Point of Law: Dissolution of partnership - Non-compliance of Clause 18 of Partnership Deed - Absence of any embargo to refer post dissolution dispute to Arbitrator, it is not possible to accept that Arbitration clause would cease to exist with dissolution of partnership-firm.

JUDGMENT :

ANUJA PRABHUDESSAI, J.

1. With consent, heard finally at the stage of admission.

2. Challenge in this application under Section 115 of the Civil Procedure Code, 1908 (CPC) is to the order dated 21.08.2019 passed by learned Judge, City Civil Court for Greater Bombay dismissing the Notice of Motion No. 2094 of 2017 for referring the parties to arbitration.

3. The Respondent is the Plaintiff and the Applicant is the Defendant in a suit for dissolution of Partnership-firm and rendition of accounts and shall be hereinafter referred to as the ‘Plaintiff’ and ‘Defendant’ respectively.

4. The Defendant filed a Notice of Motion to refer the dispute to Arbitration in terms of clause 19 of the Partnership Deed dated 05.08/2014, under Section 8 of the Arbitration and Conciliation Act, 1996. The Plaintiff contested the Motion mainly on the ground that the dispute between the parties is not covered by clause 19 of the Partnership Deed.

5. Learned Judge has dismissed the notice of motion essentially on three grounds viz. (i) the Partnership is ‘at will’ and that 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 (ii) the arbitration clause would apply only during subsistence of partnership. The partnership-firm having been dissolved, the arbitration clause ceases to apply (iii) the arbitration clause provides for reference of dispute to the Arbitrator only when (a) the dispute relates to interpretation on the terms of the Partnership Deed or (b) dispute relates to conduct of the business of partnership. The nature of relief claimed in the suit does not fall within the purview of arbitration clause.

6. Mr. Vishal Kanade, learned counsel for the Defendant has relied upon the decision of the Apex Court in Branch Manager Magma Leasing and Finance Limited and Another vs. Potluri Madhavilala and Another, (2009) 10 SCC 103 to contend that the arbitration clause does not become inoperative with dissolution of partnership or by termination of the contract. He submits that clause 19 of the Partnership Deed is not restricted to two contingencies noted by the Trial Court but covers all disputes between the parties in respect of or in relation to the partnership business or in respect of interpretation, operation or enforcement of any of the terms and conditions of the Partnership Deed. Learned counsel contends that the learned Judge has misinterpreted clause 19 and has failed to appreciate the mandate of Section 8 of the Arbitration and Conciliation Act.

7. Per contra, Mr. Vimal Sangvi, learned counsel for the Plaintiff submits that since the partnership is at will, any of the partners can dissolve the partnership. He further contends that with dissolution of partnership nothing survives except compliance of the natural consequences of dissolution, which cannot be construed as dispute as contemplated by clause 19 of the Partnership Deed. He submits that the Defendant has not raised any dispute to invoke powers under Section 8 of the Arbitration Act.

8. Before adverting to the facts of the case it would be relevant to consider the scope of Section 8 of Arbitration and Conciliation Act, 1996 which reads thus:-

“8. Power to refer parties to arbitration where there is an arbitration agreement:

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral aw