Calcutta High Court Refers Entire Partnership Dispute to Arbitration: “No Option of the Court to Refuse Reference” and “Entire Dispute to be Referred Lock, Stock and Barrel”
Kiran Raj
The Division Bench of Justice Sabyasachi Bhattacharyya and Justice Uday Kumar at the Calcutta High Court, Commercial Appellate Division, has directed that a dispute concerning a partnership deed dated August 23, 1994, along with its subsequent reconstitution, be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The Bench set aside the order of a learned Single Judge who had earlier declined to refer the matter to arbitration.
The matter arose from an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 against an order in CS (COM) 544 of 2024 where the Single Judge dismissed an application under Section 8 of the Act, filed by defendants/appellants 1 to 4 seeking reference to arbitration. The application relied on Clause 12 of a deed of partnership dated August 23, 1994, entered between the plaintiff and defendant no.2, forming M/s Exchange, the defendant no.1-partnership firm. Clause 12 provided for disputes between partners or their representatives to be referred for decision to the Chief Divisional Manager of Bharat Petroleum Corporation Limited (BPCL), or their nominee, whose decision would be binding on the partners.
The appellants submitted that the dispute arose from the said partnership deed and should be referred to arbitration. They argued that BPCL was not a necessary party as it had deleted the name of the plaintiff from its records prior to the institution of the suit. It was also stated that defendant nos.3 and 4, inducted as partners after the plaintiff’s retirement, had expressly consented to arbitration under a reconstituted deed that also contained an arbitration clause.
The learned Single Judge dismissed the application under Section 8 on the ground that defendant nos.3 to 5 were not parties to the arbitration agreement.
The appellants argued that the plaintiff’s reliefs against BPCL were only to avoid arbitration. They submitted that no relief could be claimed against defendant nos.3 and 4 as their liabilities were derived from the original partnership deed. The appellants also filed a supplementary affidavit annexing a deed of dissolution dated April 1, 2022, which was not disclosed by the plaintiff.
Reliance was placed by the appellants on Lindsay International Private Limited v. Laxmi Niwas Mittal and others (2022 SCC OnLine Cal 170) and Ajay Madhusudan Patel v. Jyotrindra S. Patel and others (2024 SCC OnLine SC 2597) to submit that non-signatories to an arbitration agreement may be bound if there is consent and a defined legal relationship.
The plaintiff/respondent submitted that bifurcating proceedings between an Arbitral Tribunal and a Civil Court would cause delay, relying on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya (2003) 5 SCC 531 and Thomas Cook (India) Ltd. v. Beach Ark Hotels Pvt. Ltd. (2025 SCC OnLine SC 140). The plaintiff argued that BPCL remained a necessary party and that the defendants could not bypass forfeiture of defence under the Commercial Courts Act, 2015, by seeking arbitration.
BPCL submitted that it had deleted the plaintiff’s name from its records before the filing of the suit and there was no cause of action against it. BPCL pointed to a prior liberty granted by a coordinate Bench to seek deletion from the proceedings.
The Court considered the broader scope of Section 8 of the 1996 Act and the defined legal relationship as per Section 7. The Court recorded that “the dispute involved in the suit relates to a dispute between the plaintiff on the strength of his previous status as a partner of the defendant no.1-firm and the relief sought is against the partnership firm as well as its present partners after the re-constitution.” It further stated that “the defendant nos.3 and 4 have unequivocally consented to being subject to the arbitration sought in the Section 8 application.”
The Bench found that the liabilities of defendant nos.3 and 4 are derived from the legacy of liabilities of the defendant no.1-firm and defendant no.2, its continuing partner. It noted that “the pseudo-liabilities of the defendant nos.3 and 4, insofar as the frame of the suit and its cause of action are concerned, are not new liabilities springing from any independent contract but are all based on the rights of the plaintiff as claimed on the strength of the partnership deed dated August 23, 1994.”
The Court referred to the Supreme Court’s observations in Ajay Madhusudan Patel and Cox & Kings Limited, where non-signatories may be bound by arbitration clauses where there is a defined legal relationship and mutual consent. “The requirement of a written arbitration agreement does not exclude possibilities of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory parties.”
The Bench examined whether reliefs claimed against BPCL fell within Section 8 of the Act. The Court noted that BPCL’s agreement with the partnership firm dated July 30, 2020, contained Clause 19, an arbitration clause covering “any dispute or difference whatsoever arising out or in connection with the said agreement, including any question regarding its existence, validity, construction, interpretation, application, meaning, scope, operation or effect.” The Court found that “the BPCL agreement is replete with references to the partnership deed dated August 23, 1994.”
The Court further observed that the BPCL agreement was intertwined with the rights and obligations flowing from the partnership deed and noted that “the agreement is to continue between the company and the surviving or continuing partners of the licensee firm, which covers within its ambit the reconstituted firm and defendant no.2 (surviving partner) and defendant nos.3 and 4.”
It also considered BPCL’s submission that the plaintiff’s name had already been removed from its records prior to the institution of the suit and recorded prior orders from the learned Single Judge, including that BPCL only issued licenses for products supplied by it and had nothing to do with the Department of Food and Supplies license.
The Court held that the learned Single Judge ought to have exercised suo motu powers under Order I Rule 10(2) CPC to strike out BPCL as an improperly joined party. However, since the BPCL agreement itself contained an arbitration clause, the Bench directed that “the reliefs sought against the defendant no.5/respondent no.2 also come within the purview of Section 8 of the 1996 Act.”
Accordingly, the Bench allowed the appeal and stated that “the impugned order is de hors the law and the facts of the case and as such cannot stand the scrutiny of an appeal under Section 37 of the Arbitration and Conciliation Act, 1996.” The Court directed that “the dispute raised in the suit being CS (COM) 544 of 2024 be referred to arbitration.”
The Court clarified that “all questions, including the question of jurisdiction of the Arbitral Tribunal applying the kompetenz-kompetenz principle, are kept open to be urged before and decided by the Tribunal independently on merits.”
Advocates Representing the Parties
For the appellants: Mr. Surajit Nath Mitra, Sr. Adv., Mr. Bratin Kumar Dey, Adv., Mrs. Anjana Banerjee, Adv.
For the respondent no.1: Mr. Rajeev Kumar Jain, Adv., Mr. Saunak Sengupta, Adv., Mr. Kunal Shaw, Adv., Ms. Yamini Mahawar, Adv.
For the respondent no.2: Mr. Sanjib Kr. Mal, Adv., Mr. Bimalendu Das, Adv., Ms. Shomrita Das, Adv.
Case Title: M/s Exchange and Others vs. Pradip Kumar Ganeriwala and Another
Case Number: A.P.O.T. No.338 of 2024 arising out of GA (COM) 4 of 2024 in CS (COM) 544 of 2024 (Old No. CS 194 of 2023)
Bench:Justice Sabyasachi Bhattacharyya and Justice Uday Kumar
[Read/Download order]
