PRIKSHIT WADHWA & ORS vs VINOD K WADHWA - ARB-241-2022 (O&M)
Pendency Of Civil Or Criminal Litigation Between Partners Cannot Estop Either Partner
From Invoking Arbitration Clause: Punjab and Haryana HC
The Punjab and Haryana High Court bench of Justice Suvir Sehgal has held that pendency
of a civil and criminal litigation inter se partners, cannot estop one of the partners from
invoking the arbitration clause or bar the reference of dispute for adjudication to an arbitrator
for determination.
Brief Facts:
The petition has been filed u/s 11(6) of the Arbitration Act to adjudicate the disputes and
differences between the parties, by submitting that the respondent committed various acts
detrimental to the interest of the firm and started a proprietorship CA firm with a similar
name. When the petitioner protested by notice, the respondent dissolved the firm without
settling the accounts. As disputes arose, the petitioner served a legal notice invoking the
arbitration clause, which was opposed by the respondent claiming that the arbitration clause
cannot be invoked as the partnership firm stands dissolved. Hence, the respondent filed a
suit for rendition of accounts and petitioner filed an application u/s 8 of the Arbitration Act for
referring the dispute to the Arbitrator, which are pending.
Refuting the submissions, the respondent argued that the present petition is not
maintainable as a civil suit is pending between the parties and by interim order dated June
16, 2022, petitioners have been restrained from continuing the profession in the name of the
partnership firm and from using the assets of the firm or from transferring its funds. It was
also argued that as partnership firm stands dissolved, the arbitration clause, which forms a
part of the Instrument of Partnership cannot be given effect to.
Lastly, it was argued that the notice invoking the arbitration clause has been served only by
petitioner No.2 and as there is no notice by petitioner No.1, instant petition at their hands is
not maintainable.
Issues:
Whether pendency of a civil and criminal litigation inter se partners, can estop one of the
partners from invoking the arbitration clause or bar the reference of dispute for adjudication
to an arbitrator for determination?
Observations:
Referring to section 21 of the Arbitration Act, the High Court observed that the provision has
been incorporated primarily with the objective of determining the date of the commencement
of the arbitral proceedings. The proceedings are deemed to have been initiated from the
date the notice invoking the arbitration clause “is received by the respondent”.
While stating that giving of a notice is purely procedural and not a decisive step, it is
observed that the arbitration clause does not require the notice to be served by all the
parties to the agreement, and notice by one of the parties to the agreement would be a
sufficient compliance of the statutory provision. Thus, technicality cannot be attached with a
notice served u/s 21 of the Arbitration Act as that would defeat the objective of the statute,
which provides for a speedy resolution of the disputes.
The Supreme Court in case of Ravi Prakash Goel vs Chandra Prakash Goel [(2008) 13 SCC
667], observed that “on the dissolution of a partnership firm, the arbitration clause does not
come to an end”. Thus, the dispute relating to the accounts of a partnership firm is a dispute,
which touches the affairs of the firm and is clearly referable to an Arbitrator and the parties
cannot be compelled to take a recourse to the civil courts.
The pendency of a civil and criminal litigation inter se partners, cannot estop one of the
partners from invoking the arbitration clause or bar the reference of dispute for adjudication
to an arbitrator for determination.
Accordingly, the present petition was allowed.
