 3 and 6 replied on 24 and 29 September 2018 denying the very existence of the partnership deed and the arbitration clause. The petitioner then filed the present arbitration petition. The respondents appeared and filed a reply denying the contents of the application. The petitioner argued that since the respondents had not denied the reference to arbitration in their notice replies, consent to arbitration had to be presumed under Section 7(4)(c) of the Act, relying on the Karnataka High Court decision in S.R. Ravi v. Karnataka State Tourism Development Corporation and the Supreme Court decision in S.N. Prasad quoted therein. The court examined clause 12 and held that it did not in any way indicate any agreement to refer any dispute to arbitration, nor did it indicate any intention of the parties to refer to arbitration. The notice replies not only denied the existence of the arbitration clause but denied the partnership agreement itself. A simple request by respondent 3 for a copy of the document relied upon could not be interpreted as consent for arbitration. The affidavits in reply also denied the petition's contents. Therefore, the decision relied upon was wholly inapplicable. The court concluded there was no arbitration clause in the agreement and no arbitration agreement could be implied from any correspondence between the parties. Consequently, the petition was not maintainable and was dismissed with no order as to costs.
Headnote
A) Arbitration - Existence of Arbitration Agreement - Section 7, Arbitration and Conciliation Act, 1996 - Partnership clause providing differences deemed to partners and majority decision final did not amount to arbitration agreement - Clause 12 of partnership deed dated 23 October 1992 stated differences shall be deemed to partners and majority decision will be final and binding; court found no indication of agreement or intention to refer disputes to arbitration - Held no arbitration agreement existed and petition under Section 11 was not maintainable (Paras 1-9). B) Arbitration - Inference of Arbitration Agreement from Exchange of Statements - Section 7(4)(c), Arbitration and Conciliation Act, 1996 - Denial of partnership deed and arbitration clause in notice replies and affidavits precluded inference of arbitration agreement - Petitioner relied on S.R. Ravi and S.N. Prasad to argue non-denial in replies meant consent; respondents had denied existence of partnership deed and arbitration clause, and mere request for copy of document did not constitute consent - Held no arbitration agreement could be implied from correspondence (Paras 4-8). C) Arbitration - Maintainability of Section 11 Petition - Section 11, Arbitration and Conciliation Act, 1996 - Petition not maintainable absent arbitration agreement - Court dismissed the petition finding no arbitration clause in agreement and no implied arbitration agreement from correspondence or conduct - Held petition dismissed with no order as to costs (Paras 9-10).
Issue of Consideration
Whether clause 12 of the partnership deed dated 23 October 1992 constituted an arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996; whether an arbitration agreement could be inferred from exchange of statements under Section 7(4)(c) when respondents denied existence of the arbitration agreement in replies and affidavits
Final Decision
Arbitration Petition No. 114 of 2022 dismissed as not maintainable for absence of arbitration agreement; no order as to costs
Law Points
- Arbitration agreement must indicate agreement or intention to refer disputes to arbitration
- Section 7 of Arbitration and Conciliation Act
- 1996 requires an arbitration agreement in writing
- clause providing majority decision for differences between partners did not amount to arbitration agreement
- mere non-denial in notice replies cannot be presumed as consent when respondents denied partnership deed and arbitration clause
- Section 11 petition not maintainable without arbitration agreement
