Case Note & Summary
The case involves a civil revision application filed by the defendant (applicant) challenging an order of the City Civil Court, Greater Bombay, which dismissed his notice of motion seeking reference of the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The plaintiff (respondent) had filed a suit for dissolution of the partnership firm and rendition of accounts. The partnership deed dated 05/08/2014 contained an arbitration clause (clause 19). The trial court dismissed the motion on three grounds: (i) the partnership was at will and a partner's right to dissolve cannot be taken away by arbitration; (ii) the arbitration clause ceases to apply after dissolution; and (iii) the dispute did not fall within the scope of the arbitration clause, which was limited to interpretation of terms or conduct of business. The defendant argued that the arbitration clause survives dissolution and covers all disputes relating to the partnership, relying on Branch Manager Magma Leasing and Finance Limited v. Potluri Madhavilala. The High Court analyzed the arbitration clause and found it broad enough to cover disputes regarding dissolution and accounts. It held that the arbitration clause does not become inoperative upon dissolution and that a partner cannot avoid arbitration by dissolving the firm. The court set aside the trial court's order and allowed the revision application, directing the parties to arbitration.
Headnote
A) Arbitration Law - Survival of Arbitration Clause - Dissolution of Partnership - Section 8 of Arbitration and Conciliation Act, 1996 - The arbitration clause in a partnership deed does not become inoperative upon dissolution of the firm; it survives for resolution of disputes arising out of or in relation to the partnership. The court held that the arbitration clause covers disputes regarding dissolution and rendition of accounts, and the trial court erred in dismissing the application under Section 8. (Paras 6-10) B) Partnership Law - Partnership at Will - Right to Dissolve - Arbitration - Section 43 of Indian Partnership Act, 1932 - The right of a partner to dissolve a partnership at will does not preclude the parties from agreeing to refer disputes to arbitration. The arbitration clause is a contractual obligation that must be honoured, and a partner cannot unilaterally avoid arbitration by dissolving the firm. (Paras 5, 10) C) Civil Procedure Code - Revision - Section 115 CPC - Interference with Interlocutory Order - The High Court in revision under Section 115 CPC can interfere if the trial court has exercised jurisdiction not vested in it or has failed to exercise jurisdiction vested in it. The trial court's order dismissing the application under Section 8 of the Arbitration Act was set aside as it erroneously held that the dispute was not arbitrable. (Paras 2, 10)
Issue of Consideration
Whether the dispute regarding dissolution of partnership and rendition of accounts is covered by the arbitration clause in the Partnership Deed and whether the arbitration clause survives dissolution of the partnership firm.
Final Decision
The High Court allowed the civil revision application, set aside the trial court's order dated 21/08/2019, and directed the parties to refer the dispute to arbitration in accordance with clause 19 of the Partnership Deed.
Law Points
- Arbitration clause survives dissolution of partnership
- Partnership at will does not bar arbitration
- Section 8 of Arbitration and Conciliation Act
- 1996
- Section 115 of CPC
