Case Note & Summary
The case involves a civil revision application filed by the original defendant nos. 1 to 6 in Special Civil Suit No. 835 of 2015 pending before the trial court. The plaintiffs (respondent nos. 1 and 2) had filed the suit seeking a declaration that sale deeds executed by defendant nos. 2 to 6 in favor of defendant nos. 7 to 9 with the consent of defendant no. 10 were illegal and not binding on them, along with a prayer for partition and other reliefs concerning the partnership firm. The partnership firm was formed by a registered deed dated 1.4.2010, which contained an arbitration clause for resolution of disputes between partners. The defendants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of the suit to arbitration. The trial court rejected the application on the ground that the dispute involved third parties (defendant nos. 7 to 10) who were not parties to the arbitration agreement. The High Court, after hearing the parties, held that the arbitration clause in the partnership deed covered disputes between partners and also persons claiming through them. The court noted that the suit primarily concerned the partnership firm and its property, and the allegations of collusion with third parties did not take the dispute outside the scope of the arbitration agreement. The court set aside the impugned order and allowed the application under Section 8, directing the parties to be referred to arbitration. The court also clarified that the trial court's observations regarding maintainability of the suit under Order 7 Rule 11 CPC were not relevant for deciding the Section 8 application.
Headnote
A) Arbitration Law - Section 8 of Arbitration and Conciliation Act, 1996 - Reference to Arbitration - The applicants (defendant nos. 1 to 6) sought reference of the suit to arbitration based on an arbitration clause in the partnership deed dated 1.4.2010. The trial court rejected the application on the ground that the dispute involved third parties not bound by the arbitration agreement. The High Court held that the arbitration clause covered disputes between partners and also persons claiming through them, and that the suit involved matters relating to the partnership firm and its property, which fell within the scope of the arbitration agreement. The court set aside the impugned order and allowed the application under Section 8, referring the parties to arbitration. (Paras 1-10) B) Civil Procedure - Order 7 Rule 11 CPC - Not applicable - The trial court's reasoning that the suit was not maintainable due to non-joinder of necessary parties was not relevant for deciding an application under Section 8 of the Arbitration Act. The court clarified that the scope of Section 8 is limited to examining whether the subject matter of the suit is covered by an arbitration agreement. (Para 9)
Issue of Consideration
Whether the trial court was justified in rejecting the application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference of the suit to arbitration on the ground that the dispute between the partners and the third parties who allegedly colluded in executing sale deeds was not covered by the arbitration clause in the partnership deed.
Final Decision
The High Court allowed the civil revision application, set aside the impugned order dated 6.12.2016, and allowed the application under Section 8 of the Arbitration and Conciliation Act, 1996. The parties were directed to be referred to arbitration in accordance with the arbitration clause in the partnership deed dated 1.4.2010.
Law Points
- Arbitration agreement binding on parties and persons claiming through them
- Section 8 of Arbitration and Conciliation Act
- 1996
- Reference to arbitration when subject matter of suit is covered by arbitration agreement
- Partnership deed arbitration clause covers disputes between partners and third parties involved in fraudulent transfer of partnership property
