Arbitration clause would continue to be applicable and operative in case of a post-dissolution dispute unless otherwise mentioned: Bombay High Court
The Arbitration Clause is all-encompassing and would include all the disputes, controversies, and differences between the parties relating to the Partnership business or interpretation, operation, and enforcement of the terms of the Partnership Deed. In the absence of any embargo to refer the post-dissolution dispute to the Arbitrator, it is not possible to accept that the Arbitration clause would cease to exist with the dissolution of a partnership firm. This remarkable judgment was passed by the Bombay High Court in the matter of ANKIT VIJAYKUMAR KHANDELWAL V AARTI RAJKUMAR KHANDELWAL [CIVIL REVISION APPLICATION NO.83 OF 2020] by Honourable Justice Smt. Anuja Prabhudessai. This application is preferred under Section 115 of the Civil Procedure Code, 1908 through which the order dated 21/08/2019 passed by learned Judge, City Civil Court for Greater Bombay is challenged.  Through the impugned order Notice of Motion for referring the parties to arbitration was dismissed by the Court. The Respondent was the Plaintiff and the Applicant was the Defendant in a suit for dissolution of Partnership firm and rendition of accounts. The Defendant filed a Notice of Motion under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to Arbitration in pursuance of the Clause 19 of the Partnership Deed. The Plaintiff however contested the Motion since he contended that the dispute between the parties is not covered by clause 19 of the Partnership Deed. Civil Court dismissed the notice of motion since the Court asserted that the Partnership is ‘at will’, and the right of a partner to dissolve partnership cannot be taken away by arbitration clause and that a partner, who is desirous of dissolving the firm cannot be forced to resort to arbitration. Also, the arbitration clause would apply only during subsistence of partnership and not after dissolution.  Additionally, the Court observed the disputed clause and asserted that the clause was limited in nature and hence could be referred only the arbitration clause provides for reference of dispute to the Arbitrator only when there was a dispute related to interpretation on the terms of the Partnership Deed or the dispute arose due to the conduct of the business of partnership. The HC after hearing the submissions of both the parties evaluated the scope of Section 8 of Arbitration and Conciliation Act, 1996. The HC also relied on the SC judgment of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and ORs. (2011) 5 SCC 532 and Branch Manager, Magma Leasing and Finance Ltd. and observed that, “Section 8 is in the form of legislative command to the court and once the prerequisites conditions are satisfied, the Court must refer the parties to arbitration. As a matter of fact, on fulfilment of the conditions of Section 8, no option is left to the Court and the Court has to refer the parties to arbitration.” Before the HC the plaintiff contended that she called upon the Defendant to settle the accounts, assets and liabilities of the Partnership Firm in accordance with Clause 18 of the Partnership Deed which he denied and instead alleged that the Plaintiff was not cooperating and carrying out her obligations and duties to promote the business of the firm. The Defendant claimed that the Plaintiff can only retire from the business but cannot dissolve the partnership firm and he himself continued utilising the trademark for personal use even after dissolution. The HC observed that, “The Partnership Deed contains an Arbitration Clause, which not only covers disputes in respect of interpretation, operation or enforcement of the terms and conditions of the Partnership Deed and the disputes relating to conduct of partnership business but covers all other disputes whatsoever which are not otherwise provided in the Deed. It is therefore evident that non-compliance of Clause 18 of the Partnership Deed as well as continuing the partnership business for personal gains after the dissolution would be a dispute covered by clause 18 of the Partnership Deed.” “The Arbitration clause is widely worded and is not restricted or limited to the disputes arising prior to the dissolution of a partnership firm. There is a valid arbitration agreement between the parties and the dispute raised in the suit has its genesis in the arbitration clause.”
 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docIN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTIONCIVIL REVISION APPLICATION NO.83 OF 2020Ankit Vijaykumar Khandelwal...ApplicantVersusAarti Rajkumar Khandelwal ...Respondent….Mr. Vishal Kanade with Mr. Jimish Shah i b. Divya Shah Associates for the Applicant.Mr. Vimal Sanghvi for Respondent. CORAM : SMT. ANUJA PRABHUDESSAI J. JUDGMENT RESERVED ON:21 04 2021JUDGMENT PRONOUNCED ON :28 4 2021JUDGMENT: With consent heard fnally at the stage of admission.2.Challenge in this application under Section 115 of the CivilProcedure Code 1908is to the order dated 21 08 2019 passed bylearned Judge City Civil Court for Greater Bombay dismissing theNotice of Motion No.20917 for referring the parties toarbitration. 1 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doc3.The Respondent is the Plaintif and the Applicant is theDefendant in a suit for dissolution of Partnership frm and rendition ofaccounts and shall be hereinafter referred to as the ‘Plaintiff and‘Defendantf respectively.4.The Defendant fled a Notice of Motion to refer the disputeto Arbitration in terms of clause 19 of the Partnership Deed dated05 08 2014 under Section 8 of the Arbitration and Conciliation Act 1996. The Plaintif contested the Motion mainly on the ground that thedispute between the parties is not covered by clause 19 of thePartnership Deed.5.Learned Judge has dismissed the notice of motionessentially on three grounds viz.the Partnership is ‘at willf and thatthe right of a partner to dissolve partnership cannot be taken away byarbitration clause and that a partner who is desirous of dissolving thefrm cannot be forced to resort to arbitration.the arbitration clausewould apply only during subsistence of partnership. The partnershipfrm having been dissolved the arbitration clause ceases to apply. the dispute relates to interpretation on theterms of the Partnership Deed ordispute relates to conduct of the 2 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docbusiness of partnership. The nature of relief claimed in the suit does notfall within the purview of arbitration clause.6.Mr. Vishal Kanade learned counsel for the Defendant hasrelied upon the decision of the Apex Court in Branch Manager MagmaLeasing and Finance Limited and Anr. Vs. Potluri Madhavilala andAnr. 10 SCC 103 to contend that the arbitration clause does notbecome inoperative with dissolution of partnership or by termination ofthe contract. He submits that clause 19 of the Partnership Deed is notrestricted to two contingencies noted by the Trial Court but covers alldisputes between the parties in respect of or in relation to thepartnership business or in respect of interpretation operation orenforcement of any of the terms and conditions of the PartnershipDeed. Learned counsel contends that the learned Judge hasmisinterpreted clause 19 and has failed to appreciate the mandate ofSection 8 of the Arbitration and Conciliation Act.7.Per contra Mr. Vimal Sangvi learned counsel for the Plaintifsubmits that since the partnership is at will any of the partners candissolve the partnership. He further contends that with dissolution ofpartnership nothing survives except compliance of the naturalconsequences of dissolution which cannot be construed as dispute as 3 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doccontemplated by clause 19 of the Partnership Deed. He submits thatthe Defendant has not raised any dispute to invoke powers underSection 8 of the Arbitration Act. 8.Before adverting to the facts of the case it would berelevant to consider the scope of Section 8 of Arbitration andConciliation Act 1996 which reads thus: “8. Power to refer parties to arbitration where there is anarbitration agreement.—(1) A judicial authority before which an action is brought ina matter which is the subject of an arbitration agreementshall if a party so applies not later than when submittinghis frst statement on the substance of the dispute referthe parties to arbitration.(2) The application referred to in sub sectionshall notbe entertained unless it is accompanied by the originalarbitration agreement or a duly certifed copy thereof.(3) Notwithstanding that an application has been madeunder sub sectionand that the issue is pendingbefore the judicial authority an arbitration may becommenced or continued and an arbitral award made.9.In the case of Booz Allen and Hamilton Inc. Vs. SBI Home 4 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docFinance Limited and ORs.5 SCC 532 the Apex Court hasreiterated as under: “19. Where a suit is fled by one of the parties to anarbitration agreement against the other parties to thearbitration agreement and if the defendants fle anapplication under section 8 stating that the parties shouldbe referred to arbitration the courtwillhave to decidewhether there is an arbitrationagreement among the parties whether all parties tothe suit are parties to the arbitration agreement whether the reliefs sought in the suitare those that can be adjudicated and granted in anarbitration.”10.In Branch Manager Magma Leasing and Finance Ltd.(supra) the Apex Court has held thus: “18.Section 8 is in the form of legislative command tothe court and once the prerequisites conditions asaforestated are satisfed the Court must refer the partiesto arbitration. As a matter of fact on fulfllment of theconditions of Section 8 no option is left to the Court andthe Court has to refer the parties to arbitration.” 5 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doc11.In the instant case it is not in dispute that the Plaintif andthe Defendant had entered into a Partnership Deed dated 05 08 2014to conduct business of manufacturing of auto lamps in the name andstyle of the frm M s. V.R. Industries. Clauses(18) andof thePartnership Deed which are relevant to decide this application readthus: “5. DURATION : The duration of the partnership shall be “ ATWILL”. But in case any partner desires to retire from thepartnership he she shall be at liberty to do so on giving30 days notice.18. DISSOLUTION: On dissolution of the partnership a fulland general account shall be taken all moneys stock in trade debts and efects that belonging or due to thepartnership including capital. Upon the determinationof the partnership by afux of time or upon itsdetermination by any other means if the option topurchase is not exercised by any other partner then assoon as convenient a full and general account ofvaluation shall be taken of the property and assets andliabilities of the partnership and the property and assetsput to sale and the debts realised and the credits paid.The net proceeds inc ash shall be equally dividedbetween the then partners or the partners and the legalrepresentative or representatives the loss shall be madegood in equal shares by then partner or the legalrepresentative or representatives of any deceased 6 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docpartner.19. ARBITRATION : If any dispute shall arise between theparties hereto in respect of the conduct of the businessof partnership or in respect of interpretation operationor enforcement of any of the terms and conditions ofthis deed or in respect of any other matter cause orthings whatsoever not herein otherwise provided forthe same shall be referred for adjudication to thearbitration subject to the provisions of the IndianArbitration and Conciliation Act 1997 or any statutorymodifcation or re enactment thereof for the time beingin force and the decision shall be binding on the partiesof their legal representatives.”12.The Plaintif issued notice dated 21 11 2016 for dissolutionof Partnership alleging acts of misconduct as spelt out in the notice andin view of inability to continue with the business due to old age andfailing health. The Plaintif called upon the Defendant to settle theaccounts assets and liabilities of the Partnership Firm in accordancewith Clause 18 of the Partnership Deed. In response by reply dated14 12 2016 the Defendant denied having committed any act ofmisconduct and further alleged that the Plaintif was not cooperatingand carrying out her obligations and duties to promote the business ofthe frm. The Defendant claimed that the Plaintif can only retire fromthe business but cannot dissolve the partnership frm. By further notice 7 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docdated 23 12 2016 the Plaintif called upon the Defendant to attend ajoint meeting for settlement of accounts. The Defendant vide replydated 27 12 2016 declined to comply on the ground that theDefendant had arbitrarily bank account of the frm and furtherreiterated that Plaintif cannot dissolve the partnership frm but canonly retire from the partnership frm.13.The Plaintif therefore fled the suit alleging that theDefendant has declined to comply with the notice and has furtheraverred that despite notice of dissolution the Defendant continues toconduct business in the name of the dissolved partnership frm usingassets of the partnership frm as well as the trade mark ‘veejuluxf whichis registered in the name of the partnership frm for his personalbusiness and gain. On the basis of the said pleadings the Plaintif hassought the following reliefs: “(a) this Honfble Court be pleased to call for the record andproceedings and after examining the legality validityand propriety thereof be pleased to quash and setaside the Impugned Order dated 21st August 2019passed by the Learned City Civil Court for GreaterBombay at Mumbai in Notice of Motion No.2094 of2017 fled in Long Cause Suit No.10217J 8 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doc(b) this Honfble Court be pleased to allow Notice of MotionNo.20917fled by the present Applicant in LongCause Suit No.10217 pending on the fle ofCourt Room No.1 of the Learned City Civil Court forGreater Bombay at Mumbai be stayedJ(d) interim ad interim relief in terms of prayer clausethequestion before the Apex Court was whether the ArbitrationAgreement would survive for the purpose of resolution of dispute 10 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docarising under or in connection with the contract even if its performancehas come to an end on account of termination due to breach. The ApexCourt observed that : “13. Recently in the case of P. Manohar Reddy & Bros. vs.Maharashtra Krishna Valley Development Corporation AndOrs. while dealing with the argument of the respondenttherein that in terms of the contract the claim for extra workor additional work should have been raised during thependency of the contract itself and not after it came to anend this Court5 SCC 6922 SCC 494 consideredthe concept of separability of the arbitration clause from thecontract and made the following observations :"27. An arbitration clause as is well known is a part of thecontract. It being a collateral term need not in allsituations perish with coming to an end of the contract. Itmay survive. This concept of separability of the arbitrationclause is now widely accepted. In line with this thinking the UNCITRAL Model Law on International CommercialArbitration incorporates the doctrine of separabilityin Article 16(1). The Indian law the Arbitrationand Conciliation Act 1996 which is based on theUNCITRAL Model Law also explicitly adopts this approachin Section 16(1)(b) which reads as under:"16. Competence of Arbitral Tribunal to rule on itsjurisdiction. The Arbitral Tribunal may rule on its ownjurisdiction including ruling on any objections with respectto the existence or validity of the arbitration agreement and for that purpose 11 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doc(a) an arbitration clause which forms part of a contractshall be treated as an agreement independent of the otherterms of the contract and(b) a decision by the Arbitral Tribunal that the contract isnull and void shall not entail ipso jure the invalidity of thearbitration clause."(emphasis supplied) Modern laws on arbitration confrmthe concept.28. The United States Supreme Court in a recent judgment inBuckeye Check Cashing Inc. v. Cardegnaand Southland Corpn. v. Keating[465 US 1inter alia held:"Prima Paint and Southland answer the questionpresented here by establishing three propositions. First asa matter of substantive federal arbitration law anarbitration provision is severable from the remainder ofthe contract."But this must be distinguished from the situation wherethe claim itself was to be raised during the subsistence ofa contract so as to invoke the arbitration agreementwould not apply."14. The statement of law expounded by Viscount Simon L.C. inthe case of Heyman as noticed above in our view equallyapplies to situation where the contract is terminated by oneparty on account of the breach committed by the other 12 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.docparticularly in a case where the clause is framed in wide andgeneral terms. Merely because the contract has come to an endby its termination due to breach the arbitration clause does notget perished nor rendered inoperative rather it survives forresolution of disputes arising "in respect of" or "with regard to"or "under" the contract. This is in line with the earlier decisionsof this Court particularly as laid down in Kishori Lal Gupta &Bros.”17.In the instant case the Arbitration clause is widely wordedand is not restricted or limited to the disputes arising prior todissolution of partnership frm. The Partnership Deed does not indicatethat the parties intended to exclude post dissolution disputes fromarbitral reference. Consequently there is no embargo to refer suchdisputes to the Arbitration. As stated earlier the dispute relates tonon compliance of Clause 18 of the Partnership Deed. Theenforcement of Clause 18 and provisions under Sections 46 and 48 ofthe Arbitration Act come in operation post dissolution of Partnership.The dispute relating to non enforcement of Clause 18 is covered byClause 19. In the absence of any embargo to refer post dissolutiondispute to the Arbitrator it is not possible to accept that theArbitration clause would cease to exist with dissolution of partnershipfrm. 13 14 on 28 04 2021 on 29 04 Megha 1_CRA_83_2020.doc18.It is thus evident that there is a valid arbitration agreementbetween the parties. The dispute raised in the suit has its genesis in thearbitration clause. Learned Judge was therefore under an obligation torefer the parties to arbitration.19.Accordingly the revision application is allowed. Theimpugned order is set aside. The dispute raised by the Plaintif in thesuit is referred to arbitration through Arbitrator duly appointed inaccordance with law. 20.There shall be no order as to costs.(SMT. ANUJA PRABHUDESSAI J.) 14 14 