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SUPREME COURT OF INDIA
J. B. PARDIWALA, R. MAHADEVAN, JJ.
Rahul Verma & Ors – Appellants
Versus
Rampat Lal Verma & Ors – Respondents
Petition For Special Leave To Appeal (C) No. 4330 of 2025
Decided on : 21-02-2025
Arbitration and Conciliation Act, 1996 – Section 40 – Arbitration agreement – Arbitration agreement does not cease to exist on death of any party and arbitration agreement can be enforced by or against legal representatives of deceased – Term ‘partners’ extends to and would include their legal heirs, representatives, assigns or legatees, etc. – Persons claiming under rights of a deceased person are representatives of deceased party and both parties to agreement and their legal heirs are entitled to enforce an arbitral award and are bound by it – Existence of an arbitration agreement is not affected by death of a party to arbitration agreement – As a consequence, right to sue for rendition of account also survives, ensuring that legal representatives can assert or defend claims arising from partnership agreement. (Paras 8 and 10)
Facts of the case:
Two questions fall for consideration: –
(i) Whether legal heirs of a deceased partner in a partnership firm, being non-signatories to partnership deed and in absence of their explicit consent, can still be bound by arbitration agreement prescribed therein?
(ii) Whether right to sue for rendition of accounts survive to legal heirs of deceased partner, entitling them to invoke arbitration clause in partnership deed?
Findings of Court:
No error not to speak of any error of law could be said to have been committed by High Court in passing impugned judgment.
Result : Special Leave Petition dismissed.
ORDER :
1. This petition arises from the judgment and order passed by the Gauhati High Court in Case No. Arb. A./6/2024 dated 22.10.2024 whereby the High Court allowed the appeal filed by the respondents herein under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 (for short, “Act of 1996”) and thereby quashed and set aside the order dated 09.08.2024 passed by the Civil Judge (Sr. Div.), Dibrugarh in Misc. (J) Case No. 206/2024 arising out of Commercial Suit No. 02/2024 (“impugned judgment”).
2. We heard Ms. Shagufa Salim, learned counsel appearing for the petitioners and Mr. Pavan Kumar Chaturvedi, learned counsel appearing for the respondents.
3. This litigation originates from a dispute between a partner of a partnership firm consisting the legal heirs of another deceased partner. The partnership firm consisted of three partners. It so happened that two of them passed away on 24.12.2022 and 21.11.2023, respectively. It appears from the materials on record that the respondents herein (original defendants in Commercial Suit No. 02/2024) preferred a petition under Section 8 of the Act of 1996 as Misc. (J) Case No. 206/2024 in Commercial Suit No. 02/2024 before the Commercial Court, at Dibrugarh for dismissal of the suit and a reference to arbitration. The petition was filed on the basis of an arbitration clause in the partnership deed. The said petition was dismissed by the Civil Judge.
4. Aggrieved by the dismissal of their petition under Section 8 of the Act of 1996, the respondents preferred an arbitration appeal in Case No. Arb. A./6/2024. The High Court vide the impugned judgment held that a reading of clause no. 2 of the partnership deed makes it evident that the partnership deed is binding upon the heirs of the deceased partner. The said clause reads as follows:-
5. It further observed that clause no. 15 of the partnership deed specifies the circumstances under which the parties may resort to arbitral proceedings. It held that the dispute between the parties pertains to the affairs of the partnership firm, specifically its dissolution. Since this particular circumstance is addressed in the partnership deed, Section 42(c) of the Partnership Act, 1932 would not impede the court from referring the matter to arbitration. The legal heirs of the deceased partner are entitled to invoke the arbitration clause and the sole surviving partner is also entitled to invoke the arbitration clause against the legal heirs of the deceased partner. The said clause reads as follows:-
6. In such circumstances, referred to above, the petitioners-legal heirs of the deceased partner are here before this Court with the present petition.
7. Having gone through the materials on record, two
Arbitration agreement – Existence of an arbitration agreement is not affected by death of a party to arbitration agreement.
Legal heirs of a deceased partner are bound by the arbitration clause in the partnership deed, allowing disputes to be referred to arbitration despite the death of a partner.
The arbitration agreement survives the death of a partner, and legal representatives of the deceased are entitled to enforce the agreement and participate in arbitration proceedings.
The main legal principle established is that a partnership is a contract and cannot be unilaterally continued after the death of a partner, despite any clauses in the partnership deed.
The arbitration clause survives the dissolution of a partnership firm and can be invoked by any partner, including legal representatives, to resolve disputes.
The death of one partner does not automatically dissolve a partnership firm or abate civil proceedings initiated by the firm. The legal representatives of the deceased partner can be impleaded in sub....
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