Disputes arising from partnership mismanagement and exclusion of partners merit arbitration, affirming the obligation of partners to act in good faith and uphold fiduciary duties.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Disputes arising from a partnership necessitating arbitration - Respondent has no objection to the referral of disputes to arbitration despite severe financial allegations against them for mismanagement and breach of fiduciary duties - Court appointed an arbitrator to resolve disputes. (Paras 1, 4, 5, 19)

(B) Partnership - Rights and obligations of partners - A partner’s ill-health and the decisions made by the other partner unilaterally without consent raises serious concerns of fairness and breaches fiduciary duty - Mismanagement of partnership affairs can lead to disputes requiring judicial intervention. (Paras 7, 10, 14)

Facts of the case:
The petition arises from partnership disputes with allegations of mismanagement and exclusion from business decisions, particularly regarding financial losses and misuse of partnership assets. The petitioners sought arbitration to resolve these disputes, discovering unauthorized financial conduct by the respondent.

Findings of Court:
The Court directed the referral of the disputes to arbitration and appointed an arbitrator to oversee the process, preserving all legal rights for later adjudication.

Issues: The primary issues addressed include the extent of mismanagement by the respondent and the appropriateness of seeking arbitration for resolution of intra-partnership disputes.

Ratio Decidendi: The Court held that given the serious allegations and mutual consent for arbitration, the disputes are to be settled through arbitration, emphasizing the need to protect partners' rights and responsibilities.

Result: Petition disposed of; disputes referred to arbitration.

JUDGMENT (Oral)

(video-conferencing)

C. Hari Shankar, J.

ARB.P. 341/2021

1. Mr. Akhil Sibal, learned Senior Counsel for the respondent, submits that he has no objection to the disputes in this petition being referred to arbitration.

2. The stakes are stated to be in the area of around Rs.14 crores to Rs.15 crores, though Mr. Ashisk Dholakia, learned Senior Counsel for the petitioners, submits that they may be higher.

3. The facts stated in the petition, giving rise to the disputes between the parties, are thus set out in paras 1 to 19 of the petition:

"1. That the firm under the name and style of M/s Miki Exports International was originally constituted between three partners namely, Mr. Sunil Sud [Petitioner No. 1], Mr. Ajay Sud [Respondent] and the mother of the Petitioner No. 1 and the Respondent under the deed of partnership dated 03.11.1993 [hereinafter referred to as "the Partnership Firm"]. The Partnership Firm was set up to, inter alia, carry on the business of manufacturing, processing, preserving, exporting and trading in frozen meat, food, eggs and vegetables for human and animal consumption.

2. That during the course of the business of the Partnership Firm, the following immovable assets have been purchased by the Partnership Firm:

a) Factory and Land at M-43, MIDC Taloja admeasuring 6,050 square meters [hereinafter referred to as `the Factory'].

b) Land at Sonipat, Haryana admeasuring 12 kanal 2 marla in Mundarja Khewat No. 79, Khatta No. 99, Gannaur, Sonipat. The Partnership Firm does not own any other immovable properties.

3. That the Partnership Firm, to the knowledge of the Petitioner Nos. 1 and 2, operates the following Bank Accounts:

i) Bank Account No. 021663700000581 in Yes Bank.

ii) Bank Account N0. 918020010319455 in Axis Bank.

iii) Bank Account No. 08307630000956 in HDFC Bank.

iv) Bank Account No. 201003171593 in Induslnd Bank.

v) Bank Account No. 00000010309441919 in SBI Bank.

4. That it is relevant to mention that while the Petitioner No. 1 was actively involved in the businesses of the family including in the Partnership Firm and was largely responsible for the exponential growth and success of the businesses, the Petitioner No. 1 was diagnosed with Motor Neuron Disease [MND] in the year 2013.

5. That in view of the ill-health of the Petitioner No. 1 and his inability to participate in the Partnership Firm, it was mutually decided by the Petitioner No. 1 and the Respondent to induct Petitioner No. 2 who is the daughter of the Petitioner No. 1, as a partner in the Partnership Firm. During this time, the mother of the Petitioner No. 1 and Respondent also expressed her will to retire from the Partnership Firm. Accordingly, the mother of the Petitioner No. 1 and Respondent retired from the Partnership Firm and simultaneously, the Petitioner No. 2 was inducted as a partner with effect from 01.04.2014 and the partnership was reconstituted between the Petitioners and the Respondent Without dissolving the Partnership Firm.

6. That under the Reconstituted Deed of Partnership, it was agreed that after providing for all expense's incidental to the business, the net yearly profit/loss of the business will be allocated between the partners as follows:

i) Mr. Sunil Sud [Petitioner No. 1]: 37.50%

iii) Ms. Radhika Sud [Petitioner No. 2]: 12.50%

iii) Mr. Ajay Sud [Respondent]: 50%

The Petitioners and the Respondent are, therefore, equal partners in the Partnership Firm.

7. That however, taking unfair advantage of the ill-health of the Petitioner No. 1, the Respondent has been conducting the business of the Partnership Firm to the exclusion and detriment of the Petitioners. In the year 201 7, the Respondent set up a separate division/department within the Partnership Firm for processing and selling chicken. This division/department was started by the Respondent for his two sons-Aditya Rai Sud and Ashwin Rai Sud, to the complete exclusion of the Petitioners. Despite the said division/department being a part of th

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