IN THE HIGH COURT OF JUDICATURE AT MADRAS
R.N. MANJULA, J.
A. Kumar - Appellant
Versus
M/s. Precision Engineering, Rep. By its Managing Partner P. Arumugam & Others - Respondent
C.R.P (PD). No. 2315 of 2022 & CMP. No. 11861 of 2022
Decided On : 02-09-2022
Arbitration - Partnership Dispute - Arbitration and Conciliation Act, 1996 - Section 8 - Partnership deed dated 19.03.1998 contained an arbitration clause under Clause 17 - Reconstituted deed dated 01.04.2008 did not contain an arbitration clause - Dispute arose regarding the operation of bank accounts of the partnership firm - Court held that the reconstituted deed is supplementary to the original partnership deed and the arbitration clause in the original deed binds all partners, including the newly inducted partner and the non-signatory bank - Court referred to the decision in Chloro Controls (I) P.Ltd and held that in exceptional circumstances, the arbitration clause shall bind non-signatories - Civil revision petition allowed, impugned order set aside.
Fact of the Case:
Partnership dispute regarding the operation of bank accounts of the partnership firm - Revision petitioner, the 2nd defendant, sought to refer the suit for arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, invoking Clause 17 of the original partnership deed dated 19.03.1998 - Respondents contested that the reconstituted deed dated 01.04.2008 did not contain an arbitration clause and hence, such an order cannot be passed.
Finding of the Court:
The reconstituted deed is supplementary to the original partnership deed and the arbitration clause in the original deed binds all partners, including the newly inducted partner and the non-signatory bank - In exceptional circumstances, the arbitration clause shall bind non-signatories - Civil revision petition allowed, impugned order set aside.
Issues: Dispute over the applicability of the arbitration clause in the original partnership deed to the reconstituted partnership and non-signatory bank - Whether the arbitration clause in the original deed binds all partners, including the newly inducted partner and the non-signatory bank.
Ratio Decidendi: The reconstituted deed is supplementary to the original partnership deed and the arbitration clause in the original deed binds all partners, including the newly inducted partner and the non-signatory bank - In exceptional circumstances, the arbitration clause shall bind non-signatories.
Final Decision: Civil revision petition allowed, impugned order set aside.
JUDGMENT
(Prayer: Civil Revision Petition is filed under Article 227 of the Constitution of India to set aside the order and decretal order dated 28.06.2022 in I.A.No.2 of 2022 in OS.No.130 of 2022 on the file of the District Munsif Court at Ambattur.)
1. This Civil Revision Petition has been preferred challenging the order of the learned District Munsif, Ambattur dated 28.06.2022 in I.A.No.2 of 2022 in OS.No.130 of 2022.
2. The 2nd defendant in the said suit is the revision petitioner. Respondents 1 to 3 - plaintiffs filed the said suit against the revision petitioner and the 4th respondent/1st defendant seeking the relief of declaration that plaintiffs 2 & 3 have got all the rights to operate, maintain and handle the bank accounts of the 1st plaintiff lying with the 1st defendant's bank and for mandatory injunction directing the 2nd defendant to revoke and remove the freezing imposed on bank accounts. After receiving the suit summons, the revision petitioner, who is the 2nd defendant, had filed the said application under Section 8 of the Arbitration and Conciliation Act, 1996 (for short, the Act) read with Section 151 of the Civil Procedure Code and sought to refer the suit for Arbitration. However, the said application was dismissed by an impugned order. Aggrieved over that, this civil revision petition has been preferred.
3. The first respondent /plaintiff is the partnership firm, in which, plaintiffs 2 and 3 and the revision petitioner are partners. The partnership deed was originally entered into on 19.03.1998 and later it was reconstituted on 01.04.2008 by virtue of a reconstitution deed. The partnership deed and the reconstituted deed were marked as Ex.P1 and Ex.P2 in I.A.No.2 of 2022 before the trial Court. The revision petitioner and the 3rd respondent/3rd plaintiff are the sons of the 2nd plaintiff-Mr.P.Arumugam.
3.1. When the original partnership deed was written on 19.03.1998, the revision petitioner and his father alone were the partners of the 1st plaintiff-M/S. Precision Engineering and in the said partnership deed, under Clause 17, it was agreed that all the disputes relating to partnership business or its dissolution arising out of the deed should be resolved by arbitration and the decision of the Arbitrator should be final and binding on all the partners of the firm. Later, when the 3rd plaintiff-Mr.A.Murugan was inducted into the partnership firm and when the reconstituted deed was written, the earlier Clause about arbitration was not included. When the petitioner/ 2nd defendant filed the said application under Section 8 of the Act to refer the said suit for arbitration by invoking Clause 17 of the partnership deed dated 19.03.1998, respondents 1 to 3 herein namely the plaintiffs contested that the reconstituted deed does not contain any Clause as to arbitration and hence, such an order cannot be passed.
4. Heard the submissions made by the learned counsel for the petitioner and the learned counsel appearing for the respondents 1 to 3 and perused the materials available on record.
5. Mr.V.Raghavachari, learned counsel appearing on behalf of Mr.AR.M.Arunachalam, learned counsel on record for the revision petitioner submitted that even though the reconstituted deed did not contained the arbitration clause, by taking into consideration of the clause included in the original partnership deed dated 19.03.1998, the Court below ought to have referred the suit for Arbitration.
5.1. The further contention of the learned counsel for the petitioner is that a partnership firm is like a running bus, in which, partners will keep on changing like passengers; just because there was a reconstitution in the partnership in the year 2008 by inducting the 3rd plaintiff, who is another son of the 2nd plaintiff, as a partner, it cannot be said that the terms of the earlier partnership deed dated 19.03.1998 will not be applicable; even in the reconstituted deed, the partners agreed to continue their business and that would only mean that
An arbitration clause in a partnership deed is valid and enforceable even if the partnership is unregistered, and the dispute pertaining to such partnership can be referred to arbitration.
Arbitration clauses in prior agreements continue to bind new partners despite subsequent agreements lacking such clauses; issues about stamp duty deficiencies can be raised in arbitration.
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.
Scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, Courts under English Law have, in certain cases, also applied the 'Group of C....
The main legal point established in the judgment is that the dispute amongst the partners regarding the dealings of the firm could be referred to arbitration as per the partnership deed, but once the....
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