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2026 Supreme(Online)(Kar) 17801

THE HIGH COURT OF KARNATAKA
Vibhu Bakhru, CJ, C. M. Poonacha, J
M. Mallikarjuna – Appellant
Versus
S. P. Sridhara – Respondent
MISCELLANEOUS FIRST APPEAL NO. 2192 OF 2025 (AA)

Advocates:
For the Appellants/Petitioners: Lakamapurmath Chidanandayya
For the Respondents: Jayakumar S. Patil, Varaprasad K.

An arbitration clause in a partnership deed is confined to disputes concerning the partnership firm's affairs. If parties enter into a subsequent settlement agreement that does not contain an arbitration clause, such an agreement constitutes a novation, and the original arbitration clause does not govern disputes arising from the new agreement.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 37(1)(c) - Partnership Act, 1932 - Section 6 - Existence of partnership agreement and scope of arbitration clause - Arbitration clause in partnership deed covers disputes arising from the partnership firm's affairs - Where parties enter into a subsequent settlement agreement regarding properties, and the settlement agreement does not contain an arbitration clause, the arbitration clause of the original partnership deed does not survive if the settlement constitutes a novation or if the dispute falls outside the scope of the original partnership's existence.

Facts of the case:
The appellants and respondents entered into a partnership deed dated 01.04.2012 for a firm named M/s. Srishaila & Co. The respondents initiated arbitration claiming entitlements to properties based on a subsequent settlement deed dated 10.09.2012. The appellants challenged the award, arguing that the subject property was not part of the partnership firm, was purchased prior to the partnership, and the settlement agreement was independent of the partnership deed and contained no arbitration clause.

Findings of Court:
The court found that the arbitration clause in the partnership deed was limited to disputes concerning the partnership firm constituted on 01.04.2012 and did not cover disputes arising from a settlement agreement or business activities prior to that date. The court held that entering into a settlement agreement functioned as a novation, rendering the original arbitration clause inapplicable to disputes arising from the settlement.

Issues: Whether the dispute over properties mentioned in the settlement deed fell within the scope of the arbitration clause contained in the partnership deed; whether the arbitration clause survived the execution of the settlement agreement.

Ratio Decidendi: If an agreement containing an arbitration clause is superseded by a subsequent agreement (novation), the arbitration clause in the earlier agreement terminates with it, and disputes arising from the new agreement are not referable to arbitration unless specifically agreed otherwise.

Result: Appeal allowed; impugned order and award set aside.

Table of Content
1. summary of procedural history and the nature of the arbitration dispute. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16)
2. factual background regarding the business relationship and the settlement deed. (Para 17 , 18 , 19 , 20 , 21 , 22 , 23)
3. interpretation of the partnership deed and scope of the arbitration clause. (Para 24 , 25 , 26 , 27 , 28 , 29 , 30)
4. analysis of whether the dispute qualifies for arbitration under the specific agreement. (Para 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44)
5. application of the principle of novation and termination of arbitration clauses. (Para 45 , 46 , 47 , 48 , 49 , 50 , 51)

THIS MFA IS FILED UNDER SECTION 37 OF THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO SET ASIDE THE ORDER DATED 31.01.2025 PASSED BY PRINCIPAL DISTRICT AND SESSIONS JUDGE, DAVANAGERE IN A.P.NO.13/2022 AFFIRMING THE AWARD OF THE LEARNED ARBITRATOR IN A.C.No.147/2019 AND GRANT SUCH OTHER RELIEF OR RELIEFS.

THIS MISCELLANEOUS FIRST APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY, JUDGMENT WAS PRONOUNCED AS UNDER:

CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE

and

HON'BLE MR. JUSTICE C.M. POONACHA

C.A.V. JUDGMENT

(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

1. The appellants have filed the present appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [A&C Act], impugning the judgment dated 31.01.2025 passed by the Principal District and Sessions Judge, Davanagere [District Court] in A.P.No.13/2022 [impugned order].

2. The said petition was filed by the appellants under Section 34 of the A&C Act seeking the setting aside of the Arbitration Award dated 17.06.2022 [impugned award] passed by an arbitral tribunal comprising of a sole arbitrator [Arbitral Tribunal].

3. The impugned award was rendered in the context of disputes that have allegedly arisen in respect of a partnership firm named M/s Srishaila and Co. [hereafter the Firm].

4. The parties had entered into a partnership deed dated 01.04.2012 [the partnership deed] for the constitution of the Firm. The said deed included an arbitration clause (arbitration agreement), which reads as under:

"18. Arbitration: All disputes arising out of the partnership either during the continuance of the firm or afterwards between the partners or their legal representatives shall be referred to arbitration under the Arbitration and Conciliation Act, 1996 and the award shall be binding on all the partners or their legal representative or heirs."

5. The respondents who were claimants before the Arbitral Tribunal sought a reference of the disputes to arbitration. They filed a petition under Section 11 of the A&C Act [CMP.No.230/2015] for the constitution of an Arbitral Tribunal. This court allowed the said petition by an order dated 10.04.2019, and the Arbitral Tribunal was constituted.

6. The respondents filed their statement of claim, inter alia, claiming that directions be issued to the appellants to execute registered documents in respect of certain properties, which were referred to as Schedule B property under the terms of the settlement deed dated 10.09.2012 [ the settlement deed]. The description of the properties described as Schedule B property in the settlement is as follows:

SCHEDULE 'B' PROPERTY

1. All the piece and parcel of the plot No.74 & 75, registered in the name of Srishaila & Co, formed by KIADB, carved out of Re. Survey number 16 & 17, measuring 9002 sq.mtr. situated at Karuru Industrial area, Davangere and bounded by

East: KIADB Road

West: Sy.No.17/2 property belongs to Srishaila education trust

North: Plot No.73

South: Private Property

2. All the piece and parcel of the Agricultural land in Resurvey Number 24/3 registered in the name of Sri. M.Mallikarjuna measuring 20 Guntas situated at Doddabathi Village, Kasaba Hobli, Davangere Taluk & District, and bounded by

East: Remaining Land in Sy.No.24/3 of Danesh @ Danappa

West: Mallikarj

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2026 Supreme(Online)(Kar) 17801

THE HIGH COURT OF KARNATAKAVibhu Bakhru, CJ, C. M. Poonacha, JM. Mallikarjuna – AppellantVersusS. P. Sridhara – RespondentMISCELLANEOUS FIRST APPEAL NO. 2192 OF 2025 (AA)

Cases Referred (2)

THE HIGH COURT OF KARNATAKA
Vibhu Bakhru, CJ, C. M. Poonacha, J
M. Mallikarjuna – Appellant
Versus
S. P. Sridhara – Respondent
MISCELLANEOUS FIRST APPEAL NO. 2192 OF 2025 (AA)