1. Partnership dispute — invocation of arbitration clause by legal representative of a deceased partner — petition under Section 11(6), Arbitration and Conciliation Act, 1996. (Para 2 , 6 , 9 )
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2024 Supreme(SC) 1182
SUPREME COURT OF INDIA
SANJIV KHANNA, CJI., SANJAY KUMAR, JJ.
Tarun Dhameja – Appellant
Versus
Sunil Dhameja & Anr. – Respondents
Civil Appeal No. 14005 of 2024 (arising out of SLP(C) No. 16377 of 2024)
Decided On : 06-12-2024
Advocates appeared:
For the Petitioner(s): Mr. Ravindra Singh Chhabra, Sr. Adv. Mr. Mudit Maheshwari, Adv. Mr. Aman Arora, Adv. Ms. Praneesha Nayyar, Adv. Mr. Sahil Monga, AOR
For the Respondent(s): Mr. Soumitra Chatterjee, Adv. Mrs. Sriparna Chatterjee, Adv. Mr. Anant Kumar Vatsya, AOR Mr. Puneet Jain, Sr. Adv. Ms. Christi Jain, AOR
For the Petitioner(s): Mr. Ravindra Singh Chhabra, Sr. Adv. Mr. Mudit Maheshwari, Adv. Mr. Aman Arora, Adv. Ms. Praneesha Nayyar, Adv. Mr. Sahil Monga, AOR
For the Respondent(s): Mr. Soumitra Chatterjee, Adv. Mrs. Sriparna Chatterjee, Adv. Mr. Anant Kumar Vatsya, AOR Mr. Puneet Jain, Sr. Adv. Ms. Christi Jain, AOR
Important Points
IMPORTANT POINT
Appointment of Arbitrator – Where parties cannot agree upon a common name as to who will act as Arbitrator, court can appoint Arbitral Tribunal.
Appointment of Arbitrator – Where parties cannot agree upon a common name as to who will act as Arbitrator, court can appoint Arbitral Tribunal.
Subject
Arbitration Law - Appointment of Arbitrator
Act Referred
Headnote
Arbitration and Conciliation Act, 1996 – Section 11(6) – Appointment of Arbitrator – It cannot be said that arbitration clause is optional in the sense that arbitration clause is non-existent or that matter would be referred to arbitration only if all parties to dispute agree to refer dispute to arbitration – Legal representatives or anyone claiming through a partner is entitled to invoke arbitration clause – Where parties cannot agree upon a common name as to who will act as Arbitrator, court can appoint Arbitral Tribunal – Arbitration clauses have to be read in a pragmatic manner – Intent of parties while executing arbitration clause in Partnership Deed is clear – Arbitration petition allowed. (Paras 3, 6, 7 and 9)
Facts of the case:
In present case, the arbitration clause in the Deed of Partnership is in issue.
Arbitrator will file his/her declaration under Section 12 of A&C Act within 15 days from date of appointment. Fees of Arbitrator will be fixed by said Centre or will be paid as per Fourth Schedule to A&C Act, as may be applicable.
Findings of Court:
Petition under Section 11(6) of the A&C Act, filed by the present appellant, legal representative of the deceased partner, will be treated as allowed.
Result : Civil Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether an arbitration clause described as optional and requiring mutual consent for arbitrator appointment is binding or nonexistent. (Para 2 , 3 , 7 , 8 )
3. Commercial arbitration clauses should be interpreted liberally; the term optional does not negate the agreement to arbitrate or the court's power to appoint an arbitrator. (Para 3 , 4 , 5 , 7 )
4. An arbitration clause stating arbitration is optional does not render it nonexistent; if parties fail to agree on an arbitrator, the court may appoint one. (Para 3 , 7 )
5. Appeal allowed — petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 granted — arbitrator to be appointed by the designated Arbitration Centre. (Para 9 , 10 )
6. Does the use of the word optional in an arbitration clause mean the agreement to arbitrate is nonexistent?
No. The court held that the term optional does not mean the clause is nonexistent or that the matter is referred to arbitration only if all parties agree; rather, it means an aggrieved party can invoke the clause to seek recourse. (Para 3 , 7 )
7. Can a court appoint an arbitrator if the agreement requires mutual consent but the parties cannot agree on a name?
Yes. Under the Arbitration and Conciliation Act, 1996, where parties cannot agree upon a common name as to who will act as an arbitrator, the court has the authority to appoint the arbitral tribunal. (Para 7 )
8. What approach should be adopted when interpreting arbitration agreements in pure commercial disputes?
In pure commercial disputes, the more appropriate principle of interpretation is liberal construction, based on the presumption in favour of one-stop adjudication. (Para 5 )
9. Can the legal representative of a deceased partner invoke an arbitration clause?
Yes, provided the arbitration clause specifies that disputes arising between partners or their respective heirs or anyone claiming through them shall be referred to arbitration. (Para 6 )
ORDER
Leave granted.
2. In the present case, the arbitration clause in the Deed of Partnership dated 16.07.2016 reads as under: -
“23. Arbitration
That if at any time either during the continuance of the partnership or after the retirement of any partner, any dispute or difference shall arise between the partners or their respective heirs or any one claiming through or under them, the same shall be referred to arbitration. Arbitration shall be optional & the arbitrator will be appointed by partners with their mutual consent. In any case of dispute arise then the Jurisdiction of Indore Civil Court shall be applicable & acceptable by the partners.”
3. In our opinion, it cannot be said that the arbitration clause is optional in the sense that the arbitration clause is nonexistent or that the matter would be referred to arbitration only if all the parties to the dispute agree to refer the dispute to arbitration.
4. In Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 this Court delineated the issue of interpretation and construction of an arbitration clause and referred to the following observations in Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40:
“6. In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.”
5. Vidya Drolia (supra) further referred to the judgment in Oriental Insurance Co. Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 to hold:
“150. In Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co. Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534], this Court while dealing with the arbitration clause in the insurance agreement, has held that the arbitration clause should be strictly construed, relying on the principles of strict interpretation that apply to insurance contracts. These observations have been repeated in other cases.
151. What is true and applicable for men of commerce and business may not be equally true and apply in case of laymen and to those who are not fully aware of the effect of an arbitration clause or had little option but to sign on the standard form contract. Broad or narrow interpretations of an arbitration agreement can, to a great extent, effect coverage of a retroactive arbitration agreement. Pro-arbitration broad interpretation, normally applied to international instruments, and commercial transactions is based upon the approach that the arbitration clause should be considered as per the true contractual language and what it says, but in case of doubt as to whether related or close disputes in the course of parties' business relationship is covered by the clause, the assumption is that such disputes are encompassed by the agreement. The restrictive interpretation approach on the other hand states that in case of doubt the disputes shall not be treated as covered by the clause. Narrow approach is based on the reason that the arbitration should be viewed as an exception to the court or judicial system. The third approach is to avoid either broad or restrictive interpretation and instead the intention of the parties as to scope of the clause is understood by considering the strict language and circumstance of the case in hand. Terms like “all”, “any”, “in respect of”, “arising out o
