Case Note & Summary
The case involves a commercial appeal filed by Alabama Design Consultants LLP, SDSS Management Services LLP, and Mr. Udaya Shankar Krishnappa against an order dated 12.03.2025 passed by the LXXXVII Additional City Civil and Sessions Judge, Bengaluru, in COM.A.P.No.66/2023. The appellants challenged the appointment of a sole arbitrator, Justice Anand Byrareddy (Retd.), by the Arbitration and Conciliation Centre, Bengaluru, pursuant to an arbitration clause in an LLP agreement. The respondent, Ms. Payal Sandhu Khurana, had invoked the arbitration clause against the appellants, who are partners of the LLPs. The appellants contended that they were not signatories to the LLP agreement and therefore not bound by the arbitration clause. The trial court rejected their challenge, leading to the present appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996. The High Court of Karnataka, comprising Chief Justice Vibhu Bakhru and Justice C.M. Poonacha, heard the appeal. The court analyzed the nature of an LLP and its partners under the Limited Liability Partnership Act, 2008, and held that the LLP agreement is binding on all partners, including those who did not sign it, as they are parties to the agreement by virtue of being partners. The court also examined the maintainability of the appeal under Section 37(1)(c) and concluded that an order rejecting a challenge to the appointment of an arbitrator under Section 13 is not appealable under that provision. Consequently, the court dismissed the appeal, upholding the appointment of the sole arbitrator.
Headnote
A) Arbitration Law - Binding Effect of Arbitration Agreement on Non-Signatory Partners - Section 7, Arbitration and Conciliation Act, 1996 - The court considered whether an arbitration clause in an LLP agreement binds all partners, including those who did not sign the agreement. Held that partners of an LLP are bound by the arbitration clause in the LLP agreement as they are parties to the agreement by virtue of being partners, and the agreement is binding on the LLP and its partners. (Paras 1-10) B) Arbitration Law - Appeal under Section 37(1)(c) - Maintainability - Section 37(1)(c), Arbitration and Conciliation Act, 1996 - The court examined whether an appeal lies against an order rejecting a challenge to the appointment of an arbitrator under Section 13 of the Act. Held that such an order is not appealable under Section 37(1)(c) as it does not fall within the categories of orders specified therein. (Paras 11-15)
Issue of Consideration
Whether the arbitration clause contained in the LLP agreement is binding on the appellants who are partners of the LLP, even though they are not signatories to the agreement?
Final Decision
The appeal is dismissed. The order dated 12.03.2025 passed by the LXXXVII Additional City Civil and Sessions Judge, Bengaluru, in COM.A.P.No.66/2023 is upheld. The appointment of Justice Anand Byrareddy (Retd.) as sole arbitrator is confirmed.
Law Points
- Arbitration agreement binding on non-signatory partners
- Section 7 of Arbitration and Conciliation Act
- 1996
- Section 37(1)(c) of Arbitration and Conciliation Act
- Commercial Courts Act
- 2015 Section 13(1-A)
- Limited Liability Partnership Act
- 2008
