Invocation Of Arbitration Agreement By One Partner In Absence Of Any Express Authority By Other Partner Not Maintainable: Bombay HC
The Bombay High Court held that the invocation of an arbitration agreement and the subsequent filing of a statement of claim by one partner in the absence of express authority from other partners is not maintainable.
The Court dismissed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) a dispute arising from an investment agreement between a partnership firm and a private individual.
The Court noted that the arbitration notice was defective as it was unilaterally issued by the Applicant without the Second Respondent's approval (as they constituted the partnership firm), rendering it unfit to trigger the Section 11 application.
The Bench of Justice Manish Pitale observed, “the notice invoking arbitration in the present case was itself defective and such a notice could not have given rise to cause of action for filing of the present application under Section 11 of the Arbitration Act”.
Advocate Rima Desai appeared for the Applicant, Advocate Nausher Kohli appeared for the First Respondent and Advocate S. S. Panchpor appeared for the Second Respondent.
An application was filed before the High Court under Section 11 of the Act. A dispute arose from an investment agreement between the parties wherein the Applicant allegedly attempted the agreed dispute resolution process but the First Respondent failed to cooperate.
The Court noted that the Investment agreement's dispute resolution clause outlined a comprehensive two-tier procedure for resolving disputes: initially referring them to neutral persons appointed by each party, and if this process fails, allowing arbitration to be initiated by any party through a written notice.
The Court rejected the objection raised by the First Respondent that the first tier of the dispute resolution mechanism was not exhausted. While emphasizing the importance of following the agreed-upon process, the Court noted that compliance could be established through an elaborate exchange of communications indicating attempts at negotiation for dispute resolution. In this case, the Court held that the Applicants had appointed a neutral person and called upon the First Respondent to do the same.
The Bench accepted the First Respondent's contentions that without the participation of the Second Respondent, the invocation is defective. This objection relied on Section 19(2)(a) of the Partnership Act, asserting that implied authority doesn't empower a partner to submit a firm-related dispute to arbitration.
The Court referred to the case of MSEDCL v Godrej & Boyce Manufacturing Company Ltd [2019 SCC OnLine Bom 3920] and observed that the investment agreement established the partnership of the Applicants and Second Respondent as one party, while the First Respondent constituted the other party.
Therefore, the dispute resolution mechanism in clause 24 of the investment agreement, including arbitration, was designed for conflicts between R-Cube Energy (Applicant and Second Respondent) and the First Respondent. The notice invoking arbitration was deemed defective as it was delivered independently by Applicant without due approval from the Second Respondent, rendering it incapable of triggering a cause of action for the filing of the application under Section 11 of the Arbitration Act.
Accordingly, the Court dismissed the Application.
Cause Title: Shailesh Ranka and others v Windsor Machines Limited and another (2023:BHC-OS:14919)
