Partnership dissolution disputes must be adjudicated in civil court; arbitration is not a viable remedy until a court validates the dissolution.

ORDER :

1. The petitioner, one of the partners of the 3^rd respondent partnership firm, has filed this request under Section 11 (5) of the Arbitration and Conciliation Act, 1996 for the appointment of a sole arbitrator for the settlement of the disputes mentioned in Annexure-3 plaint.

2. The 3^rd respondent partnership firm was constituted by the petitioner and respondents 1 and 2, by virtue of a partnership agreement executed on 11.09.2017 with the objective of conducting a service and repair shop of four wheeler vehicles, wherein, mechanical work, electrical work, body work, wheel alignment and similar activities were proposed to be undertaken. The deed of partnership so executed by the petitioner and respondents 1 and 2 is produced as Annexure-I. Clause (16) of Annexure-1 contains the arbitration clause which reads as follows :

“16). ARBITRATION

Any dispute or difference of opinion that may arise between the partners, their representatives or heirs with regard to the accounts, profits and losses of the business or rights or liabilities of partners under this deed or in the event of dissolution of the firm or any matter relating to the firm shall be referred to arbitration and all the provisions of Indian Arbitration and Conciliation Act, 1996 shall apply.”

3. Alleging that respondents 1 and 2 committed various breach of terms of the partnership deed, misappropriation of funds, failure to settle accounts, etc., the petitioner sent a lawyer’s notice dated 11.06.2018 to respondents 1 and 2, dissolving the firm with effect from 11.06.2018. To the above lawyer’s notice, respondents 1 and 2 sent Annexure-2 reply notice through their lawyer, denying the allegations raised by the petitioner. Thereafter, the petitioner instituted Annexure-3 suit before the Sub Court, Tirur, seeking the relief of declaration that the partnership stood dissolved from 11.06.2018, and also for a direction to the defendants to settle the accounts of the partnership firm, from the commencement of the partnership till dissolution, and for giving the share of the plaintiff. The above suit was later on transferred to Commercial Court, Manjeri and it was re-numbered as C.S.No.31 of 2021. Respondents 1 and 2 filed written statement in the said suit referring to the arbitration clause in the partnership deed executed in between the parties, and also contending that the suit is liable to be dismissed for lack of jurisdiction in view of the above arbitration clause. Though respondents 1 and 2 had filed a petition under Section 8 of the Arbitration and Conciliation Act in the abovesaid suit, requesting for a reference of the issue for arbitration, they later on withdrew the above application. Thereafter, on the basis of an application filed by the petitioner, the above suit was permitted to be withdrawn. The petitioner then issued Annexure-5 lawyer’s notice, nominating an advocate practicing at Manjeri as the sole arbitrator to resolve the disputes between the partners. To the above lawyer’s notice, respondents 1 and 2 sent Annexure-6 reply notice, opposing the move on the part of the petitioner to proceed with the arbitration through the Arbitrator nominated by him. The petitioner thereafter, filed M.C.A.No.1 of 2022 before the Commercial Court, Tirur under Section 9 of the Arbitration and Conciliation Act, for a direction to the respondents to furnish security for Rs.18,24,000/- and also for an interim attachment in the event of failure on the part of respondents 1 and 2 to furnish security, as directed. He also sought an injunction restraining the respondents from alienating the ‘B’ Schedule articles mentioned thereunder. The Commercial Court, Tirur, as per order dated 18.11.2023, dismissed the above application filed by the petitioner, holding that the said court is not having jurisdiction to decide the above application. Referring to the withdrawal of Annexure-3 suit, the Commercial Court observed in the above order that, if a party voluntarily gave up his suit seek