Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(All) 1335

IN THE HIGH COURT OF ALLAHABAD
MANOJ KUMAR GUPTA, J.
Ram Taulan Yadav and Another – Appellants
Versus
Himanshu Kesarwani and Others – Respondents
Arbitration and Conciliation Application U/s 11(4) No. 95 of 2023
Decided On : 08-11-2024

Advocates:
Advocate Appeared:
For the Appellants : Prabhav Srivastava, Rishabh Srivastava, Ujjawal Satsangi.
For the Respondent: Abhay Kumar Singh.

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.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 11 - Partnership Act, 1932 - Section 69 - Appointment of arbitral tribunal - Disputes arising from partnership deeds - Court held that arbitration clause from earlier agreements binds all partners, even those not signing them - Insufficient stamp duty does not bar arbitration proceedings - Court proposed an arbitrator to resolve the disputes. (Paras 6, 12, 18)

(B) Partnership - Validity of arbitration clauses - Court determined that prior agreements with arbitration clauses continue to govern despite additional agreements lacking such clauses. (Paras 10, 11)

Judgement Key Points

Certainly. Based on the provided legal document, here are the key points:

Service of Notice: The respondents were duly served through registered post, with some notices refused or unclaimed, but service was deemed sufficient (!) .
Nature of Dispute and Application: The dispute arises from partnership agreements, with the application under Section 11 seeking the constitution of an arbitral tribunal to resolve partnership-related differences (!) (!) .
Partnership Agreements and Arbitration Clauses: The original partnership agreement from 2016 contained an arbitration clause, which was reiterated in subsequent agreements, including a supplementary deed executed in 2021. These agreements collectively govern the partnership and its dispute resolution mechanism (!) (!) (!) .
Continuity of Arbitration Clause: The arbitration clause from the initial agreement continues to be applicable despite the induction of new partners and subsequent amendments, as these amendments were executed to record changes while maintaining the original agreement's terms (!) (!) .
Validity of Unregistered Partnership and Stamp Duty: The partnership was unregistered, and there were concerns about stamp duty deficiencies. However, recent jurisprudence clarifies that such deficiencies are curable and do not bar arbitration proceedings. Objections related to stamping can be raised before the arbitral tribunal, not as a ground to refuse arbitration (!) (!) .
Binding Nature of Arbitration Clauses: The arbitration clauses in earlier agreements are enforceable against all partners, including those who were not signatories to subsequent agreements, provided they are part of the ongoing partnership relationship and have consented to the terms indirectly (!) (!) .
Non-signatory Parties and Arbitration: Even if a party did not sign the later agreements, their consent to the original terms and participation in the partnership can bind them to arbitration clauses, with the question of their binding nature to be determined by the arbitral tribunal (!) (!) .
Appointment of Arbitrator: The court has proposed a former judge as the arbitrator, emphasizing the importance of obtaining proper disclosures and consent from the arbitrator before proceeding further (!) (!) .
Scope of Tribunal's Authority: The arbitral tribunal will decide issues such as the enforceability of arbitration clauses and the participation of non-signatory partners, based on evidence and legal principles, leaving factual determinations to the tribunal (!) .
Procedural Directions: The court has directed the office to seek the arbitrator's consent and disclosures, with further proceedings scheduled after their receipt, ensuring compliance with statutory requirements (!) (!) .

These points encapsulate the court's reasoning, the legal principles applied, and the procedural directions issued in this arbitration-related matter.

Table of Content
1. service of notice on parties (Para 1 , 2)
2. application for arbitration based on partnership agreements (Para 3 , 4)
3. opposition to arbitral tribunal constitution (Para 5 , 6)
4. validity of arbitration despite unregistered partnership (Para 7 , 8 , 9 , 10)
5. continuity of arbitration clauses in modified agreements (Para 11 , 12 , 13)
6. survival of arbitration clause after modifications (Para 14 , 15)
7. non-signatory parties and arbitration agreements (Para 16 , 17)
8. constitution of arbitral tribunal upheld (Para 18)
9. appointment of arbitrator and further orders (Para 19 , 20 , 21)

JUDGMENT :

MANOJ KUMAR GUPTA, J.

1. As per office report dated 26.07.2023, opposite party No. 1 has been duly served by registered post but no one has appeared on his behalf. In respect of opposite party No. 2, the notice sent to him by registered post has returned with the endorsement of refusal. Thus, service on the said respondent is also sufficient. However, no one has appeared on his behalf also.

2. Heard Shri Ujjawal Satsangi and Shri Rishabh Srivastava along with Shri Prabhav Srivastava, learned counsel for the applicants and Shri Abhay Kumar Singh, learned counsel for opposite party No. 3.

3. The instant application under Section 11 of the Arbitration and Conciliation Act, 1996 has been filed by the applicants invoking the power of this Court to constitute an arbitral tribunal in respect of the disputes arising between the parties out of partnership agreements dated 29 August 2016, 2 March 2020 and 20 February 2021.

4. The facts in brief are that a partnership agreement was executed on 29 August 2016 between applicant no. 1 (Ram Taulan Yadav) and one Sheela Yadav for doing business in the name of M/s Autar & Associates. As per Clause 14 of the said agreement all disputes and differences arising between the parties would be referred to mutually acceptable arbitration. On 2 March 2020, a retirement-cum-partnership deed was executed in respect of the partnership business. Thereby, Smt. Sheela Yadav retired from the partnership firm while Smt. Madhu Yadav (Applicant No. 2), Ram Milan Yadav, Himanshu Kesarwani (Opposite party No. 1) Saurabh Kesarwani (Opposite party No. 2) were introduced as new partners. The share of each of them is mentioned in Clause-1 of the partnership deed. Clause 17 of the said agreement also contains an arbitration clause for referring all disputes and differences to mutually acceptable arbitration. On 20 February 2021, a supplementary deed of partnership was executed whereby Ram Milan Yadav retired from the partnership firm with effect from 31 March 2021 and Radhey Shyam Mishra (opposite party No. 3) was inducted as a new partner. It seems that thereafter a memorandum of understanding (MoU) dated 09.09.2022 was executed between the partners of the firm and thereunder, the parties agreed that the properties given by the applicants in mortgage to secure the loan taken by the firm from the financial institutions would be released and thereafter, the applicants would retire from the partnership firm. In compliance of the said arrangement, four properties of the applicants were redeemed from mortgage, however, five properties remained mortgaged. This gave rise to disputes and differences between the parties, the resolution of which has been sought through arbitration. The applicants suggested name of three arbitrators vide its notice dated 15 April 2023. Opposite party no. 1 agreed to the name of Mr. Justice Vipin Sinha, Former Judge of this Court whereas opposite parties No. 2 & 3 did not respond to the notice.

5. Opposite party No. 3 has filed counter affidavit and has opposed the appointment of arbitral tribunal. The main grounds to oppose the constitution of arbitral tribunal are (1) the partnership firm was unregistered and partnership deed was not properly stamped, therefore, bar of Section 69 of the PARTNERSHIP ACT , 1932 and Sections 33 and 35 of the STAMP ACT , 1899 would apply; (2) there was no arbitra