Jyoti Gupta v. Kewalsons & Ors.

Delhi High Court · 19 Mar 2018 · 2018:DHC:1916

Navin Chawla

ARB. P. 599/2017

2018:DHC:1916

civil appeal_allowed Significant

AI Summary

The Delhi High Court held that arbitration agreements survive the death of a partner and legal heirs have the right to invoke arbitration clauses in partnership deeds, ordering appointment of an arbitrator to resolve the disputes.

Full Text

ARB. P. 599/2017 Page 1
HIGH COURT OF DELHI
Date of Decision: 19th March, 2018

ARB.P. 599/2017 & I.A. 1357/2018
JYOTI GUPTA ..... Petitioner
Through: Ms.Pooja Jain, Ms.Aruna Jain, Advs.

VERSUS

KEWALSONS & ORS. ..... Respondents
Through: Mr. Manish K. Bishnoi, Mr. Devansh Srivastava and Ms. Ila Haldia, Advs.

CORAM:

HON'BLE MR. JUSTICE NAVIN CHAWLA NAVIN CHAWLA, J. (Oral)

JUDGMENT

1. This petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) has been filed by the petitioner praying for appointment of a Sole Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the Partnership Deed dated 15th May, 1974 read with supplementary deeds dated 31st March, 1992, 1st October, 1995 and 1st November, 2014 (collectively referred herein as ‘Partnership Deed’).

2. The respondents along with Late Sh.Shyam Gupta were partners in the partnership constituted by the above mentioned Partnership Deeds. He expired on 16th April, 2016, whereafter the petitioner invoked the arbitration agreement as contained in clause 15 of the Partnership Deed dated 15.05.1974 vide her notice dated 20th 2018:DHC:1916 ARB. P. 599/2017 Page 2 March, 2017.

3. The present petition was filed alleging that though various emails were exchanged between the parties pursuant to the invocation of the Arbitration Agreement, the Arbitrator was not appointed and the disputes were also not settled between the parties.

4. Upon issuance of notice by this Court, the respondents have filed their reply. Along with the reply, they have annexed a reply dated 6th April, 2017 which respondents had allegedly given to the petitioner in response to the invocation. As the respondents in the said reply had refused to appoint an arbitrator, the contents of the reply need not be gone into in detail.

5. Counsel for the respondents submits that in the present case, upon the death of Mr.Shyam Gupta, the partnership had been reconstituted by the surviving partners and a fresh Partnership Deed dated 30th April, 2016 had been executed between them. He further submits that clause 12 of the Partnership Deed dated 15th May, 1974 clearly provides that upon death of a partner, the partnership shall not stand dissolved and the surviving partners may agree to induct legal heirs of the deceased partner as a partner. He further submits that clause 13 of the Partnership Deed provides that the partnership is a partnership at Will and can be dissolved on a notice being given by any partner of his intention to do so. It is submitted by the counsel for the respondents that as the partnership did not stand dissolved, either upon the death of Mr.Shyam Gupta or by any notice given by him during his lifetime and the partnership having been reconstituted, the remedy, if any, available with the petitioner is by way of a civil suit ARB. P. 599/2017 Page 3 and not through arbitration. He submits that the arbitration agreement contained in clause 15 of the Partnership Deed is only between the ‘partners’ and as the term ‘partner’ does not include their legal heirs in the Partnership Deed, legal heirs cannot invoke the arbitration agreement.

6. I have considered the submissions made by the counsel for the respondents, however, I am unable to agree with the same.

7. Clause(s) 12 to 15 of the Partnership Deed are reproduced hereinbelow:-

“12. That the death of a partner hereto shall not dissolve the partnership. The surviving partners may agree to induct legal heir of the deceased partner as a partner instead thereof on the same terms and conditions. 13. That the partnership is a Partnership at WILL and shall be dissolved on receiving notice by any partner of his intention to do so. 14. That all partners shall at all times duly and punctually pay and discharge their separate debts and engagements whether present or future and keep the partnership and other partners or partner indemnified therefrom and from all actions, proceedings, court claims and demand in respect thereof. 15. All disputes and questions, interpretations arising out of the partnership of this Deed between the partners shall be referred to the Arbitrator whose decision shall be final.”

8. A reading of clause 12 would prima facie show that upon death of a partner, the surviving partners may continue with the partnership upon inducting a legal heir of the deceased partner, failing which the partnership shall stand dissolved. This of course, is only a prima ARB. P. 599/2017 Page 4 facie view and has to be adjudicated by the Arbitrator. For the purposes of the present petition, it would suffice that Section 40 of the Act expressly provides that an arbitration agreement shall not be discharged by the death of any party thereto and can be enforced by or against the legal representatives of the deceased. Section 40 of the Act is reproduced herein below:-

“40. Arbitration agreement not to be discharged by death of party thereto.—(1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event be enforceable by or against the legal representative of the deceased. (2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed. (3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.”

9. The Supreme Court in Prem Lata (Smt) & Another vs. M/s Ishar Dass Chaman Lal & Others (1995) 2 SCC 145 has considered the effect of death of a partner on the arbitration agreement and held as under:-

“8. It is seen that with the demise of the partners, ipso facto, the partnership stood dissolved. What the legal representatives of the deceased partner, are seeking to enforce is for accounts of a dissolved firm or any right or power to realise the property of the dissolved firm. The right “to sue” for the dissolution of the firm must, of necessity, be

ARB. P. 599/2017 Page 5 interpreted to mean the right to enforce the arbitration clause for resolution of the disputes relating to dissolved firm or for rendition of accounts or any right or power to realise the property of the dissolved firm.

9. Indisputably the first appellant is the widow of Chaman Lal — one of the partners. Therefore, she steps into the shoes of the deceased partner who had a right in the dissolved partnership firm. Sub-section (3)(a) carves out three exceptions to sub-sections (1) and (2) of Section 69 and also to the main part of sub-section (3) of Section 69, namely, (1) the enforcement of any right to sue for the dissolution of firm; (2) for accounts of the dissolved firm; and (3) any right or power to realise the property of the dissolved firm. Having excluded from the embargo created by the main part of sub-section (3) or sub-sections (1) and (2) of Section 69, the right to sue would not again be construed to engulf the exceptions carved out by sub-section (3) or sub-section (4) of Section 69 of the Act. Any construction otherwise would render the exceptions, legislature advisedly has carved out in sub-sections (3) and (4) of Section 69, otiose. The object appears to be that the partnership having been dissolved or has come to a terminus, the rights of the parties are to be worked out in terms of the contract of the partnership entered by and between the partners and the rights engrafted therein. The exceptions carved out by sub-section (3) are to enforce those rights including the rights to dissolution of the partnership despite the fact that the partnership firm was an unregistered one. Having kept that object in view, we are of the considered opinion that the alternative resolution forum agreed by the parties, namely, reference to a private arbitration is a mode of enforcing the rights given under clause (a) of sub-section (3) of Section 69 of the Act and gets excluded from the main part of sub-section (3) and subsections (1) and (2) of Section 69. The enforcement of the right to sue for dissolution includes a right for reference to an arbitration in terms of the agreement of the partnership by and between the parties. Therefore, there is no embargo ARB. P. 599/2017 Page 6 for filing a suit under Section 20 of the Act.”

10. In Ravi Prakash Goel vs. Chandra Prakash Goel & Anr. (2008) 13 SCC 667, the Supreme Court further considered the effect of Section 40 of the Act and held as under:-

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“18. It is clear from Section 40 of the Arbitration Act that an arbitration agreement is not discharged by the death of any party thereto and on such death it is enforceable by or against the legal representatives of the deceased, nor is the authority of the arbitrator revoked by the death of the party appointing him, subject to the operation of any law by virtue of which the death of a person extinguishes the right of action of that person. 19. Section 2(1)(g) defines “legal representative” which reads thus: “2. (1)(g) ‘legal representative’ means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;”

20. The definition of “legal representative” became necessary because such representatives are bound by and also entitled to enforce an arbitration agreement. Section 40 clearly says that an arbitration agreement is not discharged by the death of a party. The agreement remains enforceable by or against the legal representatives of the deceased. In our opinion, a person who has the right to represent the estate of the deceased person occupies the status of a legal person (sic representative). Section 35 of the 1996 Act which imparts the touch of finality to an arbitral award says that the award ARB. P. 599/2017 Page 7 shall have binding effect on the “parties and persons claiming under them”. Persons claiming under the rights of a deceased person are the personal representatives of the deceased party and they have the right to enforce the award and are also bound by it. The arbitration agreement is enforceable by or against the legal representative of a deceased party provided the right to sue in respect of the cause of action survives. xxxxxxxxx

27. We are of the opinion that in view of the provisions of Section 46 read with Section 48 of the Partnership Act as well as Section 40 of the Arbitration and Conciliation Act, 1996, the application for appointment of an arbitrator under the arbitration clause of the partnership deed was liable to be allowed and the learned Chief Justice has erred in overlooking the said provisions. While right to sue for rendition of accounts of partnership firm survives on the legal representative of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed.

28. In the instant case, the appellant being the only son of his deceased mother, is undisputedly a partner in the partnership firm with the respondents especially where the dispute concerning the partnership affairs had arisen already during her lifetime. The view taken in the impugned order that the appellant has no presently establishable binding arbitration agreement with the respondents is erroneous in law and facts. The impugned order is also bad in law in the teeth of the law laid down by this Court in Prem Lata v. Ishar Dass Chaman Lal [(1995) 2 SCC 145: AIR 1995 SC 714]. This apart, the appointment of arbitrator could not be rejected on the ground of non-probate of the will executed by the mother when no family member is disputing the will and the appellant's claim vis-à-vis the partnership firm, even otherwise also the appellant is the legal heir of the deceased partner being her ARB. P. 599/2017 Page 8 only son. In our view, non-probate of will is not a germane factor to be considered at the time of appointment of arbitrator under Section 11 of the Arbitration Act. In our opinion, the partnership deed clearly recites that all the disputes touching the affairs of the partnership firm were referable to arbitrator and it cannot be gainsaid that the dispute regarding accounts of the partnership firm is a dispute touching the affairs of the firm.

29. As already stated, it was not legally essential to specifically make a mention that the partners included their legal heirs, representatives, assigns or legatees, etc. and the arbitration clause could be invoked by the appellant as the legatee as well as the legal heir/legal representative of the deceased Dulari Devi particularly where the dispute had arisen during her lifetime. The appellant's claim in the instant case is based on the will as well as being a legal heir of the deceased Dulari Devi. The appellant, in our opinion, possessed a legal and enforceable right to invoke arbitration clause and move application under Section 11 of the Arbitration Act before the High Court for appointment of arbitrator. The word “party” as used in the partnership deed does not exclude inclusion of legal heirs, legal representatives, etc. as being canvassed by the respondents. Thus, in our opinion, in view of the provisions of Sections 40 and 46 of the Partnership Act read with Section 40 of the Arbitration Act, the appellant has a legal right to commence arbitration by moving an application under Section 11 of the Arbitration Act in the High Court as in our view, the right to sue survives on him as legal representative of the deceased Dulari Devi and he is entitled to invoke Clause 13 of the partnership deed. Moreover, the dispute referable to arbitration had already arisen during the lifetime of Dulari Devi which is also well settled that where a dispute is referable to arbitration, the parties cannot be compelled to take recourse to in the civil courts.”

11. The Allahabad High Court in Smt. Parwati Devi & Others vs. ARB. P. 599/2017 Page 9 M/s Kesarwani & Company, Sahson, 2011 SCC OnLine All 786, also considered an objection similar to the one raised by the respondents herein and rejected the same. Paras 10 to 15 of the said judgment are quoted herein below:-

“10. The question for my consideration, therefore, is

whether the legal heirs of a deceased partner pursuant to

a registered Will are entitled to maintain an application

under section 11 of the Act. In Ravi Prakash Goel

(supra), a similar issue had come up for consideration,

namely, whether the legal heirs of a deceased partner

could invoke the Arbitration Clause. The application

moved for arbitration had been rejected by the learned

Chief Justice. The matter was taken up in appeal. The

petition had been dismissed by the learned Chief Justice

on concluding that the applicant had no binding

arbitration agreement. The following questions were

framed by the Apex Court for consideration:

“(a) Where right to sue for rendition of accounts survives on the legal representative of a deceased partner, are the legal representatives not entitled to invoke arbitration clause contained in the Partnership Deed?

(b) Whether the arbitration can be commenced by the heirs after the death of partner especially where the dispute had arisen already during the lifetime of the partner?

(c) Whether in view of section 46 read with section 48 of the Indian Partnership Act as well as section 40 of the Arbitration Act, 1999, the petitioner is entitled to claim appointment of arbitrator under the arbitration clause of the Partnership Deed and the Hon'ble Chief Justice of the Allahabad High Court has erred in overlooking these provisions?

ARB. P. 599/2017 Page 10

11. The Supreme Court noted section 40 of the Arbitration Act, 1999 and sections 46, 47 and 48 of the Indian Partnership Act. Section 40(1) of the Arbitration Act, 1999 sets out that an arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event be enforceable by or against the legal representative of the deceased. After considering the provisions of the Indian Partnership Act and section 40 of the Arbitration Act, 1999 and also noticing the definition of ‘legal representative’ in section 2(1)(g) of the Arbitration Act, the Court held as under:

“21. The definition of ‘legal representative’ became necessary because such representatives are bound by and also entitled to enforce an arbitration agreement. Section 40 clearly says that an arbitration agreement is not discharged by the death of a party. The agreement remains enforceable by or against the legal representatives of the deceased. In our opinion, a person who has the right to represent the estate of deceased person occupies the status of a legal person. Section 35 of the 1996 Act which imparts the touch of finality to an arbitral award says that the award shall have binding effect on the “parties and persons claiming under them”. Persons claiming under the rights of a deceased person are the personal representative of the deceased party and they have the right to enforce the award and are also bound by it. The arbitration agreement is enforceable by or against the legal representative of a deceased party provided the right to sue in respect of the cause of action survives.”

12. Thus, if an award can be enforced against legal representatives who are not parties to the arbitral ARB. P. 599/2017 Page 11 agreement, conversely the legal representatives of a partner who is party to the arbitral agreement can also invoke the arbitral clause to the extent of the right of the deceased party.

13. This judgment was sought to be distinguished on behalf of the respondent by contending that there existed no exclusionary clause and considering that judgment, no dispute had arisen during the lifetime of the deceased partner.

14. In my opinion, the objection on behalf of the respondent deserves to be rejected. The law as can be understood from the ratio decedendi in Ravi Prakash Goel (supra) is that the death of a partner does not bring into an end the provision pertaining to arbitration and the legal heirs would be entitled to invoke the said arbitration clause. Once there is an arbitral clause, even though the legal heirs of the deceased partner may not be entitled to be inducted as partner, nonetheless their right to pursue the remedy by invoking the arbitral clause does not cease. Invocation of the arbitration clause at the instance of the legal representatives of the deceased partner is clearly maintainable. Thus, the petitioners are right in invoking the arbitration clause and have served the notice on the respondent.

15. Considering the above, in my opinion, as the arbitration clause subsists and the arbitration clause has been invoked by the Attorney of the petitioners on the death of the original partner, i.e., Bhairon Nath Keshwarwani, the application is maintainable. The petitioners have moved through the Attorney, who is their natural mother. The attempt by the respondent to deny the petitioners from constitution an arbitral Tribunal, to my mind, cannot be justified. If there be an arbitration clause, the legal heirs of the deceased partner, in terms of the judgment of Ravi Prakash Goel ARB. P. 599/2017 Page 12 (supra), are entitled to initiate and pursue the arbitration proceedings. In the case of Ravi Prakash Goel(supra), the arbitral clause was invoked by the legal representatives. There can be no hesitation in holding that in respect of a person on the death of a partner, his legal heirs would also be entitled to invoke the arbitration clause. The respondent and its partners cannot and could not have refused to agree to the appointment of an Arbitrator. In my opinion, therefore, the petitioners have made out a case by invoking the arbitration clause.”

12. A reading of the above judgments would clearly show that it is no longer res integra that upon death of a partner, the arbitration agreement between the partners shall survive and can be enforced by the legal heirs of the deceased partner. Whether upon the death of a partner, the surviving partners were under an obligation to induct one of the legal heirs of the deceased partner or not into the partnership as also whether such decision can be challenged by the legal heirs, and in case the legal heirs accept the decision of the surviving partners not to induct any legal heirs of the deceased partner into the partnership, what would be the effect, are all questions to be determined by the Arbitral Tribunal constituted in terms of the arbitration agreement between the parties. Further, merely because the arbitration agreement refers to the disputes between ‘partners’, the same cannot debar or take away the right of enforcement of such an arbitration agreement vested in the legal heirs of the deceased partner in view of Section 40 of the Act.

13. Counsel for the respondent has relied upon the judgment of the ARB. P. 599/2017 Page 13 Supreme Court in Atul Singh and Others vs. Sunil Kumar Singh and Others (2008) 2 SCC 602 to contend that in that case, the Supreme Court had dismissed an application filed under Section 8 of the Act and allowed continuation of a civil suit filed by the legal heirs of a deceased partner. In my view, the said judgment would have no application to the facts of the present case. In the said judgment, it had been noted that it was the case of the continuing partners that prior to the death of the deceased partner, the partnership had already been reconstituted and the deceased partner was no longer a partner in the partnership as on the date of his death. Therefore, the legal heirs of the deceased partner had sought for a relief of declaration to the effect that the deed reconstituting the partnership was void and such relief could have been claimed by them only in a suit.

14. In the present case, it is not the case of the respondents that the deceased partner i.e. Mr.Shyam Gupta had retired from the partnership during his lifetime or that the partnership had been reconstituted to his exclusion during his life time.

15. In view of the above, I find no impediment in appointing an Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the above mentioned Partnership Deed.

16. I propose to appoint Mr.Narinder Paul Kaushik, Retired Additional District Judge, Delhi, R/o 207, Judges Residential Complex, Karkardooma Courts, Delhi-110032, Mobile-9910384663 as an Arbitrator to adjudicate the disputes that have arisen between the parties. The proposed Arbitrator is requested to submit his disclosure in terms of Section 11(8) of the Act. A copy of this order ARB. P. 599/2017 Page 14 may be communicated to the proposed Arbitrator by the counsel for the petitioner.

17. Re-list on 18th April, 2018.

NAVIN CHAWLA, J MARCH 19, 2018 RN

Jyoti Gupta v. Kewalsons & Ors.

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