Partnership disputes cannot be submitted to arbitration by a single partner without consent from all partners as per statutory and contractual requirements.

ORDER :

In this application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), respondent No.1 has raised two objections, claiming that if the two or any one of the objections is sustained, the application would have to be dismissed. The first objection raised on behalf of respondent No.1 is that, the procedure under the dispute resolution mechanism agreed between the parties, as part of an investment agreement, was not properly followed, inasmuch as the process of amicable resolution of disputes before neutral persons was not exhausted before arbitration was invoked by the applicants. The second objection is on the ground that, although the applicants and respondent No.2 formed a partnership in order to enter into the investment agreement with respondent No.1, the notice invoking arbitration was issued only on behalf of the applicants and that respondent No.2, despite being a partner, did not join in issuing the invocation notice. Even before this Court, respondent No.2 clearly expressed its intention of not supporting the applicants. By referring to Section 19(2)(a) of the Indian Partnership Act, 1932 (Partnership Act) and certain judgements, the respondent No.1 has asserted that the invocation itself is defective and hence, the present application filed under Section 11 of the Arbitration Act cannot be entertained.

2. Before dealing with specific objections raised on behalf of respondent No.1, a brief reference to facts would be appropriate. The applicants and respondent No.2, collectively the partners of R-Cube Energy Storage Systems LLP (R-Cube Energy), entered into an investment agreement dated 02.02.2018 with respondent No.1 company. As per the agreement, the respondent No.1 was to invest a sum of Rs.16.5 crores towards development of technology obtained by R-Cube Energy from Fraunhofer Institute for Ceramic Technologies and Systems (Fraunhofer Institute).

3. It is the case of the applicants that although initial amount was invested by respondent No.1 in terms of the agreement, subsequently, the respondent No.1 defaulted. As a consequence, the applicants not only faced embarrassment in the market, but they also faced threats of legal action from the said Fraunhofer Institute for non-payment of certain amounts. In the application, copious reference has been made to the number of communications exchanged between the applicants and respondent No.1 in the backdrop of the disputes that arose between the parties. In this context, clause 24 of the investment agreement pertaining to dispute resolution assumed significance. It provided for an initial procedure for resolution of disputes before two neutral persons to be appointed by the parties and if the disputes were not resolved, arbitration could be invoked at the request of any of the parties to the dispute, by issuing written notice.

4. According to the applicants, the initial process of dispute resolution was put into motion by notice dated 20.05.2022. Thereafter, the applicants appointed a neutral person as contemplated in clause 24.2.3 of the investment agreement and requested respondent No.1 company to appoint its neutral person for conducting dispute resolution meetings. On 29.06.2022, the applicant No.1 received an e-mail from a director of respondent No.1, accepting the nomination of the neutral person suggested by the applicants. But, according to the applicants, on one pretext or the other, respondent No.1 failed to take forward the aforesaid dispute resolution mechanism contemplated in the investment agreement.

5. According to the applicants, in this backdrop, they